Hold Avadh Sugar and Energy; target of Rs 195: ICICI Direct

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26 Aug, 2025 12:21

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ICICI Direct's research report on Avadh Sugar and Energy

Avadh Sugar has sugar crushing capacity of 31800 tonnes crushed per day (TCD), distillery capacity of 200 kilolitre per day (KLD) & co-generation capacity of 74 MW. The company produces ~6.9 lakh tonnes (lt) of sugar & ~5 crore litre of ethanol with this capacity. With the installation of insinuation boilers in both distilleries, Avadh would be able to produce ~7 crore litre of ethanol every year and would be able to sacrifice more sugar by diverting sugarcane to B heavy ethanol. The company would be generating B heavy molasses in three out of its four plants to produce ~7.0 crore litre of ethanol in sugar season 2020-21. Though Avadh has large ethanol capacity, we believe it would be insufficient to exhaust entire molasses given it would be diverting more than 75% of its sugarcane to the B heavy molasses route.

Outlook

Avadh has a sizable sugar & distillery capacity but has been unable to utilise export subsidy benefits and ethanol expansion policy effectively. We believe it needs to scale up its distillery operations to increase sugar sacrifice for ethanol production. Also, sugar export subsidy in 2020-21 sugar season is necessary to reduce sugar inventory, working capital debt. The stock is trading at 4.7x FY22E EV/EBITDA. We downgrade the stock from BUY to HOLD with a target price of Rs 195/share valuing it at 5x FY22E EV/EBITDA.

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