Buy For Sharp 52% Upside, Smallcap Sugar Stock Added Distillery Capacity, Strong Sales: ICICI Securities

Renowned brokerage firm ICICI Securities suggests investors buying the stocks of Avadh Sugar. The firm is expecting a debt reduction of Rs. 480 crore between FY22 and FY24E.

Stock To Buy: Target Price & Financial Result

The Current Market Price (CMP) of Avadh Sugar is Rs. 521. ICICI Securities has estimated a Target Price for the stock at Rs. 790. This stock has the potential to give a 52% return, in the upcoming 1 year. This is a small-cap stock with a market capitalization of around Rs. 1,043 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 521
Target Price	Rs. 790
Potential 1 year return	52.00%
52 week high share price	Rs. 885.00
52 week low share price	Rs. 396.00

Avadh reported sales growth of 11.2% led by strong ethanol sales which were up 11.2% to Rs. 688.1 crore led by 47.3% growth in ethanol revenues. The company's EBITDA was at Rs. 64.2 crore, down 8.3% YoY, with margins at 9.3%, and consequent PAT was Rs. 19.7 crore (up 3.9%) impacted by dip in EBITDA.

ICICI Securities: Advantages Of The Stock

Avadh's stock price has surged by 46% in the last 5 years (from Rs. 355 in August 2017 to Rs. 521 in August 2022). Giving a buy rating to the stock, ICICI Securities stated, "We expect 15.7% CAGR in distillery volumes to boost overall earnings with CAGR of 29.8% during FY22-24E. The company has added 80 KLD distillery capacity with the capex of Rs. 135 crore, which would increase its distillery volumes to 11 crore litres. Avadh would be maximising B-heavy & Sugarcane Juice ethanol production. Avadh is also undertaking de-bottlenecking operations, which would increase its operational efficiency & improve profitability."

However, the firm added, "Sugar inventory has fallen from 14.5 million tonnes (MT) in September-2019 to 8.2 MT in September 2021, which would further fall to 5.7 MT by September 2022. This would keep sugar prices benign above Rs. 35/kg. With the inventory liquidation in next one year and boost in profitability, the company would be able to de-leverage its balance sheet."

Company portfolio: Avadh Sugar

Under the K.K. Birla Group Of Sugar Companies, Avadh Sugar was incorporated on March 19, 2015. The company has 31800 TCD sugarcane crushing capacity 325 KLD distillery capacity & 74 MW saleable power capacity. The company produces 6.0 lakh tonnes (lt) of sugar, 8 crore litre of ethanol & 15 crore units of saleable power. This would help it increase its annual ethanol production to 11 crore litre. The company has footprints in Sugar, Industrial Alcohol/Ethanol/Rectified spirits, and Power businesses. Avadh Sugar is also having two distilleries at Hargaon and at Seohara with a total capacity of 200 KLPD. Our Company is also having Cogen facility and can produce 74 MW power, as the company informs.

Disclaimer

The above stock was picked from the brokerage report of ICICI Securities. 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.