Balrampur Chini Mills - Q2FY13 Result Update - Way2Wealth

- Sugar division reported stellar performance during the quarter reporting 50% increase in sales volume at 2.39lakh t against 1.59lakh t reported in Q2FY12. The firm was holding 4.66lakh t of low cost sugar inventory valued at Rs.28670/t at the end of Q1FY13 which has benefited them. AT the end of current quarter inventory stands at around 2.26lakh t.

- Buoyant sugar prices improved realization for the quarter at Rs.34.3/kg as against Rs.28.2/kg for the corresponding period. Blended realization stood at Rs.33/kg during the quarter.

- This has improved EBIT/t to Rs.3126/t improving EBIT to Rs.74.94cr against loss of Rs.3cr for the corresponding period.

- Improved crushing improved performance of the distillery division. RS and ENA volumes stood at 11215.8KL in Q2FY13 as compared to 5515KL in Q2FY12; Ethanol sales stood at 10122KL as compared to 4663KL in Q2FY12. Thus, profitability of the division imporved from Rs.9.2cr in Q2FY12 to Rs.23.3cr in Q2FY13.

- Co-gen division was impacted due to reduced bagasse availability due to off-season. The division reported topline of Rs.23cr and loss of Rs.0.45cr at EBIT level.

- Interest cost during the quarter increased to Rs.42.1cr due to increased working capital borrowings. PAT for the quarter stood at Rs.48.88cr as against loss of Rs.39.44cr during Q2FY12.

Future outlook:

-
Cane crushing to improve: Management has given guidance of 9.3mnt for SY13 as against 8.6mnt crushed during SY12. The improvement is due to likely improved cane production in UP by 10% y-o-y. We expct firm to do volume of around 4.5lakh t in H2FY13.

- Cane price: key determinant: SAP in UP is likely to get announced during the next week. It will be key determinant to the profitability of sugar firms. At current inventory cost firm is making profit of around Rs.3100/t. Cane price for the season is expected to be around Rs.250-260/qtl. Thus, we expect EBIT/t to come down to Rs.2500/t by Q4FY13e.

- Imports not viable with import duty: At current market price of $520/t landed imported sugar price including freight cost and other cost comes at around Rs.30000/t. Imposing 10% or 20% import duty makes imports of raw sugar unviable at current price.

- Sugar price to remain stable: Sugar production for SY13 is expected at 23-24mnt as against 26mnt in SY12. With consumption in the country rising to around 23mnt we expect inventory level in the system to remain stable. Stable inventory position to keep domestic sugar prices stable for the current year. Sugar production during SY14e will be key determinant towards sugar cycle. Early estimates for sugar cane planting for SY14e are not much encouraging as Adsali planting in Maharashtra and Karnataka has come 15-20% below last year level. Due to reduced planting in the current season ratoon availability will remain low in the next season. We expect sugar production for SY14e also to remain subdued.

Valuation: BCML is the largest beneficiary of sugar cycle turnaround due to its integrated business model. As firm was holding low cost sugar inventory its has improved its profitability during upcycle. We expect H2FY13 to be better for the firms as improved cane production will increase sugar volume and improve by-product contribution. We expect firm to post topline of Rs.3384cr for FY13e. EPS for FY13e is expected at Rs.8.7. Thus, at current price the stock is trading at 7.3x FY13e earnings. We recommend 'ACCUMULATE'.

Source : Equity Bulls

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