Ponni Sugars (Erode) Ltd - Rs.79.00

Ponni Sugars Erode Ltd (PSEL) is an offspring of Ponni Sugars and Chemicals Ltd under a demerger scheme sanctioned by the Hon’ble High Court of Madras on 10th September’01. As per the terms of the scheme, the company took over the business of Erode mill, which was set up with 1250 TCD capacity in 1984. Subsequently in 1994, its capacity was raised to 2500 TCD. Right since its inception, this Esvin group company was structured on the concept of total diversion of bagasse for paper and became the first sugar mill in the country to use alternative fuel in its boilers in place of conventional bagasse fired boilers. It also entered a bagasse tie-up arrangement with a group company, Seshasayee Paper and Boards Ltd., for a mutually beneficial and rewarding long-term relationship. It also successfully implemented an innovative lift Irrigation Scheme by bringing in dry lands under cane cultivation, utilizing the effluent discharge of the neighbouring paper mill. Today, PSEL is an efficient and quality producer of sugar, catering to both domestic and international markets. It has ISO 9001:2000 and ISO 14000:1996 certification and enjoys an Export House status under the Exim policy.

Due to buoyancy in the Sugar sector, PSEL is undergoing expansion to augment its crushing capacity to 3000 TCD i.e. 7.5 lakh tonnes per year. This will be done at a capex of Rs.2 cr., which will be funded through internal accruals. The company has also undertaken an 'Energy Saving Project,' which will result in considerable reduction in steam consumption besides marginally enhancing the effective operating capacity. It envisages the introduction of instrumentation control, installation of certain additional equipment and redesigning steam distribution arrangement. Meanwhile, its in-house R&D unit has received renewal of recognition for 3 more years up to 31st March’08 from Government of India, Ministry of Science & Technology. Being in Tamil Nadu, no State Advised Price is payable by PSEL and it is relieved of all uncertainties in respect of past liabilities on this score. As raw sugar imports are duty-free now with an export obligation to be completed in 36 months, Expectations of an above average monsoon augurs well for the industry.

However, PSEL is one of the smallest players in terms of size and has no presence in cogeneration or downstream products although plans are afoot to broad base its operations in future. Besides, the company has brought down its debt equity ratio to 1:1 from whopping 3:1 earlier and has also restructured/replaced its high cost (15%) with low cost (9%) debt leading to considerable savings in interest costs. For FY06, its top line grew by 55% to Rs.136 cr. but its net profit increased by 90% to Rs.11.40 cr. registering an EPS of Rs.14 on its equity of Rs.8.20 cr. It declared 18% dividend also. For FY07, it may clock a turnover of Rs.150 cr. and net profit of Rs.13 cr. i.e. an EPS of Rs.16. Hence at a fair discounting by 6 times, its scrip should trade at Rs.100 (50% appreciation) in 9-12 months. Buy at declines.