There were apprehensions about the sugarcane production in UP, as the land being used for sugarcane cultivation had very deficient rains till September, 2009. It is now hoped that Dwarikesh Sugar will be able to buy good volume of sugarcane after around two months. Its crushing is expected to commence by early November and this company can utilise its additional capacities created during the last few years to the optimum use.
If one goes by the financials for the nine month ended 30th June, 2009, the Operating Profit and the Gross Profit are the highest in the Last five years viz., 98.45 crore and 99.71 crore respectively. Despite its 150% rise in the interest expense as compared to 9 months ended 30th June, 2008, it has been able to achieve a net profit of 26.49 crore against the losses during 2007 and 2008. These losses had pruned its general reserves to 106.38 crore as on 30th September, 2008. A net profit of 26.49 crore has been further added to these reserves as on 30th June, 2009.
It is enjoying healthy Price to Earning of 6.81 as against the industry average of 10.67 despite the steep rise in its shareprice in the recent past. The present EPS OF Rs.15.09 would enable it to recommend dividend after a gap of 2 years, during which it had suffered abnormal losses in line with other sugar sector companies.
Price to Book Value of 1.38 is quite healthy as compared to its peers. We may witness impressive net profit for the 12 months ended 30 September, 2009 and this trend is expected to continue during the next crushing season.
The prudent decision of the management to increase reliance on the sugar segment during the last crushing season has revived the company. The ethanol segment and co-generation segment should be operated just to utilise the leftover part of sugarcane after crushing, as these segments may not be able to get better pricing for their products.
The rains in UP during the 1st week of October, 2009 would certainly provide a very big boost to achieve much higher topline and bottomline during the next 2 quarters. All those investors, who can HOLD this scrip for atleast 6 months, would be able to get handsome gains.
It would be premature to predict the quantum of improvement in sugarcane yield as on now. But I am positive on revival of sugar industries in UP because of rains in the month of October.
I estimate that additional crushing capacity of Dwarikesh sugar can be fully utilised which should further improve its Price to Earning, which is far better than the industrial average even as on now. The crushing season would last upto April, 2010 and next 6 months would add to its kitty accordingly.
I had made very handsome gains on my purchase during its IPO in 2004, when the expanded facilities were not yet operational and further expansion was under progress. Despite heavy interest burden and deficient sugarcane production, this company has revived after 2 years of losses. Brazil and other sugar producing countries had excellent sugarcane production during that period, resulting in drastic fall in the prices of sugar globally. Indian Sugar industry suffered heavy losses during that period due to increased production and lower domestic demand.
Now the things have changed altogether. It is a scenario of high sugar demand and much lower global production of sugar, inclusive of our country. With expected improved sugarcane yield in UP due to rains in October and higher rates of sugar in the domestic and international market, I expect its margins to double. We can look forward to very healthy topline and bottomline for half year ending 31st March, 2010, which would continue during the 3rd quarter ending 30th June, 2010.
Board of Directors shall be recommending dividend on 31st October, 2009 after NIL dividend for 2 years. It is year of good turnaround for this company and the quantum of dividend may be higher than earlier years.
| NIFTY 
