Stock Pick From Sugar Industry

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

GREAT RECIPE FOR SWEET RETURNS

HERE IS WHY

 Strong financials

Strategic location of the plants

Positive sector outlook

Dwarikesh Sugar Industries Limited (DSIL) is one of the major sugar producing industrial groups in India. In addition to sugar manufacturing, the company has diversified into other segments such as power and industrial alcohol production since its incorporation in 1993. The company's two plants are located in Bijnor district and one is located in Bareilly district of Uttar Pradesh, which is associated with highly fertile soil and high sugarcane production. The company has a combined capacity to crush 21,500 tonnes of sugarcane per day. As on March 31, 2017, the company generated a total of 86MW power and produced 30,000 LPD of alcohol.

The company is exploring new markets for its byproducts which get generated during sugar production as many industries use these byproducts as their raw materials. DSIL is planning to liquidate Rs.145 crore of its long-term debt, automate its plants to enhance efficiency and seek attractive acquisition targets that could broaden its sugar and byproduct manufacturing capacity.

INDUSTRY OVERVIEW:  The Indian sugar industry provides intermittent but lucrative investment opportunities. India is the second largest producer of the agri-commodity sugar. With 642 operational sugar mills, Indian sugar industry has a total worth of Rs.80,000 crore, second only to Brazil. The government has been acting as a catalyst in the industry’s growth story. In the short to medium term, the sugar and sugarcane prices are expected to be stable and improvement in stock-to consumption ratio will enhance the topline and bottomline for efficiently managed sugar companies.  Also, the implementation of FRP will pave the way for implementing the revenue sharing model proposed by Dr. Rangarajan Committee. From being vendors to the sugar mills, farmers will become partners of sugar mills and thus thrive from the growth of the industry.

On the financial front , due to higher sugar prices, DSIL has posted stellar numbers in the last one year. The company’s revenue rose 58.13 per cent to Rs.1256.10 crore in FY17 compared to the previous fiscal. The company’s PBDT increased 245.05 per cent to Rs.242.09 crore in FY17 from Rs.70.16 crore in FY16. The company’s net profit also jumped over four-fold from Rs.38.97 crore in FY16 to Rs.158.47 crore in FY17, registering 306 per cent increase. On a quarterly basis, DSIL posted 81.49 per cent increase in its revenue to Rs.519.57 crore in Q1FY18 from Rs.286.27 crore in Q1FY17. The company’s PBDT increased 117.86 per cent to Rs.85.86 crore in the first quarter of FY18 on a yearly basis. The company’s net profit rose 85.62 per cent to Rs.59.27 crore for the corresponding period.