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Sunday, August 2, 2009

Andhra Sugars Ltd:-Analysis,future growth prospects,potential and outlook

Scripscan:Andhra Sugars Ltd

Story:The business mix of Andhra Sugars is interesting. Currently, chemicals form the larger part of its business both in revenues and profits. About 25% of its revenue comes from the sugar business while 46% comes from caustic soda which also contributes the bulk of profits (61%). Another aspect of ASL’s business is its subsidiaries. It owns a 76.82% stake in Andhra Farm Chemicals Corporation Ltd which is into manufacturing of Hydrazine Hydrate (India’s largest producer) used to make drug intermediates. Its 55% subsidiary, JOCIL Ltd produces fatty acids, glycerine and soaps; and has also commissioned a 6MW bio-mass based co-generation facility. It also holds a 28% stake in Andhra Petrochemicals Ltd which makes oxo-alcohols. Last year, ASL’s consolidated net sales declined 13% over the corresponding period of the previous year to Rs574.36 crore while its profit after tax and was down 28% at Rs55.52 crore.Future growth will come from sugar. If there is one sector that is not badly affected by the economic slowdown, it is sugar. The price of sugar has been supported by rising demand and reduced supply. India’s sugar output in the season ending September 2009 is expected to be 20 million tonnes as against 26.3 million tonnes during the corresponding period in 2008 as farmers have shifted to other crops offering better returns. Adding fuel to the fire is the higher price that millers in Uttar Pradesh, India’s second largest producer of sugar, are likely to pay farmers for cane in the coming months. Higher cane prices translate into higher input costs resulting in higher selling prices. Even Maharashtra, the No. 1 sugar- producing state, has reported a drop in output of over 15% so far this season as compared to last year. All this makes sugar stocks sweet. ASL has a crushing capacity of 9,500 tonnes a day at its three facilities and has been utilising molasses, which is a by-product for its alcohol plant, for the manufacture of industrial alcohol with a capacity of 30 kilolitres a day. ASL’s management and the board look good. The team has relevant qualifications and experience and is committed to growing the business judiciously in different directions. Tax payouts indicate accounting integrity and high dividend payouts indicate a shareholder-friendly attitude. It is running reserves of Rs336 crore which is as much as 12 times its capital. The stock is currently trading at Rs107 at which price the market-cap is Rs 290 crore.The dividend yield on the stock is as high as 5%. Worth betting on for the long term.

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