Sweet growth! This multibagger zoomed over 180% in one year; more upside likely

Of late, the sugar stocks have been on a roll. Amid the ongoing upward trend, the shares of one of the largest sugar companies in India, Dhampur Sugar Mills Limited have delivered multibagger returns to its shareholders in the last one year.

In the past one year, the share price jumped from Rs 185 to Rs 525, logging around 184 per cent return in this period. An amount of Rs 5 lakh invested in this multibagger stock a year ago would have turned into Rs 14 lakh today.

Long-term investors have made big gains by investing in this stock as it has surged over 1,100 per cent in the last ten years.

The stock ended 3.47 per cent lower at Rs 526.55 against the previous close of Rs 545.45 on BSE. With a market capitalisation of more than Rs 3,400 crore, the shares stand higher than 20 day, 50 day, 100 day and 200 day moving averages but lower than 5 day moving averages.

Brokerage house Sharekhan highlighted that the government’s support for increasing ethanol blending to 20 per cent by SS2025 provides further scope to improve growth prospects in the medium to long run.

The company has also strengthened its balance sheet by reducing debt by Rs 830 crore in the past two years because of improved cash flows (likely to further reduce debt by Rs 320 crore by FY2024), it said.

Sharekhan also mentioned that the increased international sugar prices would help Indian companies to get better export realisation for their produce. The government is targeting to achieve 20 per cent blending of ethanol by 2025 (10 per cent ethanol blending by 2021-2022), which would largely solve the problem of excess sugar over the medium term.

It noted that the Dhampur Sugar Mills is focusing on achieving consistent earnings growth and enhancing shareholders’ value by focusing on key initiatives such as generating more cane from its command areas, driving operating efficiencies through TPM strategy, investing judiciously in scaling up the ethanol business, and strengthening balance sheet with stable working capital and improved cash flows.

"Hence, we are re-initiating coverage on the stock with a 'Buy' recommendation, assigning a target price of Rs 692 (valuing the stock at 11x its FY2024E EPS, which is at 27 per cent discount to the target multiple of Balrampur Chini Mills," the brokerage house said in its recent report.