2 Stocks To Buy For Over 40% Upside In 1-Year

ICICI Direct has issued a buy recommendation on Dwarikesh Sugar's stock, with a target price of Rs 135. The stock has a 45 percent upside potential in one year from its current market price of Rs 93.90 as of 2 February, 3:30 pm IST. Another brokerage company, Edelweiss Broking, has given a buy call on Crompton Greaves Consumer Electricals shares with a target price of Rs 583, up from the current market price of Rs 412.50 as of 2 February, 3:30 pm IST. According to the brokerage, the stock has a potential upside of 41% in a year.

Dwarikesh Sugar Ltd (DSL)

ICICI Direct has said in a report that "DSL's share price has gone up 105% in the last five years (from Rs 46 in February 2017 to Rs 92 in February 2022). We expect a 3x increase in distillery volumes to boost earnings with a CAGR of 40.4% during FY21-24E. We continue to maintain our BUY rating on the stock. We value the stock at Rs 135, valuing the business at 3x FY23 BV."

Q3FY22 results according to the brokerage

• DSL reported strong revenue & profit growth in Q3FY22.
• Sales were up 57.8 % YoY, on high sugar & ethanol volumes & realisation.
• EBITDA was at Rs 55.1 crore, up 137.8% YoY, with margins at 9.2%.
• Consequent PAT was at Rs 28.9 crore (up ~4x YoY).

Key triggers for future price performance of DSL according to the brokerage

• Distillery revenue to grow at 61.7% CAGR in FY21-24E with a 3x increase in ethanol volumes and 6.9% increase in distillery realisation led by better realisation from B-heavy & sugarcane juice ethanol.
• Higher exports aided by rising global sugar prices, sugarcane diversion towards ethanol has led to a 6 MT inventory reduction since 2019 (expected to further fall by 1-2 MT by September 2022), leading to firm sugar prices.
• With increasing profitability & reduction in sugar inventory, the company would be able to generate cumulative Rs 517 crore free cash flows in the next three years. It would completely de-leverage the balance sheet.

Crompton Greaves Consumer Electricals Ltd (CGCEL)

Edelweiss Broking has said in a report that "Crompton Greaves Consumer Electricals Ltd.'s (CGCEL) Q3FY22 performance was soft on account of (a) sluggish ECD growth, (b) 198% YoY growth in rural channel sales and (c) decent performance in e-commerce and modern retail. CGCEL reported revenue/EBITDA/PAT below our estimates by 3.5%/10.3%/10.8%, respectively. Revenue and EBITDA were in line with the consensus estimates, while PAT was below the estimate by 5.8%. Results were largely flat, with revenue and EBITDA increasing 4.6% and 0.7% YoY, respectively, and PAT falling 1.9% YoY."

The brokerage has claimed that "The company's EBITDA margin deteriorated 50bps to 14.3% (vs the estimated 15.4%), mainly led by gross margin contraction (down 40bps YoY) and higher advertising cost (up 171% YoY). To compensate for commodity price inflation, CGCEL undertook multiple initiatives to partly mitigate the impact of the cost increase. CGCEL increased its market share in fans by 230bps. We believe the company's growth momentum would continue due to the price hike and market share gain."

Edelweiss has also noted that "CGCEL reported weak numbers after delivering a strong performance in the last five quarters, which is a result of its long-term initiatives such as the GTM strategy, cost-saving measures and leveraging of alternate channels. The company continued to gain market share in fans and achieved an all-time-high market share during the quarter, which will continue to benefit it in the coming years. CGCEL witnessed working capital reduction due to production and inventory rationalisation. The management expects working capital to reduce over the next quarter. We remain positive on CGCEL, and at CMP of INR424, the stock is trading at 46x, 38x and 33x the earnings for FY22E, FY23E and FY24E, respectively. We have revised the FY22E and FY23E earnings downwards by 3.1% and 1.9%, respectively. We maintain our 'BUY' rating on the stock with a TP of INR583/share."

Disclaimer

The stocks have been picked from the brokerage report of ICICI Direct and Edelweiss Broking. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.