Dhampur Sugar Mills Ltd (DSL) Q3FY22 Results by Brokerage
- DSL posted strong numbers with earnings before interest, tax, depreciation and amortization (EBITDA) growth of 22.2%.
- Sales were down 17.8% year-on-year due to a lower domestic sugar sales quota.
- EBITDA was Rs 135.8 crore, down 22.2% year-on-year, with margins at 15.2%.
- The consequent profit after tax (PAT) was Rs 76 crore (up 36.8% year-on-year).
Key investment rationale for Dhampur Sugar according to ICICI Securities
- DSL is increasing its ethanol capacity by 2x to 22 crore liter by FY24, which would drive distillery sales CAGR of 24% to Rs 1535.4 crore in FY21-24E. The company derives 35% of its revenue from the distillery business.
- The company would increase its cane crushing by 5-10% over the next year. This would help him use the extra sugarcane for ethanol production through sugarcane juice.
- We forecast a cumulative free cash flow of Rs 731 crore over the next three years, which would fund CAPEX, reduce debt levels and drive earnings growth.
Buy for a target price of Rs. 475 per share
ICICI Securities claimed that “DSL’s share price has increased by 93% over the past five years (from Rs 198 in February 2017 to Rs 382 in February 2022). % in fiscal year 21-24E. We continue to maintain our buy rating on the stock. We value the stock at Rs 475, valuing the company at 1.5x FY23 BV.
As an alternative stock pick, the brokerage pointed out that “We also like Dwarikesh Sugar in our sugar hedge. The company is one of the most efficient companies with the highest sugar recovery and availability abundant sugar cane. It increases its distillery capacity to 3x during FY21-24E. We value the stock at Rs 135/share with a BUY recommendation.”
The security was selected in the brokerage report of ICICI Securities. 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.