Dhampur Sugar Mills' Outlook Revised to Negative Amid Financial Challenges

India Ratings and Research (Ind-Ra) has revised the outlook for Dhampur Sugar Mills Limited (DSML) to Negative from Stable, while affirming its 'IND AA-' rating on bank loan facilities worth INR 11,708.6 crore. This revision reflects concerns over the company's weaker-than-expected credit profile and financial performance.

Key Financial Indicators

Particulars (INR crore)	FY25	FY24	% Change
Revenue	1,957	2,169	-9.8%
EBITDA	170	266	-36.1%
EBITDA margin (%)	8.7	12.3	-3.6 pts
Net leverage (x)	4.5	3.4	+1.1x

Factors Contributing to the Negative Outlook

Decline in EBITDA: DSML's EBITDA fell by 35% year-on-year to INR 170 crore, primarily due to:
- Reduced cane crushing
- Lower sugar recovery
- Decreased ethanol sales
Increased Debt Levels: The company's net leverage rose to 4.5x from 3.4x in the previous year, indicating a significant increase in debt relative to earnings.
Working Capital Challenges: DSML's inventory levels remained elevated at 0.19 million tonnes, leading to higher working capital requirements.
Ethanol Segment Weakness: The EBITDA of the ethanol segment fell sharply by 75% year-on-year to INR 35 crore, with profitability margin shrinking to 7.2% from 17.7% in the previous year.

Industry Challenges

The sugar industry faces several regulatory and agro-climatic risks:

Government intervention through measures like monthly sales quotas and export restrictions
Dependence on government-determined fair and remunerative prices (FRP) for sugarcane
Vulnerability to monsoon conditions affecting sugarcane yields and recovery rates

Potential for Improvement

Despite the challenges, there are factors that could support DSML's performance:

Rebound in crushing and sugar recovery could provide some support to sugar EBITDA
Healthy sugar prices may partially offset the impact of increased cane costs
Improved chemical realization and plant operations could aid EBITDA recovery

Liquidity Position

DSML maintains an adequate liquidity cushion:

Cash and cash equivalents stood at INR 124 crore
Liquid investments worth INR 26 crore
Average utilization of fund-based working capital limits at about 70% of drawing power

Future Outlook

The company's ability to improve profitability and manage debt levels will be crucial for its credit profile. Ind-Ra suggests that a sustained increase in profitability, leading to net leverage reducing below 2.75x and interest coverage remaining over 3.5x, could result in a revision back to a Stable outlook.

As DSML navigates these financial challenges, stakeholders will be closely monitoring the company's performance in the coming quarters, particularly its ability to manage working capital, improve operational efficiency, and adapt to the evolving regulatory landscape in the sugar industry.

1 Day	5 Days	1 Month	6 Months	1 Year	5 Years
+0.24%	-1.97%	-4.50%	-9.69%	-21.84%	+2.72%

Dhampur Sugar Mills Limited , a prominent player in the Indian sugar industry, has unveiled plans for integrated growth and diversification. The company aims to expand its ethanol capacity to 350 KLPD (Kilo Liters Per Day) and establish new greenfield operations, signaling a strategic shift towards a more diversified product portfolio.

Expansion and Diversification Strategy

The sugar manufacturer is broadening its horizons by venturing into value-added products, including ethyl acetate and potable spirits. This move is expected to create additional revenue streams and reduce the company's dependence on traditional sugar production.

Key Strategic Initiatives

Dhampur Sugar is focusing on several key areas to drive growth and efficiency:

Energy Efficiency: The company is implementing improvements in energy efficiency across its operations.
Brand Development: 'Mishti by Dhampur' is being developed as a key brand in the company's portfolio.
Revenue Stability: By diversifying its product mix between sugar and ethanol, Dhampur Sugar aims to achieve greater revenue stability.

Government Policy Support

The company's expansion plans are supported by government policy measures, which are expected to contribute to margin expansion.

Financial Performance

Despite these forward-looking initiatives, Dhampur Sugar's recent financial results reflect the challenges faced by the industry:

Particulars (in Rs. Crore)	Q2 FY26	Q2 FY25	H1 FY26	H1 FY25
Revenue from Operations	711.20	580.40	1451.70	1258.30
EBITDA	10.40	5.10	41.10	36.10
Profit Before Tax (PBT)	-13.50	-20.20	-12.40	-18.20
Profit After Tax (PAT)	-8.80	-13.50	-8.10	-12.20

While the company has seen an increase in revenue, it continues to face profitability challenges. However, there are some positive indicators:

Sugar sales volume increased to 0.80 lakh tons in Q2 FY26 from 0.71 lakh tons in Q2 FY25.
Sugar realization improved to Rs. 39,956/ton in Q2 FY26 from Rs. 38,163/ton in Q2 FY25.
Ethanol sales volume grew to 132.47 lakh BL in Q2 FY26 from 93.17 lakh BL in Q2 FY25.

Challenges

The company faced headwinds due to lower pol in cane, which resulted in higher sugar production costs. The cost of production increased to Rs. 37,416/ton in the 2024-25 sugar season, up from Rs. 34,861/ton in the 2023-24 season.

Outlook

Dhampur Sugar's strategic initiatives, including capacity expansion and product diversification, may position the company for potential growth. However, the success of these efforts will depend on various factors, including market conditions, policy environment, and operational execution.