Buy This Small Cap FMCG Stock For A Target Price of Rs 276 In 3-4 QTRs: HDFC Securities

Zuari Global Ltd is a small-cap FMCG (Fast Moving Consumer Goods) company with a market capitalization of Rs 542.74 crores. With initiatives into fertiliser, seeds, engineering, lifestyle industries, and services, Zuari Global Limited has been the primary sponsor company for the Zuari Group of Companies. Simon India Ltd. (SIL), Zuari Infraworld India Ltd., Indian Furniture Products Ltd. (IFPL), Zuari Investments Ltd., and Zuari Indian Oiltanking Ltd., a joint venture with Indian Oiltanking Ltd., are all core components of Zuari Global Limited.

The company's shares have climbed by 89.16 percent in one year, 30.46 percent year-to-date (YTD), 28.47 percent in the last six months, 17.83 percent in the last month, and 14.99 percent in the last five days. A buy call rating has been given to the stock, with a target price of Rs 276 by the brokerage HDFC Securities. The brokerage expects the stock to reach the target price in 3-4 quarters from its current market price of Rs 181.40.

Q2FY22 results of Zuari Global Ltd

The brokerage has said "The company reported flat topline growth (including other income) of Rs 225.8cr (-1.5%/-2.4% YoY/QoQ). Low revenue growth in sugar business (Rs 123.6cr, -26.4%/-9% YoY/QoQ) impacted its topline growth. Ethanol business reported decent topline growth of 22.7% YoY to Rs 39.5cr. Higher interest income supported overall revenue during the quarter. The company posted an EBITDA of Rs 47.6cr vs Rs 40.7cr in the previous quarter. EBITDA margins improved on the back of a higher share of interest income and lower other expenses. EBITDA margin for the quarter came in at 21.1% (vs 17.6% in Q1FY22, while it was 3.6% in Q2FY21). Adjusted PAT for Q2FY22 was at Rs 22.7cr as against loss of Rs 26.2cr in the previous quarter, loss of Rs 39.5cr in Q2FY21. Its profitability improved due to better-operating results of associates and JVs".

Buy for a target price of Rs 276

According to HDFC Securities "We are positive on the sugar and ethanol business segment of ZGL due to strength from the long track of operations with the experienced management team, its integrated nature of operations with forward integration into co generation and distillery and improved scale of operations and profitability margins. Improving sugar sale prices, export orientation (due to export subsidy), newly commenced Distillery having capacity of 100,000 litres per day and industry supportive trade policies and measures by state and central government could improve the company's future prospects".

The brokerage has noted that "Zuari Global Ltd is in progress to monetize its land bank across group companies, which would potentially unlock value for the shareholders and help the company's other businesses to grow. The company has concentrated on the development of Affordable Housing segment which is supported by the Government of India's PMAY (Pradhan Mantri Awas Yojana) scheme. It plans to realize growth in housing sales through existing extensive product categories in Zuari Rain Forest, Goa and Zuari Garden City in Mysore. Although execution in this space (through development) is slow; other routes to monetise its land bank would yield a better result for shareholders".

The brokerage has claimed that "We are issuing a report on the company mainly because we believe there is a turnaround story in their sugar and ethanol business, despite their hitherto weak but improving financial profile. Land banks with the group company and investment in listed shares provides a safety net to the investors. Investors may discover value in the stock despite the holding company discounts applicable and the large consolidated debt that could gradually come down over the quarters. We value the stock based on the SOTP valuation method, assigning appropriate discount rates to assets. We think the base case fair value of the stock is Rs 235 and the bull case fair value is Rs 276 over the next 3-4 quarters. Investors can buy the stock in the band of Rs 176-182 and add more on dips to Rs 146-150 band".

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. 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.