Dalmia Bharat Sugar and Industries Ltd. share price target

With the increasing profitability and reduction in sugar inventories, DBS would be generating cumulative free cash flow of | 718 crore in the next three years despite ~| 700 crore capex...

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...

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The government is aiming at ethanol blending with petrol to the tune of 10% by 2022, 20% by 2025. Moreover, it is also providing interest subvention for debt taken for distillery capacity expansion. This has encouraged sugar millers to raise distillery capacities. DBSL has increased its Nigohi distillery capacity from 60 KLD to 100 KLD in Q4 taking total capacity to 300 KLD. The company is doubling its annual distillery capacity from 8.6 crore litre in FY21 to ~15 crore litre in FY23E along with sugar crushing capacity of 5000 TCD with capex of | 412 crore. We believe DBSL is best placed to utilise B-Heavy...

The company has a 240 KLD distillery capacity and is maximising utilisation to produce B heavy ethanol. The increase in distillery capacities from 6 crore to 8 crore, increase in ethanol prices & higher contribution of B-Heavy ethanol would result in 24.4% CAGR in distillery sales to | 457 crore during FY20-22E. Further, the sugar industry is taking massive capacity expansion to increase distillation capacities to meet OMCs demand for ethanol. The industry is looking to utilise B-heavy & sugarcane juice route for ethanol production. This would also reduce sugar inventory in system & eliminate...

With significant reduction of sugar inventory through export & sacrifice towards B-heavy ethanol, DBSL would be able to generate cash from operations to the tune of | 607 crore & | 444 crore in FY21E & FY22E, respectively. We expect debt reduction of | 790 crore by FY22E. With new addition in distillery capacities, the visibility of revenues & earnings growth has extended for next five years. We revise our target price to | 180 (from...

Higher distillery volumes, exports to drive growth The company has commissioned an insinuation boiler in Jawaharpur, UP in Q4FY20. This would increase operational days from 280 to 330, which would result in additional production of 0.6 crore litre of ethanol. Moreover, the company has aggressively diverted sugarcane toward B heavy ethanol 2019-20 sugar season, which would have helped it produce less sugar & more ethanol. With the increase in capacity and higher availability of B heavy molasses, we expect distillery volume to increase 15.8% to 7.9 crore litre in...

With the 240 KLD distillery capacity, the company was able to produce 6.8 crore litre & sell 6.4 crore litre during the year. The distillery operated for 280 days (our estimate). However, the company commissioned the incineration boiler at its Jawaharpur plant, which would enable it to run for 330 days. We estimate 10.1% CAGR in distillery revenues during FY20-22E to | 405 crore. Moreover, with ~55-60% sugarcane diversion towards B heavy molasses, the company would sacrifice considerable amount of sugar in coming season. We believe diversion towards B heavy ethanol and aggressive sugar...