Balrampur Chini Mills (Q1 FY15)

India Infoline News Service | Mumbai |

Sugar realizations have not kept pace with the rising cost of production and unless cane prices are reduced or linked to sugar prices, we expect input costs to continue to impact sugar profitability.

CMP Rs74, Target Rs60, Downside 18.4% 
  • High cane costs continue to bite; sugar EBIT loss widens ~46% yoy though net loss narrows on lower depreciation and interest costs

  • Sugar volumes improve 17.7% yoy but realization decline 0.6% yoy; distillery blended realizations jump 19.3% yoy

  • EBIDTA margin continues to be impacted by large differential between cane costs and prevailing sugar prices; co expresses inability to crush without linkage as has been implemented in Maharashtra from 2014-15 season

  • Sell on elevated cane costs and eventual pricing uncertainty with revised 9-12mth target of Rs60

Result table
(Rs m) Q1 FY15 Q1 FY14 % yoy
Net sales 8,044 6,816 18.0
Material costs (6,843) (5,631) 21.5
Staff costs (344) (294) 17.0
Other overheads (390) (402) (2.9)
Operating profit 466 489 (4.7)
OPM (%) 5.8 7.2 (138) bps
Depreciation (219) (266) (17.7)
Interest (314) (400) (21.5)
Other income 27 79 (66.0)
PBT (40) (98)
Tax - - -
PAT (40) (98)
Source: Company, India Infoline Research

High cane costs continue to bite; sugar EBIT loss widens

Balrampur chini Q1 results continue to be impacted by high cane costs of the 2013-14 season as company had to write down entire inventory to the prevailing (lower than cost of production) sugar price of ~Rs31.2/kg. Consequently, sugar division EBIT loss widened ~46% yoy. Revenues grew 18% yoy driven by 17.7% rise in sugar volume sales though realizations were subdued at -0.6% yoy. Distillery blended pricing jumped 19.3% yoy which led to 23.1% yoy growth in revenues. Co-gen volume growth stood at 3.8% yoy and although per unit price remained mostly flat yoy, the company expects UP electricity authority to revise tariffs in the next two months effective from April 1, 2014.

EBIDTA margin remained stuck in single digit owing to large differential between cane costs and sugar realizations which has also led to high sugarcane arrears, estimated at Rs50bn in UP. In its conference call post earnings, the company expressed inability of UP industry to start crushing without linkage of cane cost to sugar prices; notably, Maharashtra, the largest sugar producer has formally adopted the linkage to be applicable from 2014-15. Net loss narrowed yoy due to lower depreciation and interest costs even as absolute EBIDTA declined 4.7% yoy.  


Key operating highlights
Operating performance Q1 FY15 Q1 FY14 % yoy
Cane crushed (mn tons) 0.77 0.68 14.2
Sugar produced (mn tons) 0.08 0.07 14.7
Recovery (%) 10.1 10.0 -
Sugar sales (mn tons) 0.20 0.17 17.7
Free sugar realizations, Rs/kg 31.7 31.9 (0.6)
Distillery production, mn ltrs 28 26 11.0
Distillery sales, mn ltrs 19 19 1.6
Avg alcohol realization, Rs/l 35.3 29.6 19.3
Power production, mn units 241 237 1.6
Power sales, mn units 202 194 3.8
Avg realization (Rs/unit) 4.3 4.3 0.2
Source: Company, India Infoline Research

Cane price reform remains the key; Sell for target of Rs60

Sugar realizations have not kept pace with the rising cost of production and unless cane prices are reduced or linked to sugar prices, we expect input costs to continue to impact sugar profitability.  On the other hand, distillery volumes and realizations would offset the adverse impact to some extent (company expects distillery to do better on volumes and prices may not decline from current levels while co-gen volumes would be stable in 2014-15) but given the size of sugar segment we believe overall profitability to be under pressure. Sell on cane price uncertainty with revised 9-12mth target of Rs60 (earlier Rs57). 


Financial summary
Y/e 31 Mar Rs m FY13 FY14 FY15E FY16E
Revenues 32,748 26,649 28,382 30,794
yoy growth (%) 41.8 (18.6) 6.5 8.5
Operating profit 4,198 2,181 2,299 2,648
OPM (%) 12.8 8.2 8.1 8.6
Reported PAT 1,613 85 88 324
yoy growth (%) - (94.8) 3.9 268.9
EPS (Rs) 6.6 0.3 0.4 1.3
P/BV (x) 1.4 1.4 1.5 1.5
EV/EBITDA (x) 8.0 14.0 13.2 11.8
Debt/Equity (x) 1.3 1.3 1.2 1.1
ROE (%) 12.8 0.7 0.7 2.7
ROCE (%) 10.5 4.2 4.7 6.3
Source: Company, India Infoline Research
 

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