ICICIdirect.com has come out with its report on Sugar sector. The research firm has maintained buy on Balrampur Chini Mills and Dhampur Sugar Mills with a target prices of Rs 43 and Rs 46, respectively, and hold on Shree Renuka Sugars with a target price of Rs 17 in its research report dated July 09, 2013.
ICICIdirect.com's report on Sugar sector
"The sugar sector has remained stressed over the past year mainly on the back of higher cost production compared to the lower increase in prices. Though partial decontrol handed a breather to sugar companies by relieving them of ~Rs 3000 crore levy sales burden, lower sugar prices and higher cane cost have played a spoilsport. Further, with production in the country remaining healthy at 25.2 million tonnes (MT) in FY13 and expected to decline only marginally to 23.7 MT in FY14, we do not expect a significant run up in prices during the year. With prices not slated to witness a significant run up but sugarcane prices (state advised price and fair & remunerative price) to see another round of increase, we expect the profitability of companies to remain under pressure in FY14E. Hence, with the sector’s outlook remaining grim, we revise downwards the target prices of the companies under our coverage universe."
Avoid high debt companies: "With sugar realisation not expected to witness significant upsides in FY14E but the spectre of further increase in sugarcane prices continuing to loom over profitability, we remain cautious on the outlook for the sector. We recommend that investors avoid companies that have higher exposure to debt as higher interest cost payment could drain the profitability. We are also revising our target prices downwards on the back of near term sector concerns, glut in global sugar production, expected increase in domestic sugarcane prices and lower export prices (raw sugar at 16.5 cents/lb, white sugar at USD 495/tonne). We maintain buy on Balrampur Chini Mills and Dhampur Sugar Mills with a target prices of Rs 43 and Rs 46, respectively, and HOLD on Shree Renuka Sugars with a target price of Rs 17," says ICICIdirect.com research report.
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