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Wednesday, February 29, 2012

Dhampur Sugar Mills Ltd:Buy/sell/growth prospects and recommendation,news and results,target and analysis,view and outlook,multibagger

Scripscan:Dhampur Sugar Mills Ltd

Story:Dhampur Sugar Mills has remained an underperformer along with most of its peers over a prolonged period as can be seen from the adjoining monthly chart. The most important observation on the long term price charts is that the share price has bounced back in the last few weeks after testing an important trendline support formed by joining the major troughs since April 2003 Price action over the past one year the price decline has occurred in a well defined down-ward sloping channel formation. The current upmove has seen the share price revisit the upper band of the said channel backed by hectic volume activity. A sustained close above Rs 40 levels would result in a breakout past the said channel which would indicate a change of guard from medium term trend perspective. At the recent lows of |27-28 levels recorded in Dec-Jan period, the stock corrected more than 90% from its 2006 peak of Rs 271 levels. Historically it has been observed that stocks that have lost more than 90% market capital i.e. are trading around 11% value compared to the all time highs tend to post significant pullbacks once volumes also start picking and therefore offer good investment opportunity from a medium term perspective.The company is one of the bigger sugar companies in India with a sugar crushing capacity of 40,000 tonnes crushed per day (tcd), ethanol capacity of 270 kilolitres per day (KLPD) and co-generation capacities of 150 MW, out of which 85 MW is saleable. Higher sugarcane cost, volatile sugar realisation and an adverse court decision on sugarcane pricing has impacted the earnings of the company, which has resulted in huge sugarcane arrears in Uttar Pradesh (UP). We believe huge arrears would result in a decline in the area under sugarcane in the current year and further increase in domestic sugar prices in sugar years 2013 (SY13). The announcement of 2 million tonnes (MT) of sugar exports and expected partial decontrol in sometime would change the fundamentals of the industry. The stock is trading at an attractive P/BV multiple of 0.7x. We are positive on the stock and recommend that our investors buy the stock with a target price of Rs 55 per share giving it a multiple of 1x its book value.

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