Buy Simbhaoli Sugar for target of Rs 115: Broker

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Buy Simbhaoli Sugar for target of Rs 115: Broker

Broking house, Brics PCG is bullish on Simbhaoli Sugar Mills, SSML. It has maintained a ‘buy rating’ on the company with a target price of Rs 115.

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Broking house, Brics PCG is bullish on Simbhaoli Sugar Mills , SSML. It has maintained a 'buy rating' on the company with a target price of Rs 115.

About the company's contract to export sugar to Europe, the report says,

"Simbhaoli Sugar Mills has contracted a deal to export 5,000 tonnes of white sugar to Europe at USD 383-390 per tonne. In rupee terms, this amounts to Rs 17.25-17.5 per kg, which is equivalent to the current domestic ex-factory price realisation on the sale of sugar. The consignment has to be shipped by January 15, 2006."

"During the last sugar season, SSML imported raw sugar to the tune of 1.1 lakh tonnes. It has a re-export obligation of 1.05 lakh tonnes. Thus, the above export deal is just a minimal part of the company's total re-export obligation. The important aspect here is the price at which the contract has been finalised, as it will help alleviate concerns that the re-export obligation would affect margins by realising lower prices than domestic sales."

About the company's expansion plans, the report says,

"SSML will raise its capacity to 19,500 TCD by the start of sugar season 2006-07. Its current capacity is 12,300 TCD, an increase of 2,000 TCD from last season. The capex for the expansion is estimated at Rs 3.5 billion, requiring Rs 1 billion capital contribution."

About the company's valuations, the report says, "On the highest assumed dilution of 10 million shares, we get an EPS of Rs 15.6. Our estimates have already factored in the concerns about equity dilution and the re-export obligation. We believe that a strong balance sheet and the buoyant sugar sector will result in a better valuation for SSML."

"At the current price, the stock is trading at a P/E of 4.8x and 3.9x of the FY06E and FY07E earnings (without considering equity dilution). Assuming the dilution of even 10 million shares, the stock is still trading at a P/E of 4.9x and 5.7x of the FY06E and FY07E earnings. We therefore continue with our earlier Buy recommendation on the stock and maintain our target price of Rs 115."