In an interview to CNBC-TV18, SP Tulsian of sptulsian.com shared his readings and outlook on the market and specific stocks and sectors.
Below is the verbatim transcript of the interview.
Latha: What do you have for investors today?
A: I have another sugar stock from Uttar Pradesh (UP) only. This time it is Dalmia Bharat Sugar. If you take a fundamental call or maybe the business of the company, they have five sugar mills -- three in UP and two in Maharashtra. What is the trigger point that the coming season which will start in the month of November, Maharashtra is going to show a production rise of about 70 percent because in the current season which will be ending on September 30, Maharashtra has produced 42 lakh tonne of sugar.
However, this time it is expected that the production will rise to 72-75 lakh tonne of sugar and definitely the larger beneficiary of that, because in Maharashtra, there is no presence of private sector companies in the sugar space because it is largely reserved for the cooperative. Dalmia Bharat Sugar has two mills and that too in Western Maharashtra in Kolhapur where the recovery is as high as 13.13.5 percent. So, that is one theme.
Second theme of their three mills, having 22,500 tonne of cane crush per day (TCD) of UP and 10,000 in Maharashtra, UP is going to record a production growth of 10 percent in the coming season which will be starting from October 1 2017. So, this is the basic structuring and number two, if you take a call on the financial performance, again as usual for all the UP based sugar mills that FY17 was the record performance for even this company also along with Balrampur Chini, Dwarikesh Sugar, or Triveni Engineering.
If you take the financial performance for FY17, they had an operating profit of Rs 330 crore against Rs 135 crore of FY16. So let us not miss that. It seems certain that operating profit of Rs 330 crore which is the lifetime high in the history of the company, is going to be much higher in FY18. How much it will be higher – 15 percent, 20 percent? Difficult to speculate now but definitely FY18 will be the record year again for the company for the simple reason that they are carrying 32 lakh bags of sugar as inventory on March 31 valued at sub Rs 30 and that is having an inventory gain of about Rs 210 crore.
Generally people misunderstand with the inventory gain that this is one time gain, in fact this is the feature of the sugar mills that they produce up to March and that quantity gets sold till September or maybe till December. So, that inventory gain of Rs 210 is a usual profit which is booked by the company in their normal course and that translates into a P/E multiple of maybe 6-6.5 times.
Apart from that, this company probably is the only sugar mill having promoter stake of 75 percent. Dalmia Group having Dalmia Bharat Cement and Dalmia Bharat Sugar, both these companies are doing extremely well. However, because of the positive view on sugar, I am giving a buy call at Rs 148 with a price target of about Rs 185 in next six months or so.
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