Balrampur Chini UNDERPERFORM- HDFC Sec

Higher SAP dents profitability
The UP state govt has increased the sugarcane price
for SS13 by Rs 40/quintal to Rs 275-290/qtl for all
varieties. Average cane variety will cost Rs 280/qtl vs
Rs 240/qtl in SS12.
Sugarcane constitutes 85-90% of total operating cost.
Hence, a higher cane price can significantly dent
EBIDTA. FY13 profitability will be less impacted as
2/3rd of the sales will take place from low cost
opening inventory. However, FY14 profit estimates
are revised down by 83% post the SAP hike,
compounded by the likelihood of another hike next
year (2014 is an election year).
This adverse situation can be possibly countered by
an increase in freesale sugar prices (tight demandsupply,
sugar production set to fall 10% in SS13) and
removal of levy quota (as suggested by the
Rangarajan committee).
BRCM benefits from freesale sugar prices. Co is set
for ~8% higher crushing (9.1 mT) in FY13 and has a
strong balance sheet (D/E 0.5 as at Sep-12).
Downgrade to UPF, TP Rs 52 (0.95x FY14E BV, 50%
discount to 6 yr avg P/BV of 1.9).
 UP’s State Advised Price (SAP) for cane in SS13 has
been set at Rs 280/qtl. This is 65% higher than FRP (set
by the centre) of Rs 170/qntl. Sharp increases during
the exit years of the BSP tenure plus this hike have led
to doubling of cane price in UP over the last 4 years.
 India’s sugar production is likely to fall by 10% in SS13
to 23.6 mT due to a sub-par monsoon. There should be
~20% fall in production in Maharashtra & Karnataka
and 10% increase in UP (UP players should benefit).
 Sugar prices are likely to remain strong in FY13 & FY14
due to tight demand-supply scenario & high cane cost.
 We have decreased our PAT estimate for FY13E/ FY14E
by 4/83% due to higher cane cost. However, if levy
quota is abolished, our earnings can rise significantly.
 Downgrade to UPF with a TP of Rs 52 (0.95x FY14E BV,
50% discount to 6 yr avg P/BV of 1.9).
 Key Risks : Removal of import duty and rupee
appreciation is a key risk (details overleaf). Central
elections scheduled for 2014 may lead to further
increases in cane price (SAP) for SS14

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