Exactly a year back in Nov 2015, Oudh Sugars was trading at Rs 26. The stock has surged 4 times or 400 per cent to Rs 104. This is not a sugar stock that has surged in isolation. Almost every sugar stock has easily doubled wealth in the last 1-year. It takes eight years in a bank deposit to double your money. Take a look at whether it is time to buy some sugar stocks.
Why sugar stocks are climbing?
Sugar stocks were one of the worst set of stocks to invest in. Quarter after quarter companies were reporting losses. However, firming-up of sugar prices as supply began to match consumption has augured well for the industry.
Oudh Sugar Mills had this to say, "After five years of surplus sugar production in India teamed with aggressive sugar export strategy, domestic sugar production in sugar season 2015-2016 was marginally lower vis-à-vis domestic consumption and has consequently resulted in an improvement in the domestic sugar prices."
This stock may not have given 400% returns like Oudh Sugars, but, it has managed to double investor wealth in the last 1-year. In fact, the stock which was trading at Rs 54.75 on November 9, 2015 surged to Rs 154 by August this year (almost 300% gains).
This company is one of the biggest integrated sugar manufacturing companies in India. Apart from sugar the company also is into allied activities, including the manufacturing and marketing of Ethyl Alcohol & Ethanol, generation and selling of power. Balrampur Chini has sugar 10 factories located in U.P. having an aggregate crushing capacity of 76,500 tons per day.
Financials of Balrampur Chini
And the one reason why sugar stocks have rallied is because of improvement in the financials of sugar companies. For the quarter ending June 30, 2016, Balrampur Chini reported a net profit of Rs 110 crores, against a net loss of Rs 72 crores in June 2015. This is excellent and one reason why the stock has jumped. If you see the EPS of Rs 4.5 for the quarter can translate into an EPS of Rs 18 for the full year. The stock at Rs 104 is trading at just 6 times one year forward earnings. Very few stocks trade at this valuations.
Why to buy Balrampur Chini?
We believe that sugar prices are not going down in a hurry. Secondly, the company has a very small equity base of just about Rs 24 crores and the price to earnings ratio is just about 6. The stock has also fallen from levels of Rs 154 to Rs 107. The price to book at around 2 times is also very attractive, which makes this stock a good long term bet.
This is another classic turnaround case company, which has moved from losses to profits, thanks to a rally in sugar prices. It is not as such a very big player like Balrampur Chini, but, a reasonably large player in the industry. The company like most sugar companies has a very small equity capital. Hence, a slight increase in net profits can send the shares soaring.
Fundamentals of Oudh Sugars
The company reported an EPS of 6.69 for the quarter ending Set 30, 2016. It is a very cheap stock considering that it can post of an EPS of Rs 25 this year. The stock has a p/e multiple of just 4 times, at the current market price of Rs 104. The stock is a good bet at the current levels. If it declares a dividend, you also get higher returns from the dividend yield.
Other sugar stocks
There are many other sugar stocks like Bajaj Hindustan, Bannari Aman etc., however, we like the above as they are comparatively better priced.
The article is not a solicitation to buy, sell in securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article. As on date of the article the author and his family do not own any shares of the companies mentioned.