Buy Balrampur Chini Mills; target Rs 66: ABMoney
Aditya Birla Money is bullish on Balrampur Chini Mills (BCML) and has recommended buy rating on the stock with a target price of Rs 66 in its February 07, 2013 research report.
February 07, 2013 / 17:26 IST
Aditya Birla Money is bullish on Balrampur Chini Mills (BCML) and has recommended buy rating on the stock with a target price of Rs 66 in its February 07, 2013 research report.
"BCML, net sales for 3QFY13 increased by 43.5% YoY to Rs 9499.3 mn mainly led by 49.9% YoY growth in sales of Sugar division to Rs 9208.6 mn. The growth in sugar division was due to increase in sales volume by 35.2% YoY to 0.27 mn tonnes coupled with 16.7% YoY increase in free sale sugar realisation to Rs 34.7/Kg. Sugar divission benefited from the liquidation of low cost inventory brought forward from last year. The performance of distillery division was subdued with sales degrowth of 43.4% YoY to Rs 133.5 mn, led by 44.1% YoY decline in sales volume at 3867 KL. The decline in sales volume is due to lack of clarity on ethanol pricing and hence the company has held back the inventory, to benefit from likely increase in ethanol pricing for rest of the seaon. Blended distillery realisation was flat at Rs 33.8/ltr. Cogen division revenue degrew by 18.1% YoY to Rs 678.5 mn, primarily due to 23.8% YoY fall in sales volume to 97.6 mn units, led by relatively late start of crushing in SY13 as compared to that of in SY12.EBITDA for 3QFY13 was Rs 1183.8 mn as compared to loss of Rs 129.6 mn in 3QFY12. EBITDA margin was at 12.5%. Overall, in 3QFY13, the company reported PAT of Rs 602.2 mn as compared to the loss of Rs 640.1 mn in 3QFY12.Outlook on domestic sugar industry: We believe the pan India sugar production for SY13 is likely to be in the range of 24.0-24.5 mn tonnes. As per industry sources, the combined sugar production in Maharashtra and Karnataka is likely to be at 9 mn tonnes in SY13E (v/s 13 mn tonnes in SY12). In the monsoon gone by due to drought in Maharastra and Karnataka, in SY14E, sugarcane production is likely to fall by 30-35% in Maharashtra and Karnataka and this will further impact sugar production. On the other hand, in SY13E, sugar production in UP is likely to increase by 8-10% to ~7.8 mn tonnes. We believe sugar demand-supply scenario is fairly balanced. As of now, ex-mill sugar price in UP is ruling at ~Rs 32.5/kg. More clarity on sugar production and likely sugar prices will emerge as the crushing season progresses. In addition, any steps towards decontrol of sugar industry like removing sales quota system will have bearing on the domestic sugar prices. In near term, industry is expecting levy sugar quota to be reduced from current 10% or may be scrapped completely. Govt has mandated 5% blending of ethanol from FY14 onwards and hence OMC’s have floated global tender for supply of ethanol. Import parity price of ethanol is currently at ~Rs 46/ltr and domestic sugar millers are expecting to supply ethanol in the range of Rs 35-40/ltr. We will revise our estimates, post more clarity emerges on all the reforms implemented by govt. Valuations: At CMP, the stock is trading at P/BV of 0.9x FY14E BV and EV/EBITDA of 3.9x FY14E EBITDA. We reiterate our BUY rating on the stock with Mar14 revised price target of Rs 66/share (based on average of target FY14E EV/EBITDA (adjusted for WC debt) of 4.0x and FY14E P/BV of 1.2x). We reiterate, our stance that, BCML is the best play in sugar industry with least debt on balance sheet," says Aditya Birla Money research report.Public holding more than 90% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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