Accumulate Balrampur Chini; target of Rs 46: SKP Securities

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Accumulate Balrampur Chini; target of Rs 46: SKP Securities

SKP Securities is bullish on Balrampur Chini and has recommended accumulate rating on the stock with a target of Rs 46 in its January 18, 2012 research report.

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SKP Securities is bullish on Balrampur Chini and has recommended accumulate rating on the stock with a target of Rs 46 in its January 18, 2012 research report.

"Balrampur Chini Mills Ltd (BCML), promoted by Mr. K.N. Saraogi in 1975, is one of the largest integrated sugar companies in India. BCML is engaged in the manufacturing and selling of sugar and its by-products such as molasses, industrial alcohol, bagasse, power and organic manure. BCML has sugar factories in UP with an aggregate crushing capacity of 76,500 TCD."

"Unseasonal weather and changes in the sugar planting cycle in Brazil had led to a diminished crop in that region. Further, China imported raw sugar in season 2010-11 to meet its supply gap of ~3.7 million tonnes. India's strong surplus position as compared to Brazil and supply gap in China is favourable to its exports. Based on estimated surplus sugar inventory in India in the current sugar season, it is expected that the Government will further allow export in the sugar industry. This will trim the surplus and keep sugar prices buoyant going forward. BCML is well suited to absorb volatility in the sugar segment due to its well integrated business model. Distillery and Cogen segments act as a healthy cushion to volatility in Sugar segment thus providing stability to the company's overall profitability at the PBIT level."

"We expect BCML's cane crushing to grow ~13% and ~7% in FY12E and FY13E. We expect recovery rates in FY12E and FY13E to remain similar to FY11 levels at ~9.4%. This is likely to bring about healthy growth in power and distillery sales volumes which will increase the overall profitability of BCML. Management is focused on reducing BCML's debt. We expect reduction in long term debt of the company to the tune of Rs 100 cr in FY12E and Rs 250 cr in FY13E. This will ease the interest cost of the company going forward and reduce pressure on its margins."

"BCML is currently trading at a PE of 24.2x FY12E and 7.6x FY13E EPS. We recommend ACCUMULATE rating on the stock with a 12 months target price of Rs 46, at 9x FY13E earnings, implying an upside of 18% from the current levels," says SKP Securities research report.

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To read the full report click on the attachment