Category: Personal Finance

Berkshire’s Charlie Munger says China right to clip Jack Ma’s wings, BFSI News, ET BFSI

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Berkshire Hathaway Inc Vice Chairman Charlie Munger praised China‘s move to impose a sweeping restructuring on Jack Ma’s Ant Group, the fintech giant whose record $37 billion IPO was derailed by regulators in November.

The 97-year-old told CNBC in an interview alongside Berkshire CEO and billionaire investor Warren Buffett that the United States should take a leaf out of China’s book and “step in preemptively to stop speculation”.

“I don’t want the, all of the Chinese system, but I certainly would like to have the financial part of it in my own country,” he said in the interview aired on Tuesday in the United States.

Communist Party-ruled China “did the right thing” by reining in Ma, the founder of e-commerce giant Alibaba Group Holding , who has hardly been seen in public since he criticised regulators in a speech in October last year.

Chinese regulators pulled the plug on Alibaba affiliate Ant’s IPO and forced it to turn itself into a financial holding firm, a move expected to curb some of its freewheeling businesses.

Alibaba was also hit with a record $2.75 billion antitrust penalty as China tightens controls on the booming “platform economy”.

“Communists did the right thing. They just called in Jack Ma and say, “You aren’t gonna do it, sonny,” Munger said.

He also praised China’s response to the novel coronavirus. China imposed strictly enforced lockdowns and widespread curbs on movement, measures that would be less acceptable to Americans.

“They simply shut down the country for six weeks. And that turned out to be exactly the right thing to do,” Munger said.

Buffett said the pandemic had hurt smaller companies the most.

“I don’t know how many but many hundreds of thousands or millions of small businesses have been hurt in a terrible way, but most of the big, big companies have overwhelmingly done fine, unless they happen to be in cruise lines or, you know, or hotels or something,” he said.



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5 Stocks To Buy That Top Brokerages Are Recommending For Investors

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Apollo Tyres

Apollo Tyres is a top tyre manufacture in the country, with a significant presence in the OEM segment as well as the replacement market. Emkay Global has recommended to buy the stock of Apollo Tyres and has set a target price that is 26% higher than the current market price.

The stock of Apollo Tyres was last trading at Rs 226 on the NSE, against the brokerage houses price target of Rs 290.

According to the firm, the management has guided for revenue CAGR of 16% over FY21-26E, driven by expectations of volume growth in underlying industry in India at 10- 13% CAGR for PCR tyres, 5-8% CAGR for CVs, and 2-4% for Tractors.

The margins are also expected to see improvement due to continuing radialization in Truck & Bus industry from 47% in FY21 to 55-60% in FY25E.

“Increase in exports for standalone from 9% of revenue in FY21 to 20% in FY26E, with focus on Europe, USA, Middle East and Africa regions and launch of new products will help margins,” Emkay Global has said.

The broking firm is factoring in revenue/earnings CAGRs of 12%/14% over FY21-24E and maintains a Buy on the stock of Apollo Tyres with a price target of Rs 290.

NALCO

NALCO

Broking firm, Motilal Oswal has a buy on the stock of NALCO, with a price target of Rs 93, which is almost 20% higher than the current market price of Rs 78.

NALCO is a leading aluminium player and Motilal Oswal expects aluminium prices to remain strong, which should benefit NALCO.

“The management has announced a 1mtpa alumina refinery expansion at capex of Rs 64 billion and expects to complete the project in FY23. Given the slow execution, however, we expect commissioning by FY24. We value the stock on an SoTP basis at 5x FY23E EV/EBITDA and a 0.75x book value for growth CWIP to arrive at target price of Rs 93. At current market price, it provides an attractive dividend yield of 6%. Maintain Buy,” Motilal Oswal has said.

Steel Authority of India

Steel Authority of India

ICICI Direct has a buy call on the stock of Steel Authority of India with a price target of Rs 160, which is almost 22% higher than the current market price of Rs 131.

The broking firm has said that the company has adopted a focused approach on improving its volume, improving its operational efficiencies, operating the facilities at optimum levels, deleveraging its balance-sheet, etc. In line with its focus on reducing the borrowings.

