This Small Cap Sugar Stock Has Crashed Over 56% In A Month: Should You Buy?

Sugar stocks are already in pressure owing to the recent centre's take to curb its exports and hence check upon rising prices. In such a situation, there is one stock that has cracked even sharply i.e. by over 56% and in today's trade i.e. May 25, 2022 has hit lower circuit at Rs. 239.65 per share.

If you could make out, we are talking about Dhampur Sugar, here is an analysis on the stock:

About the company

The company is an integrated sugarcane processing company. The Company is engaged in the manufacturing and selling of sugar, power and chemicals. The Company operates in three segments: Sugar, Distillery and Co-generation

Stock price trajectory and Dhampur Sugar Swot analysis

The stock's all time low and high price are Rs. 6.09 and Rs. 517.64, yielding a return of 1099%.

Financials of the company have remained strong and in the Fy21, the company's net profit stood at Rs. 229 crore. Also its debt to equity has improved substantially.

Again as part of opportunities, the company has a good RoCE and is also low on valuations with TTM PE of 6.7, which is lower than peers as well as sector PE.

The concern however is on the increasing costs incur year-on-year on long term projects.

Threats: There are no threats seen for the sector as sugar sector as a whole is placed in a sweet spot because of the government's ethanol initiative.

So, as the fundamentals are strong and the sharp fall is largely on account of the demerger in the company one may still consider the stock based on its fundamentals.

Brokerage's take on Dhampur Sugar

Sharekhan in its report has given the buy on the sugar stock for a target of Rs. 703 per share and said DSML is focusing on creating value for shareholders by strengthening the non-commodities business to achieve consistent earnings growth with higher EBITDA margins. The stock is currently trading at valuation of 10.5x/8.4x its FY2023E/ FY2024E EPS, which is at a discount to some of its close peers. Strong earnings visibility, improving
margin profile, and strengthening of the balance sheet would help the valuation gap with close peers to reduce in the coming years. Hence, we are re-initiating coverage on the stock with a Buy recommendation, assigning a price target (PT) of Rs. 692 (valuing the stock at 11x its FY2024E EPS,which is at 27% discount to the target multiple of Balrampur Chini Mills.