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Dismal results, realisation set to improve…
Dhampur Sugar Mills reported dismal results in Q4SY10 with | 75.3
crore of losses compared to | 15 crore loss in the corresponding quarter
as sugar prices remained low at around | 27 per kg. Net sales grew
48.6% to | 429.3 crore from | 287.0 crore on the back of higher volumes.
The company sold 1.58 lakh tonnes of sugar compared to 1.05 lakh
tonnes in the corresponding quarter. Sugar realisations dipped to | 26.6
per kg from | 27.1 per kg. The company posted losses at the EBITDA
level due to lower sugar prices and higher sugarcane cost paid in SY10.
Interest costs went up 27% to | 22.5 crore due to higher working capital
requirements.
Operational details
The company is holding 1.35 lakh tonnes of sugar at average cost of |
26.2 per kg. The company produced 4.6 lakh tonnes of sugar in SY10 of
which 1.6 lakh tonnes was produced from imported raw sugar. We
believe with government’s allowance exports to the industry, Dhampur
would also be eligible for exports under Advance License Scheme (ALS)
thereby boosting volumes and resulting in better domestic realisations.
Valuation
At the current market price of | 69, the stock is trading at 5.5x its SY11E
EPS of | 12.5 and 3.5x its SY12E EPS. The replacement cost/share of
Dhampur is estimated at around | 159.5. With domestic sugar prices
bottoming out at | 25 per kg, we believe realisations are likely to improve
in SY11 and allowance of sugar exports would boost both volumes as
well as realisation, going forward. We also believe the stock remains
highly undervalued. Hence, with the structural changes due for the sector,
there is significant upside for the stock. We have maintained our target
price on the stock at | 92 per share.
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