This sugar stock has jumped more than 85% in 1 year, ICICI Securities sees more upside

0

Avadh Sugar Q4FY22 Results According to ICICI Securities

  • Avadh reported a 44% increase in ethanol sales in Q4FY22.
  • Sales fell by 8.7% to Rs 758.7 crore, impacted by lower sugar volumes.
  • EBITDA was Rs 84.9 crore, down 20.7% year-on-year, with margins of 11.2%.
  • The consequent PAT was Rs 51.3 crore (down 9.3%) impacted by lower EBITDA.
Main justification of investment for Avadh Sugar according to the brokerage company

Main justification of investment for Avadh Sugar according to the brokerage company

  • The company has increased the distillery capacity by 80 KLD with a capex of Rs 135 crore, which has increased its distillery volumes to 11 crore. Avadh would maximize the production of B-heavy ethanol and sugarcane juice.
  • The sector’s sugar stocks fell from 14.5 million tonnes (MT) in September 2019 to 8.2 MT in September 2021, which is expected to drop further to less than 7 MT by September 2022 due to exports record. This would keep sugar prices firm.
  • 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 760 crore between FY22 and FY24E.
Buy for a target price of Rs 890

Buy for a target price of Rs 890

ICICI Securities asserted in its latest report that “Avadh’s share price has increased by 177% over the last five years (from Rs 220 in July 2017 to Rs 614 in May 2021). We expect a CAGR of 15.7% distillery volumes to increase revenue with a CAGR of 24.1% in FY22-24E We continue to maintain our Buy rating on the stock We value the stock at 890 rupees, valuing the company at 8x FY24 PE.”

A significant reduction in world sugar prices could derail exports next season and any weather-related disruptions to sugarcane yields or a sugar recovery remain the top risks to the stock according to the brokerage.

Warning

Warning

The security was selected in the brokerage report of ICICI Securities. Greynium Information Technologies, the author, and the brokerage are not responsible for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.

Share.

Comments are closed.