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Balrampur Chini: Higher sales, lower profits - Views on News from Equitymaster
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Balrampur Chini: Higher sales, lower profits
May 18, 2009

Performance summary
  • The company reports a topline growth of 15% YoY during 2QFY09. The sales increase by 6% YoY during 1HFY09. Sugar division sales improve by a robust 19% YoY during 2QFY09.
  • Inspite of the decline in staff and other expenses, the operating margins decline by 6% YoY during the quarter, mainly on account of a 72% YoY jump in input prices. For the season, the cane price has been accounted for at the State Advised Price (SAP) of Rs 140 per quintal as compared to Rs 110 during the sugar season 07-08.
  • A muted net profit growth of 1% is reported during the quarter mainly on account of lower operating margins and higher interest costs.


Financials
Rs(m) 2QFY08 2QFY09 (%) Change 1HFY08 1HFY09 (%) Change
Net sales 3,108 3,571 14.9% 7,423 7,866 6.0%
Expenditure 1,767 2,260 27.9% 5,709 5,399 -5.4%
Operating profit (EBDITA) 1,342 1,312 -2.3% 1,714 2,467 43.9%
EBDITA margin (%) 43.2% 36.7%   23.1% 31.4%
Other income 3 2 -25.8% 14 8 -43.7%
Interest 231 299 29.7% 364 549 50.6%
Depreciation 306 267 -12.7% 553 542 -2.0%
Profit before tax 809 748 -7.5% 810 1,383 70.8%
Tax 152 86 -43.7% 154 210.6 36.6%
Profit after tax/(loss) 656 662 0.9% 656 1,173 78.8%
Net profit margin (%) 21.1% 18.5%   8.8% 14.9%
No. of shares (m) 255.5 255.5   255.5 255.5  
Diluted earnings per share (Rs)*   5.8
Price to earnings ratio (x)*     14.6
* 12 month trailing earnings

What has driven performance in 2QFY09?
  • Balrampur Chini (BCML) witnessed a topline growth of 15% YoY during the quarter, while the sales increased by 6% YoY during 1HFY09. Sugar division sales improved by a robust 19% YoY mainly on account of higher realisations. Due to sugar shortage, the realizations improved by 40% YoY to Rs 20.3 per kg during the quarter. However, a 46% YoY lower sugar production and sugar recovery of 9.14% (lower by 10% YoY) restricted the growth to that extent. Both the distillery and the power segment saw a decline in revenues mainly on account of lower volumes (due to low availability of cane) inspite of better realizations. The management expects the prices to remain high as the sugar production is expected to be lower even in the next season.

    Segment wise performance
    Rs m 2QFY08 2QFY09 (%) Change 1HFY08 1HFY09 (%) Change
    Sugar 2,477 2,939 18.7% 6,217 6,730 8.3%
    % of total revenues 64.0% 71.3% 73.3% 76.4%
    Distillery 450 413 -8.1% 764 745 -2.5%
    % of total revenues 11.6% 10.0% 9.0% 8.5%
    Cogeneration 936 758 -19.0% 1,493 1,315 -11.9%
    % of total revenues 24.2% 18.4% 17.6% 14.9%
    Others 4 9 97.7% 10 17 83.2%
    % of total revenues 0.1% 0.2% 0.1% 0.2%
    Total revenues 3,867 4,119 6.5% 8,483 8,807 3.8%

  • Inspite of the decline in staff and other expenses, the operating margins declined by 6% YoY during the quarter, mainly on account of a 72% YoY jump in input prices. For the season, the cane price has been accounted for at the State Advised Price (SAP) of Rs 140 per quintal as compared to Rs 110 during the sugar season 07-08. While the company bought majority of its cane at Rs 140 per quintal, 2% to 3% of the cane was bought at Rs 155 per quintal. On the PBIT front, the sugar division saw an improvement in margins from 18% to 21% during the quarter, mainly on account of higher realisations. While the EBIT margins improved for the power division, the profits of both the cogen and distillery segment saw a drop on account of lower number of days of operation. For the half year period, the margins saw an improvement of 8% YoY mainly due to the improved performance of the sugar segment. Going forward, while the management expects the sugar realizations to improve, the input costs would be the key factor. The management expects the cane prices to go up due to lower production.

  • BCML reported a muted net profit growth of 1% mainly on account of lower operating margins and higher interest costs. However, for 1HFY09, the bottomline surged 79% YoY led by higher operating margins.

What to expect?
At the current price of Rs 85, the stock is trading at 14.6 times its 12 month trailing earnings. The sugar sector which was in doldrums over the last two years has seen better times in the last few quarters due to reversal in the sugar cycle and hike in prices. Sugar-producing states saw a 40% to 45% dip in sugar production and thereby the sugar prices increased by 34% YoY during 1HFY09. As per BCML’s management, even next year, sugar production will remain lower at about 18 MT as compared to the consumption of around 22.5 to 23 MT with a 2% to 3% growth annually. As a result, sugar prices are expected to remain firm. The company, therefore, expects a structural change in the way sugar pricing is to be seen. A correlation between cane prices and sugar prices would be seen.

On the company front, it is expected to crush 20% YoY higher cane this year. With higher realizations and no capex plans, the cash flows are likely to improve. This would improve the financials of the company going forward.

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