INVESTORS may consider buying in to the stock of Andhra Sugars, which at Rs 140 trades at a PE of 10 times its FY-05 earnings.

The company derives revenues of about 40 per cent each from caustic soda and sugar, while energy and other industrial chemicals account for the balance. While prospects for its sugar business looks bright, demand for caustic soda is expected to remain firm. With the paper industry set to expand, the demand for caustic soda is expected to stay robust.

Andhra Sugars, which has been under utilising its capacities, would be able to exploit this opportunity without having to invest in additional capacities. Generation of power from wind farms also augurs well for its caustic soda division, as power is the major constituent in the production of caustic soda. The outlook for the sugar business too has perked up as volumes are expected to rise with higher cane availability. Sugar prices are also expected to remain firm, as the recovery factor in the industry has not attained the expected levels. With both the caustic soda and sugar divisions expected to do well, the company could surprise investors with robust growth in earnings.

Alagappan Arunachalam

(This article was published in the Business Line print edition dated July 24, 2005)
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