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Balrampur Chini: In for good times? - Views on News from Equitymaster

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Balrampur Chini: In for good times?
Dec 3, 2008

Performance summary
  • Topline grows by 40% YoY for 4QFY08 and 5.3% YoY in FY08. Better performance delivered in the sugar and distillery divisions led to the strong topline growth during the quarter.
  • Operating margins improves on account of better realisations witnessed during the quarter However, the decision on the sugarcane prices is subject to change pursuant to the order of the Allahabad High Court
  • Reports net profits for both the period under consideration as compared to the losses last year, primarily on account of higher operating margins.


Financials
Rs(m) 4QFY07 4QFY08 Change FY07 FY08 Change
Net sales 2,978 4,167 40.0% 14,016 14,756 5.3%
Expenditure 2,953 3,445 16.7% 13,036 11,482 -11.9%
Operating profit (EBDITA) 25 723 2767.5% 980 3,274 234.1%
EBDITA margin (%) 0.8% 17.3%   7.0% 22.2%  
Other income 1 3 153.8% 13 21 64.8%
Interest 132 283 115.3% 544 897 64.7%
Depreciation 232 288 24.1% 802 1172 46.1%
Profit before tax (338) 154   (354) 1,226  
Tax -1 9   65 256 295.2%
Profit after tax/(loss) (337) 146   (418) 970  
Net profit margin (%) -11.3% 3.5%   -3.0% 6.6%  
No. of shares (m) 248.2 255.5   248.2 255.5  
Diluted earnings per share (Rs)*         3.8  
Price to earnings ratio (x)*         8.4  
* 12 month trailing earnings

What has driven performance in FY08?
  • Balrampur Chini (BCML) reported a topline growth of 40% YoY for 4QFY08 and 5.3% YoY for FY08. Better performance delivered in the sugar and distillery divisions led to the strong topline growth during the quarter. Allied businesses contributed to overall performance during the year. The improved performance of the sugar sector was mainly on account of better realisations. Realisations were higher by 26% YoY at Rs 16.97 per kg in 4QFY08 as compared to Rs 13.47 per kg in the corresponding quarter last year. For FY08, the realisations stood at Rs 14.97 (Rs 14.56 in FY07). The volumes were however lower due to delay in crushing season. Further, BCML is carrying an inventory of 0.3 m tonnes, which was valued at Rs 14.05 per kg and the company will sell at the prevailing higher prices. In light of higher sugar prices, we expect the company to benefit from sales of the same in the coming quarters.

    Segment wise performance
    Rs m 4QFY07 4QFY08 Change FY07 FY08 Change
    Sugar 2,468 3,736 51.4% 12,076 12,306 1.9%
    % of total revenues 80.6% 84.5%   79.4% 75.1%  
    Distillery 265 413 55.8% 1,227 1,684 37.3%
    % of total revenues 8.7% 9.3%   8.1% 10.3%  
    Cogeneration 326 270 -17.2% 1,885 2,385 26.5%
    % of total revenues 10.7% 6.1%   12.4% 14.5%  
    Others 1 2 50.0% 18 15 -17.4%
    % of total revenues 0.0% 0.0%   0.1% 0.1%  
    Total revenues 3,060 4,421 44.5% 15,205 16,390 7.8%

  • On the distillery front, the revenues were higher by 56% YoY during the quarter on account of better realisations and higher volumes (new capacities were added). The realisations were higher by 32% YoY during the quarter. While ethanol was sold at Rs 21.5 per kilo litre, ENA and RS (rectified spirit) also witnessed increase in prices. On the power front, while the year saw a 27% YoY jump, the quarter witnessed a 17% YoY decline. The company operated it facilities for less number of days owing to decrease in bagasse availability. During the year, power was sold to the state grid at an average price of Rs. 3.03 per unit.

  • The operating margins improved on account of better realisations witnessed during the quarter. However, the operating uncertainty continues, as the issue of cane pricing remains unresolved and is under review by the judiciary. The state advised price (SAP) has been fixed at Rs 140 per quintal. The sugar companies have filed a petition against the order which is expected to come out this week.

  • On the segmental PBIT front, sugar segment earned profits as compared to losses last year. Higher realisations improved the performance. Distillery segment continued to deliver a robust operating performance on account of higher sales volumes and better realisations. While for FY08, a steady growth was witnessed in the co-generation profits on account of expanded capacities, profits during the quarter were lower. Less days of operation due to decrease in bagasse availability led to the decline.

  • The company has reported net profits for both the period under consideration as compared to the losses last year. However, interest costs were higher as BCML’s ECBs (external commercial borrowings) have been completely hedged on the currency front. Depreciation was higher due to addition of capacities at Kumbhi and Gularia facilities.

What to expect?
At the current price of Rs 32, BCML is trading at a multiple of 8.4 times its trailing 12-month earnings. BCML has sugar crushing capacity of 73,500 TCD, co-generation capacity of 181 MW (126 MW Saleable) and distillery capacity of 320 KLPD. It is not planning any further expansions for the coming year. While the raw material price concerns continue to affect the performance, the management is hopeful of higher sugar realisations going forward. BCML is expected to crush around 6.6 MT of cane lower than last year as a result of lower cane plantations. On account of lower production expected in the country, the sugar realisations have improved to Rs 17.5 per kg in recent times from Rs 16.97 in 4QFY08. The management further expects it to touch Rs 20 per kg as the sugar production is expected to be at / below 20MT. Further its integrated business model would continue to aid growth.

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