E.I.D. PARRY (INDIA) : A SWEET TREAT
With the sugar industry showing optimistic growth plans in the coming years, E.I.D. Parry has emerged to be a strong player in the sector with high quality and robust expansion and manufacturing plans, thus making it an investor’s dream choice
E.I.D. Parry (India) Limited is a listed company engaged in the business of sugar and nutraceuticals. Headquartered in ‘Dare House’, a heritage building in Chennai, the company is a part of the Rs 369 billion Murugappa Group known as one of India’s leading business conglomerates. The company was founded in 1788 and has been a household name for over 225 years. It is known for being a pioneer in setting up India’s first sugar plant at Nellikuppam in 1842 and even today continues to lead new paths in each of its businesses. It is counted amongst the leading sugar manufacturers in India and operates through nine sugar plants spread across South India.
These state-of-the-art plants bearing total sugarcane crushing capacity of 43,400 TCD, co-generation capacity of 160 MW and distillery capacity of 234 KLPD across units are located at Nellikuppam, Pugalur, Pudukottai, Pettavathalai and Sivaganga in Tamil Nadu; Ariyur in Puducherry; Sankili in Andhra Pradesh; and Bagalkot, Haliyal and Ramdurg in Karnataka. E.I.D. Parry is positioned to be a world leader in organic spirulina and micro algal products in the nutraceuticals space. ‘Parrys Spirulina’, with three major international certifications, is sold in more than 41 countries around the globe. The highly specialised manufacturing plants of the nutraceuticals business for micro algal production are located at Oonaiyur and Saveripuram in Tamil Nadu.
Coromandel International Ltd., a listed subsidiary of E.I.D. Parry, is today one of the leading fertiliser companies in India. Through this subsidiary the company retains significant presence in the farm inputs’ business. The company poses itself to be first and amongst the few sugar manufacturers in India with a dedicated research and development wing and cane breeding programme. The company has arranged many innovative programmes in sugarcane cultivation methods and has set industry benchmarks in yield and recovery.
Sector Overview
Sugar production in India has witnessed a rise with sugar mills across the country producing 299.15 lakh tons of sugar between October 1, 2020 and April 30, 2021, which is an increase of about 41 lakh tonnes from the 258.09 lakh tons produced at the same time last year. However, the number of mills crushing sugarcane was 106 in April 2021 as compared to 112 sugar mills in April 2020. The sugar industry comes under the category of ‘essential goods’. Hence, we can say that the second wave of the corona virus in India has not hampered any of the factory operations in the sugar industry. Also, the industry has been better prepared for the crisis situation as against the first wave and hence it has not faced the same intense logistics issues. For providing support to the export program for sugar, the government had given a nod for swap between maximum admissible export quota (MAEQ) and domestic sales quota for the current 2020-21 sugar season, which witnessed a positive response from the sugar mill owners. Till the current time, about 10.5 lakh tons of reallocations have already been completed by the government. In addition to this, the Department of Food and Public Distribution (DFPD) also reports that it has reallocated about 1 lakh tons of sugar as per mill-wise export performance and contracts which are signed by mills up to the end of March 2021. The sugarcane yields are observed to have increased by 2-4 per cent in the last five years in the key cane growing states of the country and sugar mills are earning higher revenues than before.
Financial Overview
The financial performance by the company shows that on a consolidated quarterly basis the net sales and other operating income increased to Rs 4,701.19 crore in Q3FY21 as compared to Rs 4,081.64 crore in Q3FY20, a rise of 15.18 per cent. Operating profit was recorded at Rs 558.64 crore in Q3FY21 as against operating profit Rs 509.26 crore in Q3FY20, registering increase of 9.7 per cent. Q3FY21 recorded net profit of Rs 245.11 crore as compared to net profit of Rs 261.62 crore in the same quarter in the previous year, declining by 6.31 per cent. On an annual basis, its net sales and operating income rose by 3.46 per cent from Rs 16,555.53 crore in FY19 to Rs 17,128.92 crore in FY20.
