Balrampur Chini Mills: Bitter Sweet

India Infoline News Service | Mumbai |

Talks of sugar decontrol have always remained “cyclical” with nothing concrete carried out so far on reforming the sector.

CMP Rs50, Target Rs53, Upside 6.7%

We interacted with Balrampur Chini Mills to get an update on the ongoing news flow about decontrol and sector outlook. Decontrol, as is being discussed, would imply abolishing levy sugar quota and release mechanism. Currently, sugar industry bears ~Rs31bn in losses on sales of levy sugar and removal of subsidy would be financed by a hike in excise duty on sugar. On the production outlook, Maharashtra could see a production decline of as much as 35% in the next season year due a severe drought. Assuming UP sugar output remains flat yoy, 2013-14 overall output could still see up to 8% drop in production, thereby supporting prices. We do not build in any benefits from removal of levy quota and retain Market Performer on stock with 9-12 month target of Rs53.


News flow around decontrol has intensified in recent weeks

Talks of sugar decontrol have always remained “cyclical” with nothing concrete carried out so far on reforming the sector. However, industry hopes have risen as Economic Survey 2012-13 supports sector reform and suggests several steps to achieve the same and believes govt should come into the picture only if absolutely necessary. According to BRCM, there is likely to be a sugar EGoM meet on March 13-14 to discuss decontrol issue especially the low hanging fruit of levy quota and release mechanism.


Maharashtra output decline could support prices but profitability depends on cane pricing

Maharashtra sugar output is likely to decline in the next crushing season and overall output could also be lower by ~1-2mn tons in 2013-14. This would support sugar prices though we believe cane prices would be a bigger determinant of BRCM profitability. We have not build in any benefits from possible abolishment of levy quota since the timing remains uncertain though based on current prices of free & levy sugar, removal of the same could add ~Rs949mn to FY14 PAT. Retain Market Performer rating with 9-12 mth target of Rs53 (earlier Rs71).  


Financial summary
Y/e 30 Mar (Rs m) FY12 FY13E FY14E FY15E
Revenues 23,095 30,901 34,706 34,744
yoy growth (%) (22.4) 33.8 12.3 0.1
Operating profit 2,379 3,663 2,458 2,263
OPM (%) 10.3 11.9 7.1 6.5
Reported PAT 4 1,034 145 135
yoy growth (%) (99.7) - (85.9) (7.3)
         
EPS (Rs) 0.0 4.2 0.6 0.6
P/E (x) 2,786.6 11.6 82.3 88.8
P/BV (x) 1.0 0.9 0.9 0.9
EV/EBITDA (x) 13.3 7.8 10.9 11.0
Debt/Equity (x) 1.6 1.3 1.2 1.1
ROE (%) 0.0 8.2 1.1 1.0
ROCE (%) 4.3 8.4 5.1 4.8
Source: Company, India Infoline Research
 

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