Hold Dhampur Sugar; Target :Rs 38 :: ICICI Securities

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S t r a i n e d   q u a r t e r…
Dhampur Sugars reported a muted performance in its Q2FY12 results.
The company’s net sales declined by 6.8% from | 429.3 crore in Q4FY11
to | 400.2 crore in Q2FY12. The slowdown in sales was led largely by a
fall of 37.9% in sugar sales volume. EBITDA margins for the quarter came
in at 11.3% compared to negative margins in Q4FY11. Interest cost was
higher  by  24.8%  to  |  28.0  crore.  Hence, in spite of a lower sales an
improvement in margins helped the  company to improve its earnings
thereby reporting a PAT of |4.0 crore in Q2FY12 against a loss of | 75.3
crore in Q4FY11. The company has also reduced its debt (long term) to
|487.5 crore from |522.6 crore at the end of Q4FY11 and |496.4 crore on
Q1FY12.
Operational highlights
The company sold 0.98 lakh tonnes of sugar at the average realisations of
| 28.8 per kg. Sugar volumes dipped by 37.9% from 1.58 lakh tonnes in
Q4FY11. Sugar realisations per kg improved on a YoY basis from | 26.8 to
| 28.8 during the quarter. Power sales volume remained flat at 1.8 crore
units with the average tariff being | 4.67 per unit. Distillery sales volume
improved slightly to 8576 kilo litres (KL) compared to 7318 KL in Q4FY11,
however distillery realisations remained flat at | 26.4 per lire.
V a l u a t i o n
At the CMP of | 36, the stock is trading at 11.2x and 5.9x its FY12 and
FY13 estimated EPS of | 3.5 and | 6.1, respectively. Higher sugarcane
cost, volatile sugar realisation and untenable export policy by government
has resulted in poor performance by sugar companies. We believe some
concrete decision on export allowance and decontrol of the sector are
awaited, which could help the millers to protect the margins in future and
help the companies to improve their earnings. We remain cautious on the
stock until further announcements by the government on the due
decisions for the sector and hence, reduce  our  target  from  |  75  to  |  38
per share

Buy Dhampur Sugar ; Target : Rs 75 :: ICICI Securities

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L o w e r   v o l u m e s   d r a g   t o p l i n e …
Dhampur Sugar Mills’ Q1FY12 results were below our expectations. Net
sales during the quarter witnessed de-growth of 46.6% to | 239.9 crore
from | 448.9 crore in Q3FY11 (I-direct estimate: | 354.9 crore). This was
on the back of lower sales volumes and flat realisation from sugar and
considerably lower revenues from co-generation. However, lower cost of
raw materials (raw material to sales  ratio stood at 83.9% over 91.7% in
Q3FY11) helped in protecting margins of Dhampur. Hence, it reported an
EBITDA of | 41 crore (EBITDA margin at 17.1%) against an EBITDA loss of
| 15.8 crore in Q3FY11. Led by higher margins, the company’s earnings
improved to | 0.9 crore against a loss of | 41.2 crore in Q3FY11.
Operational details
During  the  quarter,  Dhampur  sold  0.64  lakh  tonnes  (lt)  of  sugar  at  an
average realisation of | 28.7/kg compared to sales of 1.22 lt at | 28.6/kg.
Thus, the significant drop in sales quantity pulled down the segment
revenue ~45% to | 205.4 crore. Revenues from distillery and cogeneration were also lower ~30% and ~71% to | 24.2 crore and | 31.4
crore, respectively. Lower revenues from by-product sales were also led
by lower volume sales with realisations being constant.
Currently, the company is holding 1.62 lt of sugar inventory at an average
cost of | 24.5/kg (combined for free sale and levy quota). Also, higher
requirement of working capital during the quarter increased its interest
cost from | 24.6 crore to | 28.5 crore.
Valuation
At the CMP of | 53, the stock is trading at 5.9x and 4.2x its FY12 and FY13
estimated EPS of | 6.5 and | 10.1, respectively. We expect high festive
demand for sugar in August-December, 2011, to result in firming up of
sugar prices above | 30/kg, thereby improving margins for the company.
At the current price, we believe valuations are at the bottom and change
in the sugar cycle in FY13-14 makes it an attractive BUY. Hence, we have
remained positive on the stock with a target price of | 75 per share

Dhampur Sugar: Dismal results, realisation set to improve:: ICICI Sec

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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.