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Balrampur Chini Mills (BRCM)
Sugar
Bleak scenario ahead; valuation near trough levels. BRCM’s reported results were
in line with our estimates. 2QFY12 is an off-peak quarter and hence insignificant. UP
government has increased SAP by ~Rs350 per ton. Cost of production (Rs30-32 per kg;
depending on efficiency) would be upwards of current realizations. News articles
suggest that mills would soon approach the courts. Given the scenario, we are unable
to project earnings pending concall. We are shifting our valuation methodology to P/B
based. The stock is quoting at lowest (0.9X FY2012E BV) end of its historical P/B range.
Retain BUY; target price of Rs60 (Rs80 earlier) at 1X FY2013E BV.
Insignificant quarter – results met expectations
BRCM reported 2QFY12 sales at Rs5 bn (-1% yoy; -11.3% qoq) which met our estimates. 2QFY12
EBITDA at Rs192 mn was 56% lower qoq. 2QFY12 PAT loss of Rs394 mn was in line with our
estimates of loss of Rs338 mn. 2QFY12 is an off-peak quarter, and hence results carry little
significance. Also, as a result of change of fiscal year, expenses for the quarter are higher as the
first half of the new fiscal year (March-ending) has had no crushing on account of which costs
have not been apportioned over total volume of cane crushed and hence are a bit higher versus
the normalized trend.
Bleak prospects for the next year – situation in a limbo
UP government has hiked SAP (State Advised Price) by ~Rs350 per ton. At a SAP of ~Rs2,400 per
ton, cost of manufacturing sugar would come in the range of Rs32-34 per kg without including
losses on sale of levy sugar which is more that the realizations of sugar companies right now (in
the range of Rs28-29 per kg). Also, given that next year is projected to be a surplus year, passing
incremental costs would be tough. Only positive surprise could be a large export quota for
SY2012E which might allow companies to get higher realizations. At the current price of white
sugar of US $658 per ton (Rs33 per kg), profitability would be lower than normalized. Also, large
export quota announcement by the Indian government might lead to 5-10% correction in global
prices in which case even exports might not yield required profitability.
Earning estimates need to go down significantly; will adjust post conference call
As per news reports, UP sugar mills would appeal in the court against government decision of
fixing SAP at ~Rs2,400 per ton. Considering the uncertain scenario, we have not made changes to
our estimates (should decline substantially) pending concall. We are shifting our methodology to
one based on P/B multiples. We value BRCM at Rs60 (1X FY2013E BV). Maintain BUY.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Balrampur Chini Mills (BRCM)
Sugar
Bleak scenario ahead; valuation near trough levels. BRCM’s reported results were
in line with our estimates. 2QFY12 is an off-peak quarter and hence insignificant. UP
government has increased SAP by ~Rs350 per ton. Cost of production (Rs30-32 per kg;
depending on efficiency) would be upwards of current realizations. News articles
suggest that mills would soon approach the courts. Given the scenario, we are unable
to project earnings pending concall. We are shifting our valuation methodology to P/B
based. The stock is quoting at lowest (0.9X FY2012E BV) end of its historical P/B range.
Retain BUY; target price of Rs60 (Rs80 earlier) at 1X FY2013E BV.
Insignificant quarter – results met expectations
BRCM reported 2QFY12 sales at Rs5 bn (-1% yoy; -11.3% qoq) which met our estimates. 2QFY12
EBITDA at Rs192 mn was 56% lower qoq. 2QFY12 PAT loss of Rs394 mn was in line with our
estimates of loss of Rs338 mn. 2QFY12 is an off-peak quarter, and hence results carry little
significance. Also, as a result of change of fiscal year, expenses for the quarter are higher as the
first half of the new fiscal year (March-ending) has had no crushing on account of which costs
have not been apportioned over total volume of cane crushed and hence are a bit higher versus
the normalized trend.
Bleak prospects for the next year – situation in a limbo
UP government has hiked SAP (State Advised Price) by ~Rs350 per ton. At a SAP of ~Rs2,400 per
ton, cost of manufacturing sugar would come in the range of Rs32-34 per kg without including
losses on sale of levy sugar which is more that the realizations of sugar companies right now (in
the range of Rs28-29 per kg). Also, given that next year is projected to be a surplus year, passing
incremental costs would be tough. Only positive surprise could be a large export quota for
SY2012E which might allow companies to get higher realizations. At the current price of white
sugar of US $658 per ton (Rs33 per kg), profitability would be lower than normalized. Also, large
export quota announcement by the Indian government might lead to 5-10% correction in global
prices in which case even exports might not yield required profitability.
Earning estimates need to go down significantly; will adjust post conference call
As per news reports, UP sugar mills would appeal in the court against government decision of
fixing SAP at ~Rs2,400 per ton. Considering the uncertain scenario, we have not made changes to
our estimates (should decline substantially) pending concall. We are shifting our methodology to
one based on P/B multiples. We value BRCM at Rs60 (1X FY2013E BV). Maintain BUY.
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