ICICI Securities | Buy Dalmia Bharat Sugar, Avadh Sugar for upside of up to 47%; brokerage gives buy call on these 2 sugar stocks too—details

Sugar stocks were on roll on Monday as when the stock market tumbled close to 2 per cent, sugar stocks surged as much as 20 per cent

Maintaining a buy call on Dalmia Bharat Sugar, the brokerage sees an upside of 46% in this stock in 12 months.

Sugar stocks were on roll on Monday as when the stock market tumbled close to 2 per cent, sugar stocks surged as much as 20 per cent as a few of them even touched a new 52-week in a falling market. Shares of Ugar Sugar works Ltd surged by Rs 6.90 or ended 20% higher to Rs 41.40 a share on the BSE, while Dhampur Sugar, which traded on a new high of Rs 431.50, ended at Rs 419.15, up Rs 11.40 or 2.80%. After trading on a fresh 52-week high, Dwarikesh Sugar too ended 3 per cent higher at Rs 104 on the BSE. Mawana Sugars and Uttam Sugars ended nearly 12 per cent higher, while Uttam sugar settled with 10 per cent gain when the majority of other sector stocks nosedived in a volatile market.

Meanwhile, ICICI Secuities sees an upside of up to 47% in two sugar stocks—Dalmia Bharat Sugar and Avadh Sugar — on back of strong earnings by sugar stocks.
Dalmia Bharat Sugar:

Maintaining a buy call on this sugar stock, the brokerage sees an upside of 46% in this Dalmia Bharat Sugar in 12 months.

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It believes that the expansion in its distillery capacity from 8.5 crore litre to 16 crore litre and plans to further increase its distillery capacity to 22 crore litre in the next one year through two grain based new distilleries will help the stock hit the target price of Rs 660, which turns out to be 46% on base price of Rs 453 per share.

Speaking of triggers going forward, brokerage says with the increasing profitability and reduction in sugar inventories, DBS would be generating cumulative free cash flow of Rs 718 crore in the next three years despite approximately Rs 700 crore capex. It is also the fastest in utilising B-heavy, sugarcane juice & grain route to produce ethanol and has been aggressive in exporting sugar, utilising higher global white sugar prices. "Freight cost is much lower given its proximity to ports," says ICICI Securities.

Avadh Sugar
Avadh Sugar has increased its distillery capacity from 240 KLD to 325 KLD with a capex of Rs135 crore. This would help it increase its annual ethanol production to 11 crore litre. With inventory liquidation in the next one year and a boost in profitability, the company would be able to de-leverage its balance sheet. "We expect a debt reduction of Rs 540 core between FY21 and FY24E and value the stock at Rs 970," it said. The target price on CMP of Rs 660 translates into 47% upside.

Alternate trading ideas from Sugar sector
Beside the aforesaid two sugar stocks, the brokerage also picked alternative stock ideas in Balrampur chini Mills and Dwarikesh Sugar. Giving a buy call, it set a target price of Rs 600 per share for Balrampur chini Mills and Rs 135 a share for Dwarikesh Sugar. This translates into 26% upside for Balrampur chini and 25% for Dwarikesh Sugar on closing prices of Rs 444.15 and Rs 101.40 per share on the BSE on Monday.

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