The operating profit rose by 29.58 per cent in FY20 as compared to FY19. The net profit jumped substantially in FY20 at Rs 891.21 crore as compared to Rs 437.42 crore in FY19. As regards the segment performance of the company for year FY20, the sugar segment constituted the largest share of the company’s revenues. It contributed 73 per cent of the company’s revenue from operations during 2019-20 as against 75 per cent in 2018-19. Revenues from the sugar segment during 2019-20 stood at Rs 1,377 crore as against Rs 1,386 crore in 2018-19. The company has eight sugar plants with a combined capacity of 43,800 TCD. E.I.D. Parry has reported that the overall cane crushed by the company was 36.72 LMT in 2019-20 as against 37.19 LMT during the previous year.
The overall recovery of all the units of the company went down from 10.11 per cent to 9.99 per cent in FY20. While recovery was better in Karnataka, it was lower in Tamil Nadu and Andhra Pradesh. Additionally, the company was granted in-principal approval for sale of power under open accessbilateral from Tamil Nadu Generation and Distribution Corporation Limited post which it commenced third-party power sale from January 1, 2020. This initiative fetched an additional realisation of Rs 0.75-1.00 per unit of export. For FY20, the distillery segment contribution stood at 19 per cent of the company’s revenue from operations during the year under review as compared to 17 per cent in 2018-19. Revenues from the distillery segment during 2019-20 stood at Rs 357 crore as against Rs 317 crore in 2018-19. The company’s alcohol production from molasses, a by-product of sugar, saw a downward dip at 634 lakh litres in 2019-20 as against 648 lakh litres in 2018-19, a decrease of 2 per cent over the previous year. The segment revenue for the third quarter of FY21 showed a YoY dip of 7.01 per cent in revenue from the sugar segment standing at Rs 302.71 crore in Q3FY21 as against Rs 325.53 crore in Q3FY20. The co-generation segment registered YoY gain of 34.27 per cent whereas the distillery segment recorded YoY gain of around 18 per cent on YoY basis. The nutraceuticals segment saw an increase of 61.11 per cent on YoY basis.
Risks and Threats
The input prices are controlled by the government and the sugar prices of late are also driven by the government through MSP while regulation in the export of sugar leads to volatility in sugar business profitability. Additionally, the government has also been regulating the domestic demand-supply through restrictions on imports and exports and stock holdings. Regulatory mechanisms and dependence on monsoons have categorised the sugar industry as cyclical. The industrial usage of sugar accounts for nearly two-thirds of the annual demand of around 26 MMT. This may be primarily impacted as several food manufacturing units – including soft beverages, chocolates, confectionery, bakeries, hotels, restaurants and cafes – are running at low capacities in the second wave of the pandemic. This may lead to lower overall domestic demand by 1.5-2 MMT in the sugar season as reflected in the trend in softening of sugar prices.
Conclusion
It is observed a higher amount of sugarcane is being diverted towards the production of B heavy molasses used in the production of ethanol. As a result, the sugar mills have had an opportunity to earn higher revenues from the distillery segment in the last 2-3 years. In the sugar season of October 2019 to September 2020 the industry is reported to have diverted around 15 per cent of sugarcane towards the production of B heavy molasses as against less than 10 per cent in the previous season. As the sugar prices are controlled by the government, the industry has not observed any significant fluctuation in sugar prices. Sugar price for the seasons of 2019 and 2020 were recorded at the minimum mark of Rs 31 per kg. Going forward, sugar prices are expected to remain relatively stable during the sugar season 2021 too.
Recently, E.I.D. Parry sold part of its stake in Coromandel International. As of the September 2020 quarter, E.I.D. Parry held 58.42 per cent stake in Coromandel International. The company will use the proceeds of the sale to slice down the debt of the company, including its wholly-owned subsidiary, Parry Sugars Refinery India (P) Ltd. and for general corporate purposes. The sugar industry shows optimistic growth plans in the coming years as sugar is one of the essential commodities and is not affected by any crisis situation, as for example the recent pandemic. E.I.D. Parry has emerged to be a strong player in the sector with high quality and robust expansion and manufacturing plans. Hence, we recommend a BUY.