Buy Dalmia Bharat Sugar; target of Rs 450: ICICI Direct

ICICI Direct's research report on Dalmia Bharat Sugar

Dalmia Bharat Sugar (DBSL) reported strong Q4FY21 results with 32.7% growth in operating profit led by increase in distillery volumes and higher proportion of B-heavy ethanol. Consolidated sales declined 11.1% on account of absence of export volumes given the delay in announcement of export subsidy. However, most sugar exports would be shipped & booked in Q1FY22. Sugar sales were down 18% whereas distillery sales were up 23.2%. The company sold 1.0 lakh tonnes (lt) of sugar largely comprising domestic sales. Distillery volumes were up 10% to 2.1 crore litre. The company changed its depreciation charging method from SLM to WDV for sugar & distillery segment, which resulted in additional depreciation provisioning by Rs 35 crore. PAT fell 16% to Rs 51.9 crore mainly on account of higher depreciation & income tax provisioning.

Outlook

We believe now market recognises structural earning growth trajectory for sugar companies. Hence, we value the stock at 10x FY23E earnings with a target price of Rs 450/share (earlier Rs 225). We maintain our BUY rating.