Bannari Amman Sugars Limited (BASL) is the flagship company of Bannari Amman Groups (BAG), one of the largest industrial conglomerates in South India and is engaged in the manufacture of sugar, industrial alcohol, bio-compost, granite products and generation of power.
In order to derisk the business model, BASL put up a co-generation and distillery plant. It has also installed 7 windmills having a capacity of 1250 KWH each in southern parts of Tamil Nadu. The power generated from the wind energy generators is fed to the Tamil Nadu State Electricity Board's grid. The company has an established modern bio-compost unit near both the sugar units.
Bannari Amman Sugars, is now more than fifteen times at 19,000 tons of cane crush per day (TCD), from the initial capacity of 1250 TCD of its first Sugar Unit.
The company's operating profit margin is 17.45% which is the second best in the sector after Bajaj Hindusthan, which stands at 18.28%, and is way ahead than its peer average of 5.61%.
Returns on equity, for the company was at 7.75% while the peer average was -2.34%. Same goes for returns on assets, the ratio tells us how well the company is using its assets for generating revenue.
Debt ratio stands at 0.18 times to 0.47 times, which is excellent. The interest coverage ratio that is the ability to pay interests from its income stands at a staggering 45.85 times, compared to the average of its peers at 2.53 times. There is one weakness on the debt side which is current ratio, it stands at 1.5 times relative to the industry average of 1.73 times, but there is nothing to worry about as the ratio shows that the company will pay off its current liabilities if there is a stress call.
The simple metric of valuation i.e. Price-to-Earnings shows - Bannari Amman Sugars trading at 12.44 times compared to to its top three peers: Shree Renuka Sugars at 54.37 times, EID Parry at 48.70 times and Bajaj Hindusthan at 24.23 times. This makes the company quite cheap.
One of the reason that the stock despite being good in its industry is selling cheap as there are not many FIIs. Only 0.20 percent of shares are held by FIIs in this company, where as, over 15% of shares are held by FIIs in Shree Renuka, EID Perry and Bajaj Hindusthan.
Verdict: When you consider the entire sugar industry under the combined light of price-to-earnings (valuation), operating margin (efficiency of the company), debt-to-equity ratio (liability management) and cash flow to sales ratio (the ability to convert sales in cash), the company is rather a good buy available at a cheap price. This stock should pay returns by 18 months.
*All data for the story was taken from the website https://www.moneysights.com/.
**OneIndia Money DISCLAIMER: OneIndia Money provides you with information covering shares, futures and options based on broker's reports as stated on various media. Investors are, however, warned that they should NOT take any buy or sell decision based on these views expressed in the article. Investors should consult their own financial and share advisors before taking purchase or sale decisions. OneIndia Money does not take any responsibility for any losses incurred by investors who take their cues from the above article.