ICICI Direct is bullish on Dwarikesh Sugar has recommended buy rating on the stock with a target price of Rs 38 in its research report dated August 08, 2020.
ICICI Direct's research report on Dwarikesh Sugar
Dwarikesh sugar (DWSL) reported sturdy results with 16.2% revenue growth aided by higher sugar & distillery segment sales. Sugar sales was up by 13.1% driven by higher sugar exports & higher sale of molasses given the company have crushed record sugarcane this season. However, sugar realisation were down by 1.1% to Rs 31.3/kg. Sugar sales volumes increased by 4% to Rs 1.25 lakh tonnes in Q1FY21 vis a vis Q1FY20 which included 0.6 lakh tonnes of exports. Distillery segment sales increased by 70.9% to Rs 20.8 crore driven by higher volumes as company commissioned new 100 KLD distillery in December 2020. Though distillery volume were higher by 57% to 0.44 cr litres, it is much lower than the capacity of producing 1.0 crore litres every quarter. We believe lower offtake by OMCs due to their constraints of storage impacted ethanol sales. Power segment sales volumes increased from 2.7 crore units to Rs 4.4 crore units as company crushed 20% higher sugarcane in current season. Operating profit was higher by 38% to Rs 50.2 crore with higher sugar & ethanol sales. Net profit declined by 9.2% to Rs 18.1 crore due to tax reversal in base quarter.
DWSL is one of the most efficient sugar companies with lowest cost of production given more than 12.2% sugar recovery. The company has only Rs 224 crore of term loan at a concessional interest rate. Moreover with strong Rs 170 crore operating cash flow generation in FY21E & FY22 each, the company would be able to reduce its peak working capital debt requirement by Rs250 crore by March 2022. We value the stock at 1.2x FY21 book value with a target price of Rs 38/share and have a BUY recommendation.
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