Recommendation from sugarSector

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

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DWARIKESH SUGAR INDUSTRIES LTD . :SWEETNESS PERSONIFIED

HERE IS WHY
✓Improving financial strength
✓Focus on new opportunities
✓Robust sectoral outlook

As  the name suggests, Dwarikesh Sugar Industries Ltd. is engaged in the production of sugar and other sugar-related activities. The product range of the company includes sugar, white crystal sugar, ethanol, captive power, molasses and valuable residue. Bagasse, the residue obtained from crushing cane in the mills, is used by the paper industry. In short, it has three primary business verticals: sugar, co-generated power and distillery in the form of ethanol and industrial alcohol. Of late, sugar stocks have been witnessing a bull run yet again, creating fresh 52-week highs on the back of strong earnings’ outlook and robust production.

The Indian Sugar Mills Association has said that production has reached 329.91 lakh tonnes as of April 15, 2022 against 291.82 lakh tonnes a year ago and the export picture too is looking strong. Let’s now witness the growth story of the company as reflected from its strong financials. It reported net sales of ₹ 1,839 crore in FY21 as compared to ₹ 1,336 crore in FY20. That is a growth of nearly 37.6 per cent. The high growth was driven by strong exports as the company capitalised on government incentives. It was able to better its moderate inventory and strengthened its ethanol production at the cost of sugar output which has proved beneficial so far.

Its EBIDTA jumped by over 47.5 per cent to ₹ 208.4 crore in FY21 as against ₹ 141.5 crore in the previous year. Similarly, PAT increased to ₹ 91.5 crore while it stood at ₹ 73.5 crore in FY20 which witnessed strong growth of 24.5 per cent. The company’s emphasis on moderating its working capital and focusing on realisation has led to strong liquidity such that the cash flows from operating activities increased manifold from ₹ 11.3 crore in FY20 to ₹ 295.6 crore in FY21 by 26 times. Looking at the latest quarter ended December results, its revenue grew by 57.78 per cent YoY and on a sequential basis the top-line was up by 18.95 per cent.

The company has almost doubled its ethanol sales. PBIDT exclusive of other income was reported at ₹ 55.06 crore, up by 138 per cent as compared to the year-ago period and the corresponding margin was reported at 9.16 per cent, expanding by 309 basis points YoY. PAT was reported at ₹ 28.88 crore, up by 286.37 per cent YoY. Looking at some of the returns ratios, the ROE stood at 17.2 per cent and the ROCE was at 13.3 per cent. Also, it has a dividend yield of nearly 1.5 per cent. The stock is trading near the price-to-earnings multiple of 17.6. It has a debt-to-equity ratio of 1.05 times.

Sugar companies have been trending since the announcement of the Union Budget 2022 as Finance Minister Nirmala Sitharaman had proposed levying additional excise duty of ₹ 2 per litre on unblended fuel. For the past several years now, sugar companies have been generating revenues from ethanol blending. Ethanol is a by-product of sugar production which is blended with petrol. The government is targeting an ethanol blend of 20 per cent by 2025 which currently is around 7-8 per cent. To further boost ethanol projects, the government has stretched the date till September 30, 2022 for loan disbursement for ethanol projects under various schemes. By virtue of all these factors, we recommend our reader- investors to BUY the scrip.

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