Buy Dalmia Bharat Sugar Ltd For Target Rs.660 - ICICI Direct
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Increase of 3x in distillery sales to boost profits...
About the stock: Dalmia Bharat Sugar (DBS) is the only sugar company present in UP and in Maharashtra. The company has sugar crushing capacity of 38250 TCD (6 ltpa), distillery capacity of 540 KLD (16 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 16 crore litre. It would further increase its distillery capacity to 22 crore litre in the next one year through two grain based new distilleries
Q3FY22 Results: DBS posted strong profits led by sugar prices & distillery volumes
Sales were flat YoY, with lower sugar volumes offset by high sugar prices
EBITDA was at | 87.9 crore, up 57.9% YoY, with margins at 14.3%
PAT was at | 56.6 crore (up 52.5% YoY) backed by reduced interest expense
What should investors do? DBS’ share price has gone up 2.5x in the last five years (from | 182 in February 2017 to | 453 in February 2022)
We expect 2.5x increase in distillery volumes to boost earnings with CAGR of 17.1% during FY21-24E
We continue to maintain our BUY rating on the stock
Target Price and Valuation: We value the stock at | 660, ascribing a multiple of 14x FY23 earnings.
Key triggers for future price performance:
DBS is fastest in utilising B-heavy, sugarcane juice & grain route to produce ethanol. Distillery volumes to grow 2.5x to 21 crore litre by FY24E
The company has been aggressive in exporting sugar, utilising higher global white sugar prices. Freight cost is much lower given its proximity to ports
With the increasing profitability and reduction in sugar inventories, DBS would be generating cumulative free cash flow of | 718 crore in the next three years despite ~| 700 crore capex
Alternate Stock Idea: We also like Balrampur Chini in our sugar coverage universe
The company is second largest and one of the most efficient sugar companies in India. Along with sugarcane juice, B-heavy, the company is also utilising grain based ethanol to leverage the ethanol opportunity in India
We value the stock at | 600/share with BUY recommendation
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