Buy Balrampur Chini; target of Rs 80: Aditya Birla Money

Aditya Birla Money is bullish on Balrampur Chini and has recommended buy rating on the stock with a target of Rs 80 in its August 09, 2012 research report.

“BCML has announced its 1QFY13 results and the results were below street expectation. Net sales for 1QFY13 increased by 22.0% YoY to Rs6919.6 mn mainly led by 23.8% YoY growth in sales of Sugar division to Rs5819.4 mn. The growth in sugar division was due to increase in sales volume to the tune of 17.1% YoY to 0.19 mn tonnes coupled with 6.6% YoY increase in free sale sugar realisation to Rs29.7/Kg. Consequently, EBITDA for 1QFY13 increased by 43.3% YoY to Rs571.9 mn and margin expanded by 130 bps to 8.3%. Interest cost increased by 28.9% YoY to Rs535.2 mn due to higher working capital requirement and higher interest cost scenario. Overall, the company reported loss of Rs180.5 mn at bottomline.”

“The pan India sugar production in SY13 is likely to be in the range of 24-25 mn tonnes as against earlier expectation of ~25 mn tonnes. Weak monsoon is likely to reduce combined sugar production in Maharashtra and Karnataka to 10 mn tonnes against the earlier expectation of 13 mn tonnes. On the other hand, due to reasonably well rainfall in UP and payment of previous cane arrears, acreage under sugarcane cultivation is likely to go up 8-10%, whereas yield is expected to remain flat. Overall, sugar production in UP is likely to go up by 8-10% to ~7.7 mn tonnes. The sugar production in SY12 has been 26 mn tonnes and with sugar consumption of 22- 23 mn tonnes coupled with ~3 mn tonnes exports in SY12, India is likely to enter into SY13 with inventory of 4-5 mn tonnes, which we believe is fairly balanced demand-supply scenario. Recently, ex-mill sugar price hit the high of Rs36.5/kg, which we believe is likely to stabilise in the range of Rs32-34/Kg. More clarity on sugar production and likely sugar price will emerge in next 5-6 months depending on monsoon and hence likely sugarcane output over next 2 months.”

“At CMP, the stock is trading at P/BV of 1.1x FY14E BV and EV/EBITDA of 4.0x FY14E earnings. We reiterate our BUY rating on the stock with rolled over Aug13 price target of Rs80/share (based on average of target FY14E EV/EBITDA (adjusted for WC debt) of 5.0x and FY14E P/BV of 1.2x),” says Aditya Birla Money research report.   

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