Sharekhan Bullish On This Sugar Stock, Sees Potential Rise Of 26% In Short Term

Leading brokerage has given buy rating to Dhampur Sugar Mills Ltd with a target price of Rs 260 apiece and a potential return of 26%. Dhampur Sugar Mills (DSML) got demerged into two separate entities 1) Dhampur and 2) Dhampur Bio Organics Limited (DBOL) as per NCLT approval.

Dhampur Sugar Mills Limited's (DSML) revenue grew by 41.5% y-o-y to Rs. 644.3 crore. Double-digit revenue growth was driven by 46.1% y-o-y growth in the sugar division (44% increase in sales volume; 12% growth in realisation) and 86.4% growth in potable spirits. Check key takeaways:

1. Dhampur Sugar Mills Stock Outlook

The current market price of Dhampur Sugar is Rs 205 apiece with 52-week high at Rs 515 apiece and 52-week low at Rs 198 apiece, respectively. The company has a market capitalisation of Rs 1365 crore.

2. Dhampur Sugar Mills 5 Years Return

The stock declined 28% in last 5 years and gained 2% in last 3 years.

3. Dhampur Sugar Mills Key Positives And Key Negatives

The sugar division's revenue grew by 46.2% to Rs. 377 crore, driven by 40%+ growth in sales volumes. Sugar realisation stood at Rs. 31.5 per kg in H1FY2023 vs. Rs. 28.0 per kg in H1FY2022. The company repaid long-term debt of Rs. 35.8 crore.

Key negatives: Ethanol division's revenue stood lower by 11.7% y-o-y due to plant shutdown for two weeks in Q2. Sugar division's EBIT margin was lower at 2.7% as compared to 4% in Q2FY2022 due to wage hike and increased taxes by the UP government. The ethanol division's EBIT margin decreased to 26.9% in Q2FY2023 from 36.5% in Q2FY2022 mainly led by higher input prices and transfer pricing.

4. Dhampur Sugar Mills Valuation

According to Sharekhan, "Retain Buy with a revised PT of Rs. 260: DSML is focusing on improving its growth prospects under a new management. The company is focusing on expanding distillery capacity, boosting growth prospects of the chemical business by launching speciality chemical products, improving productivity in the sugar segment, and reducing manufacturing costs in the coming years. The stock has corrected by 13% in the past three months and is currently trading at 10.3x/7.9x its FY2023/FY2024E earnings. Although we have reduced our earnings estimates in view of muted performance in the past few quarters, stable sugar production, allowance of higher sugar exports, and substantial increase in revenue and profitability of the ethanol segment could positively surprise our current estimates. We maintain our Buy recommendation on the stock with a revised price target (PT) of Rs. 260."

5. About the company

DSML is a prominent player in India's organised sugar business. The company was founded by Lala Ram Narain in 1933 with a cane-crushing capacity of 300 TCD. The company is one of India's oldest integrated sugar companies (engaged in sugar, ethanol, and chemicals manufactured at one end and power generation at the other).

The company demerged into two separate entities - 1) Dhampur and 2) Dhampur Bio Organics Limited (DBOL) in FY2022.

 

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.