2 Sugar Stocks To Buy For Potential Return Of Up To 47% As Recommended By ICICI Direct

As per the brokerage firm ICICI Direct sugarcane crushing is set to bounce back in 2022-23 season. Likewise, it has a 'Buy' call on 2 sugar stocks namely Balrampur Chini and Dwarikesh Sugar. Here below is detailed target price, rationale for the buy and other relevant details on the stocks as provided by the brokerage firm.

Buy Balrampur Chini Mills for a target price of Rs. 515 in 12 months

Balrampur Chini (BCML) is the second largest sugar company with sugar crushing capacity of 77500 TCD, distillery capacity of 560 KLD and co-generation capacity of 175.7 MW. Currently, the company is making efforts to replace the existing Co-0238 sugarcane variety in its catchment area with newer varieties, which would improve sugarcane yields & recovery

Q1Fy23 Performance: The company's performance for the June ended quarter of Fy23 has been dismal with 66.9% dip in operating profit. Sales registered de-growth by 5.3%, while sugar volumes also went lower by 11.8%. EBITDA contracted 66.9% to Rs. 44.4 crore with margins at 4.1%. Resultantly, PAT at the firm was at a meagre Rs. 12.4 crore, sharply down by 83.4% YoY.

Valuation and Rationale: The brokerage values the stock at Rs. 515, valuing the business at 12x FY24 PE. "We expect 40.1% CAGR in distillery volume, which would boost the company's earnings by 28% CAGR during FY22-24E", adds the brokerage firm.

"Also, with distillery capex, BCML would be able to increase its ethanol capacity 2x to 35 crore litre. Distillery sales are expected to witness 47.1% CAGR to 2109.5 crore in FY22-24E, which would be 35% of total revenues.

Furthermore the company is undertaking modernisation & de-bottlenecking at some plants. This
would lead to higher sugarcane crushing, better recoveries by FY24. We expect 11.9% revenue CAGR in FY22-24E", notes the brokerage.

Considering the current share price of Rs. 350.65, potential investors in the stock can reap up to 47% return.

 

Buy Dwarikesh Sugar for a target price of Rs. 150

As per the brokerage, the company is one of the most efficient companies with highest sugar recovery & abundant sugarcane availability. It is increasing its distillery capacity to 2x in the next two years. The brokerage suggests a 'Buy' on the stock for a target of Rs. 150, this given the current price of Rs. would offer potential return of 40%.

 

Disclaimer:

The above stocks are recommended by the brokerage firm ICICI Direct. Individuals should do their own due diligence before betting on any market linked security.

GoodReturns.in