Buy for a steep 52% ​​rise, additional distillery capacity for small-cap sugar stocks, strong sales: ICICI Securities

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Stock to buy: target price and financial result

The current market price (CMP) of Avadh Sugar is Rs. 521. ICICI Securities has estimated a target price for the stock at Rs. 790. This stock has the potential to yield a return of 52%, in the coming year. It is a small cap stock with a market capitalization of around Rs. 1,043 crores.

Stock market outlook
Current market price (CMP) Rs.521
Target price Rs.790
Potential return over 1 year 52.00%
Stock price at 52-week high Rs.885.00
52 week low price Rs.396.00

Avadh recorded sales growth of 11.2%, driven by strong ethanol sales which increased by 11.2% to Rs. 688.1 crores led by a 47.3% growth in revenue from the ethanol. The company’s EBITDA was Rs. 64.2 crore, down 8.3% year-on-year, with margins at 9.3%, and the resulting PAT was Rs. 19.7 crore (up 3.9%) impacted by the decline in EBITDA.

ICICI Securities: Advantages of the action

ICICI Securities: Advantages of the action

Avadh’s share price jumped 46% in the last 5 years (from Rs 355 in August 2017 to Rs 521 in August 2022). Giving the stock a buy rating, ICICI Securities said, “We expect distillery volumes CAGR of 15.7% to boost overall earnings with a CAGR of 29.8% in the year. 22-24E. The company has added a distillery capacity of 80 KLD with a capex of Rs. 135 crore, which would increase its distillery volumes to 11 crore litres. Avadh would maximize the production of B-heavy ethanol and sugarcane juice. Avadh is also undertaking debottlenecking operations, which would increase its operational efficiency and improve its profitability.

However, the company added, “Sugar inventory fell from 14.5 million tonnes (MT) in September 2019 to 8.2 MT in September 2021, which would fall further to 5.7 MT by September. 2022. This would keep sugar prices above Rs. 35/kg. With stocks cleared next year and profitability increasing, the company would be able to deleverage its balance sheet.”

Company Portfolio: Avadh Sugar

Company Portfolio: Avadh Sugar

Under KK Birla group of sugar companies, Avadh Sugar was incorporated on March 19, 2015. The company has a sugarcane crushing capacity of 31800 TCD, a distillery capacity of 325 KLD and a salable energy capacity of 74 MW. The company produces 6.0 lakh tonnes (lt) of sugar, 8 crore liter of ethanol and 15 crore units of salable energy. This would help it increase its annual ethanol production to 11 crores per liter. The company is active in the sugar, industrial alcohol/ethanol/rectified spirits and energy sectors. Avadh Sugar also has two distilleries in Hargaon and Seohara with a total capacity of 200 KLPD. Our company also has a Cogen facility and can produce a power of 74 MW, as the company informs.

Disclaimer

Disclaimer

The stock above was taken from ICICI Securities’ brokerage report. Investing in stocks presents a risk of financial loss. Investors should therefore exercise caution. Greynium Information Technologies, the author, and the brokerage are not responsible for any losses caused as a result of decisions based on the article.

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