Khambatta Securities is bullish on Vishwaraj Sugar Industries has recommended buy rating on the stock with a target price of Rs 43 in its recent research report.


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Vishwaraj Sugar Industries Limited (VSIL) reported robust revenue growth during the quarter. Revenue from operations stood at ₹ 133.3 crore (up 61.1% y-o-y and 30.0% q-o-q). ~66% of the total revenues were contributed by the Sugar segment, followed by Distillery at 25%. The revenue contribution of the Cogeneration segment declined to 6% vs 10% in 3Q FY21. EBITDA for 3Q FY22 was marginally up (+0.6% y-o-y) to ₹ 43.7 crore. The EBITDA margin declined to 32.8%, compared to 52.5% reported in the same quarter last year. Higher raw material cost and other manufacturing expenses led to the decline in EBITDA margin. The net profit stood at ₹ 29.4 crore in 3Q FY22, a y-o-y decline of 3.4%. On a sequential basis, net profit witnessed multiple-times growth (₹ 19 lakh in 2QFY22).


VSIL stock currently trades at forward P/E level of 15.8x FY24E EPS. As Khambatta extends its forecast period to FY24 from FY23, it has adjusted its target P/E (35x to 28x) to reflect the farther-out earnings projections as the basis of our valuation. At 28x FY24E EPS,  Khambatta has given VSIL a BUY with a price target of Rs 43 and an upside potential of 77%.


Going forard, VSIL plans to move up the value chain by targeting new geographies, sectors, and clientele in the pharmaceuticals, health supplements and nutraceuticals, and beauty and personal care industries. These markets belong to the niche category and are characterised by enhanced price realisation and improved receivables management. In the normal course, price realisation per litre of ethanol stands at INR 62.7 for the ethanol produced from sugarcane syrup, and INR 57.0 for the ethanol produced from molasses. In the case of pharma-grade ethanol, the price realisation goes up to INR 67.0 per litre. Thus, going forward, the company will prioritise selling a mix of pharma grade sugar, pharma grade ethanol, and vinegar. The company has entered contracts with oil marketing companies for supplying 25 mn litres of ethanol commencing from December 2021, as against the supply of 22.5 mn litres of ethanol during the twelve-month period ended on November 30, 2021. VSIL has already commenced a supply of ethanol for the current period.


Additionally, the company plans to set up a brownfield ethanol production, with a capacity of 150,000 litres per day. This expansion is driven by technological up-gradation and the company is filing a patent to that effect. This will increase the overall ethanol production capacity to 250,000 litres per day. The expansion will happen in the existing premises by November 2023.


Further, it company is planning to set up a greenfield ethanol production facility, having a capacity of 250,000 litres per day, within 80 kms from the existing factory in the Belagavi district. VSIL has already acquired 110 acres of land for this plant. The estimated project investment is Rs 250 crore and the first full year of operation of this facility shall be FY2024.


(Brand Desk Content)