Buy Balrampur Chini; target of Rs 210: ICICI Direct

ICICI Direct's research report on Balrampur Chini

Balrampur Chini reported 15% decline in sales mainly on account of 15% dip in sugar sales impacted by lower monthly sale quote. Sugar volumes were down 22% to 2.1 lakh tonnes but sugar realisation increased 3.6% to Rs 33.3/kg. The company is holding 4.9 lakh tonnes (LT) as on September 30, 2019. Distillery sales increased 21.3% to Rs 134 crore led by 13% increase in distillery volume & 5% increase in realisation. The higher realisation reflecting government’s revision of C heavy ethanol prices last year. Co-generation sales fell from Rs 34.2 crore to Rs 25 crore mainly due to revision of power tariffs. With the expected decline in sugar production to 26.0 million tonne in the country due to 40% dip in Maharashtra, UP sugar mills are expected to get higher sales quota in H2. This would result in liquidation of excess inventory by UP based sugar mills, including Balrampur Chini.

Outlook

The sugar industry is going through a transformation with the introduction of MSPs & increasing level of ethanol blending programme. With increasing ethanol volumes, prices and higher export this year, we believe the company would be able to aggressively liquidate its inventory. This, in turn, would result in additional free cash flows and further de-leverage its balance sheet. We value the stock 1.7x FY21E book value. We revise our target price to Rs 210/share and maintain BUY recommendation on the stock.

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