Accumulate Balrampur Chini; target of Rs 93: Way2Wealth

Way2Wealth is bullish on Balrampur Chini (BCML) and has recommended accumulate rating on the stock with a target of Rs 93 in its September 27, 2012 research report.

“BCML’s mills being located in Eastern UP have advantage of better cane availability due to good monsoon during the season. BCML is expected to improve its cane crushing by 10% y-o-y for the season at 93lakh t. Recovery is expected at 9.6% thus; sugar production for the season is expected to be 8.64lakh t. Improved production with improved realization will improve profitability. We expect cane price for the season to be around Rs260- 270/qtl. Deficient monsoon expected in Maharashtra and other regions and abridged acreage has reduced cane crop by 30% y-o-y for SY13e. Therefore, we expect sugar production in the country to go down to 23.3mnt for SY13. Sugar exports of 3.5mnt have absorbed excess supply in the system. Thus, inventory level is expected to go down to 5.7mnt for SY13e. This will have positive impact on sugar prices which we expect to sustain at Rs35/kg. Sugar price sensitivity to BCML’s profitability is very high. Sugar price change between 3-5% has an impact on the profitability to the extent of 25-30%.”
“At the end of FY12 BCML’s sugar inventory stood at 6.4lakh t valued at Rs28670/t. Improved sugar prices will post gain on last year low cost inventory. At current realization of Rs35000/t we expect firm to make EBIT margin of Rs4778/t including loss on levy sugar. Current year COP (Cost of Production) is expected to increase to Rs32500/t and firm is expected to make margin of Rs1225/t including loss on levy sugar. Therefore, we expect sugar division profitability to improve to Rs296cr for FY13E. Any positive news on increased levy sugar price will be beneficial for the firm.”
“The firm’s balance sheet is strong in the industry. Integrated business model, minimum capex has made it sail through down cycle of the industry. BCML currently has debt of around Rs11400cr out of which term debt is Rs680cr. The firm has scheduled repayment of around Rs265cr for FY13e. Current debt:equity ratio of the firm is 1:2 which we expect to improve further due to improved profitability and scheduled repayment. We expect reducing surplus in the country to support sugar prices in the domestic prices. BCML being situated in the cane rich area to improve production and sales volume for FY13e. We expect BCML to post EPS of Rs12.24 per share for FY13e. At current price the stock is trading at 5.4xFY13e earnings. We feel worst for sugar industry is over and marginal improvement in realization has good leverage towards earnings. We recommend accumulate with target price of Rs93,” says Way2Wealth 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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