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Regulation - the swing factor
§ Misses esimates on lower distillery and sugar realization
§ FY12 to be driven by higher volumes and by-products
§ Regulation the swing factor; cane price vs de-regulation
§ TP of INR85 based on 1.5x P/BV; retain BUY
1QF12 misses estimates
BRCM missed our EBITDA and net
income estimate due to lower-thanexpected distillery as well as sugar
realization. EBITDA margin declined to
7.7% compared to 11.6% in 1QF11.
BRCM’s distillery realization at INR23.8
was down 9% q-q due to one-time
disruption in supplies but has now
recovered to INR26. Sugar realization
was INR27.2/kg compared to our
expectation of INR27.7/kg. On the positive
side co-gen segment profit was higher by
36% y-y due to an increase in volume.
Co-gen realization increased 3% y-y.
Regulation the swing factor; cane price vs deregulation
In the medium term, we expect regulatory decisions to have a significant
impact on the performance of BRCM stock. One key adverse outcome
could be a higher-than-expected sugar cane price in view of the
upcoming Uttar Pradesh election. On the positive side a key catalyst for
the stock is any action on de-regulation of the sugar sector. Management
sounded confident that some of the regulations like a levy quota and
release mechanism could be done away with. The company believes
sugar cane price deregulation is likely in the next crushing season.
Earnings call takeaways
1) BRCM expects FY12 production at 26mt compared to 24.3mt in FY11.
It expects a higher production increase in Uttar Pradesh compared to
Maharashtra and Karnataka. It expects the inventory as of September
2011 to be low at 3.5mt-4mt. 2) FY12 will be another volume-driven year
for BRCM. BRCM sugar production increased 30% y-y in FY11 and is
likely to increase by 10-12% in FY12. 3) As of 30 June, long-term loans
were INR7.2b and working capital loans at INR6.8b. The company
expects interest cost of INR1.25b for the year.
Retain BUY; reduce TP to INR85
We are reducing our TP from INR100 to INR85. We like BRCM because
of its strong balance sheet, low capex and high contribution from power
division and policy of distributing cash to shareholders. We are changing
the valuation methodology from EV/EBITDA to P/BV due to volatility of
earnings due to dependence on regulatory decisions, such as sugar cane
prices, exports, and de-regulation. Our TP is based on 1.5x P/BV at the
lower end of its five-year range of 0.6-5.6x, average of 2.1x. Risks to our
TP are a higher-than-expected sugar cane price in Uttar Pradesh and
higher-than-expected production leading to depressed sugar prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Regulation - the swing factor
§ Misses esimates on lower distillery and sugar realization
§ FY12 to be driven by higher volumes and by-products
§ Regulation the swing factor; cane price vs de-regulation
§ TP of INR85 based on 1.5x P/BV; retain BUY
1QF12 misses estimates
BRCM missed our EBITDA and net
income estimate due to lower-thanexpected distillery as well as sugar
realization. EBITDA margin declined to
7.7% compared to 11.6% in 1QF11.
BRCM’s distillery realization at INR23.8
was down 9% q-q due to one-time
disruption in supplies but has now
recovered to INR26. Sugar realization
was INR27.2/kg compared to our
expectation of INR27.7/kg. On the positive
side co-gen segment profit was higher by
36% y-y due to an increase in volume.
Co-gen realization increased 3% y-y.
Regulation the swing factor; cane price vs deregulation
In the medium term, we expect regulatory decisions to have a significant
impact on the performance of BRCM stock. One key adverse outcome
could be a higher-than-expected sugar cane price in view of the
upcoming Uttar Pradesh election. On the positive side a key catalyst for
the stock is any action on de-regulation of the sugar sector. Management
sounded confident that some of the regulations like a levy quota and
release mechanism could be done away with. The company believes
sugar cane price deregulation is likely in the next crushing season.
Earnings call takeaways
1) BRCM expects FY12 production at 26mt compared to 24.3mt in FY11.
It expects a higher production increase in Uttar Pradesh compared to
Maharashtra and Karnataka. It expects the inventory as of September
2011 to be low at 3.5mt-4mt. 2) FY12 will be another volume-driven year
for BRCM. BRCM sugar production increased 30% y-y in FY11 and is
likely to increase by 10-12% in FY12. 3) As of 30 June, long-term loans
were INR7.2b and working capital loans at INR6.8b. The company
expects interest cost of INR1.25b for the year.
Retain BUY; reduce TP to INR85
We are reducing our TP from INR100 to INR85. We like BRCM because
of its strong balance sheet, low capex and high contribution from power
division and policy of distributing cash to shareholders. We are changing
the valuation methodology from EV/EBITDA to P/BV due to volatility of
earnings due to dependence on regulatory decisions, such as sugar cane
prices, exports, and de-regulation. Our TP is based on 1.5x P/BV at the
lower end of its five-year range of 0.6-5.6x, average of 2.1x. Risks to our
TP are a higher-than-expected sugar cane price in Uttar Pradesh and
higher-than-expected production leading to depressed sugar prices.
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