Visit http://indiaer.blogspot.com/ for complete details �� ��
Balrampur Chini Mills Ltd. — Poor Sep Q and subdued recovery caps upside
Estimate Change: Reiterate Underperform on subdued recovery prospect
Balrampur Chini reported a loss of Rs783mn in the quarter ending Sep2010,
which is worse than our estimate of Rs8mn loss. We reiterate Underperform
despite the prospect of an earnings recovery compared to the dismal Sep Q.
However, an earnings recovery is likely to be subdued and ROE is unlikely to
exceed 10% in next two years owing to rising cane cost and excess sugar supply
within India. The stock looks expensive trading on a PE of 19.8x FY11e (YE Sep)
and PB of 1.7x FY11e, despite the prospect of very low earnings growth and
weak ROE.
Sep Q affected by merger of subsidiary and lower price
Worse than expect Sep Q owing to a combination of lower sugar price in
recurring business and merger of loss making subsidiary Indo Gulf. Following the
merger total cane crushing capacity has increased to 76500TCD from 73000TCD.
Higher sugarcane cost and poor coal-cogen hurts outlook
We have maintained our earnings estimates despite increasing our sugar price
assumption from Rs25/kg to Rs28/kg. The benefit of higher sugar prices has
been neutralized by higher than estimated increases in government determined
sugarcane costs. The company has also seen a sharp drop in profit margin on
coal based power.
Management upbeat on reduced surplus and regulation
Balrampur Chini is upbeat about sugar recovery in India as sugar production may
not exceed 25mt in FY11 and FY12 (YE Sep). The company also expects
favorable cane price policy in the next six month and a reduction in supply
pressure as the government may move to allow exports. However, we remain
skeptical about the prospects for a favourable cane price policy.
No comments:
Post a Comment