Balrampur Chini Mills – BUY

CMP Rs93, Target Rs104 September 29, 2010

Sector: Sugar Upswing in international prices on adverse Brazilian weather

Sensex: 20,105 Since May’ 10, international raw and refined (white) sugar prices
CMP (Rs): 93 have nearly doubled to 26.8 cents/lb and US$645/MT respectively. A
Target price (Rs): 104
key factor for the up move has been dry weather conditions in Brazil.
Australia, another key exporter, is also expected to cut down on
Upside (%): 12.7
shipments due to wet weather. Since domestic output is pegged at
52 Week h/l (Rs): 165/67
25mn tonnes in 2010-11 season, India may not have enough stocks
Market cap (Rscr) : 2,415 for export except for those under ALS obligations. Consequently,
6m Avg vol (‘000Nos): 3,259 international prices have support from supply headwinds in the near
No of o/s shares (mn): 260 term.
FV (Re): 1
Bloomberg code: BRCM IN India sugar balance to remain in equilibrium
Domestic output is estimated at ~24-25mn tonnes in the upcoming
Reuters code: BACH.BO
crushing season beginning Oct-Nov, a 26% jump over the previous
BSE code: 500038
year. With consumption of ~23mn tonnes and ~1mn ton of ALS
NSE code: BALRAMCHIN obligation, we expect domestic market to remain in equilibrium and
Prices as on 28 Sep, 2010 expect sugar realizations in the range of Rs23-24/kg for F9/11.
Shareholding pattern
June '10 (%) Lower cane cost to counteract drop in sugar price
Promoters 37.8 A reduced cane crop in relation to the installed crushing capacities
Institutions 38.5 had led to a fierce scramble for cane in the previous season.
Non promoter corp hold 5.6 However, as output stabilizes, we expect sugarcane cost to decline
Public & others 18.1 by ~20% yoy to Rs180-190/qtl. Thus lower cane price is likely to
mirror the estimated 19% yoy drop in sugar price over the next 12
Performance rel. to sensex
months. We factor in Rs23.5/kg in realization for BRCM along with
(%) 1m 3m 1yr
32% surge in volumes (to 0.74mn tonnes) which would drive a 7%
Balrampur (2.0) (5.5) (43.4) yoy increase in sugar revenues in F9/11.
Bajaj Hind 3.5 (1.1) (45.6)
Renuka
21.8 10.0 (33.1) Stock trades below historic 1-yr fwd EV/E; BUY
Sugars
White sugar prices may just be above parity for UP-based millers as
transport cost to port eats in to the excess difference over domestic
Share price trend
realizations. While exports are unlikely to contribute significantly to
150 Balrampur Sensex BRCM revenues, increased sugar volumes and stable alcohol prices
could drive a 20% yoy EPS cagr in F9/11. Valuation too appears
attractive as stock trades below its historic 1-yr fwd EV/EBIDTA,
100 leaving room for another 12.7% upside from current level.

Valuation summary
50 Y/e 30 Sep Rs m F9/08 F9/09 F9/10E F9/11E
Sep- Dec- Feb- Apr- Jul- Sep- Revenues 14,909 17,471 20,405 20,919
09 09 10 10 10 10
yoy growth (%) 6.9 17.2 16.8 2.5
Operating profit 3,640 4,472 3,159 3,368
OPM (%) 24.4 25.6 15.5 16.1
Pre-exceptional PAT 1,280 2,091 996 1,195
Reported PAT 783 2,091 996 1,195
yoy growth (%) 166.9 (52.4) 20.0

EPS (Rs) 3.1 8.1 3.9 4.7

P/E (x) 30.0 11.3 23.7 19.8
P/BV (x) 2.3 2.1 2.0 2.0
EV/EBITDA (x) 10.2 7.4 10.0 9.3
Debt/Equity (x) 1.4 0.9 0.7 0.7
ROE (%) 13.8 19.6 8.6 10.0
ROCE (%) 10.6 14.0 9.1 10.2
Research Analyst Source: Company, India Infoline Research
Bhavesh Gandhi
research@indiainfoline.com
Recommendation parameters for fundamental reports:

Buy – Absolute return of over +10%

Market Performer – Absolute return between -10% to +10%
Sell – Absolute return below -10%

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