Davangere Sugar FY26: Crushing Margins, Not Dreams

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1. At a Glance

Revenue inched up 11% to ₹239 Cr—a win—but net profit collapsed 22% to ₹8.51 Cr. The company is running a sugar mill in a cyclical sector where crushing capacity sits half-used, distillery margins have tightened, and a ₹250 Cr debt pile demands attention. A ₹149 Cr rights issue (August 2025) bought breathing room via debt paydown, yet working capital has ballooned to 348 days—the company is financing sugarcane growers, not selling sugar. CARE upgraded the ratings in March 2026, citing improved liquidity, but the fundamental question persists: does ethanol upside offset sugar headwinds?

Operating margin compressed from 24% in FY25 to 20% in FY26, and interest coverage fell to 1.40x—a single missed quarter becomes a scare. The business model is sound; execution is facing friction.

2. Introduction

Davangere Sugar Company (DSCL) was incorporated in 1970 as a joint-sector enterprise backed by Karnataka state agencies and later acquired by the Shamanur group in 1995. The company operates a 4,750 tonnes-per-day (TCD) sugar crushing facility in Kukkuwada, 18 km from Davangere city, supplemented by a 65 KLPD (kilolitres per day) ethanol plant and a 24.45 MW co-generation unit. FY26 marks a year of mixed signals: revenue recovery, profit deterioration, and a strategic pivot toward distillery expansion. The board approved a 85 KLPD capacity jump in March 2026 via a ₹127.5 Cr convertible bond, with completion targeted in 18 months. In September 2025, Abhijith Ganesh Shamanur was elevated to Executive Director. The company’s Memorandum of Association was amended to permit investments and borrowings up to ₹200 Cr, signalling an appetite for capital deployment.

3. Business Model: WTF Do They Even Do?

Davangere operates a three-legged stool: sugar, ethanol, and power.

Sugar is the historical core. The company crushes sugarcane sourced from a farmer network spanning 30,000 acres within 100 km. In FY26, it crushed 1.82 lakh MT of cane and recovered 1.55 lakh quintals of sugar—a 46.8% utilization rate of the 4,750 TCD facility. This low throughput is the sector’s original sin: sugarcane is seasonal, monsoon-dependent, and subject to government-mandated fair and remunerative prices (FRP). The company is left hedging procurement costs against volatile global and domestic sugar prices.

Ethanol is the margin play. The 65 KLPD dual-feed unit runs on molasses (from its own sugar plant), grain-based feedstock (maize), and cane syrup. In FY26, it produced 1.73 Cr litres at a 99.96% utilization rate. Ethanol margins have proven stickier because: (a) the government locks in a floor price (₹57.97/litre for the 2024–25 energy season, up from ₹56.58), and (b) the company sources maize locally at competitive rates. Ethanol revenue grew, but absolute contribution has flattened due to raw material inflation.

Co-generation (24.45 MW) converts bagasse and molasses into electricity. The company consumes power in-house and exports surplus. In FY25, it generated 2.56 Cr units and exported under state grid purchase agreements. Power income has declined as sugarcane throughput falls—less bagasse, less generation.

Segments FY26:

• Sugar: ₹51 Cr revenue (down 47% YoY from ₹97 Cr in FY25).
• Distillery: ₹131 Cr revenue (up 12% YoY from ₹150 Cr).
• Co-generation: ₹7 Cr revenue (down 44% YoY from ₹12 Cr).
• Aviation & Others: ₹50 Cr (unspecified).

The model is vertically integrated—waste from sugar becomes fuel for ethanol production—which is smart. But it also means a weak sugar season cascades into weak co-gen and low inventory for the distillery, tightening margins across the board.

4. Financials Overview

Figures are consolidated, in ₹ crore.

Revenue recovered on the back of a bumper distillery quarter (Q4 FY26: ₹83.82 Cr sales) and ethanol pace, but the net profit line tells a harsher story. Depreciation rose to ₹12.7 Cr (from ₹12.7 Cr, flat), and interest expense stayed elevated at ₹27.25 Cr. The company’s tax line swung from a 22.1% provision in FY25 to a -38.6% credit in Q4 FY26, suggesting prior-period adjustments and MAT credit