“Steel Authority of India has reduced its net debt by Rs 16200 crore in FY21. Going forward also, we expect the company’s net debt to further reduce by Rs 6,800 crore, over the next couple of years. We model sales volume of 17 metric tonnes for FY22E and 19 metric tonnes for FY23E.

We value the stock at 5.5x FY23E EV/EBITDA and arrive at a target price of Rs 160. We maintain our BUY recommendation on the stock of SAIL,” ICICI Direct has said in its report.

REPCO Home Finance

REPCO Home Finance

REPCO Home Finance is a smaller home finance company, whose stock broking firm Motilal Oswal is bullish on and has a buy rating.

The broking firm expects loan book growth to remain muted for the company even in FY22E.

“Improvement in asset quality is encouraging as GS 3 fell below 4% after remaining sticky between 4% and 4.3% for the last seven quarters. We see the efforts put in by REPCO to improve collections and achieve resolutions/upgrades in GS 3 reflecting in improved asset quality.

Availability of low-cost NHB borrowings will not sustain indefinitely. We expect further benefits from lower incremental cost of borrowings to be limited. We estimate a 12% PAT CAGR over FY21-24E. REPCO trades at 0.85x FY23E P/BV, which is undemanding. We have a Buy rating on the stock with a target price of Rs 440 (1x FY23E PBVPS),” the brokerage has said.

Shares of REPCO Home Finance were last seen changing hands at Rs 375 on the NSE.

Bandhan Bank

Bandhan Bank

Broking firm, Motilal Oswal has a neutral rating on the stock of Bandhan Bank and sees an upside of nearly 10% from the current levels of Rs 335 on the stock.

“For players like Bandhan Bank whose SMA book stands at 8.6% currently (from 16.6% in 3QFY21) the double bonanza of MFI package from Assam state government and the central government relief measures for the MFI sector will enable faster turnaround in asset quality/ earnings trajectory.

We are turning more sanguine on asset quality over 2HFY22 though remain watchful on collection efficiency in the near term, mainly in key state of West Bengal (45% of MFI portfolio). We thus increase our target price to Rs 375 (from Rs 335) based on 2.5x FY23E book value though we maintain our NEUTRAL rating as we await more clarity around implementation of these schemes,” the broking firm has said.

Disclaimer

Disclaimer

All of the above stocks are picked from the reports of brokerage firms. Investing in stocks are risky and investors should do their own research. The author, the brokerage firms or Greynium Information Technologies is not responsible for any losses incurred due to a decision based on the above article. Investors should hence exercise due caution as markets have run-up significantly.



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HDFC Bank hopes to return with a ‘bang’ and regain lost market share

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Laying out future plans, once the embargo is lifted, he said the bank had a much more wholesome strategy.

HDFC Bank expects to regain the lost market share and make a strong comeback once the regulator lifts the embargo on issuing new credit cards, Parag Rao- head of consumer finance, digital banking and information technology said on Wednesday.

Without sharing details over when he expected the ban to be lifted, Rao said within three-four months of the ban getting lifted, one should expect incremental market share back to the pre-ban levels. The bank has been in constant discussion with RBI ever since the ban was imposed, and has upgraded its systems as per the indications from the regulator, Rao said. He added that it had now presented a plan that focuses on the immediate, short-term, mid-term and long-term to the central bank.

According to the RBI data, in the period between December 2020 and April 2021, HDFC Bank’s credit card base contracted by 3.89 lakh. While ICICI Bank’s credit card portfolio increased by 8.15 lakh, SBI Card and Axis Bank added 4.37 lakh and 3.29 lakh cards, respectively. However, HDFC Bank continues to have the largest customer base in the segment with 1.49 crore outstanding credit cards as on April 30, 2021.

In December, RBI a had stopped HDFC Bank from issuing fresh credit cards and announcing new digital initiatives following multiple outages the bank witnessed over the past few years. The regulator also called for a third-party audit of the bank’s IT infrastructure.

“We have used the last six month period since December to introspect, reinvigorate and re-engineer for the future. We will use tech and digital to help us continue being dominant in the space and will get back to the market with a bang. We have the entire system ready and charged up,” said Parag Rao, group head – payments, consumer finance, digital banking and IT, HDFC Bank.

