Of course, everything had not been a dream run. Like other companies in the industry, Dwarikesh had its fair share of ups and downs. At a time when liquidity was a constraint and the industry was facing headwinds Morarka, took the contrarian call of paying funds to the farmers rather than meeting the dues of the banks from which loans were taken.

The rationale was that happy farmers would always support them through times and bad. Delays in paying the bank dues by a couple of quarters saw the company being downgraded to junk grade – D. It took the company three years to shrug that grade off due to a continuation in operations, which was possible due to the timely supply of cane by farmers. 

Like some forward looking sugar companies, Dwarikesh had built very good relationship with farmers, treating them as virtual partners. Educating them in the latest farm techniques, encouraging them to use new, high yielding variety seeds for their crop, making timely payments within 14 days and lifting all the crop that was produced – these were some of the measures which helped to strengthen bonds. Production in its command area of 1.20 lakh hectares across three sites has virtually doubled over the last 13 sugar seasons (October-September) to 37.84 million in sugar season 2020-2021, making farmers more prosperous. 

Moraka’s relationship with his 746 employees is also good. As a result, the “attrition rate is low in the company with several of the employees having stayed in the company for 20 years and more”, says Vijay Banka, a CA with 30 years’ experience, and currently the MD of the company. Banka had been with Morarka in his refinery business and gone to work in Shaw Wallace after the takeover.

After three years, Banka worked in another company before rejoining Morarka in Dwarikesh, looking after finances and strategy. BJ Maheshwari, MD and Company Secretary has been with Morarka for more than 30 years. Maheshwari was with the group and took an active part in the other group companies of Morarka, including NBFC. 

The company takes pride in its project execution abilities, more often than not executing projects ahead of the scheduled time. A focus on small details has made it one of the most efficient plants, with higher sugar recovery rates. 

Ethanol – the new fuel

The turning point for Dwarikesh was the announcement of the Biofuel policy by the government in 2018. The policy envisaged ethanol blended petrol to the extent of 10 per cent by FY21-22 and 20 per cent by 2030, which was later brought forward to 2025. This would not only help in lowering the imported fuel cost in the country but also lower carbon emissions. Brazil has, for several years now, been using cars which have the flexibility of using a 100 per cent mix of ethanol and gasoline in various proportions.

One of the largest producers of sugar, Brazilian companies often sacrifice sugar production to make ethanol depending on crude oil prices. Brazil has thus become an energy sufficient country and does not have to import crude oil or petrol. India is still trying to use ethanol as an additive to petrol, despite the obvious advantages.

Besides reducing the crude oil import bill, ethanol would also help sugar companies divert a part of their sugar surplus, effectively ensuring a better price for the industry. To meet 20 per cent requirements of the fuel, it is estimated that around 1,000 crore litres of fuel grade ethanol would be needed by 2025.

Dwarikesh, which had a small unit manufacturing ethanol, increased the capacity to 130 KLPD in FY2020 and 162.5 in 2021. It built another similar-sized refinery in the same year. This will go on stream by June 2022. Dwarikesh is not alone in its desire to set up refineries. Nearly 422 refinery projects were being set up in 2021 involving a project outlay of Rs30,000 crore.

The government provides a subsidy on capital machinery for ethanol projects. “The short payback period of four to five years with an assured offtake at a good price makes ethanol manufacturing attractive” says Banka. Ethanol prices range between Rs45.67 per litre to Rs62 per litre. The highest price would be for making ethanol through sugarcane juice, with B grade being the next preferred raw material.  C heavy molasses fetch the lowest price. Till FY20 only around 5 per cent of ethanol blended petrol (EBP) was available due to supply constraints. In FY21 around 7.3 per cent is being produced through first generation plants using various varieties of sugarcane. EBP grade requires an ethanol purity of 99.5 per cent as against the 95 per cent required for making alcohol.

Future is bright

“A further impetus to use EBP was given by the finance minister in the budget which said a penal levy would be levied on those users not using blended fuel,’’ points out Maheshwari. The Russia-Ukrainian war which has resulted in crude oil prices shooting up to $115 will also help Indian sugar companies as Brazil’s move to divert sugarcane would reduce overall global supplies and result in some firming up of prices” he says.

“Switching feedstock would also depend on the price of sugar available in the global markets,” says Banka adding that “ethanol would also allow companies to fully utilise their molasses and thus optimise performance”. Dwarikesh has produced 5.4 crore litre ethanol through its existing plant and expects to produce around 1.5 crore litres more once the new plant goes on stream by the end of June.

For FY24 it will be producing 11 crore litres of alcohol. Thanks to better realisations from ethanol and sugar, Dwarikesh posted more than twice the profit it earned in FY22. The profit, at Rs95.6 crore for nine months, is more than the entire profit for FY21. The top line had gone up by only 20 per cent to Rs1,502 crore, indicating that higher volume sales of ethanol go directly to the bottom line. This saw the share price of the company cross Rs100 in February, soon after the results. Given the fact that the March quarter is a good one, one could well see the PAT cross Rs150 crore in FY22.

“The future is indeed bright for the sugar industry. Ethanol will help the mismatch of sugar stocks and help in reducing the cyclicity associated with the industry,” says Deven Choksey, MD, KR Choksey Shares and Securities Pvt Ltd, a reputed research based broking house.

“The state-of-the-art sugar factories at all its locations in Uttar Pradesh coupled with higher sugar recoveries will, in our view, get a big boost due to higher ethanol offtake at higher prices by oil marketing companies thereby boosting profits,” says S Ranganathan, Head Research, LKP Securities. “The government’s move to drive the sugar industry as a driver of clean energy with enhanced blending down the line witl help efficient companies like Dwarikesh,” he says.

Given that the plants will fully utilise molasses and bagasse, Dwarikesh’s future may lie in bringing about more efficiencies and going in for further value-added products. Says Morarka: “Going ahead, we see growth being derived from investments in improved technologies in our older plants, expansion in our distillery capacity which is already underway, extension into refined sugar and graduation into retail consumer packaging.” 

This would mark a further change in the Dwarikesh growth story. From a sugar company to an energy company which is also in the FMCG space, building brands and marketing retail packages across the country. The rerating of Dwarikesh as also the entire sugar industry is underway and merits a further re-rating.