Downgrades

With the increasing profitability & reduction in sugar inventories, DBS would be generating cumulative free cash flow of | 626 crore in the next three years despite ~| 700 crore capex...

Higher cost of production due to lower recoveries Sugar recoveries in current season is expected to be lower by 0.30 bps. This would increase the cost of production by | 1/kg. Further, sugar prices are at the lower end currently due to muted demand in winter months. However, we believe sugar prices would move up from April onwards in anticipation of reduction of sugar inventory due to 6 million tonnes (MT) of exports & lower than expected sugar production. With sugar production at 30 MT and consumption & export at 26.5 MT & 6 MT, respectively, sugar inventories...

The engineering business has recovered considerably in Q2FY21 with gear and water business witnessing 12% & 6% sales decline, respectively. We expect 10% decline in engineering business revenue in FY21E & 22% growth in FY22E with speedy execution of existing orders. The current order book in gear & water business is at | 149 crore & | 875 crore, respectively. Further,...

Registered Office:Rukmini Towers, 3rd& 4th Floor, # 3/1, Platform Road, Sheshadripuram, Bangalore - 560 020,...

DSL is one of the most efficient sugar companies with lowest cost of production given more than 12.2% sugar recovery. The company only has | 218 crore of term loan at a concessional interest rate. With strong possibility and small inventory reduction, DSL would be able to generate | 126 crore and 193 crore of cash from operations in FY21E & FY22E, respectively. We expect ~| 200 crore working capital debt reduction in the next two years. We value the stock at 1.1x FY21 book value with a target...

With the first year of operation of new 100 KLD distillery, the company was able to sell 8.5 crore litre of ethanol/ENA in FY20. With the ramping up of utilisation, we expect 24% increase in ethanol offtake by OMCs. Moreover, with higher proportion of B heavy ethanol, distillery realisation would also improve. We expect distillery revenue to grow at 14.4% CAGR to | 512 crore. This coupled with expected hike in MSP by | 2/kg would lead to earnings growth of 11.7% CAGR to | 418.5 crore by FY22E....

The industry has seen some impact of lockdown in terms of 1-1.5 million tonnes (MT) sugar demand destruction due to adverse impact on carbonated drinks & ice-creams. Moreover, Dwarikesh has produced 22% higher sugar in 2019-20 crushing season (some impacted by closing down of jaggery, khandsari units in March due to lockdown). Given lower demand during lockdown, the company received reduced quota of 55,000 tonnes in June quarter. However, we believe sugar demand is back on track in June 2020 and for rest of the year, the company is expected to receive average...

Though sugar manufacturing continued during lockdown period, sugar consumption in the country declined by 1.0-1.5 million tonnes (MT) with a substantial reduction in ice creams & carbonated drinks sales. Moreover, sugar exports, which were expected to touch 6.0 MT in current sugar season, are now likely to be restricted to 4.5 MT. Both these factors would lead to higher than expected sugar inventory at 11.0 MT by end of September 2020. We believe the government would continue export subsidy next year also, which could help industry reduce sugar inventory...

We believe Balrampur would generate strong cash flow over the next two years, which would lead to a significant reduction in working capital debt requirement. Moreover, it has kept payment to shareholders (dividend, buy backs) at 40% of earnings. Currently, the stock is trading at 1.1x & 1x FY20E & FY21E P/BV, respectively. We value the stock at 1.5x FY21 PBV with a...