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This Sugar Stock Has Surged Over 85% In 1 Year, ICICI Securities Sees More Upside

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Avadh Sugar & Energy Ltd is a small-cap company having a market cap of Rs 1,205 Crore operating in the sugar industry. The stock closed at Rs 594.15 today, down -20.90 (-3.40 per cent) from its previous closing price of Rs 615.05. However, the stock has gained by 88 per cent in a year and is up 25.68 per cent year to date (YTD). The stock has risen 30.73 per cent in the previous six months, and after the company released its Q4 results, brokerage firm ICICI Securities issued a buy call rating with a target price of Rs 890 and a 12-month target period.

 

Q4FY22 results of Avadh Sugar as per ICICI Securities

Q4FY22 results of Avadh Sugar as per ICICI Securities

  • Avadh reported a 44% jump in ethanol sales in Q4FY22.
  • Sales was down 8.7% to Rs 758.7 crore impacted by lower sugar volumes.
  • EBITDA was at Rs 84.9 crore, down 20.7% YoY, with margins at 11.2%.
  • Consequent PAT was Rs 51.3 crore (down 9.3%) impacted by dip in EBITDA.
Key investment rationale for Avadh Sugar according to the brokerage
 

Key investment rationale for Avadh Sugar according to the brokerage

  • The company has expanded distillery capacity by 80 KLD with a capex of Rs 135 crore, which has increased its distillery volumes to 11 crore. Avadh would be maximising B-heavy & sugarcane juice ethanol production.
  • Industry wise Sugar inventory has fallen from 14.5 million tonnes (MT) in September 2019 to 8.2 MT in September 2021, which would further come down to below 7 MT by September 2022 owing to record exports. This would keep sugar prices firm.
  • 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 760 crore between FY22 and FY24E.
Buy for a target price of Rs 890

Buy for a target price of Rs 890

ICICI Securities has claimed in its latest report that "Avadh's share price has gone up by 177% in the last five years (from Rs 220 in July 2017 to Rs 614 in May 2021). We expect 15.7% CAGR in distillery volumes to boost earnings with CAGR of 24.1% during FY22-24E. We continue to maintain our BUY rating on the stock. We value the stock at Rs 890, valuing the business at 8x FY24 PE."

Significant reduction in global sugar prices could derail exports next season and any weather-related disruption on sugarcane yields or sugar recovery remain the key risks for the stock as per the brokerage.

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. 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. Goodreturns.in advises users to check with certified experts before taking any investment decisions.

Read more about: stocks to buy
Story first published: Thursday, May 12, 2022, 15:42 [IST]
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