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Balrampur Chini: Integration benefits - Views on News from Equitymaster
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Balrampur Chini: Integration benefits
May 15, 2008

Performance summary
  • Revenues for the quarter decline by 22% YoY on account of 30% YoY decline in sales from the sugar segment. For the half year, sales are flat.
  • Operating margins for both the periods under consideration improve on account of lower raw material costs. However, there are a lot of litigations currently going on in the High Court and the Supreme Court and the outcome of all the litigations would finally decide the price.

  • Reports a 228% YoY and 68% YoY jump in the bottomline for 2QFY08 and 1HFY08 respectively. Higher operating margins and other income aid the growth.

Rs(m) 2QFY07 2QFY08 (%) Change 1HFY07 1HFY08 (%) Change
Net sales 3,969 3,080 -22.4% 7,340 7,355 0.2%
Expenditure 3,410 1,766 -48.2% 6,266 5,709 -8.9%
Operating profit (EBDITA) 560 1,314 134.8% 1,074 1,646 53.2%
EBDITA margin (%) 14.1% 42.6% 14.6% 22.4%
Other income 22 31 41.6% 39 82 110.9%
Interest 150 231 53.7% 205 364 77.4%
Depreciation 194 306 57.5% 365 553 51.8%
Profit before tax 237 809 240.6% 543 810 49.2%
Tax 37 152 308.3% 151 154.2 1.8%
Profit after tax/(loss) 200 656 227.9% 391 656 67.5%
Net profit margin (%) 5.0% 21.3% 5.3% 8.9%
No. of shares (m) 248.2 255.5 248.2 255.5
Diluted earnings per share (Rs)* -0.6
Price to earnings ratio (x)* -
* 12 month trailing earnings

What has driven performance in 2QFY08?
  • While Balrampur Chiniís sales for the quarter declined by 22% YoY on account of the 30% YoY decline in sugar segment sales, for the half year sales were flat. The companyís crushing capacity stands at 73,000 TCD. The company produced 5.7 m quintals of sugar in 2QFY08 at a recovery rate of 10.4%. The same for 1HFY08 was 7.4 m quintals at a recovery rate of 10.15%. Though realisations improved marginally on a sequential basis, on YoY basis they were lower. The average realisation from the sugar segment for the quarter under review stood at Rs 14.53 per kg as compared to Rs 14.73 per kg in the corresponding quarter last year. Hence the sugar segment witnessed a decline in revenues on the back of lower sales volume and realisations in 2QFY08.

    Segment wise performance
    Rs m 2QFY07 2QFY08 (%) Change 1HFY07 1HFY08 (%) Change
    Sugar 3,522 2,469 -29.9% 6,564 6,209 -5.4%
    % of total revenues 77.0% 63.0%   79.3% 72.5%  
    Distillery 457 498 8.9% 664 848 27.7%
    % of total revenues 10.0% 12.7%   8.0% 9.9%  
    Cogeneration 588 947 60.9% 1,039 1,503 44.7%
    % of total revenues 12.9% 24.2%   12.5% 17.5%  
    Others 5 4 -18.5% 15 10 -37.9%
    % of total revenues 0.1% 0.1%   0.2% 0.1%  
    Total revenues 4,573 3,918   8,282 8,569  

  • On the distillery front, production was higher as the company increased capacity by 100 KLPD to 320 KLPD in 2QFY08. The sales of the segment grew by 9% YoY and 28% YoY respectively for both the periods under consideration. The realisations were around Rs 18 per litre. The management expects realisations to improve across products like RS and ENA in the coming quarters. Also, the intake from oil marketing companies is expected to go up on account of the governmentís ethanol-blending program.

  • The power segment reported a robust growth of 61% YoY in the quarter. With capacity expansions at Rauzagaon, Kumbhi and Gularia facilities, the saleable capabilities have increased to 126 MW. Higher volumes and realisations aided the strong performance. Volume sales increased by 49.9% YoY to 218 m units in 2QFY08 and by 32.7% YoY to 351 m units in 1HFY08. The company sold power to Uttar Pradesh Power Corporation Ltd (UPPCL) at Rs 3.03 per unit as compared to Rs 2.92 per unit last quarter. The management is of the view that the companyís sugar business will continue making losses, but expects the cogeneration and distillery division to do well.

  • Operating margins for both the periods under consideration improved on account of lower raw material costs. As per the Lucknow High Court Interim order, the sugar industry in UP paid Rs 110 per quintal of sugarcane for season 2007- 08 as compared to Rs 125 per quintal last year. Hence, the raw material costs (as percentage of sales) were low. However, there are a lot of litigations currently going on in the High Court and the Supreme Court and the outcome of all the litigations would finally decide the price. If the prices are higher than the Rs 110, then Balrampur Chini would witness margin pressure. On the segmental front, while sales of the sugar segment declined, PBIT of the sugar segment improved owing to overall decrease in operating expenses. It was higher by 59% YoY for 1HFY08. Higher sales in the distillery segment led to the 80 basis points improvement in PBIT margins in 1HFY08. Higher realisations and volume sales enabled the power segment to report strong margins. The PBIT margins touched 52% and 49% in 2QFY08 and 1HFY08 respectively (47% and 46% in 2QFY07 and 1HFY07 respectively).

  • The company reported a 228% YoY and 68% YoY jump in the bottomline for 2QFY08 and 1HFY08 respectively. Higher operating margins and other income aided growth. The sugar sector had been facing rough weather for the past 2 years. With lower production expected this year, the sugar realisations have moved up. Also, as per the interim order, the raw material prices are lower than last year. This has helped BCML report better performance. However, with raw material pricing still being an ongoing discussion, the final decision is awaited.

What to expect?
Balrampur Chiniís integrated model and expansions have helped it report a better performance during 1HFY08. The distillery and power segment continue to log in strong growth rates, which is a positive for the company. As far as the sugar segment is concerned, in anticipation of lower production this year, the realisations have witnessed a marginal rise. Even during next year, the sugarcane production is expected to be lower. However, this would get confirmed once the cane planting finishes. However, as per the management, the sugar segment after accounting for interest and depreciation would not be profitable, as realisations are low, while costs are high. Further, though at present, the raw material price scenario is beneficial to the sugar companies, with elections due, the final ruling would decide how beneficial the same would be for the sugar company.

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