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Balrampur Chini: Bitter year - Views on News from Equitymaster
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Balrampur Chini: Bitter year
Nov 28, 2007

Performance summary
  • BCML reported a 25% YoY and 1%YoY decline in the topline for 4QFY07 and FY07 respectively on back of the unfavorable scenario prevailing in the sugar sector.
  • Higher expenses (as percentage of sales) led to the decline in operating profits for both the periods.

  • Net profits were down by 205% YoY and 119% YoY for the quarter and the full year respectively.

Rs(m) 4QFY06 4QFY07 (%) Change FY06 FY07 (%) Change
Net sales 3,882 2,925 -24.7% 13,999 13,917 -0.6%
Expenditure 3,292 2,940 -10.7% 10,591 13,027 23.0%
Operating profit (EBDITA) 590 (15) -102.6% 3,407 891 -73.9%
EBDITA margin (%) 15.2% -0.5% 24.3% 6.4%
Other income 20 42 104.9% 51 102 102.2%
Interest 70 132 88.0% 259 544 109.8%
Depreciation 144 232 61.6% 499 802 60.8%
Profit before tax 397 (338) -185.1% 2,700 (354) -113.1%
Tax 75 -1 -100.9% 530 65 -87.8%
Profit after tax/(loss) 322 (337) -204.6% 2,169 (418) -119.3%
Net profit margin (%) 8.3% -11.5% 15.5% -3.0%
No. of shares (m) 248.8 248.2 248.2 248.2
Diluted earnings per share (Rs)* -1.7
* 12 month trailing earnings

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 76,000 TCD (tonnes crushed per day), distillery and power operations of 320 KLPD (kilo litres per day) and 126 MW (saleable) respectively.

What drove the performance for FY07?
Decline in sales: For 4QFY07, the net sales were lower by 25% YoY. This was mainly due to the poor performance of the sugar division which reported a decline of 32% YoY in the revenues in the quarter. Though it recorded higher sugar sales volumes on a YoY basis, depressed sugar prices and higher costs led to the bad performance. Sugar realisations were lower at Rs 13.47 per kg in 4QFY07 as compared to Rs 17.64 per kg in the corresponding quarter last year. For FY07, revenues from the sugar division fell by 7% YoY. BCML completed the acquisition of the 3,000 TCD sugar facility located in eastern Uttar Pradesh from Indo-Gulf Industries during the quarter. Further, the 8,000 TCD Gularia unit will also be commissioned by end of November 2007. This would expand the company’s capacity to 76,000 TCD in FY08.

Segment wise performance
Rs m 4QFY06 4QFY07 (%) Change FY06 FY07 (%) Change
Sugar 3,636 2,459 -32.4% 12,978 12,067 -7.0%
% of total revenues 90.4% 80.7% 87.1% 78.4%
Distillery 201 264 31.5% 892 1,424 59.7%
% of total revenues 5.0% 8.7% 6.0% 9.3%
Cogeneration 182 324 78.3% 1,008 1,885 86.9%
% of total revenues 4.5% 10.6% 6.8% 12.2%
Others 4 1 -73.0% 26 18 -28.1%
% of total revenues 0.1% 0.0% 0.2% 0.1%
Total revenues 4,023 3,048 14,904 15,394

The co-generation and distillery businesses provided the cushion to the company, as they are non-cyclical. The distillery division reported a 32% YoY growth in revenues in 4QFY07. Enhanced capacities at Mankapur (100 KLPD) and Balrampur (Additional: 60 KLPD) units have facilitated strong revenue growth. Distillery segment delivered 108% YoY increase in production to 13,113 KL as compared to 6,308 KL in 4QFY06. Ethanol off-take was higher by 147% YoY. Cogeneration division contributed 10% to the total revenues in 4QFY07 as compared to 4.5% in 4QFY06. It generated 108 m units, an increase of 93.0% YoY. It also recorded 87.4% YoY increase in power sales to UPPCL during the quarter.

Given the Central Government measures (mandatory ethanol blending at 5% from October 2007 and 10% blending from October 2008) and higher crude prices, BCML expects strong ethanol off-take going forward. It is also bullish on the co-generation business as it is increasing its aggregate capacity to 181 MW (saleable: 126 MW) by FY08 as compared to the capacity of 134.3 MW (saleable: 101.7 MW) in FY07. However, sugar division would continue to remain an under performer till price alignment is planned by the government.

Mismatch effect:Owing to a gross mismatch between sugar and sugarcane prices prevailing in the state of Uttar Pradesh, BCML has reported operating losses for 4QFY07. For FY07, the operating profits have declined by 74% YoY. While the sugar realisations continue to fall due to excess supply of sugar, the state government fixes the raw material prices, which continue to be higher. The company paid the price of Rs 125 a quintal when the sugar realisations were Rs 1,800 per quintal and continues to do so even when the realisations have fallen to Rs 1,457 per quintal. Further, even the labour and other expenses (as percentage of sales) witnessed a rise further aggravating the problem. On the segmental front, while sugar division reported losses, distillery and cogen segments reported a 79% YoY and 102% YoY increase respectively at PBIT levels. Capacity expansions in the cogeneration business during year led to the higher profitability.

Rs m 4QFY06 4QFY07 (%) Change FY06 FY07 (%) Change
Raw Material 2,970 2,493 -16.1% 8,896 10,674 20.0%
% of sales 76.5% 85.3% 63.5% 76.7%
Staff cost 131 187 42.4% 502 753 50.0%
% of sales 3.4% 6.4% 3.6% 5.4%
Other expenditure 191 259 36.1% 1,194 1,600 34.0%
% of sales 4.9% 8.9% 8.5% 11.5%

Availability of bagasse is expected to be good within the company in the coming year due to the expansion of sugar capacities. This should enable BCML to operate its power generation facilities for more than 300 days in FY08 leading to higher profits. Also, with mandatory ethanol blending programme being implemented by the government, the company expects increased off-take of ethanol to oil-marketing companies. However, the sugar division would continue to witness bad times, till the alignment of prices is done.

PBIT
Rs m 4QFY06 4QFY07 (%) Change FY06 FY07 (%) Change
Sugar 399 (396) -199.2% 2,461 (1,011) -141.1%
% of segment 11.0% -16.1% 19.0% -8.4%
Distillery 57 103 79.5% 208 506 143.0%
% of segment 28.4% 38.8% 23.4% 35.5%
Cogeneration 61 123 102.1% 465 872 87.4%
% of segment 33.4% 37.9% 46.1% 46.3%
Others (2) (5) 95.8% (1) (6) 400.0%
% of segment -64.9% -470.0% -4.3% -29.9%

In the red: The company has reported losses at the net level for both the periods under consideration. Lower profits at operating levels further aided by higher interest and depreciation charges have led to the decline. Depreciation and interest costs were higher on account of enhanced capacities across businesses, higher working capital requirement and higher carry of sugar stocks.

What to expect?
The oversupply of sugar continued to depress the performance of the sugar companies and BCML is no exception. However, its integrated business model has managed to provide some cushion. The companies in UP have filed a case regarding the pricing of raw materials. They are hoping for the alignment of the cane prices with that of the sugar realisations. Further, the yields in the sugar producing states are expected to be lower in the current year. Also, the consumption is expected to be at 22 MT. While this may reduce the stocks to some extent, overall FY08 is expected to be tough year.

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