The Murugappa group company EID Parry (India) Ltd shares have corrected over 2 percent so far this year, while the three-year return on the stock is also negative with the sugar company's scrip down 18 percent. The stock, however, could potentially rise by 36 percent in the 9-12 months investment horizon, according to AUM Capital.
The brokerage and research firm has recommended 'Buy' on EID Parry with a long-term target price of Rs 272 per share. EID Parry shares quoted at Rs 202, up well over half a percent on BSE at 2:00 pm on Friday, after opening at Rs 201.65.
"At the CMP of Rs 200.55, the stock trades at 6 times FY21 EPS of Rs 34. Hence, we recommend a BUY on the stock with target price of Rs 272 with an upside potential of 36 percent from the current level with an investment horizon of 9-12 months," AUM Capital said in a research report on Thursday.
Supporting its investment rationale, the research report says the company is one of the top five sugar producers in the country and has "drastically reduced its debt from Rs 1,977 crore in FY14 to Rs 832 crore in FY19 by focused cost management and fiscal prudence."
"For the period of FY14-19, its top line and bottom line grew at a CAGR of 7 percent and 15 percent respectively. In Q2FY20, its standalone sales grew by 26 percent but PAT declined to Rs 6 crore as compared to Rs 11 crore in Q2FY19 due to muted sugar prices on account of higher sugar inventory and release order mechanism. On a consolidated basis, its topline declined a bit but bottom line grew robustly by 71 percent," the report said.
Besides improving financials, EID Parry has also positioned itself in wellness driven products, backed by a dedicated research and development programme.
"With a growing shift towards natural and organic products, the company has positioned itself strongly in the field of human health and wellness. EID is the first and amongst few with a dedicated R&D wing and cane breeding program. Its innovative programs in sugarcane cultivation methods have set industry benchmarks in yield and recovery," the report added.
The favourable industry dynamics, particularly the export scenario for the industry too is positive with the sector poised to break its own export record this year due to flurry of overseas sales in the past few months, prompted by attractive global prices.
Meanwhile, the government's initiatives over the last year to revive the sugar industry in the country such as approving subsidy of Rs 5.5 per quintal to cane farmers on May 2, and raising the minimum support price (MSP) from Rs 29 to Rs 31 per kilogram will further help the larger sector and the company as well.
The company reported a net profit of Rs 6 crore for the quarter ended September 30, 2019, when compared with a net profit of Rs 11 crore in the year-ago period. Its revenue grew 26 percent at Rs 442 crore when compared with Rs 351 crore in the year-ago quarter.
Meanwhile, the equity markets traded positive with the benchmark Sensex rising over 300 points, trading near 41,470-zone. The Nifty too added over 85 points, trading around 12,215.
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First Published: IST