Buy Dwarikesh Sugar; target of Rs 34: ICICI Direct
ICICI Direct is bullish on Dwarikesh Sugar has recommended buy rating on the stock with a target price of Rs 34 in its research report dated November 05, 2020.
November 07, 2020 / 12:53 PM IST
ICICI Direct's research report on Dwarikesh Sugar
Dwarikesh Sugar (DSL) posted a strong set of results with 138.3% revenue growth to Rs 417.4 crore, mainly on account of higher sugar & ethanol sales. Sugar sales grew 123.4% led by higher domestic sales quota & export. Ethanol sales were up from Rs 4.3 crore to Rs 39.6 crore aided by higher ethanol volumes as company commissioned 100 KLD distillery in December 2019. The company sold entire C heavy ethanol during the quarter, which restricted realisation at Rs 43.8/litre in Q2. We believe DSL would be producing ~80% ethanol from B heavy molasses in sugar season 2020-21, which would significantly improve distillery realisations. Domestic sugar sales quota was 93000 tonnes while export volumes were 19900 tonnes during the quarter. We believe the company is holding 1.76 lakh tonnes (lt) of sugar as of September 2020, which would be exhausted by February 2021. Operating profit increased 148.7% to Rs 45.5 crore, largely on the back of higher sales. PAT grew from Rs 4.5 crore to Rs 17.7 crore.
DSL is one of the most efficient sugar companies with lowest cost of production given more than 12.2% sugar recovery. The company only has Rs 218 crore of term loan at a concessional interest rate. With strong possibility and small inventory reduction, DSL would be able to generate Rs 126 crore and 193 crore of cash from operations in FY21E & FY22E, respectively. We expect ~Rs 200 crore working capital debt reduction in the next two years. We value the stock at 1.1x FY21 book value with a target price of Rs 34/share and have a BUY recommendation on the stock.
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