Buy This Multibagger Sugar Stock For A Target Price of Rs 350 In 1-Year

Triveni Engineering & Industries Ltd is the country's second-largest integrated sugar company. It is a small-cap company, with a market capitalization of Rs 6,892.44 crore. This multibagger stock has gained 291.74 percent in the last year, and it has gained 26.88 percent on a year-to-date (YTD) basis. The stock has returned 57.00 percent to shareholders in the previous six months, and it has soared 15.61 percent in the last month. ICICI Securities has issued a buy call on this multibagger stock, with a target price of Rs 350, and from the current market price of Rs 284.40 as of 4 Feb, 3:30 pm IST the stock has a potential upside of 23%.

Q3FY22 results of Triveni Engineering Ltd (TEL) as per ICICI Securities

• TEL reported strong earnings growth led by higher sugar prices.
• Sales were flat YoY, due to dip sugar volumes offset by higher sugar prices.
• Earnings before interest, taxes, depreciation, and amortization (EBITDA) was at Rs 202.8 crore, up 26.4% YoY, with margins at 18.2%.
• Profit after tax (PAT) was at Rs 130.1 crore, up by 37.5% YoY, with high sugar & distillery realisation.

Key investment rationale for TEL as per the brokerage

• With distillery CAPEX, TEL would be able to increase its ethanol volumes 2.1x to 22 crore litre by FY24. Distillery sales to see 32.8% compound annual growth rate (CAGR) to Rs 1285.8 crore in FY21-24E, which would be 24% of total revenues.
• Sugar segment profitability would improve with surging domestic & global sugar prices. We estimate sugar realisation of Rs 34-37 /kg in FY22-24E.
• The company is expected to generate Rs 1165 crore of free cash flow in the next three years, which would be utilised for ~Rs 400 crore capex, debt reduction, buybacks & dividends.

Buy for a target price of Rs 350 per share

The brokerage has said that "TEL's share price has gone up 3.8x in the last five years (from Rs 74 in February 2017 to Rs 285 in February 2022). We expect a 2.1x increase in distillery volumes to boost earnings with a CAGR of 34.4% during FY21-24E. We maintain our BUY rating on the stock. We value the stock at Rs 350, valuing the business at 16x FY23 PE."

The brokerage has also suggested that as an alternative multibagger sugar stock "We like Balrampur Chini in our sugar coverage. The company is the second-largest and one of the most efficient sugar companies in India. Along with sugarcane juice, B-heavy, it is also utilising grain-based ethanol to leverage the ethanol opportunity in India. We value the stock at Rs 500/share with a BUY recommendation."

Disclaimer

The stock has been 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.