Balrampur Chini Mills Ltd. share price target

Balrampur Chini Mills’ (BCML’s) Q2FY2025 numbers were affected by government restrictions in distillery operations and lower crushing volumes. Revenues fell by 16% y-o-y and EBIDTA fell by 70% y-o-y (EBIDTA margins decreased to 3.8%).

Balrampur Chini Mills’ (BCML’s) Q1FY2025 numbers were muted due regulatory issues in distillery operations. Its revenues in Q1FY2025 grew by just 2% and reported PAT fell by 5% (EBIDTA margins stood flat at 11.7%).

Balrampur Chini Mills Limited (BCML), founded in 1975, is one of the largest sugar manufacturing companies in India.

Massive capex; distillery to contribute 1/3 to revenue sugar crushing capacity of 76000 TCD, distillery capacity of 520 KLD & co-generation capacity of 91 MW. It is undertaking a distillery capex of 530 KLD & modernisation, de-bottlenecking of its sugarcane crushing capacity at multiple plants. The company would be able to increase distillery volumes to 35 crore litre in FY24 from 16 crore litre in FY21. Moreover, the modernisation plan would...

BCML is the most efficient sugar company with sustainable earnings and strong cash flow generation. We believe the company would increase shareholder's payout (buybacks, dividend) to ~60% from current 40% payout. We believe the market recognises the big opportunity in ethanol blending programme and the stock is poised to command better valuation multiples. We value the stock at 10x FY23E earnings with a target price of...

Inflation and IIP: IIP falls and inflation inches up. BRCM: Sugar prices subdued; ethanol sales to support profitability. IT Services: Reskilling to bridge workforce demand-supply gap

Key takeaways from our interaction with the management of Balrampur Chini Mills (BRCM).

Higher cost of production due to lower recoveries Sugar recoveries in current season is expected to be lower by 0.30 bps. This would increase the cost of production by | 1/kg. Further, sugar prices are at the lower end currently due to muted demand in winter months. However, we believe sugar prices would move up from April onwards in anticipation of reduction of sugar inventory due to 6 million tonnes (MT) of exports & lower than expected sugar production. With sugar production at 30 MT and consumption & export at 26.5 MT & 6 MT, respectively, sugar inventories...

Enhanced ethanol sales to support profitability

We recently interacted with the management of Balrampur Chini Mills (BRCM).

BCML is most efficient sugar company with sustainable earnings & strong cash flow generation. It has been giving ~40% payout through dividends and buybacks. With the significant increase in cash flow generation, we expect payout to increase to 60% in FY22E, which would be more than~10% payout yield at current price. We value the stock at 1.6x FY21E...

In the last two years, the usual cycle in sugar sector has been done away with by implementation of sugar MSP, export subsidy & sugar sacrifice for B heavy ethanol. This has led to sustainable earnings for sector. Industry wide sugar inventory would be down to 10.6 million tonnes (MT) from 14.7 MT last year due to 5.8 MT of exports and 0.8 MT of sugar sacrifice for B heavy ethanol. BCML has strengthened its balance sheet with aggressive exports and production of B heavy ethanol. We expect the company to sacrifice 1.2 lt for B heavy ethanol next season, which would keep inventory...

With the 2.8 lakh tonnes (lt) of exports this season & higher domestic sales quota, BCML has been able to liquidate excess inventory in last six months. It is holding 5.5 lt of sugar, which is not more than six months of sales. By the time next crushing season starts, it would be holding at best 1.5 months of sugar inventory compared to five month's industry average. This would enable BCML to generate strong cash flow in FY21 as well and further reduce working capital requirement. It would not require to take any working capital debt by December 2020 for new crushing season (starts from October)....

With the commissioning of new 160 KLD distillery, it has been able to sell ~12 crore litre in FY20. We believe with 300-350 days of distillery operations, Balrampur would be able to produce 15.3 crore litre in FY21 & 17.9 crore litre in FY22E. With higher proportion of B heavy ethanol production, distillery realisation is likely to increase 8.4% to | 50/litre in FY21E. Further, it would be sacrificing ~1.0 lt of sugar in the process to produce B heavy ethanol. This would result in liquidation of excess inventory. We expect distillery...

We believe Balrampur would generate strong cash flow over the next two years, which would lead to a significant reduction in working capital debt requirement. Moreover, it has kept payment to shareholders (dividend, buy backs) at 40% of earnings. Currently, the stock is trading at 1.1x & 1x FY20E & FY21E P/BV, respectively. We value the stock at 1.5x FY21 PBV with a...