Over 270% in 2 years!  This multibagger sugar strain is still in a sweet spot

Over 270% in 2 years! This multibagger sugar strain is still in a sweet spot – Mail Bonus

Shares of sugar companies have been in the spotlight after the government announced various measures to ensure that the industry’s financial position remains healthy. equities have returned over 270 percent to their shareholders over the past two years. It peaked at 52 weeks at 525.70 Rs on April 8, 2022 and the lowest at 52 weeks at 297.80 Rs on October 25, 2021.

With a market capitalization of more than Rs 8,200 crore, the shares are trading above short-term moving averages of 10, 20, 200-DMA but below 5, 50, 100-DMA. Long-term investors have made huge profits by investing in these stocks, which have risen by more than 700 percent in the last ten years.

In a recent report, CareEdge Research pointed out that an important factor for India’s sugar industry is the Ethanol Blend (EBP) program, which aims to reduce sugar levels in India.

The EBP program supports the distribution of sugar cane and excess sugar towards the production of ethanol, which has now become the main focus for the future of the sugar industry. The government also issues a purchase price for ethanol to direct sugar cane towards ethanol production.

Centrum Broking believes that there has been a structural change in the dynamics of the industry. “Fluctuations in crude oil prices, environmental risks due to the consumption of fossil fuels and concerns about energy security have led to the implementation of the Ethanol Blending Program (EBP) by the Government of India (GoI),” it said.

The stockbroker noted that demand for ethanol blends is estimated to reach 1,016 crore liters from the current 425 crore liters over ESY21-26, which is a CAGR of 25.1 percent. This is primarily driven by the sugar industry and has led to an expansion in TAM for integrated sugar factory owners from 0.95 trillion to Rs1.4 trillion over FY21-24.

“Balrampur Chini Mills (BRCM) will benefit from an expansion of distillation capacity from 560 KLPD now to 1,050 KLPD to 2HFY23 and a concomitant increase in the ethanol market (expected to almost double from Rs 240 billion to Rs 450 billion on FY21-24),” he emphasized. Broking Center.

“When BRCM transforms into a bio-energy game, there will be steady growth and stability in revenue, which calls for higher valuation multiples. at Rs 36.8 and get the target price up to Rs 515.

Elara Capital also believes that ethanol capacity, plans for the expansion of a treatment plant and bottleneck treatment at one of the plants are on track. After the completion of construction production, the distillation capacity would increase to 350 million liters; therefore, it is likely that the EBIT contribution from the distillation plant is booming.

However, she pointed out that as more cane is transferred to ethanol with a higher margin, the sugar content could stagnate with a downward slope, which may affect sugar income but will probably offset better implementation and higher profitability in the ethanol component.

“We reiterate Purchases with a lower target price of Rs 506 from Rs 536 on the SOTP valuation, which assumes distillation at 10x FY24E EV / EBIT and sugar at 7x FY24E EV / EBIT,” it added.

BRCM is a medium-sized company operating in the sugar sector. Key products / revenue components are sugar, alcohol (industry), export incentives, power and bagasse.

Project managers owned 42.42 percent of the company on March 31, 2022, while FIIs owned 19.23 percent and DIIs 17.02 percent.

(Disclaimer: Advice, suggestions, opinions and opinions given by experts are their own. This does not represent the views of the Economic Times)

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