Laying out future plans, once the embargo is lifted, he said the bank had a much more wholesome strategy. “It is not only to regain our (credit cards) number and value market share but also to forge new partnerships, build more scale, introduce newer products and services and continue on our journey of being the dominant payments bank player in the space,” he said.

Rao said the bank had been using the six-month period to work on its technology and digital processes and also had a base of pre-approved customers, who will be offered credit cards when the embargo is lifted.

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ICICI Direct Gives A Buy On This Graphite Electrode Manufacturer

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Investment

oi-Roshni Agarwal

|

On June 30, the brokerage firm ICICI Direct has placed a buy call on Graphite India for a first target of Rs. 740 and final target of Rs. 800. The company has recommended the buy price to be Rs. 635 and the stop loss suggested for the trade is at Rs. 565. Considering the buy recommendation price, the targeted upside, means a potential gain of over 16 percent.

ICICI Direct Gives A Buy On This Graphite Electrode Manufacturer

ICICI Direct Gives A Buy On This Graphite Electrode Manufacturer

Q4 performance has been remarkable

The graphite manufacturer turned profitable for the quarter ended March 2021 and posted net profit of Rs. 64 crore as against a loss of Rs. 7 crore in the year ago period. Largely the profitability has been on account of a decrease in material or input cost which enabled the realization of higher EBITDA margins in the current quarter.

Optimistic management outlook

The management is optimistic on the outlook for the company given the current recovery in the demand for electrodes as well as price stability. “During Q4 FY21, electrode prices started to recover from the lows. Furthermore, with increased steel production around the world, demand for electrodes has started to pick up and prices have started to stabilise. This augurs well for Graphite India, which is the largest Indian producer of graphite electrode,” said the brokerage firm.

Other positives seen for the stock are:

• Increase in net profit with growth in margins quarter on quarter
• Graphite India is a low debt company with debt to equity basis on a consolidated basis at 0.05 for 2021
• Revenue has been increasing for the past 3 quarters
• Profits have been increasing for the past 3 quarters
• Graphite India has zero promoter pledge
• FII or FPIs have also been increasing their stake in the company to 14.78% in March 2021. Also, the number of FII/ FPIs have also increased in the March quarter to 185.

Valuation

“We value the stock at 6.5x FY23E EV/EBITDA and arrive at a target price of Rs 800 and maintain our buy recommendation on the stock,” the brokerage firm added.
ICICI Direct further said that the gradual pick-up in demand from steel consuming sectors in H2 FY21 has led to increase in demand for steel and electrode. “The lower exports from China may bode well for other EAF steel producing nations, thereby likely to have a positive rub-off on graphite electrode demand,” it said.

Disclaimer:

The scrip recommendation has been taken from the brokerage report and is solely for infomational purpose. Investors should not take any trading and investment decision based only on information discussed on GoodReturns.in. We are not a qualified financial advisor and any information herein is not investment advice. It is informational in nature.



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NPCI curates financial literacy book for CBSE students, BFSI News, ET BFSI

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The National Payments Corporation of India (NPCI) and the Central Board of Secondary Education (CBSE) have collaborated to develop a financial literacy curriculum for Class VI students. The Financial Literacy Textbook is being released as part of a new elective ‘financial literacy’ course that will allow students to grasp basic financial concepts at an early stage of their education.

The textbook covers a wide range of topics related to financial awareness, including teamwork and basic financial principles, as well as Banking, Security, and Digital Payments such as UPI, Cards, Wallets, and more. It covers the history of banking, the change from coins to paper money, the different types of banks, and the primary operations and services that banks provide. The textbook also elucidates the significant role of RBI and GOI in providing an impetus to the Digital Payments movement.

This book covers everything a child might need to know later in life, from basic ideas like cash, banking, savings, and investments .

This book covers everything a child might need to know later in life, from basic ideas like cash, banking, savings, and investments to advanced concepts like IMPS, UPI, USSD, NACH, PoS, mPoS, QR Codes, and ATMs. The book elaborates on the role of UIDAI and the importance of Aadhaar, as well as the Aadhaar Enabled Payment System (AePS), in the context of digital payment options.

NPCI has also been working for course content development with CBSE for Standard 7 and 8.

