EID Parry's operating profitability is expected to improve in the near term to low levels of 2.5-3%, due to higher cane crushing

EID Parry's operating profitability is expected to improve in the near term to low levels of 2.5-3%, due to higher cane crushing

  • Susceptibility to volatility in sugar prices and regulatory changes: 
  • While the input prices are driven by the government, sugar prices are volatile and based on open market prices (which are dependent on the production levels), leading to volatility in players’ profitability. 
  • Besides, the government regulates domestic demand-supply through restrictions on imports and exports and stock holdings. 
  • Regulatory mechanisms and dependence on monsoons have rendered the sugar industry cyclical. 
  • Since the sugar industry is highly regulated, any change in the regulatory stance and continuation of government support to sugar sector (including distilleries and ethanol pricing) will remain monitorable.
  • The Government of India has showcased the intent to fasten the move to an ethanol-based economy, by advancing the 20% ethanol blending target (with gasoline) to 2025 from 2030. Additionally, the government has made supplies profitable by raising ethanol prices every fiscal until 2024, in addition to differential pricing for B-Heavy and the direct cane juice route and providing interest sops on loans for setting up ethanol-based distilleries. 
  • While ethanol prices for main routes have not been increased since fiscal 2024, lifting of restrictions announced by the government on diversion of sugar for ethanol production from ESY 2025 is expected to augur well the profitability of integrated sugar players, including EID Parry in the near term. 
  • Overall, compared to operating losses in fiscal 2024, EID Parry's operating profitability is expected to improve in the near term to low levels of 2.5-3%, due to higher cane crushing, better contribution from distillery operations and lower losses at the CPG division.

Video: https://youtu.be/3PUzzPM2_Xk?si=CevVclExPTbDf2lQ

When you study a particular industry, trying understanding who are the leading players, what is the valuation levels for the leading players

When a sector is down, it is best time to enter companies that are leaders and have huge margin of safety

  • Business of Sugar
  • E.I.D. Parry has six sugar factories having a capacity to crush 40,300 Tonnes of Cane per day, generate 140 MW of power and five distilleries having a capacity of 417 KLPD
  • Sugar Strategy-  Maximize realisation from sugar  
    • Loose Sugar- @ Rs 33-35   and brands charge upto  Superior Health Benefit:  @ Rs.120
    • Upgrade consumers to higher price points and larger brands 
    • First mover with entry barrier on both sides of the spectrum  
  • Focus in South India 
    • ➢ Presence in 78000 outlets (direct presence) as of Mar’23 from 38000 a year earlier  
  • Q1
    • PAT:  324.90 Vs  494.19
    • FY23 PAT:  1,827.74
    • Finance costs:  298.20     FY23
  • Petrol blended with 20% Ethanol has been rolled-out in select petrol pumps across 11 states in Feb 2023  
  • E.I.D.PARRY (INDIA) Limited Owns  56.27%  in  COROMANDEL INTERNATIONAL which is 15000 cr

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