Maintain BUY on Balrampur Chini on valuation support - JM Financial Institutional Securities Private Limited

We continue to value BCML at 0.6 EV/replacement cost to arrive at Sep'14TP of Rs. 56. While we are concerned about the oversupply scenario and continued uncertainty over sugarcane pricing, we believe the current scenario is unlikely to sustain indefinitely, as most UP sugar mills (private/cooperative) are incurring significant losses and will see massive equity erosion and therefore, will not be able to fund working capital (in turn impacting ability to clear cane purchase costs), if sustainable cane pricing mechanism is not developed. In the case of revenue linkage, we believe, Balrampur Chini will be among the biggest beneficiaries owing to a) lean balance sheet, b) optimum integration and profitability and c) good corporate governance.

Source : Equity Bulls

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