Praveena Rai, COO, NPCI said, “We are excited to collaborate with CBSE to launch financial literacy curriculum for the students. We are confident that the financial literacy textbook will help tender minds absorb basic & advanced financial concepts with ease and will establish mindful financial conduct and sound decisions for the generations to come.”

Shri Manoj Ahuja, IAS, Chairman, CBSE said “As the new education policy emphasizes the need of nurturing a digital mindset among the students this book is the first step towards addressing the same. It focuses on the overall digital payment system which is new; this small module on financial literacy is going to educate our students on finance from an early age.”



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7 Quality Stocks With Low PE, High ROCE To Invest In 2021

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Importance of Low PE and High ROCE in Stocks

Return on Capital Employed (RoCE) is a metric that measures how much-operating profit (EBIT) a company generates for every rupee of capital invested. One of the few profitability ratios that an investor uses to assess a company’s rate of returns and profitability is the return on capital employed ratio. RoCE emphasizes the total profitability of the company. A high RoCE indicates that the company is lucrative.

A stock with a low PE and strong business fundamentals has a decent possibility of rising in price in the future. Sales, EPS, net worth, and other metrics grow quicker when the fundamentals are strong. The market price of stock finally reflects this rise. While it is also not a good idea to pick stocks only based on their “low PE.”

A high ROCE value suggests that more profits can be re-invested in the business for the benefit of shareholders. The capital is re-invested at a higher rate of return, resulting in increased earnings-per-share growth. As a result, a high ROCE is indicative of a successful growth organisation.

NMDC

NMDC

The stock returned 71.99 percent during a three-year period, compared to 44.96 percent for the Nifty 100 index. Over a three-year period, the stock delivered a 71.99 percent return, while the Nifty Metal provided investors a 49.84 percent return. Over the last three years, the company has maintained a good ROCE of 25.69 percent. It’s a good opportunity to buy because the stock isn’t overbought. Stocks have a high dividend yield.

NMDC founded in 1958, is a Large Cap business in the Mining Industry with a market capitalization of Rs 53,366.33 crore. In the most recent quarter, the company declared a net profit after tax of Rs 2,835.54 crore.

Hindustan Aeronautics

Hindustan Aeronautics

Hindustan Aeronautics Ltd., founded in 1963, is a Large Cap firm in the Defence sector with a market capitalization of Rs 34,652.58 crore. In the last three-year period, the stock returned 23.48 percent, while the S&P BSE Capital Goods index returned 35.69 percent.

Over the last three years, the company has maintained an ROE of 20.74 percent. Over the last three years, the company has maintained a respectable ROCE of 27.04 percent. With an interest coverage ratio of 11.93, the company is in good shape.

The company reported gross sales of Rs. 214383.8 crores and a total income of Rs. 217317.1 crores in the most recent quarter.

Petronet LNG Ltd

Petronet LNG Ltd

On June 8, 2021, the company declared a dividend of Rs 3.5 per share, with a record date of July 2, 2021. Petronet LNG Ltd. was founded in 1998 and is based in the United Kingdom. The current share price is 226. It currently has a market capitalization of Rs 33900 crore. The company reported gross sales of Rs. 354520 crores and total income of Rs. 358245.7 crores in the most recent quarter.

For the past three years, the company has shown a good profit growth of 16.51 percent. The company’s debt has been reduced by 632.20 crores.

Over the last three years, the company has maintained a respectable ROE of 23.59 percent. Over the last three years, the company has maintained a respectable ROCE of 30.82 percent.

Sun TV Network

Sun TV Network

The Sun TV Network Ltd. company was founded in 1985. The current share price is 536.3. It currently has a market capitalization of Rs 21134.76 crore. The company reported gross sales of Rs. 34044.2 crores and a total income of Rs. 36533.5 crores in the most recent quarter.

Over the last three years, the company has maintained an strong ROCE of 37.79 percent. In the last five years, the company has maintained effective average operating margins of 68.10 percent. The company’s cash flow is well-managed, with a CFO/PAT ratio of 1.28.

Gujarat State Petronet Ltd

Gujarat State Petronet Ltd

Gujarat State Petronet Ltd. began operations in 1998. Its share price currently is 335.25. It now has a market capitalization of Rs 18915.19 crore. The company reported gross sales of Rs. 23692.71 crores and a total income of Rs. 24334.25 crores in the most recent quarter.

