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DANGOTE SUGAR REFINERY PLC Q1'21 Earnings Release - Earnings still on the rise amid inflationary pressures

According to data from the National Sugar Development Council (NSDC), sugar prices averaged ₦19,108 per 50kg bag, representing a 32% y/y surge. This was evident in Dangote Sugar Refinery’s Q1’21 Financial Statements, where it showed a 41% y/y jump in Revenue to ₦67.4 billion (Vetiva: ₦52.7 billion).

Suppressed importation boosts sugar volumes Whilst the increase in sugar prices was partly responsible, we believe that topline growth was also driven by a boost to sales volume. Thus, after accounting for the effect of the change in prices on DANGSUGAR’s topline performance, we realized that the sugar giant’s volumes increased c.8% y/y in the quarter. We believe that this was driven by the tightened pool of supply, given that refined sugar importation is severely limited. Despite Nigeria being open to intracontinental trade under the AfCFTA, the National Sugar Master Plan (NSMP) has ensured that sugar remains protected under the trade exemption list. That said, although there is still the possibility of leakages from the borders, we believe that the challenges around FX liquidity have significantly suppressed this. Although the pool of players is shallow, the competitive situation among local producers remains tense reflecting in price choices. Thus, we see limited scope for price increases in the market. That said, we consider the possibility of a ban on FX for raw sugar imports as implied by the CBN. If this happens, we believe that sugar manufacturers would raise prices to support margin at this level. On the volume front, given the import duty on refined sugar, FX challenges involved in importing refined sugar, and the restriction on importation of sugar via the land borders, we expect volumes to remain supported at its current level. Thus, combining these drivers, we cautiously estimate that DANGSUGAR’s Revenue will grow 29% in FY’21 to ₦277.1 billion.