Buy Balrampur Chini Mills; target of Rs 136: SPA Research

SPA Research's research report on Balrampur Chini Mills

Balrampur Chini reported excellent set of numbers driven by better recoveries and encouraging performance from core sugar segment, which witnessed enhanced volumes and realizations. While topline increased by 77.1% YoY to INR 8875 mn, BCML reported a net profit of INR 1060 mn in Q2FY17 (second consecutive quarter of +INR 1 bn profit) vs. net loss of INR 136 mn in Q2FY16. This improvement was largely driven by core sugar segment as it reported a profit of INR 1198 mn at EBIT level vis-à-vis loss of INR 140 mn in Q2FY16. We continue to retain out BUY rating on the stock with a target of INR 136.

BCML being one of the largest and most efficient sugar producers in the country is best placed to capitalize on the positive structural changes witnessed by the industry. Expected lower sugar production both globally and domestically will result in firm sugar prices. Improving ethanol dynamics and robust balance sheet will aid profitability. We expect topline and bottom line to register a CAGR of 11.3% and 17.6% over FY16-18E respectively. We continue to retain out BUY rating on the stock with a target of INR 136 based on 1.8x FY18E BV.