For the past three years, the company has shown a good profit growth of 30.70 percent. The company has grown its sales by 32.10 percent in the last three years. The company’s debt has been reduced by 735.67 crores.

Manappuram Finance Ltd

Manappuram Finance Ltd

The company Manappuram Finance Ltd. was founded in 1992. Its share price presently is 162.65. It currently has a market capitalization of Rs 13766.12 crore. The company reported gross sales of Rs. 43113.03 crores and total income of Rs. 43533.41 crores in the most recent quarter.

The profit margin has increased by 5.41 percent. In the last three years, the company has maintained a good ROA of 5.29 percent.

The company has a 21.43 percent Return on Equity (ROE) track record. Since the last three years, the company has maintained a respectable ROCE of 14.55 percent.

Chambal Fertilisers and Chemicals Ltd

Chambal Fertilisers and Chemicals Ltd

For the past three years, the company has shown a good profit growth of 42.28 percent. Stocks have consistently outperformed bank FDs in terms of return on equity.

For the past three years, the company has grown its revenue by 18.10 percent. Stocks also pay out a lot of money in dividends. In the previous three years, the company has maintained a respectable ROE of 23.24 percent.

7 Quality Stocks With Low PE, High ROCE To Invest In 2021

7 Quality Stocks With Low PE, High ROCE To Invest In 2021

Company Name Price in Rs. PE ROCE
NMDC 184.45 8.61 22.54%
Hindustan Aeronautics 1024 10.62 24.34
Petronet LNG 226 11.56 32.16
Sun TV Network 532 13.73 31.1 %
Gujarat State Petronet 335 11.8 38.5 %
Manappuram FInance LTD 169 8.48 15.36
Chambal Fertilisers 306 7.78% 29.2 %

Disclaimer

Disclaimer

Financial ratios, on the other hand, provide information regarding prior performance. You can’t predict whether the company will perform similar or better in the future based solely on previous performance. The views and investment tips expressed by authors or employees of Greynium Information Technologies, should not be construed as investment advise to buy or sell stocks, gold, currency or other commodities.



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MFI portfolio at Rs 2,59,377 Crore in FY21, MFIN sees steady progress towards normalcy, BFSI News, ET BFSI

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The microfinance industry serving 5.93 crore borrowers with 10.83 loan accounts saw the industry portfolio at Rs 2,59,377 crore as of March 31, 2021.

According to MFIN’s micrometer report, Microfinance loan disbursals during Q4 20-21 jumped 53.8 per cent to INR 91,516 crores as compared to the previous quarter (INR 59,508 crores). Similarly, the number of loans disbursed during Q4 20-21 increased to 2.30 crores from 1.79 crores in Q3 20-21, signifying steady progress towards normalcy.

The overall microfinance industry currently has a total Gross Loan Portfolio (GLP) of INR 2,59,377 crores. Gross loan portfolio (GLP) as on March 31, 2021, showed an increase of 11.90 per cent YoY over INR 2,31,787 crores as on March 31, 2020. 13 Banks hold the largest share of the portfolio in micro-credit with a total loan outstanding of INR 1,13,271 crores, which is 43.67 per cent of total micro-credit universe.

NBFC-MFIs are the second largest provider of micro-credit with a loan amount outstanding of INR 80,549 crores, accounting for 31.05 per cent to total industry portfolio. SFBs have a total loan amount outstanding of INR 41,170 crores with a total share of 15.87 per cent. NBFCs account for another 8.36 per cent, and other MFIs account for 1.05 per cent of the Universe



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5 Best Savings Accounts In India With Interest Rates Up To 7.25%

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5 Best Savings Accounts of Private Sector Banks

DCB Bank offers the highest interest rate of 6.75 per cent among private sector banks. Then there’s RBL Bank, which is giving up to 6.25 per cent, and Bandhan Bank, which is offering 6%. Here are the top five private sector banks that are presently offering higher savings account interest rates.

