This stock has lost around 27% in the last 7 trading sessions as with the indices the broader markets are also pounded. However, sugar stocks over the past quarters or 1-2 years have been in an ideal position as prices have steadily increased. Although the name of Dhampur Sugar may sound more like a sugar company, it is more of a diverse game. The company is one of the leading integrated sugarcane processing companies in India. The company’s pioneering efforts to harness the full potential of sugar cane has allowed it to expand its portfolio beyond sugar to include renewable energy, fuel ethanol, alcohol, extra alcohol neutral, alcohol-based chemicals and organic fertilizers.
According to Sharekhan, Dhampur Sugar is focused on increasing investment in ethanol capacity with strong support from the government’s cautious blending policies, strengthening the company’s non-sugar portfolio and improving overall profitability at medium and long term. The brokerage has set a target of Rs 691 on the stock, which means that if you buy the shares today, it is possible to double the value.
Sugar of Dhampur: expansion for profit
Dhampur Sugar will upgrade its distillery facility to 650 KL per day in FY 2024 from 400 KL per day in FY 2021 (increased to 500 KLPD in January 2022). The expansion of the distillery’s capacity would help the business revenue to post a compound annual growth rate of 29% in the financial year 2021-2024 to Rs. 1,245.2 crores. Revenue contribution from ethanol segment will increase from 14% in FY21 to 27% by FY24. Sharekhan sees EPS of Rs 50.7 for FY2022- 23. This means that the stock at Rs 371 is barely trading at 7 times its 1-year forward earnings. The sugar company also offers a dividend yield of around 2%.
Dhampur Sugar shares take capitalization
Shares of the company were trading at Rs 521 on May 6 and the stock is now trading at Rs 363. On a one-year basis, the stock has always yielded around 14%. Shares of the company have fallen significantly from 52-week highs of Rs 584. Interestingly, the stock also has some way to go to reach its 52-week low. Investors looking to buy the stock today should also understand that while valuations are reasonable, sugar stocks tend to be extremely volatile and therefore caution should be exercised before investing. In any case, given the company’s expansion plans, sugar demand and rising sugar prices, the stock is worth a buy at the current price of Rs 360 or thereabouts.
Markets will remain volatile
Markets will remain volatile and therefore it is advisable to buy dips in small amounts. Indices are seeing volatile moves as various factors such as rising interest rates, concerns over slowing economic growth and further tightening of measures in China continued to weigh on investors. Nifty has corrected sharply by 6.5% over the past 7 trading sessions. One of the big risks of buying shares of Dhampur Sugar, which investors should also note, is that any change in government ethanol blending policy or dwindling supply of sugar due to vagaries weather or other supply constraints would put earnings estimates at risk. That said, we don’t see the possibility of that happening in the near future, at least in the next 1-2 years.