Buy Balrampur Chini; target of Rs 67: SPA Research

SPA Research is bullish on Balrampur Chini and has recommended buy rating on the stock with a target of Rs 67 in its May 30, 2012 research report.

“BCML reported tepid set of numbers on account of one time hit due to payment made on account of differential sugarcane price for the sugar season 07-08 coupled with rising cane cost. Profitability improved by 15% in Q4FY12 on the back of 23% growth in revenues and 97% decline in tax expenses. While sugar segment continued to remain under pressure, earnings contraction was restricted by stable contribution to profitability from allied segments. We introduce FY14 estimates and retain our BUY rating on the stock with a revised target price of INR 67.”

“Sugar segment reported a strong revenue growth of 31% in Q4FY12, on the back of 33% increase in sales volumes to 15.2 lakh qtl. The Sugar production was at 55.8 lakh qtl in Q4FY 12, higher by 19% YoY. The free sale realizations during the quarter improved to INR 29.0/ kg as compared to INR 28.6/kg in the corresponding previous period. PBIT declined by 16% to INR 803 mn due to increase in cost of production on account of rising cane costs (landed cost of INR 252/qtl vs INR 227/qtl) and one time hit of INR 920 mn due to accounting of differential sugarcane price for the SS08 on account of Supreme Court verdict. BCML recorded average sugar recovery of 9.54% in the FY12, which is one of the highest in the state of the UP. It crushed 8.5 crore quintal of cane owning to higher cane availability and produced 8.1 lakh tonne of sugar in FY12. We expect the recovery rate to remain in a range of 9.5%-9.6% in coming years.”

“BCML being one of the country's largest integrated sugar manufacturing companies is expected to successfully ride through current turbulent times. The latest development involving removal of cap on sugar exports and bringing it under OGL is a positive move for the sector. We expect government to take some more proactive steps which should benefit the sector. We have introduced FY14E estimates and retain our BUY rating on the stock with a revised target price of INR 67 (earlier target of INR 63 already achieved). At our target price, the stock would trade at 1.3x FY14E BV of INR 51,” says SPA Research report. 

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