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Balrampur Chini Mills (BRCM)
Sugar
In-line results. BRCM reported 5QFY11 EBIDTA at Rs724 mn (-45% yoy) vs our
estimates at Rs823 mn. Little bit of negative surprise has come on account of: (1)
Lower-than-estimated realizations in the distillery business (Rs26.7/lit vs our estimates at
Rs27/lit), and (2) lower-than-expected realization (Rs27.74/kg vs our estimates at
Rs28/kg) in the sugar division. We maintain ADD with a target price of Rs90.
In -line results – sugar profitability weak – to improve in the subsequent quarters
BRCM reported 5QFY11 revenues at Rs5.31 bn (+20.9% yoy, +3.7% qoq) vs our estimates of
Rs6.64 bn on account of lower-than-estimated sales volume in the sugar business (149 mn kg vs
our estimates at 220 mn kg). The PAT at Rs234 mn (-69.6% yoy) was in line with our estimates at
Rs256 mn. In our opinion, the subdued profitability in the sugar segment has been on account of
sale of high cost inventory (0.12 mn tons at ~Rs27.75/kg) of sugar which was carried over from
last year. We expect profitability to improve in the subsequent quarters as the company sells sugar
produced from cane crushed during the year.
Government focused on reducing inflation – dithering on the policy reform
High inflation has become the bone of contention for the Indian government to an extent that it is
dithering on the policy reforms envisaged for the sugar sector. We highlight some of them:
According to news reports, Mr. Sharad Pawar has hinted at the possible delay in the proposed
decontrol of the sugar sector as many of the states have not agreed to the proposal.
The government has kept on hold permits for exports of 0.5 mn tons of sugar, which were
issued earlier under the open general license. As per our understanding, the final permission
would come only after February if the government is sure of comfortably meeting the domestic
demand for the current year.
Duty-free imports of raw sugar have been extended till March 31. Earlier, the import duty was
restored at 60% from January 1, 2011. Though the move is not useful as global prices are
higher than the domestic prices but still it signifies the intent of the government to keep a tight
lid on prices.
We maintain ADD with a revised target price of Rs90
We have reduced our earning estimates to factor in 5QFY11 results. Maintain ADD with target
price of Rs90. We will review our rating and estimates post the conference call on Monday.
Reducing our estimates
We are reducing our estimates to factor in: (1) Little higher price of sugarcane (Rs2,180/ton
and Rs2,280/ton for FY2011E and FY2012E, respectively, (2) We have increased our average
sugar realization estimates to Rs28.5/kg and Rs29.9/kg for FY2011E and FY2012E,
respectively, and (3) We have reduced our price assumptions for ethanol by Re1, to Rs27
and Rs28 for FY2011E and FY2012E, respectively
Maintain ADD with a TP of Rs 90; stock quoting at cheap valuations on P/B
The stock is quoting at the lower end of historical range of 1-year fwd P/B multiples. We
maintain ADD rating with a target price of Rs90.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Balrampur Chini Mills (BRCM)
Sugar
In-line results. BRCM reported 5QFY11 EBIDTA at Rs724 mn (-45% yoy) vs our
estimates at Rs823 mn. Little bit of negative surprise has come on account of: (1)
Lower-than-estimated realizations in the distillery business (Rs26.7/lit vs our estimates at
Rs27/lit), and (2) lower-than-expected realization (Rs27.74/kg vs our estimates at
Rs28/kg) in the sugar division. We maintain ADD with a target price of Rs90.
In -line results – sugar profitability weak – to improve in the subsequent quarters
BRCM reported 5QFY11 revenues at Rs5.31 bn (+20.9% yoy, +3.7% qoq) vs our estimates of
Rs6.64 bn on account of lower-than-estimated sales volume in the sugar business (149 mn kg vs
our estimates at 220 mn kg). The PAT at Rs234 mn (-69.6% yoy) was in line with our estimates at
Rs256 mn. In our opinion, the subdued profitability in the sugar segment has been on account of
sale of high cost inventory (0.12 mn tons at ~Rs27.75/kg) of sugar which was carried over from
last year. We expect profitability to improve in the subsequent quarters as the company sells sugar
produced from cane crushed during the year.
Government focused on reducing inflation – dithering on the policy reform
High inflation has become the bone of contention for the Indian government to an extent that it is
dithering on the policy reforms envisaged for the sugar sector. We highlight some of them:
According to news reports, Mr. Sharad Pawar has hinted at the possible delay in the proposed
decontrol of the sugar sector as many of the states have not agreed to the proposal.
The government has kept on hold permits for exports of 0.5 mn tons of sugar, which were
issued earlier under the open general license. As per our understanding, the final permission
would come only after February if the government is sure of comfortably meeting the domestic
demand for the current year.
Duty-free imports of raw sugar have been extended till March 31. Earlier, the import duty was
restored at 60% from January 1, 2011. Though the move is not useful as global prices are
higher than the domestic prices but still it signifies the intent of the government to keep a tight
lid on prices.
We maintain ADD with a revised target price of Rs90
We have reduced our earning estimates to factor in 5QFY11 results. Maintain ADD with target
price of Rs90. We will review our rating and estimates post the conference call on Monday.
Reducing our estimates
We are reducing our estimates to factor in: (1) Little higher price of sugarcane (Rs2,180/ton
and Rs2,280/ton for FY2011E and FY2012E, respectively, (2) We have increased our average
sugar realization estimates to Rs28.5/kg and Rs29.9/kg for FY2011E and FY2012E,
respectively, and (3) We have reduced our price assumptions for ethanol by Re1, to Rs27
and Rs28 for FY2011E and FY2012E, respectively
Maintain ADD with a TP of Rs 90; stock quoting at cheap valuations on P/B
The stock is quoting at the lower end of historical range of 1-year fwd P/B multiples. We
maintain ADD rating with a target price of Rs90.
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