SAKTHI SUGARS Ltd. (SSL) (Code No: 507315) (Rs.258)

Incorporated in 1961, SSL manufactures sugar, industrial alcohol and soya products. It has also established a modern sugar unit with a crushing capacity of 2500 TCD, which commenced operations during 1994-95. The crushing capacity of the Sakthi Nagar Unit increased to 6000 TPD in October 1998. From 1st April 1993, Sakthi Soya, a group company, was merged into SSL. It has an installed capacity to produce 1,00,000 TPA of refined oil, de-oiled cakes, full-fat soya meal, soya flour flakes and texturised vegetable protein.

SSL has units / plants in Tamil Nadu and Orissa. The Sakthinagar distillery division has installed an Ethanol plant with an annual capacity of 50,000 litres per day in June 2003. The company has 3 units with crushing capacities of 6000 TCD, 4000 TCD and 2750 TCD respectively totalling to 12,750 TCD.

Sakhti Auto Components (SACL) is its wholly owned subsidiary. During 1997, this new disamatic foundry wing commenced production with SG Iron Casting and Graded Iron Casting with an annual capacity of 2600 MTA and 1000 MTA respectively. Both the capacities were increased to 14400 TPA and 9600 TPA respectively. SSL’s investment in this subsidiary is Rs.51 cr. and SACL is all set to turn the corner in FY07 with a net profit of about Rs.10 cr.

For 30th June ending FY05, SSL increased its sales by 114% to Rs.619 cr. and posted a net profit of Rs.27 cr. against net loss of Rs.25 cr. in the previous year. During Q2FY06, its net profit has taken a quantum jump of 185% to Rs.20 cr. from Rs.7 cr. in Q2FY05. During 9 months of FY06, sales advanced by 75% to Rs.381 cr., net profit shot up by a whopping 549% to Rs.28.9 cr.

Its equity capital is Rs.31.4 cr. With reserves of Rs.299 cr., the book value of the share works out to Rs.105. Its debt-equity ratio is 1.7:1 and the value of the gross block is a whopping Rs.635 cr. The promoters hold 38% in its equity capital, FIIs hold 29%, non-promoter corporate holding is 8%, domestic institutions hold 3% and government holding is 3% leaving 18% with the investing public.

SSL has 35 MW co-generation project at its Sakthinagar sugar unit and a 2 MW co-generation plant at the Sivaganga sugar unit.

SSL is busy setting up a new sugar mill of 3000 TCD together with a 25 MW co-generation plant as a greenfield project. A 35 MW co-generation plant is to be set up at its sugar unit in Padamathur Village, Sivaganga and 25 MW at Sakthinagar, Bhavani Taluk, and Erode District.
Further, the cane crushing capacity of its Sakthinagar sugar unit in Erode District is being enhanced from 6000 TCD to 9000 TCD. The process for setting up a beverage project with Hindustan Coca-Cola Beverages is complete and the plant is ready for operation.

SSL has plans to raise US$ 50 million (about Rs.230 cr.) to fund its expansion plans. Of the total capital that the company would raise, Rs.150 cr. would be spent to set up two co-generation plants and the remaining amount would be spent to set up a new sugar mill.

The sugar industry is in the pink of health with a significant increase in production in FY06 compared to the previous period. Going forward, the industry is also expected to witness shortfall in supply in the next couple of years. Top players are initiating expansion plans and contemplate good growth in production and profitability in coming years on account of the bumper sugarcane crop. A significant cut in European Union subsidy and the drought in major sugar producing countries like Thailand and strong price movements in neighbouring countries like Pakistan, Sri Lanka and Bangladesh augur well for the future prospects of the Indian sugar industry.

India’s sugar output in the sugar season year to September 2006 is likely to be around 18.5 million tonnes as against 13 million tonnes, a year ago. Strong sugar demand and a booming export market will boost sugar production, which is likely to rise to 21-22 million tonnes in the year to September 2007. The higher sugar output is likely to be exported, which is likely to increase to 1.5 million tonnes next year. The domestic demand, too, is expected to increase industry sources say.SSL is increasing the FII limit upto 50% of the paid-up equity capital of the company. Recently, Deutsche Bank has picked up 16, 20,000 shares from the open market aggregating to 5.16% of the share capital. Total foreign holding has now gone upto 28.8%. The counter has been attracting hectic activity with substantial investment buying.

SSL is all set to post a net profit of Rs.100 cr. after extraordinary write off of Rs.34 cr. in the current year. The EPS before extraordinary expense could work out to Rs.43. The share trades at a forward P/E of just 6 against the industry average P/E of 24 leaving tremendous scope for the share to rise handsomely. The 52-week high and the low of the share has been Rs.275/ 64.

MY TAKE : STOCK SHLD BE BOUGHT AFT A BIT OF CORRECTION.....235 ACTS A GOOD SHORT TERM SUPPORT....30% CAN BE BOUGHT ARND THOSE LEVELS N REST ARND 190