Bullish on Simbhaoli Sugar: Prabhudas Lilladher

Broking house, Prabhudas Lilladher is bullish on Simbhaoli Sugar . It has maintained an 'outperformer' rating on the company.

The Prabhudas Lilladher report on Simbhaoli Sugar:

Q3 FY06 result review - Margin slides

"During the quarter, the Simbhaoli Sugar Mills' revenues of Rs 1.14 billion (up 23% yoy) crossed our expectations (of Rs 1.07 billion). Belieing our estimates, its profits, at Rs 48 million, dropped 14.5% yoy."

"Operating margins slipped significantly, by 640 basis points yoy, to 11.9%. Interest cost had been substantially reduced (by 30.7% yoy) to Rs 41 million."

"Chief reasons for the sharp fall in operating margins were lower recovery rate in Uttar Pradesh and the resultant higher production cost and sequential realisations rose slightly. EBIDTA declined
20.1%, to Rs 135 million.

For 9M FY06, the company reported a steady growth in volumes, of 13.2%, to 1,404,000 quintals along with a 9.7% rise in per-quintal realisations on sugar, to Rs 1,694, compared to Rs 1,544 a year ago. It reported a robust 31.2% growth in revenue, to Rs 3.2 billion, and a manifold rise in profit, to Rs 236 million (Rs 69 million a year ago)."

Outlook and valuation

"With mounting sugar realisations both in the domestic and international markets, expected improvement in the recovery rate and with higher inventory levels, for FY06 we expect Simbhaoli to report revenue of Rs 4.51 billion and profit of Rs 515 million."

"The stock trades at 5.1and 5x FY06 and 07 estimates, respectively, and 5.3x and 5x estimated EV/EBIDTA. We maintain our Outperformer rating on the stock."

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