Today's Calls

#Buy the shares of Dhampur Sugar Mills Ltd near the CMP of Rs.223.94, T: Rs.281/ Rs.312. 

Introduction: Dhampur Sugar Mills, a leading entity in the Indian sugar industry, has established itself as a key player in the ethanol sector, leveraging its robust infrastructure to capitalize on India's evolving ethanol policy. 

With multiple sugar mills and distilleries under its belt, Dhampur Sugar has focused on transforming sugarcane byproducts like molasses into ethanol, a move that aligns perfectly with the government's push for ethanol blending in fuels.

Ethanol Policy of India: The latest ethanol policy of India, aimed at reducing the country's dependency on fossil fuels and boosting the renewable energy sector, has provided a significant impetus for companies like Dhampur Sugar. The policy promotes the production and blending of ethanol with petrol, encouraging sugar companies to diversify their operations and tap into this growing market. The government’s target of achieving a 20% ethanol blending rate by 2025 has opened up new revenue streams for ethanol producers, particularly in the agricultural sector.

Dhampur Sugar Mills has responded to this policy by ramping up its ethanol production significantly. In FY24, the company increased its ethanol output by nearly 28%, from 931.08 lakh BL to 1,189.78 lakh BL. This expansion has been driven by the addition of a 100 KLPD ethanol plant that utilizes maize and damaged food grains as feedstock, supplementing the company’s reliance on sugarcane. Furthermore, the company’s distillery capacity now stands at 350 KLPD, with plans for further expansion.

The ethanol segment has become the highest-earning division for Dhampur Sugar, contributing substantially to its overall revenue. 

In FY24, ethanol accounted for 24.7% of the company's standalone revenue, up from 16.8% in FY23. The segment’s share of operating profit also rose, highlighting its growing importance within the company’s business portfolio.

The Short Term Trigger: According to stock market experts, sugar stocks are rising because the Government of India (GoI) has removed the cap on sugar diversion for ethanol production for the 2024-25 season. This policy change allows sugar mills to produce ethanol from sugarcane juice and B-Heavy molasses, enhancing their operational flexibility and potential profitability

Caveat: However, the current scenario of international sugar prices adds a layer of complexity to Dhampur Sugar's outlook. 

Sugar prices have been volatile, influenced by fluctuating global production levels and varying demand. Recently, international sugar prices have been on the rise due to reduced output in major producing countries like Brazil and India, coupled with increasing demand. 

While higher sugar prices can benefit the company by boosting revenue from sugar sales, they also pose a challenge by potentially increasing the cost of ethanol production if sugarcane prices rise in tandem.

This price volatility can have a dual impact on Dhampur Sugar's fundamentals. On the one hand, increased sugar prices can enhance profitability from the sugar segment. On the other hand, if sugarcane prices increase as a result, it could squeeze margins in ethanol production, especially as the company expands its reliance on sugarcane-derived ethanol. 

Nonetheless, Dhampur Sugar’s diversified approach, including the use of alternative feedstocks like maize and damaged grains, may help mitigate some of these risks, ensuring a more balanced and resilient business model.

Also, its March and June, 2024 quarter results were not upto the mark. 

Conclusion: 

Dhampur Sugar Mills Ltd is one of India’s leading integrated sugarcane processing companies. Its innovation and emphasis on continuous R&D has made it a technological leader in sugarcane processing and green energy solutions.

As India continues to push for higher ethanol blending rates and international sugar prices remain dynamic, Dhampur Sugar Mills Ltd is strategically positioned to navigate these challenges. 

The company’s proactive expansion in ethanol production and diversification of raw materials will be crucial in sustaining its growth and maintaining robust fundamentals in the face of an ever-changing market environment.

The current share price of the scrip is near its 52 - week low level, making it an ideal low risk investment option.

Bibliography:

💢 Equitymaster.com. "Top Ethanol Stocks in India 2024: Ethanol Companies to Add to Your Watchlist". 2024.

💢Dhampur Sugar Mills Ltd. 2024. "Annual Report FY24".

💢Government of India. 2023. "Ethanol Blending Policy: Vision 2025". Ministry of Petroleum and Natural Gas.

💢International Sugar Organization (ISO). 2024. "Global Sugar Market Analysis: 2024 Outlook".

💢Reuters. 2024. "Global Sugar Prices Surge as Production Declines in Major Markets".

💢Business Standard. 2024. "India's Ethanol Policy and Its Impact on the Sugar Industry".

💢Live Mint. 30 August, 2024. "Balrampur Chini, Dhampur Sugar to Dalmia Bharat: Why are sugar stocks skyrocketing today? — explained'.

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#NMDC Ltd: Those traders who are not comfortable with Q1FY25 results of Dhampur Sugar Mills Ltd (Rs.227) can BUY the shares of NMDC Ltd (Rs.210.55) near the CMP for short term targets of Rs.227/232. SL: Rs.203.

NMDC is recognized as one of the world's low-cost iron ore producers and operates India's only mechanized DIAMOND -  mine in Panna, Madhya Pradesh.

The company currently produces over 45 million tonnes per annum (MTPA) of iron ore from its key mining hubs in the Bailadila sector of Chhattisgarh and the Donimalai region in Karnataka. NMDC aims to increase its iron ore production capacity to 100 million tonnes by FY30.

Over FY25, NMDC is likely to surpass 50 million tonne production, driven by improved capacity and strong domestic demand, according to Sneha Poddar of Motilal Oswal Financial Services.

All of NMDC's mining complexes have received a 5-star rating from the Indian Bureau of Mines, under the Ministry of Mines, highlighting its commitment to scientific and sustainable mining practices.

NMDC also boasts its own R&D Centre in Hyderabad, recognized as a Centre of Excellence by UNIDO. Both its mines and R&D Centre hold ISO and EMS certifications.

Meanwhile, LKP Research has a positive (Bullish) outlook on NMDC Ltd and has issued a buy recommendation for the stock, setting a target price of ₹297 in its research report dated April 24, 2024.

LKP Research's report on NMDC Limited emphasized the company's status as India's largest iron ore producer and a 'Navratna' public sector enterprise under the Ministry of Steel. 

The report suggests that the Indian steel industry, supported by substantial government investment and favorable economic shifts, is competitively positioned against its global peers.

LKP Research initiates coverage on NMDC with a valuation of 6.5x FY26E EV/EBITDA, setting a target price of Rs.297. 

Over the period of FY24E-26E, NMDC is expected to achieve a compound annual growth rate (CAGR) of 12.9% in Revenue, 18.8% in EBITDA, and 19.1% in PAT.