Avadh Sugar Q3FY22 Results by Brokerage
- Avadh announced strong results with 70% growth in earnings before interest, taxes, depreciation and amortization (EBITDA).
- Sales up 7.2% to Rs 746.5 crore, driven by strong sugar and ethanol production.
- EBITDA was Rs 73.1 crore, up 70.2% year-on-year, with margins at 9.8%.
- The consequent profit after tax (PAT) was Rs 28.9 crore (compared to Rs 3.7 crore in the base quarter).
Main investment rationale for Avadh Sugar according to ICICI Securities
- The company ordered 80 KLDs with a CAPEX of Rs 135 crore, which increased its annual distillery capacity to 11 crore. Avadh would maximize the production of B-heavy ethanol and sugarcane juice.
- Sugar stocks fell from 14.5 MT in September 2019 to 8.2 MT in September 2021, which would further drop to less than 7 MT by September 2022. This would take sugar prices to Rs 37/kg .
- With inventory being liquidated over the next year and profitability increasing, the company would be able to deleverage its balance sheet. We expect a debt reduction of Rs 540 core between FY21 and FY24E.
Buy for a target price of Rs 970
ICICI Securities said that “Avadh’s share price has grown 3x over the last five years (from Rs 220 in July 2017 to Rs 660 in February 2021). We expect a 75% increase in volumes of the distillery to grow profits with a CAGR of 42.5% in FY21-24. We continue to maintain our buy rating on the stock. We value the stock at Rs 970, valuing the company at 2x FY23 gearbox.
The brokerage’s sugar coverage also includes Dwarikesh Sugar, which has a buy rating. According to ICICI Securities, the company is one of the most efficient companies with the highest sugar recovery and abundant sugar cane availability. It increases its distillery capacity to 3x in the next three years. “We value the stock at Rs 135/share with a BUY recommendation,” the brokerage said.
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.