Sugar Cycles: 7-8 years of losses followed by 2-3 years of super gains!

I was looking at Dwarikesh Sugar just now

  1. FY17 Debt was 460 Cr but in HY18, the debt was down to a mere 70 Cr. The great cashflows in FY17 and HY18 itself has been able to reduce debt quite a bit.

  2. Book value is close to 19 and current price about 25.

  3. P/E is around 3. Of course we are at peak earnings. But consider this - Their FCF for FY17 is about 160 Cr. For FY18, it could be around the same, maybe a bit higher. So in two years, they have generated a FCF of about 320 Cr! (Market cap 480 Cr) Now if you see the previous years, other than FY15, they have generated positive cash flow even on years where there was a down cycle.

  4. This is the interest outgo in the last 6 years

78.86 -> 70.56 -> 75.21 -> 51.59 -> 41.94 -> 27.86 (TTM)

This is going to probably decrease further post FY18.

  1. D/E was 1.76 as of FY17 but was 0.2 as of HY18. I assume it will go up when working capital loans go up during procuring season (not sure).

  2. Has paid good dividend (around 4%)

At a good discount to book value (maybe sometime in the near future) - say at around 15-17 levels if it gets there, this could be a decent investment and I see that the balance sheet hasn’t been this good for this company at any point of time as it seems to have slimmed it down to 2006 levels as of HY18.

Disc: Tracking

6 Likes