Banks Interest Rates In % W.e.f.
DCB Bank 3.00 to 6.75 10th June, 2021
RBL Bank 4.25 to 6.25 July 2, 2021
Bandhan Bank 3.00 to 6.00 June 7, 2021
IndusInd Bank 4.00 to 5.50 June 4, 2021
Yes Bank 4.00 to 5.25 13th May, 2021
Source: Bank Websites

5 Best Savings Accounts of Public Sector Banks

5 Best Savings Accounts of Public Sector Banks

Punjab National Bank promises the highest interest rates of up to 3.50 per cent, followed by IDBI Bank and Canara Bank with interest rates of up to 3.40 per cent and 3.20 per cent, respectively, among the top public sector banks. Here we’ve compiled a list of the top 5 public sector banks providing the highest savings account rates right now.

Banks Interest Rates In % W.e.f.
Punjab National Bank 3.00 to 3.50 March 1.2021
IDBI Bank 3.00 to 3.40 May 1, 2021
Canara Bank 2.90 to 3.20 28.09.2020
Bank of Baroda 2.75 to 3.20 26.05.2021
Punjab & Sind Bank 3.10% 12.11.2020
Source: Bank Websites

5 Best Savings Accounts of Small Finance Banks

5 Best Savings Accounts of Small Finance Banks

Small finance banks are now offering higher interest rates than commercial banks and private sector banks. Utkarsh Small Finance Bank offers the highest interest rate on savings accounts, at 7.25 per cent, followed by Ujjivan Small Finance Bank, AU Small Finance Bank, and Equitas Small Finance Bank, all of which have interest rates of 7.00 per cent. We’ve prepared a table of the top 5 small finance banks currently offering the best savings account interest rates.

Banks Interest Rates In % W.e.f.
Utkarsh Small Finance Bank 5.00 to 7.25 01.08.2020
Ujjivan Small Finance Bank 4.00 to 7.00 06.03.2021
AU Small Finance Bank 3.50 to 7.00 17.05.2021
Equitas Small Finance Bank 3.50 to 7.00 01.06.2021
Jana Small Finance Bank 3.00 to 6.75 06.05.2021
Source: Bank Websites



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How corporates gorged on RBI’s easy money, shunned banks?, BFSI News, ET BFSI

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Corporates took the advantage of liquidity offered by Reserve Bank‘s special liquidity windows to raise funds from the bond market, reducing their dependence on bank loans during the quarter

While the corporate bond market is still dominated by financial companies, non-financial companies have increased borrowing in the last one year.

The corporates tapped the long-term repo operations (LTRO) funds, and targeted LTRO offered by the RBi last year, raising funds for up to three years. Firms raised funds aggressively during the third and fourth quarters of the last year for deleveraging high-cost debt.

The fundraise

Corporates raised Rs 2.1 lakh crore in December ended quarter and Rs 3.1 lakh crore in the fourth quarter from the corporate bond markets. In contrast, the corresponding year-ago figures were Rs 1.5 lakh crore and Rs 1.9 lakh crore, respectively.

Bonds were mostly raised by top-rated companies at 150-200 basis points below bank loans. Most of the debt was raised by government companies as they have top-rated status.

For AAA-rated corporate bonds, the yield was 6.85 per cent in May 2020, which fell to 5.38 per cent in April 2021 and to 5.16 per cent in May 2021.

Debt reduction

The corporate world focused on deleveraging high-cost loans through fundraising via bond issuances despite interest rates at an all-time low. This has led to muted credit growth for banks.

According to data analysis by the SBI research wing, the top 15 sectors with more than 1,000 listed entities reported over Rs 1.7 lakh crore of debt reduction in 2000-21.

Refineries, steel, fertilizers, mining & mineral products, and textile alone reduced debt by more than Rs 1.5 lakh crore during FY21.

Fertilizers, mining and minerals, FMCG, cement products, consumer durables, and capital goods were among the sectors where loan reduction of 20 per cent or more was reported during FY21.

According to data from the Reserve Bank of India, loan growth fell to a 59-year low of 5.6% on year as of March 31. Credit was logging a 6.4% in the previous fiscal.

Low interest rates

As interest rates drop to an all-time low, corporates reduced their loan liabilities to facilitate a lower finance cost, which resulted in the primary issuance of bonds increasing by nine per cent.

The spread of AAA bonds for a 10-year tenor declined from 124 bps in April 2020 to 70 bps in April 2021.

Similarly, the spread for 5 year and 3-year bonds declined from 89 bps and 147 bps in April 2020 to 9 bps and 30 bps in April 2021 respectively.

