Was planning to write on reasons why Dhampur Bio is underperforming and we have to be patient - and the stock moved a lot !! Nevertheless writing my points (from investor presentation and concall)
DBO has underperformed due to following reasons:
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Lower cane crushed in FY 24 - inspite of 30% increase in crushing capacity. It seems some error in calculations/ strategy error. Since acreage is not going to increase this year also (SS 25) it seems the crushing capacity will be under utilised for a couple of years.
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Plan for new Ethanol plant was postponed indefinitely. Ethanol is the margin and cash driver of sugar companies so postponing expansion was negative.
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Part of the existing ethanol plant is being converted to maize based ethanol. With govt expected to allow sugar diversion for ethanol in coming sugar season then plant will be fully utilised using sugarcane juice/ molasses- and again maize-based portion will be unulised. Maize based ethanol has much lower margins.
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Pharma grade capacity is also under utlised and if cane crush doesn’t increase then it will continue to be underutilized.
Performance of the company has been hampered due to lower recovery (due to red-rot) and underutilisation of plants. When both of these will be sorted out then financial performance will improve substantially. May take a year so its wait and watch.
Ideally they should have not expanded crushing capacity and converted existing ethanol plant - instead they should have set up the new ethanol plant with same money.
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