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Showing posts with label Andhra Sugars. Show all posts
Showing posts with label Andhra Sugars. Show all posts

Monday 3 January 2011

Andhra Sugars - A quick look

A friend of mine suggested I look at Andhra Sugars. I took a quick look and here are my observations.

Andhra Sugars is mainly involved in manufacturing sugar, alcohol & alco chemicals, aspirin, chloro alkali, sulphuric acid and super phospate. To support its operations, the company has its own power generation capacity including a wind power generator.

There is some traction in its sugar and caustic soda areas. Caustic soda prices have gone up by nearly 30% in the last few months and sugar prices are also firm.

The company has initiated carbon credit trading benefits.

1. Overall, the company's financial numbers does not inspire much confidence. The revenue growth over a 5-year period is nearly flat.
2. The same situation is present for both operating earnings and Net Profit. The FY06 to FY10 EPS CAGR is 2.57%.
3. There has been no equity dilution in the last 5 years
4. The company pays a healthy dividend and the yield is nearly 4% (Rs 5 on CMP of Rs 120) although the payout has been fluctuating and has been Rs 7.5,6,5,6,5 in the last 5 years.

The company may well perform in the near term due to its twin engines of sugar and caustic soda price realization, but I would be very reluctant to invest here as this is purely a commodity business and it results are hostage to the various commodity cycles. So, if you decide to invest, you need to track the commodity prices closely and pick ear;y signs of topping. That, too me, is a lot of work which I am not very good at.