Aditya Birla Money neutral on Balrampur Chini; target Rs 70

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Aditya Birla Money`s research report on Balrampur Chini Mills“Balrampur Chini Mills, net sales for 1QFY15 increased by 18.0% YoY to Rs8043.6 mn led by healthy growth in sales of all 3 divisions. The growth in sugar division was mainly due to increase in sales volume by 17.7% YoY to 0.2 mn tonnes, with marginal 0.6% YoY decline in free sale sugar realisation to Rs31.7/Kg. Domestic sugar prices in the BCML’s area of supply continues to remain subdued and is currently trading the range of Rs 31-32/Kg. Sugar division posted EBIT loss of Rs 601.3 mn in 1QFY15 as against loss of Rs 412.6 mn in 1QFY14. Profitability was impacted due to subdued sugar realisations as compared to input costs and inventory write downs. As of 1QFY15, the company is holding 0.46 mn tonnes of sugar @ Rs 31.2/Kg.""BCML’s landed cane cost for SY14 is Rs 287/qtl and the company has paid to farmers @ Rs 234/qtl and has made provision for the rest of arrears of ~Rs 3.5 bn. For SY14 crushing season, UP state government had promised a subsidy of Rs 9/qtl to bridge the gap between the state advised price and mills’ paying capacity which hasn’t been paid. In case this promise is fulfilled, BCML’s arrear will reduce by Rs 720 mn. Distillery division reported sales growth of 23.1% YoY to Rs 693.2 mn, led by 1.6% YoY increase in sales volume at 28430 KL, further aided by increase in blended realisation by healthy 19.3% YoY to Rs 35.3/litre. This division posted increase in EBIT of 33.8% YoY to Rs 363.9 mn, with margin expansion of 400 bps YoY to 52.0%. Cogen division reported sales growth of 5.0% YoY to Rs 985.8 mn, with 3.8% YoY increase in power sales to 201.7 mn units and flat per unit realisation of Rs 4.3/unit. During 1QFY15, income from Renewable Energy Certificate (REC) sales stood at Rs 20.4 mn. BCML expects upward revision in co-gen realisations for units sold to UPPCL and the revised rates will be applicable from 1st Apr14. Cogen division posted marginal 0.4% YoY decrease in EBIT to Rs 561.4 mn. EBIT margin contracted by 100 bps YoY to 57%. Overall, the company posted EBITDA decline of 4.7% YoY to Rs 466.4 mn and margins were down 140 bps YoY to 5.8%. Depreciation expense declined by 18% YoY to Rs 218.7 mn, led by revision in estimates of useful life of assets, led by newly implemented Companies act. The company posted PAT loss of Rs 39.6 mn as compared to loss of Rs 97.7 mn in 1QFY14.""At CMP, the stock is trading at P/BV of 1.3x FY16E BV and EV/EBITDA of 6.3x FY16E EBITDA (adjusted for WC debt). Our rolled over Aug15 fair value per share comes to Rs 70.5 (based FY16E P/BV of 1.2x). We change our rating from earlier Accumulate to Neutral with Aug15 target price of Rs 70.5/share. In case, UP state government implements Rangarajan committee formula of linking cane price with sugar price, then it will lead to structural re-rating for the whole UP-based sugar millers and this event remains upside risk to our target price,” says Aditya Birla Money research report.  

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