Sharekhan Sees Good Upside In This Ethanol Stock, Suggests A “Buy”

Brokerage firm Sharekhan has placed a "buy" call on the stock of Ethanol player Dhampur Bio Organics for a price target of Rs 215 on the stock.

Dhampur Bio Organics: Mixed financial performance

According to Sharekhan, Dhampur Bio Organics Ltd (DBOL), the demerged entity of Dhampur Sugar Mills (DSML), posted mixed performance in Q3FY2023, with revenues growing by 71% while lower OPM dragged down adjusted PAT by 27%.

"With expanded capacity of 312.5 lakh per annum, the company is targeting bio fuel/spirit production of close to 11.5 crore litres in FY2023. Ethanol sales are expected to be close to 10 crore litres. Sugar sales and margins will be higher in Q4 due to expected higher export sales," the brokerage has said.

Management commentary

According to the Sharekhan report, Dhampur Bio Organics sugar recovery was lower at 8.69% due to adverse weather condition and higher pest attack in two of its units. The company's large focus will be on eradication of pest through various method. The company is also planning to grow resistant varieties in the coming years. "Overall, the company expects the recovery rate to gradually improve in the coming years. Lower recovery rate resulted in higher cost of production and affected the sugar division profitability in 9MFY2023. The company has commenced the production of pharma-grade sugar, which has higher realisation compared refined sugar. Further the company expects the realisation is expected to be higher due to lower availability of sugar globally. The sugar realisation will also be supported by higher exports sales," Sharekhan has reported as per the management commentary.

View: Retained Buy with price target Rs. 215

According to Sharekhan, headed by an experienced management team, DBOL has strategies to deliver consistent earnings growth in the medium term. An increase in contribution from ethanol sales will help the company's earnings to grow in double digits with expansion in the EBIDTA margins over the next 2-3 years. "The stock is currently trading at 15.0x and 12.0x its FY2024E and FY2025E earnings. We maintain a Buy rating on the stock with an unchanged price target of Rs. 215 (rolling it over to FY2025 earnings)," Sharekhan has said in its report.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective 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 decision.