Buy This Multibagger Sugar Stock For A Target Price of Rs 970 In 12 Months

Avadh Sugar & Energy Ltd is a small-cap company with a market capitalization of Rs 1,265.06 crore. Sugar, industrial alcohol/ethanol/rectified spirits, and electricity are all outputs of the corporation. The company is part of the K.K Birla Group of Sugar Companies, and its shares have delivered multibagger returns in the last year. Avadh Sugar's stock has climbed 248.41% in one year and, with a year-to-date (YTD) return of 36.86%. The stock has risen 52.52 percent in the last six months and 21.57 percent in the last month. ICICI Securities, a domestic brokerage firm, has given this stock a buy call rating with a target price of Rs 970 and a 12-month target period. This means that the stock has a potential upside of 49.92 percent from its current market price of Rs 647.00 per share as of 9 February, 3:30 pm IST.

Q3FY22 results of Avadh Sugar as per the brokerage

• Avadh reported a strong set of results with 70% earnings before interest, taxes, depreciation, and amortization (EBITDA) growth.
• Sales up 7.2% to Rs 746.5 crore, driven by high sugar & ethanol realisation.
• EBITDA was at Rs 73.1 crore, up 70.2% YoY, with margins at 9.8%.
• Consequent profit after tax (PAT) was at Rs 28.9 crore (up from Rs 3.7 crore in base quarter).

Key investment rationale for Avadh Sugar as per ICICI Securities

• The company has commissioned 80 KLD with a CAPEX of Rs 135 crore, which has increased its annual distillery capacity to 11 crore. Avadh would be maximising B-heavy & sugarcane juice ethanol production.
• Sugar inventory has come down from 14.5 MT in September 2019 to 8.2 MT in September 2021, which would further come down to below 7 MT by September 2022. This would move sugar prices to Rs 37/kg.
• With the inventory liquidation in the next one year and boost in profitability, the company would be able to de-leverage its balance sheet. We expect debt reduction of Rs 540 core between FY21 and FY24E.

Buy for a target price of Rs 970

ICICI Securities has said that "Avadh's share price has gone up 3x in the last five years (from Rs 220 in July 2017 to Rs 660 in February 2021). We expect a 75% increase in distillery volumes to boost earnings with a CAGR of 42.5% during FY21-24E. We continue to maintain our BUY rating on the stock. We value the stock at Rs 970, valuing the business at 2x FY23 BV."

The brokerage's sugar coverage also includes Dwarikesh Sugar, which has a buy call rating. According to ICICI Securities, 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 in the next three years. "We value the stock at Rs 135/share with a BUY recommendation" the brokerage has said.

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.