Best Sugar Stock: Dwarikesh Sugar Industries vs Shree Renuka Sugars

India is one of the largest producers and consumers of sugar in the world.

Sugar and its by-products, such as molasses and bagasse, are also widely used for ethanol production.

It's due to ethanol that the sugar industry has come into the limelight in the recent past.

The government announced the blending of ethanol with gasoline to reduce dependence on fossil fuels and reduce the effect of greenhouse gases.

At present, the government has achieved its 10% ethanol blending target, and is on its way to achieve the 20% by 2025.

To achieve this target, the government is encouraging the production of ethanol, and two companies that are leading the race are Dwarikesh Sugar and Shree Renuka Sugars.

Let's compare them across various parameters to see which company has a chance to rise to the top.

Business Overview

# Dwarikesh Sugar Industries

Dwarikesh Sugar Industries is India's leading sugar producer.

The company is primarily engaged in the manufacturing of sugar and its allied products.

It has a strong presence in sugar manufacturing, power, ethanol, and industrial alcohol production.

The company also has a strong presence in bio-energy.

Dwarikesh Sugar has three manufacturing facilities with the total capacity to produce 21,500 TCD (tonnes of cane crushed per day), 94 megawatts (MW) of power, and 337.5 kilolitres per day (KLPD) of ethanol.

# Shree Renuka Sugars

Shree Renuka Sugars is the fourth largest manufacturer of sugar in India.

It is also a leader in the branded sugar segment with its brand Madhur and has the largest refinery in India.

Apart from sugar, it manufactures ethyl alcohol and ethanol and generates power.

It has a manufacturing capacity of 37,500 TCD, 156 million (m) litres of ethanol production, and 46.07 metric tonnes of cane crushing capacity.

Particulars	Dwarikesh Sugar Industries	Shree Renuka Sugars
Market Cap (in Rs billion)*	13.9	108.2

Source: Equitymaster|*as of 4th October 2024

Between the two companies, Shree Renuka Sugar has a higher market cap than Dwarikesh Sugars.

If we compare the company's performance on the bourses, then both companies have underperformed the market index Nifty 50.

In the last year, shares of Dwarikesh Sugars and Shree Renuka Sugars fell by 25% and 5%, respectively, as against a 27% return for Nifty 50.

In the last year, the sector faced multiple headwinds, such as the government banning sugar exports, rising prices of sugar, and low sugarcane yields, which led to a fall in the prices of sugar.

However, with the government ban ending and the festive season coming up, sugar stocks have started to rise .

# Revenue

For Dwarikesh Sugar, majority of the revenue is earned through sugar production (72%), followed by distillery (25%), and power generation (3%).

In the last five years, the company's revenue has grown at a compound annual growth rate (CAGR) of 5.1% on account of higher revenue from the distillery. However, in the financial year 2024, the revenue saw a slight dip after the government banned exports, and the sugarcane yields fell.

With a good monsoon and the end of a government ban on exports, the revenue of the company is expected to go up in the current financial year.

Shree Renuka Sugars, on the other hand, earns the majority of its revenue from the sugar business (92%), followed by distillery (4%) and power generation (4%).

Despite a ban on exports in the last fiscal, the company's revenue has grown significantly on account of its well-established presence in the branded sugar business.

Its focus on expanding its geographical footprint within the country has helped the company grow its revenue despite ban on exports.

In the last five years, its revenue grew by a CAGR of 18.3%, indicating it is leading the race against Dwarikesh Sugar.

Revenue

Net Sales (in Rs m)	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024	5-Year CAGR
Dwarikesh Sugar Industries	13,361	18,388	19,787	21,030	17,096	5.10%
Shree Renuka Sugars	48,812	56,485	64,326	90,207	1,13,190	18.30%

Source: Equitymaster

# Profitability

To assess the profitability, we must check the company's earnings before interest tax depreciation and amortisation (EBITDA) and net profit growth.

In the last five years, the EBITDA of Dwarikesh Sugar and Shree Renuka Sugar grew by a CAGR of 8.9% and 56% respectively.

Improved realisation of its sugar and refining business has helped Shree Renuka Sugar's EBITDA growth. For Dwarikesh Sugar, high sugar realisation and high distillery volumes have supported the EBITDA growth.

In terms of net profit growth, Dwarikesh Sugar's profit grew at a CAGR of 2.6%, whereas Shree Renuka Sugar's losses expanded significantly on account of higher finance costs.

The EBITDA and PAT margin of Dwarikesh Sugar stand at 12% and 5.6% respectively in the last five years, whereas for Shree Renuka Sugars, the margins are at 6.7% and -4.7% respectively.

Clearly, Dwarikesh Sugars is leading in terms of profits and profit margins.

Profitability

EBITDA (in Rs m)	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024	5-Year CAGR
Dwarikesh Sugar Industries	1,415	2,083	2,940	2,286	2,166	8.9%
Shree Renuka Sugars	782	6,410	4,620	6,495	7,224	56.0%
PAT (in Rs m)	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024	5-Year CAGR
Dwarikesh Sugar Industries	735	915	1,552	1,047	835	2.6%
Shree Renuka Sugars	-5,666	-1,165	-1,367	-1,967	-6,272	NM
Gross Profit Margin	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024
Dwarikesh Sugar Industries	10.6%	11.3%	14.9%	10.9%	12.7%
Shree Renuka Sugars	1.6%	11.3%	7.2%	7.2%	6.4%
Net Profit Margin	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024
Dwarikesh Sugar Industries	5.5%	5.0%	7.8%	5.0%	4.9%
Shree Renuka Sugars	-11.6%	-2.1%	-2.1%	-2.2%	-5.5%

Source: Equitymaster

# Debt Management

In terms of debt management, Dwarikesh Sugar is ahead of Shree Renuka Sugars.

