Buy This Multibagger Sugar Stock For A Target Price of Rs. 475

Dhampur Sugar Mills Ltd is a small-cap firm with a market cap of Rs 2,637.58 Cr that deals with integrated sugarcane processing. This sugar company's shares have also generated multibagger returns of 153.95 percent in a year, with the share price surging from Rs 158.20 Cr on February 16, 2021 to Rs 401.00 on February 16, 9:07 IST. In the previous six months, the stock has risen from 30.34 percent to 30.75 percent on a year-to-date (YTD) basis. The stock is now up +4.00 (1.01 percent) today with a market price of Rs 401.30, and the brokerage firm ICICI Securities has set a target price of Rs 475 in a 12-month target period.

Q3FY22 results of Dhampur Sugar Mills Ltd (DSL) as per the brokerage

• DSL reported strong numbers with 22.2% growth in earnings before interest, taxes, depreciation, and amortization (EBITDA).
• Sales were down 17.8% YoY due to a lower domestic sugar sales quota.
• EBITDA was at Rs 135.8 crore, dip of 22.2% YoY, with margins at 15.2%.
• Consequent profit after tax (PAT) was at Rs 76 crore (up 36.8% YoY).

Key investment rationale for Dhampur Sugar according to ICICI Securities

• DSL is increasing its ethanol capacity by 2x to 22 crore litre by FY24, which would result in distillery sales CAGR of 24% to Rs 1535.4 crore in FY21-24E. The company generates 35% of its revenues from the distillery business.
• The company would be increasing its sugarcane crushing by 5-10% in the next one year. This would help it utilise the additional sugarcane for the production of ethanol through sugarcane juice.
• We expect a cumulative free cash flow of Rs 731 crore in the next three years, which would fund CAPEX, reduce debt levels & drive earnings growth.

Buy for a target price of Rs. 475 per share

ICICI Securities has claimed that "DSL's share price has gone up 93% in the last five years (from Rs 198 in February 2017 to Rs 382 in February 2022). We expect a 2x increase in distillery volumes to boost earnings with a CAGR of 21.9% during FY21-24E. We continue to maintain our BUY rating on the stock. We value the stock at Rs 475, valuing the business at 1.5x FY23 BV."

As an alternative stock pick, the brokerage has highlighted that "We also like Dwarikesh Sugar in our sugar coverage. The company is one of the most efficient companies with the highest sugar recovery & abundant sugarcane availability. It is increasing its distillery capacity to 3x during FY21-24E. We value the stock at Rs 135/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.