ICICI Direct is bullish on Dhampur Sugar has recommended buy rating on the stock with a target price of Rs 160 in its research report dated August 01, 2020.
ICICI Direct's research report on Dhampur Sugar
Dhampur Sugar (DSL) reported strong set of numbers with 15.1% revenue growth led by 20% increase sugar volumes of 2.7 lakh tonnes (lt) on the back of higher exports. The company received additional 58,000 tonnes of export quota after the first round of re-allocation in February 2020. Sugar realisation was flat at Rs 32.2/kg. DSL crushed ~10% higher sugarcane in crushing season 2019-20 with excess sugarcane diverted from gur & khandsari manufacturers as they stopped manufacturing operations by March end due to lockdown imposed across country. Distillery volumes fell 29.7% to 2.2 crore litre mainly due to lower off take by OMCs in April given constraints of OMCs storage capacity during lockdown. However, distillery realisation improved due to higher proportion of B heavy ethanol. Power volumes, tariffs were down 10.6%, 39%, respectively, due to tariff revision by UPERC in July 2019. Operating profit fell 1.4% mainly due to reduction in power tariffs last year. PAT fell 7.3% to Rs 54.2 crore with higher taxation provision.
The current peak working capital debt requirement for the company is Rs 1200 crore. We believe strong cash flow generation would result in Rs 450 crore of reduction in peak working capital debt. Moreover, we expect ~30% payout through dividend/buyback, which results in payout yield of 6-7%. The stock is trading at extremely attractive multiples of 3.6x FY21 earnings and 0.5x FY21 price to book value. The stock is a potential re-rating candidate. We maintain our BUY rating on the stock with a target price of Rs 160/share.
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