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...

Weekly Eco Wrap: Markets jittery as virus spreads. BRCM: Higher ethanol sales to support profitability. Automobiles: Feb'20 Auto Sales Weak for most segments; PVs, tractors ahead

The company has commissioned a new 160 KLD distillery during the quarter. This has enabled BCL to sell up to 18 crore litre in a year. We expect sales volume of 11.8 crore & 16.6 crore litre in FY20E & FY21E, respectively. In the current crushing season, the company is diverting 40% of its sugarcane towards B heavy ethanol. BCL can divert up to 55% of its sugarcane toward B heavy ethanol to optimally utilise its distillery capacity. We expect 31.3% CAGR of distillery sales in FY19-21E. On a like to like basis, recovery rates have improved in current season. However, due to diversion...

The company is likely to commission 160 KLD distillery capacity in December 2019, which would increase its distillery volumes from 11.0 crore litre in FY19 to 17 crore litre in FY21E. Oil marketing companies have floated tenders for 511 crore litre of ethanol for 2019-20. We believe UP based sugar mills would significantly increase the supply of ethanol to OMCs this year. Moreover, higher realisation of B heavy ethanol would prompt the companies to divert more sugarcane towards the production of B heavy ethanol. We expect the company to divert 50% of sugarcane towards B...

Balrampur Chini (BCML) being one of the largest and most efficient sugar producers in the country with fully integrated distillery and power capacity.

Indian sugar sector has been known for its cyclical nature and volatility.

WPI inflation eased to 4.5% in Aug'18 from 5.1% in Jul'18. The softening was led by food inflation at (-) 2.3% versus (-) 0.9% in Jul'18. However, cereal inflation inched up by more than 150bps to 5.1% in Aug'18. While both retail and wholesale inflation fell in Aug'18 from Jul'18 levels, the 5% fall in INR since last policy implies RBI is likely to raise rates by 25-50bps in its October policy. Much depends upon the trajectory of INR till policy decision....

We hosted a roadshow with the management of Balrampur Chini (BRCM). Following are the key takeaways: (1) sugar up 15% over the past fortnight, (2) bailout to help sustain short-term prices, (3) exports the key to sustainable long-term pricing, (4) cost under-recoveries persist, and (5) byproduct profitability to remain intact....

We hosted a roadshow with the management of Balrampur Chini (BRCM). Following are the key takeaways: (1) sugar up 15% over the past fortnight, (2) bailout to help sustain short-term prices, (3) exports the key to sustainable long-term pricing, (4) cost under-recoveries persist, and (5) byproduct profitability to remain intact....