Buy Balrampur Chini Mills Ltd For Target Rs.600 - ICICI Direct
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Sugar balance in sweet spot; B-heavy aids profitability
About the stock: Balrampur Chini (BCML) is the second largest sugar company with sugar crushing capacity of 76000 TCD, distillery capacity of 560 KLD & co-generation capacity of 172 MW. It is undertaking a distillery capex of 490 KLD & modernisation, de-bottlenecking of its sugarcane crushing capacity at multiple plants.
The company would be able to increase distillery volumes to 35 crore litre in FY24 from 16 crore litre in FY21. Moreover, the modernisation plan would result in higher sugarcane crushing, better recoveries
Q3FY22 Results: BCML reported healthy set of numbers with 13% sales growth
Sales witnessed growth of 13%YoY, aided by sugar & ethanol realisation
EBITDA was at | 99.8 crore, up 174.1% YoY, with margins at 8.2%
Consequent PAT was at | 64.1 crore (up 138.4% YoY)
What should investors do? BCML’s share price has gone up 2.9x in the last five years (from | 153 in February 2017 to | 445 in February 2022).
We expect 2.2x increase in distillery volumes to boost earnings with CAGR of 26.6% during FY21-24E
We continue to maintain our BUY rating on the stock
Target Price and Valuation: We value the stock at | 600, valuing the business at 18x FY23 PE
Key triggers for future price performance:
With distillery capex, BCML would be able to increase its ethanol volumes 2.2x to 35 crore litre by FY24. Distillery sales to witness 33.6% CAGR to | 1954.8 crore in FY21-24E, which would be 33% of total revenues
It is undertaking modernisation & de-bottlenecking at some plants. This would lead to higher sugarcane crushing, better recoveries by FY24. We expect 7% revenue CAGR in FY21-24E
The company is introducing newer sugarcane variety in its catchment areas, which would reduce the dependence on Co-0238
Alternate Stock Idea: We also like Dwarikesh Sugar in our sugar coverage.
The company is one of the most efficient companies with highest sugar recovery & abundant sugarcane availability. It is increasing its distillery capacity to 3x in the next three years
We value the stock at | 135/share with BUY recommendation
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