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Balrampur Chini’s (BRCM) 4QFY23 revenue grew by 17% YoY to INR 14.9bn driven by higher volume (+50% YoY) and realisation (+7% YoY) in the distillery segment. Sugar sales volume declined 1% YoY (23% below JMFe) as the company let go a portion of its quota for March given subdued demand and realisation (sugar prices are up 5-6% since then). EBITDA increased 22% YoY (3% above JMFe) to INR 4.04bn while PBT was flat YoY (in line with JMFe). PAT declined 13% YoY to INR 2.5bn on higher tax rate. The management reiterated its crushing volume optimism (at least 10% increase in sugarcane crushing volume in SS24) and distillery volume guidance of 340-350mn litres for FY24. We continue to be positive on India’s sugar sector as it has now shifted to complete regulation, intended towards the survival of the weakest mill, which augurs well for efficient companies like BRCM. We maintain BUY with a Mar’24TP of INR 470 (INR480 earlier), basis 15x FY25EPS. Key risks: Lower-than-expected cane crushing volume and any unfavourable change in government regulations.

* 4QFY23 summary: BRCM’s 4QFY23 sales grew by 17% YoY (52% QoQ) to INR 14.9bn with higher distillery volume (+50% YoY) coupled with better realisations (+7% YoY). Sugar volume declined 1% YoY (+20% QoQ) while realisation improved 5% YoY (-1% QoQ). Gross margin improved by 70bps YoY to 43.8% while EBITDA margin improved 22% YoY (3% above JMFe) to INR 4.04bn. PBT was flat YoY (in line with JMFe) while PAT fell 13% YoY (5% below JMFe) to INR 2.5bn on higher tax rate. BRCM paid an interim dividend of INR 2.5/ share (FV of INR 1) during the year.

* Higher cane area and better farm level yield results in improved cane crushing during the quarter: Basis assesment from ISMA, sugar production for SS23 has been revised downward to 32.8mnt (from 34mnt) after considering 4mnt diversion for ethanol. Barring Uttar Pradesh (UP), other states are likely to report a decline YoY. Further, sugar mills have almost completed the export quota of 6mn tonnes. BRCM was allocated export quota of 1.98lakh tonnes of which 1.4lakh tonnes was met through physical exports and the balance has been swapped. BRCM witnssed 8% increase in crushing volume (YoY) during the quarter (10.3mnt cane in SS23).

* Cane crushing volume to improve: The company has been actively focused on cane activity with significant progress on improving the varietal mix. Given that plantation is over for the upcoming season (7-9% increase in area for the company), it indicated that dependence on the disease-prone variety ‘CO238’ had reduced to 27% (as compared to 75% in SS22 and 46% in SS23) with relatively superior quality. It has an improved mix of superior varieties (which have more strength to withstand diseases and even higher recovery over CO238 (e.g., CO215 mix to improve from 20% in SS23 to 53% in SS24). It has effected the best ratoon management practices in its catchment area, which hitherto was unheard of in east UP. Payment of sugarcane dues ahead of scheduled time further improve the loyalty and confidence of farmers in the company, helping build its cane management program. All this should help drive increase in sugarcane area and, thereby,

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