Sweetness magnified! This sugar stock delivered 230% return in 1 year

Share of Dwarikesh Sugar Industries Limited (DSL) has delivered 230 per cent return to its shareholders in one year. The share stood at Rs 24 on July 20, 2020. It has zoomed to Rs 79.20 today, translating into gains of 230 per cent during the period. In comparison, Sensex rose 42 per cent in one year.

Rs 5 lakh invested in the share of sugar maker a year ago would have turned into Rs 16.5 lakh today.

The stock rose 4.83 per cent to hit an intraday high of Rs 79.20 on BSE. It ended 3.31 per cent higher at Rs 78.05 against the previous close of Rs 75.55. Market cap of the firm rose to Rs 1,469.69 crore. The share stands higher than 5 day, 10 day, 20 day, 50 day, 100 day, and 200-day moving averages.

According to MarketsMojo, the leading player in the Indian sugar industry has a strong ability to service debt as the company has a low Debt to EBITDA ratio of 1.50. The technical trend has improved from Mildly Bullish on June 4, 2021, and the stock is technically in a Bullish range now and has generated a 37 per cent return since then.  Multiple factors for the stock are Bullish like MACD, KST, DOW and OBV.
 
It also noted that the company has a high Return on Capital Employed (ROCE) of 28.31 per cent and the stock seems fairly valued at the moment. The EPS has increased to Rs 2.56 in March 2021 from Rs 2.35 in March 2020.
 
ICICI Direct has a 'Buy' rating on the stock with a revised target price of Rs 110 (earlier Rs 62). The brokerage house noted that with high earnings growth and inventory reduction, DSL would be able to generate an operating cash flow of Rs 150-300 crore every year.
 
"With the possibility of higher exports, DSL would be able to substantially reduce its sugar inventory in the next one year. Further, increasing distillery volumes through B-heavy & sugarcane juice route would drive growth in operating profit," it added.
 
Recently, the company announced that it has embarked upon a project to set up a 175 kilo litre per day (KLPD) distillery at its Dwarikesh Dham Unit, Dist. Bareilly, Uttar Pradesh. DSL informed that necessary letter of intent (LOIs) for the critical equipment is under issuance. The company expects to complete the project within 15 to 16 months.
 
"The proposed distillery will utilise sugarcane juice/syrup as its principal feedstock during the cane crushing season and turn to B Heavy molasses route (or grain) during the off-season for continuous manufacture of ethanol," DSL added.
 
Sugar stocks have been on a roll for the past few months. In June 2021, Prime Minister Narendra Modi said that the target date for achieving 20 per cent ethanol-blending with petrol has been advanced by five years to 2025 to cut pollution and reduce import dependence.
 
Ethanol extracted from sugarcane as well as damaged food grains such as wheat and broken rice and agriculture waste is less polluting and its use also provides farmers with an alternate source of income.
 
Speaking at the launch of the ethanol road map on the occasion of World Environment Day, Modi said that the target for mixing 20 per cent ethanol in petrol has been brought forward from 2030 to 2025.
 
Currently, about 8.5 per cent ethanol is mixed with petrol as against 1-1.5 per cent in 2014, he said adding ethanol procurement has risen from 38 crore litres to 320 crore litres.
 
"With ethanol blending by oil marketing companies (OMCs) picking up pace and with the Government's stance on increasing the blending targets to 20% supported by the remunerative ethanol pricing and incentive schemes to build up capacities to achieve the same, the economics of sugar industry is getting better," CARE Ratings said in a report.
 
It believes that with sugar inventories getting rationalised, demand-supply balance evening out and a considerable increase in ethanol sales, the cash flows of integrated sugar mills are going to enhance in the next three to four years.