Small-Cap Sugar Stocks – Still have a good upside potential

Investors looking for good returns can consider buying stocks of small sugar companies. Some of these companies have excellent prospects as valuations are still cheap and results for the next few quarters are likely to be amazing. We present two such ideas:

Sakthi Sugars

The company is among the top three sugar producers in Tamil Nadu. Its plants are located at Sivaganga, Sakthinagar, and Dhenkanal respectively. For this season India would be net importer of sugar which would keep sugar prices firm. The company has shown strong performance in recent quarters and the calendar year EPS is likely to be around Rs 40 which discounts the current market price of Rs 100 by a PE multiple of 2.5. This appears quite attractive. Hence if investors can take 1 year investment horizon, we believe the stock can generate fabulous returns from current levels.

KCP Sugars

The Chennai based KCP Sugars with a combined capacity of 11,500TCD (7,500 TCD at Vuyyuru and 4,000 TCD at Lakshmipuram) both in the state of Andhra Pradesh, is a well managed focused and fully integrated sugar company. Shortage in sugar production this season has led to hardening of sugar prices as well as prices of molasses (a key by-product) and the company is well placed to capitalize on this opportunity going forward. The stock is trading at PE multiple of ~4 for its FY10E EPS. One can buy the stock considering its strong presence in relatively stable markets and positive outlook on the sector.