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Balrampur Chini ------------------------------------------------------------------Upgrade to NEUTRAL
Limited downside risks from here
● Balrampur Chini’s December 2010 quarter results slightly
disappointed us due to lower sugar realisation. Higher revenues
and lower EBITDA margin were also partly due to Rs450 mn of reexports
of previously contracted raw sugar at close to nil profit.
● On the positive side, distillery realisations were higher than
expected and are likely to remain strong, as OMCs are buying
ethanol at Rs27/l and prices of other alcohols are also similar.
● Cane crushing has lagged expectations so far. All India production
estimates have been cut by 1 mn t. Chances of a significant
positive surprise on production now appear low. Domestic prices
are at a significant discount to international prices, our view on
which our view for the next 12 months is positive. All this should
protect downside to domestic prices in our view.
● We factor in full-year free sale sugar realisation of Rs29/kg and
increase our EPS for FY11E accordingly. We raise our target
price to Rs82 (from Rs70) and upgrade to NEUTRAL (from
UNDERPERFORM).
Dec 2010: Slightly disappointing on lower sugar realisation
Balrampur Chini’s December 2010 quarter results disappointed us
slightly. Even as sugar sales volume was higher than estimated,
realisations were lower, leading to a miss on margins. Higher sales
volume in a quarter is of less relevance since annual sales volume is
related to production, though the timing of the sales across quarters
can vary and depends on release order among other things. Higher
revenues and lower EBITDA margin were also partly due to Rs450 mn
of re-exports of previously contracted raw sugar at close to nil profit.
On the positive side, distillery realisations were higher than expected
and are likely to remain strong, as OMCs have started buying ethanol
at Rs27/l and prices of other alcohols are also similar. Management
also indicated there could be further upward revision to ethanol prices,
as the past two petrol/diesel price revisions are not reflected in it.
Cane crushing lags expectations; raise EPS estimates for
FY11; upgrade to NEUTRAL
Cane crushing so far has lagged expectations, with yields in particular
disappointing. All India production estimates have been cut by 1 mn t.
Chances of a significant positive surprise on production (26+ mn t)
now appear low. Domestic prices are at a significant discount to
international prices, our view on which for the next 12 months is
positive. All this should protect downside to domestic prices. We factor
in full-year free sale sugar realisation of Rs29/kg and increase our
EPS for FY11E accordingly. We raise our target price to Rs82 (10x
FY11E EPS) from Rs70 and upgrade the rating to NEUTRAL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Balrampur Chini ------------------------------------------------------------------Upgrade to NEUTRAL
Limited downside risks from here
● Balrampur Chini’s December 2010 quarter results slightly
disappointed us due to lower sugar realisation. Higher revenues
and lower EBITDA margin were also partly due to Rs450 mn of reexports
of previously contracted raw sugar at close to nil profit.
● On the positive side, distillery realisations were higher than
expected and are likely to remain strong, as OMCs are buying
ethanol at Rs27/l and prices of other alcohols are also similar.
● Cane crushing has lagged expectations so far. All India production
estimates have been cut by 1 mn t. Chances of a significant
positive surprise on production now appear low. Domestic prices
are at a significant discount to international prices, our view on
which our view for the next 12 months is positive. All this should
protect downside to domestic prices in our view.
● We factor in full-year free sale sugar realisation of Rs29/kg and
increase our EPS for FY11E accordingly. We raise our target
price to Rs82 (from Rs70) and upgrade to NEUTRAL (from
UNDERPERFORM).
Dec 2010: Slightly disappointing on lower sugar realisation
Balrampur Chini’s December 2010 quarter results disappointed us
slightly. Even as sugar sales volume was higher than estimated,
realisations were lower, leading to a miss on margins. Higher sales
volume in a quarter is of less relevance since annual sales volume is
related to production, though the timing of the sales across quarters
can vary and depends on release order among other things. Higher
revenues and lower EBITDA margin were also partly due to Rs450 mn
of re-exports of previously contracted raw sugar at close to nil profit.
On the positive side, distillery realisations were higher than expected
and are likely to remain strong, as OMCs have started buying ethanol
at Rs27/l and prices of other alcohols are also similar. Management
also indicated there could be further upward revision to ethanol prices,
as the past two petrol/diesel price revisions are not reflected in it.
Cane crushing lags expectations; raise EPS estimates for
FY11; upgrade to NEUTRAL
Cane crushing so far has lagged expectations, with yields in particular
disappointing. All India production estimates have been cut by 1 mn t.
Chances of a significant positive surprise on production (26+ mn t)
now appear low. Domestic prices are at a significant discount to
international prices, our view on which for the next 12 months is
positive. All this should protect downside to domestic prices. We factor
in full-year free sale sugar realisation of Rs29/kg and increase our
EPS for FY11E accordingly. We raise our target price to Rs82 (10x
FY11E EPS) from Rs70 and upgrade the rating to NEUTRAL.
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