3 Reasons why Dolly Khanna Bought this Ethanol Penny Stock in Q2

Dalal Street has recently been obsessed with ethanol stocks.

We all know how ethanol blending in petrol created a new investment theme in the stock markets and fuelled the rise of sugar stocks.

This could just be the beginning because investors always seek out innovators to fund the next breakthrough.

We can trace this trend back to the 1900s when investors put massive amount and crazy bets on silicon technology.

Now coming back to the ethanol megatrend...

One of the top investing gurus in India - Dolly Khanna - has taken a big bet on an ethanol penny stock.

Who is Dolly Khanna?

Dolly Khanna is a Chennai-based investor, known for picking lesser-known midcaps and smallcaps. She has been investing in stocks since 1996.

Dolly Khanna's portfolio, which is managed by her husband Rajiv Khanna, is usually inclined towards more conventional stocks in manufacturing, textile, chemical, and sugar stocks.

Which Ethanol Penny Stock did Dolly Khanna buy and why?

The stock in question is KCP Sugar & Industries Corporation.

The latest shareholding pattern of the company shows that Dolly Khanna holds 1.26% stake in the company as of September 2023.

She holds a little over 1.4 shares million (m) worth Rs 54 m.

Her name did not appear in the June 2023 shareholding pattern.

Companies have to report details of shareholders who own more than 1% stake in a company.

It is difficult to ascertain whether Dolly Khanna bought the entire stake in the quarter gone by or whether she held some quantity prior to this.

While we don't know the exact reasons why Dolly Khanna turned bullish on the sugar stock, there are some reasons we can guess...

Sugar stocks overall have seen a decent rise in the quarter gone by as increase in sugar prices boosted the demand.

Reportedly, sugar prices got a boost as limited rainfall in India's key growing regions raised production concerns for the upcoming season.

Higher sugar price is expected to improve margins of sugar producing companies like KCP Sugar.

The other reason behind Khanna's move could be strong results posted by the company in Q1 of FY24.

The company reported a total income of Rs 1.2 bn during the quarter under review as compared to Rs 0.5 bn in the March 2023 quarter.

It also turned profitable and posted a net profit of Rs 306.8 m as against a net loss of Rs 84.7 m in March 2023 quarter and a net loss of Rs 14.3 m in the year ago quarter.

Taking into account better future prospects due to the ethanol story, the company's performance in the coming years is expected to improve.

Another reason why Dolly Khanna bought the stock could be because of its established market presence.

The company is present in this domain since decades and enjoys a strong relationship with farmers due to long standing presence in the region.

As part of diversification and not relying on single source of income, the company has also forayed into processing of Urad Dal with installed capacity 22,000 MT.

The revenue contribution from this division is yet to make an impact on overall numbers.

Going forward, the company also has plans to foray into engineering and chemicals manufacturing segments.

How KCP Sugar Shares have Performed Recently

In the past one month, shares of the company have put up a muted performance rising by 4%.

In 2023 so far, shares of the company have gained 14%.

Today, the stock closed down over 3% at Rs 36.

KCP Sugar has a 52-week high of Rs 39.5 touched on 10 October 2023 and a 52-week low of Rs 21 touched on 15 February 2023.

At the current price, the company trades at a PE multiple of 5.1x and a price to book value multiple of 1.1x.

This compares with its 5 year average PE of 11.6x and a 5 year average P/BV multiple of 0.7x.

Here's a table comparing it with it's peers.

Comparative Analysis

Company	KCP Sugar	DCM Shriram	EID Parry	Ugar Sugar	Balrampur Chini
ROE (%)	16.6	8.7	32.1	60.2	10.1
ROCE (%)	15.7	10.2	42.6	29.6	10.4
Latest EPS (Rs)	7.9	8.2	43.9	7.8	17.1
TTM PE (x)	5.1	16.5	11.6	13.8	24.3
TTM Price to book (x)	1.1	1.6	1.4	5.7	2.8
Dividend yield (%)	0.5	0.7	1.9	0.5	0.6
Industry PE	12.9
Industry PB	2.5

Data Source: Ace Equity

About KCP Sugar & Industries Corporation

KCP Sugar & Industries Corporation is part of the KCP group.

The company is engaged in the manufacturing of sugar as well as its associated products such as rectified spirit, extra neutral alcohol, ethanol, incidental cogeneration of power, etc.

To know more, check out its financial factsheet and its latest quarterly results.

You can also compare it with peers.

KCP Sugar vs Bajaj Hind. Sugar

KCP Sugar vs Dwarikesh Sugar

{lb~Sugar stocks}

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...