Mawana Sugars - Rs.121.00

Incorporated in 2002 Mawana Sugars Ltd (MSL) belonging to the high profile DCM Group, was formed by acquiring the sugar business of SIEL Ltd under the scheme of arrangement sanctioned by the Hon’ble High Court of Delhi. As per scheme, SIEL shareholders were allotted MSL shares in 3:4 ratios. Post restructuring, the company also came out with 1:4 right issue at par. Today, MSL is a one of the leading sugar manufacturers of North India and is the largest branded sugar maker in the market. In fact, the DCM Group was first to enter the branded sugar market with its brand ‘Mawana’ way back in 1994. Besides, institutional sales account for about 22% of its revenues with major customers such as Coca-Cola, Pepsi, Dabur, Nestle, Perfetti etc.

Currently, the company has two sugar factories with facilities at Titawi having an installed capacity of 11000 TCD and another unit at Mawana with an installed capacity of 6000 TCD with a total installed capacity of 17,000 TCD. These plants are located in the sugar cane rich areas of Western Uttar Pradesh. In anticipation of buoyancy in the sugar sector and margin improvement driven by higher prices realization, MSL has chalked out an aggressive expansion plan with a capex of Rs.535 cr. in the next 2 years. It is already in the process of setting up a new 5,000 TCD sugar mill near Meerut, the first phase of which would be over by November 2005. It also plans to put up another new 5,000 TCD capacity sugar unit in western UP by 2006. MSL is also modernizing and expanding its existing unit under which its Mawana unit capacity will be increased by 2500 TCD and Titawi capacity will be increased to 12,000 TCD. The company also intends to set up a 30 MW co-generation plant and an ethanol distillery that would produce 120-kilo litre per day. With these expansions, MSL's total cane crushing capacity will be increased to 31,000 TCD and capex will be funded through internal accruals, sale of unproductive assets, debt and partly by equity.

With sugar prices hitting a 10 year high in international markets, the prospects of the domestic sugar industry appear to be healthy and MSL having one of lowest EV per tonne in the industry is expected to see much better times ahead. Favourable govt. policies, debt restructuring, import of raw sugar, export to Pakistan, decreasing inventory levels, rising byproduct prices, the emerging ethanol story etc. will all lead to a healthy topline and bottomline growth for sugar companies. For FY05 ending Sept 2005, MSL is expected to report a turnover of Rs.550 cr. and NP of Rs.55 cr. i.e. EPS of Rs.14 on equity of Rs.39.50 cr. For FY06, it can post Sales of Rs.675 cr. and NP of more than Rs.75 cr. which mean EPS of Rs.19. Long term investors are recommended to buy only at declines with a price target of Rs.180 an appreciation of 50% in 12 months.