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Balrampur Chini: Raw material pressure - Views on News from Equitymaster

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Balrampur Chini: Raw material pressure
Nov 20, 2010

Balrampur Chini Mills declared its 4QFY11 results. The company has reported a 35% YoY growth in sales and a net loss of Rs 783 m. Here is our analysis of the results.

Performance summary
  • Sales for Balrampur Chini Mills Limited (BCML) increased by 35% YoY during 4QFY11. This strong growth comes on the back of higher sugar sale during the quarter.
  • Operating (EBITDA) margins dipped in the red. This fall was due to a sharp rise in raw material costs during the quarter.
  • Net profit also stood in the red on the back of operating loss and higher tax paid.
  • Net profit during 12mFY11 fell by 87.5% YoY while net profit margins declined by 11.9%. This was because of fall in operating income and higher effective tax rate.

Rs(m) 4QFY09 4QFY11# (%) Change FY09 12mFY11# (%) Change
Net sales 3,800 5,128 35.0% 17,046 19,866 16.5%
Expenditure 3,041 5,381 76.9% 12,519 17,374 38.8%
Operating profit (EBDITA) 758 (254)   4,527 2,492 -44.9%
EBDITA margin (%) 20.0% -4.9%   26.6% 12.5%  
Other income 8 4 -51.3% 17 33 94.7%
Interest 184 231 25.4% 969 905 -6.5%
Depreciation 270 290 7.4% 1,079 1,129 4.6%
Profit before tax 312 (771)   2,496 491 -80.3%
Tax (115) 13   231 208 -10.0%
Profit after tax/(loss) 427 (783)   2,265 283 -87.5%
Net profit margin (%) 11.2% -15.3%   13.3% 1.4%
No. of shares (m) 257 260   257 260  
Diluted earnings per share (Rs)*         1.1  
Price to earnings ratio (x)*         74.4  
* 12 month trailing earnings  # The company is changing its accounting year from September to March ending

What has driven performance in 4QFY11?
  • BCML witnessed an increase in top line this quarter due to higher sugar sales. Revenue from sugar which contributes 88% to overall sales increased by 32% YoY during the quarter. This was on the back of increase in sugar production. However, lower sugar realisation capped growth. Sugar realisation fell by Rs 0.14 to stand at Rs 27.12 per kg during the quarter. The distillery business which contributes 6% of total sales fell by 17% YoY. The company however, witnessed a growth of 372% YoY in its power generation business which contributes 8% to total sales.

    Segment wise performance
    Rs (m) 4QFY09 4QFY11# (%) Change FY09 12mFY11# (%) Change
    Sugar 3,559 4,698 32.0% 15,098 18,004 19.2%
    % of total revenues 91.2% 88.0%   82.6% 84.2%  
    EBIT % 16.5% -11.5%   16.5% 3.0%  
    Distillery 250 208 -16.9% 1,312 965 -26.4%
    % of total revenues 6.4% 3.9%   7.2% 4.5%  
    EBIT % 31.3% 8.6%   38.0% 23.9%  
    Cogeneration 91 429 371.9% 1,834 2,393 30.5%
    % of total revenues 2.3% 8.0%   10.0% 11.2%  
    EBIT % -87.7% 1.0%   43.8% 35.3%  
    Organic manure 1 1 85.7% 26 24 -7.4%
    % of total revenues 0.0% 0.0%   0.1% 0.1%  
    EBIT % -642.9% -392.3%   -30.1% -15.2%  
    Total revenues 3,900 5,336 36.8% 18,269 21,386 17.1%

  • Operating margins for the company was in the red during the quarter. This was due to increase in raw material costs by 90%. Operating losses could have been higher but for a fall in staff costs by 3%.

  • On the EBIT front, margins for sugar were in the red with a loss of Rs 540 m. This fall comes on the back of higher price of sugar cane coupled with fall in realisation of sugar. EBIT margins for distillery segment were also lower as a result of lower realisation for alcohol. Average realisation fell by 11% to Rs. 24.16 per litre. Performance of the cogeneration segment improved during the quarter as the company recorded a gain of Rs 4 m during the quarter vs. a loss of Rs 80 m during the same quarter last year.

  • The company made a net loss during the quarter. This came on the back of a loss at operating income level and tax payable.

What to expect?
At a price of Rs 81, the stock is trading at 74.4 times its trailing 12 month earnings. The company is expecting demand for sugar to increase which would give it room to grow. The company is also bullish on its distillery business as the government has decided to blend fuel with 5% ethanol. In fact, this is expected to move up to 10% in future. The company gained the benefit from the conversion of two of its boilers to multi feed during the quarter as is seen from the better performance of the power segment. On the down side, the sugarcane crop this season has been larger than expected due to higher yield per hectare. This is expected to put pressure on prices in the medium term. While the company is seeing several triggers for long term growth and expects to benefit from high volumes in the coming year, we believe that the stock looks expensive at the current level.

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