Here are some stock trading ideas by SP Tulsian

Let me just give you a small background here purchase tax which was there earlier existing for the last season that got subsumed in the goods and services tax (GST) and GST coming into effect from July 1, there has been a straight saving of Rs 6 purchase tax to all the mills those who will be starting the crushing now and crushing always starts after having closed in the month of April or March, always starts in the month of October- November largely in Maharashtra and Uttar Pradesh. So, the SAP which we have seen -- a hike of about Rs 10 per quintal effectively will result a burden of about Rs 4 per quintal only. That is seen extremely positive. Let me tell you that the millers and all were expecting much more hike than Rs 10 per quintal that is extremely positive – number one.

Number two the ethanol price hike is likely to be seen again now may be from the UP government also may be in the next one month and that is expected to be about Rs 3 per litre and if that comes in that will again be a huge positive. Third thing, because of this late monsoon the recovery will increase in UP. Already UP has been seeing an increase on an average last season. The average recovery was 10.67 for the entire state with many of the mills having a recovery of may be as high as 11.75 also. But this time, it is expected that from 10.67 probably it will touch maybe to about 10.9 or closer to about 11 because of the late monsoon having seen maybe in this last one month which will increase the sugar content in the sugarcane and will effectively lead to higher recovery going forward.

Specifically on Dalmia Bharat – it will be having a dual advantage because they have three mills in UP aggregate capacity of 22,500 TCD and two mills in Maharashtra 10,000 TCD. Maharashtra this year is going to show the production growth of about maybe 65-72 percent, a range of 65-72 percent. While Dalmia Bharat Sugar in its two mills will be going to show a production growth of 90-100 percent. UP is going to show a production growth of 12-15 percent. One can expect a 15-18 percent growth for Dalmia Bharat Sugar. So, going forward if you take a call the scenario for this company is going to outperform the industry now.

Now coming again a myth that sugar industry is seeing a production growth of 23 percent this year that is right, but that will not be even meeting the consumption requirement which is at about maybe 25.50-26 million while the production is estimated at 25 million tonne. So, again the prices will remain quite firm. It may not fall below Rs 35 or may be even Rs 36 if I want to stick my neck out. So, taking all this into consideration the season has started with a quantity of less than 4 million tonne or if you ask me it is at 3-3.50 million tonne though it is my saying at about 3.50-4 million tonne, so taking all this into consideration the sugar industry scenario is very good.

Coming quickly on this I have already given 5 mills if you see the financial performance of the company for quarter one they have already posted a record earnings per share (EPS) of about 6.80 and if you can just extrapolate this company should be able to post an EPS of closer to about Rs 27-28. This is an only company having promoters stake of 75 percent. The balance sheet is very much in place. There are no sugarcane arrears and we are going to see the record Q2 numbers and record FY18 numbers from all UP sugar mills including this Dalmia Bharat Sugar as well. So, taking that into account, share now ruling at Rs 180-181 can move to a level of Rs 217 in next 6 months or so.