Thursday, 17 May 2018

EID Parry (India) Ltd: All Sugars are not Same-3rd Part



Click here , here and here for earlier posts on EID Parry and Sugar Sector.

Sugar sector again is in the mess. The reason-as i have pointed out many times earlier is the flawed govt policies. They raise the FRP of the cane and every farmer is growing cane due to assured returns and we have excess (Unnecessary) production. Global sugar production is already in surplus. So Sugar producers need to pay higher FRP but sale price is lower inflicting double damage and our Govt is again trying to throw hard earned tax payer money for keeping the prices a bit higher just to make it a zero sum game.

Maharashtra faced severe drought for 2 years with lower sugar production but this year better rain has resulted in every farmer growing cane. The result-Sugarcane production is up by 25% but the production of pulses and oilseeds is down 46% and 15% and we'll see India importing more and more pulses and oilseeds again this year. India imports around 70% of its refined oil requirements valued around some 60000 cr!!! Now Maharashtra Govt is working to promote crop diversification policy.

I am always of the view that major task of the govt is administration not the control and unnecessary interference like for example, as we are dependent upon oil imports for meeting 80% of our demand so Govt should have focused on developing most efficient public transport system so as to discourage the use of private vehicles. So Govt needs to focus on making strong policy backed by precise data and efforts to equip the farmers with cropping pattern information for better and sustained prices. But here Govt has always failed miserably. I am surprised why they can't think something rather than wasting taxpayer’s money and wealth in pouring unnecessary subsidies after the accident when they could have avoided the accident itself.

So EID is also down...at 250. But it is still better than the other sugar stocks (part reason-it never rose like them). But my reason for investing in it was never the occasional upswing in the sugar prices...i never invest looking at short term forces. I see Govt doing the much needed repair work (like in Maharashtra) for the sugar sector and then EID parry due to its way superior credentials will reap the maximum benefits. 
Moreover, the expected global glut in the sugar supply may turn out be an overestimate because Brazil has already started to plan diversion of excess sugar production to Ethanol production in order to support the local prices. Similar action is also expected from Indian Govt rather than subsidies.

But as shared in earlier blog posts related to EID, apart from sugar sector alignment the main reason behind the investment in EID parry was its diversified portfolio of Nutraceutical products (Turnover 215 cr) which is growing fast and EID is still focusing on investing more in it, its focus on developing branded sugar in India and Ethanol and Distillery business (Turnover 300 cr). Ethanol is a big strategic fit for India's oil issues and this will also realize the long wished aim of raising farmer's income.

Brazil is a global success in Ethanol with around 90% of its new cars fitted with dual-fuel engines which can be powered by petrol or ethanol or any mix of the two. Brazil produces around 27-30 billion litres of ethanol while Indian production is around 1 billion liters. Indian Govt is taking concrete steps for growing Ethanol production in India especially the production of 2nd generation Ethanol from agro residue like rice husk, wheat straw, corn straw, cotton straw, Bamboo etc. (Investment in Praj Industries was also due to this reason Click here for study on Praj Ind).


EID parry holds 60% in Coromandel International valued around 8000 cr (Although Coromandel has fallen from 600 levels to 450 levels) and even if we give the 50% holding company discount the value of the holding is around 4000 cr which is the current market cap of EID Parry!!! So we are getting its sugar business, Nutraceutical, Ethanol and Distillery businesses having turnover of 4500 cr almost free!!! EID gets around 100 cr as dividend from Coromandel every year which provides the support to its bottom line.

I see this company doing great and ready for the long haul. I am looking to invest more and more at every significant development in its branded sugar, Nutraceutical and Ethanol businesses.

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post)

6 comments:

  1. Hello Sir, ur view on quick heal after d strong q4....stk corrected after tht, is it expensive in valuation

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  2. Your market analysis is good and also blog is awesome.
    Forex trading tips

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  3. I think sir Kiran Vyapar posted a good result and expected good in future also.

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  4. You are right Dear. But i am trying to get the operational data for Navjyoti...just to gauge the growth. I'll finish the study within few days and will try to post the same shortly.

    ReplyDelete