Buy Dalmia Bharat Sugar Ltd For Target Rs.490 - ICICI Direct
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Ethanol volumes, refined sugar exports to boost PAT
About the stock: Dalmia Bharat sugar (DBS) is the only sugar company present in UP and Maharashtra. The company has sugar crushing capacity of 39000 TCD (5.5 lakh tonnes pa), distillery capacity of 705 KLD (21 crore litre pa), co-generation capacity of 102 MW & wind power of 16.5 MW (total 30 crore units saleable power).
* The company has expanded its distillery capacity from 8.5 crore litre to 21 crore litre. It would further increase its distillery capacity to 24 crore litre in the next one year through expanding grain based ethanol capacity
Q2FY23 Results: DBS posted revenue dip of 20.5% due to lower sugar volumes.
* Revenue de-growth of 20.5% on account of 21.4% decline in sugar sales
* EBITDA was at | 7.3 crore, down 91.6% impacted by high cost of production
* PAT was at | 11.7 crore, down 80.2%; other income was up 60.6%
What should investors do? DBS’ share price has gone up 2x in the last five years (from | 159 in November 2017 to | 317 in November 2022).
* We expect 36.1% CAGR in distillery revenues, led by ethanol volumes, to boost the company’s earnings at 16.1% CAGR during FY22-24E
* We maintain our BUY rating on the stock
Target Price and Valuation: We value the stock at | 490, ascribing a multiple of 10x FY24 earnings.
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