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Buy Dwarikesh Sugar For Rs. 145 Target Price After It Posts Strong Profit Growth In Q4: ICICI Direct
ICICI Direct has given its buy call on the sugar stock of Dwarikesh Sugar after the company has posted strong profit growth in Q4Fy22 period. The UP based sugar company is primarily into manufacturing of sugar and allied products. The Company is also involved in the production of power and ethanol/industrial alcohol. Further, it is ramping up its distillery capacity through capex of Rs. 230 crore and the same will be commissioned by June-2022.
Highlights of company's Q4 financial results:
Sales at the company declined 20.8% YoY due to absence of exports
EBITDA stood at Rs. 102.4 crore, up 24.3% YoY, with margins at 21.6%.
Consequently PAT was at Rs. 59.6 crore (up 23.6% YoY)
Investment rationale for a 'Buy' on Dwarikesh Sugar:
"Distillery revenue to grow at 42.7% CAGR in FY22-24E with 2x increase inethanol volumes and 6.4% increase in distillery realisation led by better realisation from B-heavy & sugarcane juice ethanol", states the brokerage report.
Additionally, there are expectation of higher exports owing to increase in global sugar prices. Also, sugar prices have remained firm as there has been diversion of sugarcane to ethanol which has led to
Industry wide 6 MT inventory reduction since
2019 (likely to further fall by 1.5 MT by Sept-22).
Also, with the increase in profits and lowering of sugar inventory the company shall generate FCF to the tune of Rs. 407 crore in the next 2 years and would be completely debt free.
Buy Dwarikesh Sugar for Rs. 145 Target Price
The brokerage is of the view that the stock price of Dwarikesh Sugar has increased by 154% in the last 5 years from Rs. 47 in May 2017 to Rs.118 in May 2022. The company further "expects
2x increase in distillery volumes to boost earnings with CAGR of 30.7% during FY22-24E". ICICI Direct gives a Buy call on the stock for Rs. 145 target price, valuing the business at
10x FY24 PE.
Disclaimer
The stock has been picked from the brokerage report of ICICI Direct. Markets are highly volatile, readers should not construe the story as an investment advice into the stock. Please engage in your own analysis before making any risky bets.
