Dalmia Bharat Sugars - Sweet as SugarCane!

Hi ValuePickr Members, this is the first conversation I am starting here. Has worked on this company Dalmia Bharat Sugars and have attached the copy of my work (Report will be few days back).

Dalmia Bharat Sugar FY14 Annual report highlights its foray into Maharashtra and its strategy to scale up its capacity further in the State.

Company Background: Dalmia Bharat Sugar is UP based integrated sugar manufacturer with cane crushing capacity of 27300 tcd, cogeneration capacity of 94MW and distillery capacity of 80KLPD with plants located at Ramgarh, Jawaharpur, Nigohi and Kolhapur. Company also owns 16.5MW wind farm in Kerala and Magnesite mines with capacity of 72000tpa in Salem, Tamil Nadu.

Facing West through Kolhapur Acquisition: During FY13, company acquired a sugar mill located at Kolhapur with capacity of 2500tcd for total consideration of Rs 125.5crs (which includes total consideration of Rs 108crs and outstanding liabilities of Rs 17.5crs) which works out at Ev/ton of Rs 5 lakh/tcd. During FY14, company scaled up the plant to 4800tcd capacity with 15MW cogen plant to support internal requirement and achieved peak recovery of 13% highest in the industry. Going forward full benefit of co-gen and expanded sugar capacity in Kolhapur will be seen during the next financial year 2015.

Key Initiatives during FY14:

Improving sugar recovery: In UP operations, company has been able to improve its recovery from 9.4% to 10.09% this sugar season while at its Kolhapur unit company recorded recovery of 13.17% this season.

Forays into Maharashtra: Company successfully integrated and expanded its capacity at Kolhapur. Companyâs strategy is to build scale in the State by consolidating the fragmented co-operative sector in the region.

FY14 Performance: Revenue grew +19% yoy to Rs 1192crs primarily on account of increase in sugar sales volume by +31% yoy. Sugar production grew +5% YoY to 2.92 lakh ton. Ebitda were lower at Rs 108crs, declined by -25% yoy. Contraction in Ebitda was mainly on account of sales of high cost sugar inventory of FY13. Sales realization/ton was down by -4% yoy while the cane prices remained unchanged at Rs 280/quintal. However, Ebitda from Distillery segment were at Rs 29crs driven by +17% yoy growth in realization while its Cogen Ebitda were at Rs 92crs with power realization at Rs 4.28/unit vs Rs 4.18/unit last year.

Balance Sheet: Companyâs Consol Networth stands at Rs 462crs vs Rs 458.7crs yoy. BVPS at Rs 57.1 vs Rs 56.7 yoy. Gross debt stands at Rs 812crs vs Rs 786crs yoy. Of which LT debt stands at Rs 527crs vs Rs 343crs yoy and ST debt stands at Rs 223crs vs Rs 443crs yoy. D/e edged higher at 1.76x vs 1.71x yoy. Cash equivalent of Rs 111crs vs Rs 71crs yoy of which Current investments were at Rs 63.5crs (vs Rs 44crs yoy) and Cash at Rs 47.7crs (vs Rs 26.9crs yoy)

Cash flow: Company continues to post positive operating cash flow (OCF) over last 4 years and FCF positive for last 3 out of 4 years. In FY14, company generated OCF of Rs 266crs vs Rs 95crs YoY and FCF of Rs 91crs vs âve Rs 48crs YoY.

Key Points from MD&A

During FY14, India faced oversupply of 5MT of sugar for which Govt, proactively allowed raw sugar exports which supported sugar prices. However, high cane prices led majority of the mills in UP to post losses. Although, there were slew of positive structural changes took place this year like decontrol of sugar prices, mandatory blending of ethanol, abolition of levy sugar and monthly/quarterly sugar release mechanism etc which gives hope for the future of sugar industry. On Cane pricing, UP Govt. maintained its SAP for SS14 at Rs 280/quintal but provided some relief in form of exemption of certain taxes.

Outlook: Companyâs diversification and expansion plan in Karnataka is on schedule and full benefit will accrue this fiscal. With lower crushing this season and lower sugar inventory, company expects Sugar prices to remain stable. However, fixation of Cane Price in UP for Sugar Season 14-15 will be key moniterable going forward.

Valuation: At CMP of Rs 22, stock trades at Ev/Ebitda of 6.15x and PBV of 0.37x its FY15e Ebitda and latest book value. On Replacement Cost basis, company is trading at 48% discount to its current EV vs its peers which trades at discount of 3% to 30% to their EV. Also on PBV as well as Ev/Ebitda basis, it is trading at significant discount to its peers. Given the positive changes taking place in Sugar sector, we believe the discount to its Replacement Cost will narrow down which will provide multiple upside from current level.

Comparative Analysis

Dalmia Sugars

Balrampur

Bajaj Hindustan

Shree Renuka

Sugar TCD

27300

79000

136000

101520

R/C (Lakh Rs/tcd)

4.0

4.0

4.0

4.0

Power (MW)

80

147

430

584

R/C (Cr Rs/MW)

4.35

4.35

4.35

4.35

Distillary (KLPD)

94

320

800

4160

R/C (Cr Rs/klpd)

1.20

1.20

1.20

1.20

Replacement Cost (Rs Crs)

1553

4184

8271

11593

PAT (FY14 Rs crs)

3.05

8.46

-1706

-1478

EBITDA (FY14 Rs crs)

118

214

-105

923

NW (FY14 Rs crs)

462

1216

2369

-497

Debt (FY14 Rs crs)

750

1385

5586

9505

Cash (FY14 Rs crs)

111

144

132

162

MCap (Rs Crs)

174

1675

1509

1923

EV (Rs Crs)

813

2917

6963

11266

Discount to Current EV (%)

-48%

-30%

-16%

-3%

RC/NW (x)

3.36

3.44

3.49

NA

PBV (x)

0.38

1.38

0.64

NA

Ev/Ebitda (x)

6.91

13.64

NA

12.21

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