This trend is continuing in FY22 also.

These companies not only reduced their loan liabilities at lower finance cost but also increased their cash and bank balance by around 35% in March, as compared to March 2020, suggesting a conservative approach to conserve cash during uncertain times.

Corporate willingness for new investments also remains tepid as the economy is still recovering from the second wave.



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3 Sugar Stocks To Buy From ICICI Securities As Companies Seen To Profit From EBP

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Investment

oi-Roshni Agarwal

|

In a bid to promote use of cleaner fuel, the government has advanced its ambitious EBP programme to 2025 i.e. 20% ethanol blended petrol and this shall be primarily beneficial to sugar companies in India as sugar companies in the country are also nudged to take on sugar production aggressively, with ethanol being the by-product.

3 Sugar Stocks To Buy From ICICI Securities As Companies Seen To Profit From EBP

3 Sugar Stocks To Buy From ICICI Securities As Companies Seen To Profit From EBP

Few of the short term advantages that the sector saw during the last few years were:

– Introduction of MSP or minimum support price

-Exports incentives for sugar were also introduced- 6 million tonnes of exports allowed in sugar year 2020-21

-Now this long term ethanol blended petrol programme (EBP) has also taken off aggressively say for instance oil marketing companies are procuring ethanol in huge amount i.e. 300 crore litres. Currently for the 10% ethanol blended petrol, the requirement shall be a huge 400 crore litre and for future course i.e. for 15% and 20% blending levels, there has been suggested a clear road-map.

All the companies with a higher capacity in terms of ethanol production will benefit more in comparison to those with sugarcane crushing capacity

Dalmia Bharat Sugar:

With sugar production plants in UP, the company is the largest sugar producing companies in India. The company will double its ethanol production capacity to 15 crore litre per annum. The announcement comes close on the heels of the government’s target of upping ethanol blending to 25% by 2025. As of now ethanol blending in petrol is at 8.5%. Also, the company has benefitted immensely from exports on account of higher global sugar price.

In its May report, the brokerage said “With high global sugar prices, the industry would be able to export 5-6 million tonnes (MT) of sugar in the next sugar season as well. We believe aggressive sugar exports & 3-4 MT of sugar diversion towards ethanol wouldbring down sugar inventories to ~7 MT by September 2022, which would in turn push domestic sugar prices upwards. We believe now market recognises structural earning growth trajectory for sugar companies. Hence, we value the stock at 10x FY23E earnings”.

Balrampur Chini Mills:

Balrampur Chini is the country’s second largest sugar manufacturing company. Their capacity for ethanol production are to be seen between October and December 2022 and given the fact that it is a Greenfield project, the company’s earnings shall be higher in FY24 in comparison to FY23.

Other positives of the company include:

Operating revenues are the highest in the industry at Rs. 1019 crore.

In net profit, the company is the industry leader reporting profit of Rs. 235.5 crore

ICICI Securities has set the price target for the stock at Rs. 385, an upside of over 8 percent.

BCML is the most efficient sugar company with sustainable earnings and strong cash flow generation. We believe the company would increase shareholder’s payout (buybacks, dividend) to ~60% from current 40% payout. “We believe the market recognises the big opportunity in ethanol blending programme and the stock is poised to command better valuation multiples. We value the stock at 10x FY23E earnings with a target price of
Rs. 385 per share (earlier: Rs. 285) and maintain our BUY recommendation”, said the brokerage in its report.

Triveni Engineering:

Triveni Engineering is into sugar production, power co-generation, distillery, industrial gearing, and water treatment solutions. Triveni Engineering & industries (TEIL) is one of top five sugar companies in UP with sugar crushing capacity of 60,500 tonnes per day and distillery capacity of 320 kilolitres per day (KLPD).

The stock of Triven Engineering currently commands a good to expensive valuation and on the financial front has been showing consistency and has good quality management. Return on equity has been strong for the company at 25% in comparison to its peers.

Disclaimer:

Note the listed stocks are taken from the brokerage recommendation. The story is for informational purpose only. The company nor its authors shall be liable for any loss incurred in case the decision on the investment has been taken considering the above story. Please consult investment advisors for any investment calls.

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