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Balrampur Chini: Bitterness continues! - Views on News from Equitymaster
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Balrampur Chini: Bitterness continues!
Feb 19, 2007

Performance summary
Sugar major, Balrampur Chini (BCML) had recently announced its results for its first quarter ended December 2006. The company reported a 17% YoY growth in the revenues, while the bottomline fell by 52% YoY for 1QFY07. Low operating margins, higher interest and depreciation costs and higher tax outgo led to dampened profit margins.

Rs(m) Oct- Dec05 Oct- Dec06 (%) Change
Gross sales 3,006 3,527 17.3%
Less: Excise duty 138 156 13.1%
Net sales 2,868 3,371 17.6%
Expenditure 2,303 2,856 24.0%
Operating profit (EBDITA) 565 515 -8.9%
EBDITA margin (%) 19.7% 15.3%  
Other income 7 17 140.6%
Interest 27 55 103.7%
Depreciation 102 171 67.6%
Profit before tax 443 306 -31.0%
Tax 44 114 159.4%
Profit after tax/(loss) 399 192 -51.9%
Net profit margin (%) 13.9% 5.7%  
No. of shares (m) 231.8 248.2  
Diluted earnings per share (Rs)*   7.90  
Price to earnings ratio (x)*   8.10  
* 12 month trailing earnings      
(The company has changed its accounting year from March to September henceforth. Hence FY06 is a 6 quarter financial year.

What is company’s business?
BCML is one of the largest integrated sugar companies in India. The allied businesses of the company comprise distillery operations, cogeneration of power and manufacturing of bio-compost. The company presently has six sugar factories located in eastern Uttar Pradesh, having an aggregate sugarcane crushing capacity of 55,500 TCD (tonnes crushed per day), distillery and power operations of 160 KLPD (kilo litres per day) and 86 MW (saleable) respectively.

What drove the performance for 1QFY07?
Capacity driven growth: BCML recorded a topline growth of 17% YoY for 1QFY07 driven by increased capacities across its divisions. The increased sales volumes and better efficiencies led to a healthy growth in revenue of 15% YoY in the sugar division. Sugar sales increased by 15% YoY. Though the average realizations were lower at Rs 1,697 per quintal from Rs 1,715 per quintal in the corresponding period of last fiscal, total sugar produced increase to 2.2 m quintals from 1.4 m quintals. The company has increased its crushing capacities to 55,000 TCD as a result of which the sugar production was higher by 57% YoY. The realisations were lower across the sugar industry due to surplus production in the country.

Distillery operations of the company recorded steady growth of 14% YoY during the quarter resultant to increased sales across distillery products combined with encouraging off-take of ethanol by oil-marketing companies following the Central Government’s nation-wise ethanol blending programme initiative. BCML expects strong growth from this segment.

The co-generation segment of the company delivered 119 m salable units as compared to 62 m units (capacities at recently commissioned Mankapur unit 34 MW, out of which 22MW is saleable) thereby increasing the revenues significantly by 110% YoY. Even the share of this division to the total revenues has gone up to 13% from 7% in the corresponding quarter last year. With 86 MW of saleable power expected to be generated in FY2007, BCML anticipates to post robust results from this segment in the current financial year.

Segment wise performance
Rs m Oct- Dec05 Oct- Dec06 (%) Change
Sugar 2,776 3,204 15.4%
% of total revenues 92.1% 90.4%  
Distillery 193 220 14.0%
% of total revenues 6.4% 6.2%  
Cogeneration 214 451 110.7%
% of total revenues 7.1% 12.7%  
Others 9 10 11.1%
% of total revenues 0.3% 0.3%  
Total revenues 3,192 3,885  
Less inter segment revenue 179 341  
Net Revenues 3,013 3,544  

Higher cost dent margins: Faster growth in expenses led to a 4.4% YoY decline in the operating margins. All the expenditure heads have witnessed an increase as a percentage of sales. On segmental basis, the lower profitability in sugar segment is on account of lower realization of sugar prices and an increase in sugarcane prices from Rs 115 per quintal to Rs 125 per quintal. The sugar segment’s contribution to the total PBIT has gone down from 72% to 34% this quarter. While the distillery segment witnessed an increase in margins of 110 basis points, the power (cogeneration) segment’s PBIT share went up by 28.9%.

Cost break-up
As a % of net sales Oct- Dec05 Oct- Dec06
Total Cost of goods 66.4% 67.1%
Staff Cost 3.7% 5.1%
Other Expenditure 10.2% 12.6%

Bottomline tumbles: For the quarter, the company witnessed a 52% YoY decline in net profits. Lower operating margins combined with higher interest costs and depreciation charges led to lower net margins. The depreciation cost increased due to the capacity expansions. The fall in the bottomline would have been higher, but for the higher other income.

Rs m Oct- Dec05 Oct- Dec06 (%) Change
Sugar 357 137 -61.6%
% of segment sales 12.9% 4.3%  
Distillery 44 73 65.9%
% of segment sales 22.8% 33.2%  
Cogeneration 98 198 102.0%
% of segment sales 45.8% 43.9%  

What to expect?
At Rs 64, the stock is trading at 8.1 times its 12-month trailing earnings. The company by November 2007 will have 75,000 tonnes of crushing capacity and by March 2007 will have 320 KL capacity of alcohol. Th power and the distillery segments are expected to continue with their good performance. However, BCML is going to continue facing the pressure on realisations and margins. With excess sugar supply in the country, the sugar prices will continue facing downward pressure. Also, the government policies on sugar industry are a major risk. Though on the volumes front, the company will continue good performance and the other segments will help company diversify its revenues, the margins and the overall sugar sales are likely to be hit.

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Feb 20, 2018 (Close)


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