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Balrampur Chini - A sweet year - Views on News from Equitymaster

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Balrampur Chini - A sweet year
May 17, 2006

Performance summary
Balrampur Chini (BCML) announced its results for the fourth quarter and full year ended March 2006. The company reported a 37% YoY increase in topline for the full year. The surge in sales was led by robust YoY growth in sugar and cogen segments. New capacities, higher sales volumes, increased realisations and higher contribution from allied businesses were the key growth drivers.

Financial performance
Rs(m) 4QFY05 4QFY06 (%) Change FY05 FY06 (%) Change
Gross sales 2,327 3,480 49.5% 9,303 11,713 25.9%
Less: Excise duty 216 164 -24.1% 1,169 541 -53.7%
Net sales 2,111 3,316 57.1% 8,134 11,172 37.3%
Expenditure 1,301 2,127 63.5% 5,739 8,229 43.4%
Operating profit (EBDITA) 810 1,189 46.8% 2,395 2,943 22.9%
EBDITA margin (%) 38.4% 35.9%   29.4% 26.3%  
Other income 12 16 33.3% 29 41 41.4%
Interest 38 66 73.7% 189 179 -5.3%
Depreciation 95 116 22.1% 373 389 4.3%
Profit before tax 689 1,023 48.5% 1,862 2,416 29.8%
Extraordinary income/(expense) 30   - 223   -
Tax 127 230 81.1% 389 477 22.6%
Profit after tax/(loss) 532 793 49.1% 1,250 1,939 55.1%
Net profit margin (%) 25.2% 23.9%   15.4% 17.4%  
No. of shares (m) 231.8 248.2   231.8 248.2  
Diluted earnings per share (Rs)         7.8  
Price to earnings ratio (x)         22.5  

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 (India) having an aggregate sugarcane crushing capacity of 47,500 TCD, distillery and power operations of 160 KLPD and 63.20 MW (saleable) respectively.

What has driven performance in FY06?
Robust topline: Balrampur Chini Mills reported an increase in net sales of 57.1% YoY for 4QFY06 and 37.3% YoY for the full year. The surge in sales was led by a robust YoY growth in sugar and cogen segments. Sugar segment reported revenue growth of 82.1% YoY, as the Akbarpur unit underwent its first full quarter of operations. Both volumes and realizations for sugar improved as compared to a year earlier. Distillery revenues are not comparable, as the company discontinued sales from bottling of country liquor operations a year ago. Cogen revenues increased on account of higher capacities, increased working days and better availability of bagasse. Revenues are expected to remain robust, as the company has planned more capacity expansions over the next couple of years.

Segment wise performance
Rs m 4QFY05 4QFY06 (%) Change FY05 FY06 (%) Change
Sugar 1,814 3,304 82.1% 7,359 10,714 45.6%
% of total revenues 70.4% 85.3%   73.5% 85.8%  
Distillery 498 217 -56.4% 2,058 925 -55.1%
% of total revenues 19.3% 5.6%   20.6% 7.4%  
Cogeneration 258 344 33.3% 576 822 42.7%
% of total revenues 10.0% 8.9%   5.8% 6.6%  
Others 8 9 12.5% 17 22 29.4%
% of total revenues 0.3% 0.2%   0.2% 0.2%  
Total revenues 2,578 3,874   10,010 12,483  

Operational details: During the year, the total cane crushed increased by 35% YoY to 5.2 MT, while the average recovery was 10.2%. Also, the average sugar realisations touched Rs 1,739 per quintal as compared to Rs 1,579 per quintal in FY05. Sugar EBIT in FY06 increased by 75% YoY on account of higher realizations. Distillery revenues declined on account of lower rectified spirit and extra neutral alcohol (ENA) realisations. On the power segment front, with the acquisition of the Rauzagaon unit, the company expects a faster growth in cogen revenues going forward.

PBIT
Rs m 4QFY05 4QFY06 (%) Change FY05 FY06 (%) Change
Sugar 525 919 75.0% 1,306 2,061 57.8%
% of total PBIT 72.4% 80.6%   68.0% 75.7%  
Distillery 51 41 -19.6% 346 262 -24.3%
% of total PBIT 7.0% 3.6%   18.0% 9.6%  
Cogeneration 148 182 23.0% 269 400 48.7%
% of total PBIT 20.4% 16.0%   14.0% 14.7%  
Others 2 (1) -150.0% 15 (1) -106.7%
% of total PBIT 0.3% -0.1%   0.8% -0.04%  

Strong bottomline: Operating profit for the year increased by 22.9% YoY while operating margins declined 26.3% as raw material costs as a percentage of sales increased. The company pays around Rs 115 per quintal to procure cane and expects it go up by 10% in the coming year. Growth in earnings was also facilitated by lower interest charges (owing to the repayment of term loans). Net profit for the year jumped by 55.1% YoY. Going forward, the company expects net margins to remain stable due to increased capacity, better realisations and the growing importance of ethanol.

Rs m 4QFY05 4QFY06 (%) Change FY05 FY06 (%) Change
Raw Material 806 1,565 94.2% 4,366 6,788 55.5%
% of sales 38.2% 47.2%   53.7% 60.8%  
Staff cost 122 142 16.4% 350 413 18.0%
% of sales 5.8% 4.3%   4.3% 3.7%  
Other expenditure 373 420 12.6% 1,024 1,028 0.4%
% of sales 17.7% 12.7%   12.6% 9.2%  

What to expect?
At 176, the stock is trading at a price to earnings multiple of 22.5 times FY06 earnings. BCML has aggressive capacity expansion plans (increasing the total cane crushing capacity to 54,500 TCD and distillery capacity to 220 KLPD). Moreover, sugar prices are expected to remain stable on account of the demand supply scenario. Also, the growing importance of ethanol and power will drive the profitability in the coming years.

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