SP Tulsian's multibagger pick: Ugar Sugar

SP Tulsian of sptulsian.com picked Ugar Sugar as multibagger stock idea for the day. He expects the stock to fetch a price of Rs 20 in the next six months.

"The company is likely to make a windfall gain by selling its inventory in the next 2 quarters. Hence, the financial performance of the company during the off season, during these 2 quarters is likely to get boosted by better realizations of inventory," he elaborated. On Ugar Sugar Ugar Sugar is a prominent sugar mill having presence in Karnataka. They have two sugar mills, one with a capacity of 12,000 TCD and the other with the capacity of 3,000 TCD. It also has 44 Megawatt of Kogen and matching distillery capacity. The inventory carried by the company as on March 31 2012 comes upto 16 lakhs sugar bags valued at about Rs 22-23 in the books of the company. There has been a huge increase in realizations of sugar, it is now sold at Rs 33 per kg. The company is likely to make a windfall gain in this inventory, which will be sold by the company in the next 2 quarters. Hence, the financial performance of the company during the off season, during these 2 quarters is likely to get boosted by better realizations of inventory. This crushing season will start from October 1 2012; at that time also the situation is likely to remain quite robust because of estimated lower production of sugar in the country to about 25 million tonne. The company is likely to enjoy an advantage because of higher recovery of 2-13% in Karnataka, which is largely enjoyed by all sugar mills. As seen yesterday, all the sugar stocks saw correction largely because of their presence in F&O space and because some of them got excluded from F&O or maybe some regulatory actions are apprehended from the government which is keeping sugar stocks under check. But, this stock looks quite reasonable at the current level. A price of Rs 20 can be expected in the next 6 months or so.