Buy Balrampur Chini; target of Rs 63: SPA Research

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Buy Balrampur Chini; target of Rs 63: SPA Research

SPA Research is bullish on Balrampur Chini Mills and has recommended buy rating on the stock with a target of Rs 63 in its January 30, 2012 research report.

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SPA Research is bullish on Balrampur Chini Mills and has recommended buy rating on the stock with a target of Rs 63 in its January 30, 2012 research report.

"Balrampur Chini continued its dismal run for the third consecutive quarter largely on account of one time hit due to accounting of differential sugarcane price amounting to INR 920 mn for the sugar season 2007-2008 (SS08) coupled with rising cane cost and lower recoveries. While the revenue growth remained healthy, earnings contraction was restricted by robust contribution to profitability from allied segments."

"Sugar revenues improved by 25% to INR 6145 mn in Q3FY12, on the back of 32% increase in sales volumes to 19.60 lakh qtl. Despite 3% YoY improvement in realisations to INR 29.71/kg, BCML reported loss at PBIT level due to increase in cost of production on account of rising cane costs (landed cost of INR 252/qtl vs INR 217/qtl) and lower recoveries (8.84% vs 9.05%), apart from one time hit of INR 920 mn due to accounting of differential sugarcane price for the SS08 on account of Supreme Court verdict. Distillery business registering a robust topline growth of 73% YoY to INR 236 mn led by 39% growth in volumes coupled with 27% improvement in realisations to INR 33.89/BL. Blended realisations of RS and ENA improved significantly to INR 34.77/BL as compared to INR 26.73/BL in corresponding period previous year."

"Interest costs took a toll on the profitability as it increased by 48% YoY to INR 258 mn, primarily on account of a high interest rate scenario as well as on account of higher working capital requirements. As on Dec 2011, BCML is carrying a long-term debt of INR 7 bn and a working capital debt of INR 6 bn. Repayment obligation (largely ECB loans) amounts to INR 1550 mn in Q4FY12 and INR 2650 mn in FY13E. BCML being one of the country's largest integrated sugar manufacturing companies is expected to successfully ride through current turbulent times. We expect government to take some proactive steps which should benefit the sector. At the CMP of INR 49, the stock trades at a P/E & P/BV of 11.1x and 1.0x respectively its FY13E earnings.Subsequent to dismal performance registered by BCML owing to one time charge, we have factored in a net loss of INR 646 mn vis-à-vis our earlier net profit estimate of INR 43 mn for FY12E earnings. We maintain a BUY rating on the stock with a target price of INR 63," says SPA Research report. 

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To read the full report click on the attachment