Company Update

Dhampur Sugars Ltd Rs.132

…company update Buy
Industry : Sugar BSE/NSE Code : 500119/DHAMPURSUG
Company P/E : 7.4x FY10E 52 Week H/L (Rs) : 145/20
Market Cap. (Rs) : 7.16 bn Avg. Daily Traded Volumes : 276223
Face Value (Rs) : 10 Target (Rs) : 162

Investment Argument
• Raw Sugar To Help Heal The Fall In Cane Sugar Sales
Dhampur has imported raw sugar to bridge the gap due to lower availability of cane sugar. The company has
contracted to import a total of 2,50,000 tons of raw sugar at an extremely competitive rate of ~USD 400 per
ton. Of the total raw sugar contracted, the company has already sold 60,000 tons & has refined 18,000 tons.
The company intends to refine & sell the balance sugar in FY10E. We believe that refining & selling raw sugar
would compensate the loss of revenue due to lower cane sugar.
• New Power Policy By UP Government To Help Boost Power Profitability
The new UP power policy allows sugar mills to produce power from other alternative fuel in absence of
availability of bagasse. Thus, the sugar companies now will be able to produce even during the off-season. The
UP govt. has further allowed the sugar mills to sell 50 % of the power generated during the off-season outside
the state and further 10 % power to a third party within 50 km radius of the sugar mill. The UP govt has upward
revised tariffs for purchase of electricity from sugar mills to Rs 4 a unit from 2009-10 to 2013-14. This has
enabled Dhampur Sugar to implement the installation of Multi-Fuel Boilers and hence there would be an
increased contribution from the power biz from FY'10E onwards.
• Low Cost Loans To Help Improve Profitability this fiscal
Dhampur is replacing its expensive loans with low cost loans. The company has close to Rs.7bn debt as on 30th
September 2009, of which nearly Rs. 1390mn (Rs. 750mn in FY'08) is loan from Sugar Development Fund (SDF)
at an attractive rate of interest of just 4%. The company has Rs.810mn of '0' cost loans. This will help Dhampur
to significantly cut down on its interest cost by ~ Rs.200mn in FY'10E. Dhampur would repay ~ Rs.1200mn of
loans in the current fiscal, resulting in the favorable debt:equity position of 1x v/s 2x in FY08.

Sensitivity Analysis
Sensitivity 1: Change In EPS With Respect To Sensitivity 2: Change In Target Price With Respect To
Change In Sugar Sold & Sugar Price Change In Sugar Sold & Sugar Price
0.418 0.422 0.425 0.428 0.432 0.418 0.422 0.425 0.428 0.432
32 7 9 11 13 15 32 63 84 100 116 132
33 14 16 18 20 22 33 129 146 162 179 195
34 21 23 25 27 29 34 191 208 225 242 259
35 28 30 32 34 36 35 252 270 288 305 322
36 35 37 39 41 43 36 313 332 350 368 386
Note: The shaded portion is our base case assumptions
1. We have assumed the sugarcane price constant at Rs 210 per quintal.
2. With every Re 1 change in the sugar price per kg, the EPS changes by Rs 7 & the target price changes by Rs
62 per share.
3. With every 0.8 % change in the sugar sold, the EPS changes by Rs 2 & the target price changes by Rs 16 -
Rs 17 per share.

LKP Research November

14 30, 2009 Ami Shah
 Company Update

Valuation
India started the current crushing season with a decade low closing stock. Further, we expect the sugarcane
production to remain muted for another year, continuing the upward movement in the sugar cycle. We maintain our
BULLISH OUTLOOK on the sector. Dhampur Sugars Ltd being an integrated sugar mill is expected to post a growth
of ~73% YoY on the back of ~33% increase in realization & ~14% growth in the sales volume due to better yield
& better recovery vis-à-vis the previous year. Dhampur's power business is expected to report ~25% growth YoY, on
account of new power policy announced by UP government. At the CMP of Rs 132, the stock trades at 7.4x its FY'10E
EPS of Rs 18. We re-iterate our BUY call on the stock with a PRICE TARGET OF RS 162 providing a potential upside
of 22%. At our price target the stock would be trading at 9x its FY'10E earnings.
Sector Outlook
Sugar Sector - "Continues To Remain Sweet Amidst Shortage In Supply"
Demand & Supply in India

Million Tons FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10E FY11E FY12E

Opening Stock 9.3 10.7 11.3 11.6 8.5 4.0 3.6 9.2 8.1 2.3 1.5 1.2
% Growth 3% -27% -53% -10% 156% -12% -72% -35% -18%
Production 18.5 18.5 20.1 14.0 12.5 19.3 28.3 26.3 14.7 16.2 21.87 27
% Growth -30% -11% 54% 47% -7% -44% 10% 35% 23%
Imports 0 0 0.4 2 2 6 2
% Growth 400% 200% -67%

Total Avaibality 31.4 25.6 21.0 23.3 31.9 35.5 22.8 18.5 23.4 28.2
% Growth -18% -18% 11% 37% 11% -36% -19% 26% 21%

Domestic Consump 16.2 16.8 18.4 17.3 18.5 18.5 21 22.5 22.5 23.25 23.25 24
% Growth -6% 7% 0% 14% 7% 0% 3% 0% 3%
Exports 1 1.1 1.5 0.2 1.2 1.7 4.9
-87% 42% 188%

Total Consumption 17.2 17.9 19.9 17.5 18.5 19.7 22.7 27.4 22.5 23.0 23.0 23.0
% Growth -12% 6% 6% 15% 21% -18% 2% 0%

