I have been buying (since the last 2 years) EID Parry and DCM Shriram on dips (and boy, do they dip!!). The attraction is a) Sugar Business in both cases is only 30-40% of their total business b)their other business (Coromandel and Bioseeds, in the case of EID Parry, and Fertilizers, Seeds, Alkali and Plastics in the case of DCM Shriram) are extremely well run and well regarded c)debt levels are quite reasonable.
My logic is (was) that I have no control over sugar prices. However, the history of Sugar Prices has been that every few years, these companies have a real blockbuster year. However, even in bad years, these two companies don’t go into a loss, their debt remains under control, and they give dividends. So there is no risk to survival. Frankly, if sugar prices were to stay at current levels for a couple more years, than Shree Renuka iwill not the only one in deep trouble.
The flip side is that you don’t get as much of a bounce if Sugar Prices go crazy. But that is the price I am willing to pay for Margin of Safety.
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