ICICI Direct is bullish on Balrampur Chini has recommended buy rating on the stock with a target price of Rs 170 in its research report dated April 15, 2020.
ICICI Direct's research report on Balrampur Chini
With the 40-day lockdown in the country due to the Covid-19 outbreak, most industries would be impacted negatively by production halts, demand destruction & supply chain disruptions. However, we believe the impact on sugar industry would be limited to small decline in sugar consumption & lower ethanol offtake by OMCs in FY21E. Sugar production continues even in these challenging times with production likely to be complete by early May. Sugar production is likely to be around 27 million tonnes (MT) against earlier estimate of 26 MT due to a marginal change in Maharashtra production and lower diversion towards Gur & Khandsari.
We believe Balrampur would generate strong cash flow over the next two years, which would lead to a significant reduction in working capital debt requirement. Moreover, it has kept payment to shareholders (dividend, buy backs) at 40% of earnings. Currently, the stock is trading at 1.1x & 1x FY20E & FY21E P/BV, respectively. We value the stock at 1.6x FY21 PBV with a revised target price of Rs 170 (earlier target Rs 220) and maintain BUY rating.
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