Closing Stock 10.7 11.3 11.5 8.5 4.5 3.6 9.2 8.1 2.3 1.5 2.4 5.2
% Growth -26% -47% -20% 156% -12% -72% -35% 58% 120%
Closing Stock/
Consumption 66% 67% 63% 49% 24% 24% 41% 30% 10% 7% 10% 23%
Closing Stock
(No. of Months) 7.9 8.1 7.5 5.9 2.9 2.3 5.3 4.3 1.2 0.8 1.2 2.6
Sugar Prices
(Rs./Kg) 13.0 15.5 18.2 19.0 16.0 16.0 24.0 38.0 38.0 35.0

The closing stock for the season ended on 1st October 2009 was the lowest in a decade. This was mainly due to
low area under sugarcane cultivation, lowest yield, & lowest recovery rates in the past. Historically, the domestic
demand has been growing at a CAGR of 5%, while production has been growing at a comparatively slower pace.
Thus, with the opening stock of merely 2.3 MT, expected production of 16.2 MT & a growing demand of ~ 23.3 MT,
there would be shortage of ~5-6 MT which would be filled in by the way of imports. We therefore believe that there
would be a tremendous pressure in maintaining sugar stocks not only by the end of season 2009-10E but also the
season after that, thus sugar prices making new highs would be inevitable. We maintain our BULLISH stance on the
sector.

LKP Research November

15 30, 2009
 Company Update

Table 1: Profit and Loss Table 2 :Balance Sheet

YE March (Rs.Mn) FY07 FY08 FY09 FY10E YE March (Rs.Mn) FY07 FY08 FY09E FY10E
Revenues 6068 6967 9356 15944 SOURCES OF FUNDS
Raw Material Cost 4767 4082 6059 11746 Equity Share Capital 503 540 540 540
Employee Cost 404 435 447 465 Reserves & Surplus 3519 3845 4271 5244
Other Exp 986 1025 939 1420
Total Shareholders Funds 4022 4385 4810 5783
Total Exp 6158 5541 7445 13631
Preference Share Capital 88 88 88 88
EBITDA -90 1426 1911 2313
Total debt 6653 9010 7010 5810
EBIDTA (%) -1% 20% 20% 15%
Dep. & Amortisations 332 534 616 650 Capital Employed 10763 13483 11909 11682
EBIT -422 892 1295 1663 APPLICATION OF FUNDS
Interest 445 773 810 610 Gross Fixed Assets 7794 12307 13500 14000
EBT -867 119 485 1053 Net Fixed Assets 5820 9796 10373 10223
Other Income 82 -180 136 50 Capital WIP 4009 244 0 0
PBT -786 -62 621 1103
Investments 262 278 278 278
Tax -181 -98 59 130
Deferred Tax Asset 33 150 150 150
PAT -605 36 562 973
Current Assets 3485 4705 3914 5792
PAT(%) -10% 1% 6% 6%
Less:Extraordinary Item 82 -180 0 0 Inventoires 1800 2809 2563 3713
APAT -686 216 562 973 Sundry Debtors 485 797 769 1310
APAT (%) -11% 3% 6% 6% Cash and Bank 115 196 377 419
Loans & Advances 1085 904 205 349
Table 3:Key Ratios Current Liabilities 2844 1689 2807 4761
YE March FY07 FY08 FY09E FY10E
Liabilities 2728 1494 2576 4368
Per Share Data (Rs.)
EPS -11.2 0.7 10.4 18.0 Provisions 117 195 231 393
CEPS -7.4 13.9 29.4 12.0 Net Current Assets 640 3016 1108 1031
BV 84.4 81.2 89.1 107.1 Total Assets 10763 13483 11909 11682
Growth Ratios (%)
Net Sales 14.8% 34.3% 70.4% Table 4 : Cash Flow
EBITDA 34.0% 21.0% YE March (Rs.Mn) FY07 FY08 FY09E FY10E
PAT 159.6% 73.2%
Net Income Before Tax -786 -62 621 1103
Valuation Ratios (x)
PE 198.9 12.7 7.4 Depreciation 332 534 616 650
P/CEPS 9.5 4.5 11.0 Oper. profit before w.cap chgs -7 1417 1911 2313
P/BV 1.6 1.6 1.5 1.2 Change in WC -162 -1619 2090 119
EV/Sales 2.3 2.3 1.5 0.8 Tax Paid 21 -57 59 130
EV/EBITDA 11.2 7.2 5.4
Cash Flow From Oper. Activities -190 -144 3941 2302
Mcap/Sales 1.2 1.0 0.8 0.4
Operating Ratios (Days) CAPEX 3350 1452 949 500
Inventory Turnover 115 197 126 99 Cash Flow from Investing -3009 -1476 -949 -500
Recievable 29 42 30 30 Issue Of Share Capital 58
Payables 164 78 101 100 Change In Sec. Prem. Acc. 269
Cash Conversion Cycle -20 161 55 29 Proceeds from borrowings 3651 2275 -2000 -1200
Debt: Equity (x) 1.7 2.1 1.5 1.0
Payment of dividend 70
Profitability Ratios (%)
ROCE 6.6% 10.9% 14.2% Cash flow from Financing 2997 1701 -2810 -1760
RONW 4.9% 11.7% 16.8% Cash & Cash Equivalent 115 196 377 419

LKP Research November

16 30, 2009 Ami Shah