Sugar Stock To Buy Today That Has Fallen 27% In Last 15-days

The markets are not in a very good shape. Smallcap and Midcap stocks are falling sharply and the trend does not seem to be going away soon. However, one can buy small quantities of shares as the Sensex and Nifty have fallen once again in trade. Here is a stock that you can buy today, merely because the fundamentals are sound and the shares have plunged 27%

Dhampur Sugar

This stock has shed about 27% in the last 7-trading sessions as along with the indices the broader markets too are getting pounded. However, sugar stocks over the last few quarters or for the last 1-2 years have been in a sweet spot as prices have been rising constantly. While the name of Dhampur Sugar may sound more like a sugar company, it is more a diversified play. The company is one of the top integrated sugarcane processing companies in India. The company's pioneering efforts to harness the full potential of sugarcane has enabled it to expand its portfolio beyond sugar to include renewable power, fuel ethanol, alcohol, extra neutral alcohol, alcohol based chemicals and bio fertilizers.

According to Sharekhan, Dhampur Sugar is focusing on increasing investment in ethanol capacity with strong support from the government's prudent blending policies, strengthening the non-sugar portfolio of the business, and enhancing overall profitability in the medium to long term. The brokerage has set a target of Rs 691 on the stock, which means if you buy the shares today, there is a potential to double the value.

Dhampur sugar: Expansion to benefit

Dhampur Sugar will be enhancing its distillery facility to 650 KL per day in FY FY2024 from 400 KL per day in FY2021 (enhanced to 500 KLPD in January 2022). Expansion in distillery capacity would help business revenue to post a 29% compounded annual growth rate over FY2021-FY2024 to Rs. 1,245.2 crore. Contribution of the ethanol segment's revenue will go up to 27% by FY2024 from 14% in FY2021. Sharekhan sees an EPS of Rs 50.7 in FY 2022-23. This means the stock at Rs 371 is barely trading at 7 times its 1-year forward earnings. The sugar company also gives a dividend yield of around 2%.

Shares of Dhampur Sugar take a compounding

The shares of the company were trading at Rs 521 on May 6 and the stock is now quoting at Rs 363. On a 1-year basis, the stock has still given a return of 14% or so. The shares of the company have fallen significantly from 52-week highs of Rs 584. Interestingly, the stock also has some way to go in terms of hitting its 52-week low. Investors, who wish to buy the stock today, may also need to understand that though the valuations are reasonable, sugar stocks tend to be exceedingly volatile and hence one needs to be careful before investing. In any case, going by the expansion plans of the company, the demand for sugar and higher sugar prices, the stock merits a buy at today's price of Rs 360 or thereabouts.

Markets will continue to remain volatile

Markets will remain volatile and hence it is advisable to buy on declines in small quantities. The indices are witnessing volatile swings as various factors like rising interest rates, concerns over slower economic growth and further tightening measure in China continued to weigh on investors. Nifty has corrected sharply by 6.5% in the last 7 trading sessions. One of the big risk for buying the shares of Dhampur Sugar, investors should also note is that any change in the government's ethanol blending policy or decline in sugar supply due to weather vagaries or other supply constraints would act as a risk to earnings estimates. Having said that we do not see the possibility of that happening in the near future, at least ion the next 1-2 years.