In the last five years, the company's debt-to-equity ratio has come down from 0.4x to 0.2x. High profits and reduced borrowings have helped the company reduce its debt-to-equity ratio.

The company also benefits from low-interest rate loans from the state government at a subsidised rate.

At present, it is focusing on using digital tools, drones, and GPS in its crop fields to increase output. It might also consider any acquisitions of sugar mills if it finds the right company.

For Shree Renuka Sugars, the debt has increased significantly over the years. The company's borrowings are at Rs 16.5 billion (bn) and are expected to increase to Rs 20 bn on account of debt funded acquisition.

Moreover, the company's working capital requirements are also pushing the debt levels upwards.

With the company's strong focus on expanding its business through organic and inorganic growth, the debt levels are expected to go up.

Debt Management

Debt to Equity Ratio (x)	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024
Dwarikesh Sugar Industries	0.4	0.3	0.3	0.3	0.2
Shree Renuka Sugars	-2.1	-3.9	-4.5	-3.5	-2.3

Source: Equitymaster

# Financial Efficiency

Return ratios help assess how efficiently a company runs its business.

The two return ratios that are widely used are return on capital employed (RoCE) and return on equity (RoE).

The RoCE of Dwarikesh Sugar and Shree Renuka Sugar averaged at 20.6% and 18.9%, respectively, in the last five years.

In terms of RoE, Shree Renuka Sugars is leading. The RoE averaged 15.7% and 34%, respectively, in the last five years.

Financial Efficiency

ROCE	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024
Dwarikesh Sugar Industries	15.5%	23.1%	28.6%	18.7%	16.9%
Shree Renuka Sugars	15.5%	22.9%	11.8%	18.9%	25.4%
ROE	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024
Dwarikesh Sugar Industries	15.2%	15.8%	23.1%	14.2%	10.2%
Shree Renuka Sugars	64.2%	17.6%	22.5%	22.3%	43.6%

Source: Equitymaster

# Dividend

A company distributes its profits in terms of dividends to its shareholders.

A high and consistently growing dividend is considered a good sign as it indicates that the company's profits are stable.

Shree Renuka Sugars doesn't pay any dividends to its shareholders. Dwarikesh Sugars, though it pays dividends, isn't consistent.

In the last five years, the company paid dividends three times. The dividend yield averaged 2.7%, and the dividend payout averaged 28.7% during the three years it paid dividends.

Dividend

Dividend Per Share (Rs)	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024	5-Year CAGR
Dwarikesh Sugar Industries	0.0	1.3	2.0	2.0	0.0	NM
Shree Renuka Sugars	0.0	0.0	0.0	0.0	0.0	NM
Dividend Yield	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024
Dwarikesh Sugar Industries	0.0%	4.1%	1.6%	2.3%	0.0%
Shree Renuka Sugars	0.0%	0.0%	0.0%	0.0%	0.0%
Dividend Payout Ratio	Mar-2020	Mar-2021	Mar-2022	Mar-2023	Mar-2024
Dwarikesh Sugar Industries	0.0%	25.7%	24.3%	36.0%	0.0%
Shree Renuka Sugars	0.0%	0.0%	0.0%	0.0%	0.0%

Source: Equitymaster

# Valuation

To know the actual worth or intrinsic value of a company, we must look at its valuation ratios.

The two most widely used valuation ratios are price to earnings (P/E) and price to book value (P/B). These ratios tell us whether a company is overvalued or undervalued.

The valuation ratios of Shree Renuka Sugars are not measurable as they are negative.

For Dwarikesh Sugars, the PE is at 41.9x, and the PB is at 1.7x. Although the company's shares fell drastically in the last year, they are highly overvalued compared to their three-year average and industry average.

Valuations	Dwarikesh Sugar Industries	3-Year Average	Shree Renuka Sugars	3-Year Average
PE (x)	41.9	24.3	NM	NM
PB (x)	1.7	2.1	NM	NM

Source: Equitymaster

Which Sugar Stock is Better: Dwarikesh Sugar or Shree Renuka Sugars?

Shree Renuka Sugars is leading in terms of revenue growth and EBITDA growth.

However, in terms of net profit growth, debt management, financial efficiency and dividends, Dwarikesh Sugars is ahead of Shree Renuka Sugars.

The company is a leading sugar producer in the country and has a well-diversified revenue profile.

Its focus on expansion has helped the company set up new distilleries and sugarcane crushing units, which are now being utilised at 100% capacity.

The company is currently working on using extensive digital tools, drones, and GPS to enhance its sugarcane yields and ethanol output.

It is also looking for organic and inorganic opportunities that can help the company expand its operations.

Shree Renuka Sugars, on the other hand, focuses on organic and inorganic expansion.

It is also expanding its distribution channel to enhance its branded sugar business. It recently doubled its distillery capacity to 1,400 KLPD to increase its ethanol production.

As the government's export ban is ending, these expansions couldn't have come at a better time for both companies.

To add to this, high sugar consumption, government's ethanol blending program, innovation in sugar production are driving the growth of this industry.

This bodes well for both companies, helping them for their next leg of growth. However, it is important to note that sugar industry is highly regulated, and it is important to practice caution before investing in this industry.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here.