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BRCM reported robust results in 1QFY24, driven by a 22.1% YoY increase in sugar division revenues due to higher volumes and better realizations. Distillery division revenues also rose by 56.3%, although margins were impacted by transfer pricing and lower margins in the syrup route. Further, a sharp jump in alcohol inventory signals delays in offtake by OMCs. The EBP program is on track with 11.77% ethanol blending achieved, and E20 fuel has been launched at ~1400 retail outlets. Long-term debt stands at Rs5.8bn vs.Rs6.2bn as of FY23, while short-term debt is at Rs11.8bn vs.Rs12.6bn as of FY23. On the earnings front BRCM posted profit of Rs735mn vs our estimates of Rs741mn. On the consolidated revenue front BRCM posted a 28.7% YoY increase to Rs13.9bn which was ~5% above our estimates (CentrumE of Rs13.3bn). Gross margins for the quarter came in at 25.6% vs.17.6% in 1QFY23. EBITDA margin for the quarter came in at 11.7% vs. 4.1% in 1QFY23 vs. our expectations of 11.7%. PBT came in at Rs1.01bn +501% YoY in line with our estimates of 1.04bn. The outlook for sugar division appears positive with strong domestic sugar prices albeit premium between UP and Maharashtra sugar rates have reduced in last few months. However, given cut in ethanol volume guidance, delay in offtake by OMCs and looming overhang of SAP increase given election year we downgrade the stock to Reduce from ADD. We have cut our margins and earnings for FY24/FY25 to f

Performance mainly in line with expectations

Sugar segment witnessed a revenue jump of 22% to Rs11.2bn which was in line with our estimates of Rs11.3bn. The distillery segment's revenue came in at Rs4.7bn, with a 56% YoY increase, which was in line with our expected figure of Rs4.6bn. EBITDAM came in at 11.7% in line with our expectation of Rs11.7%. Distillery segment performance was in line with our expectations with EBIT margins of mere 18.2% vs 33% YoY.

BRCM meets guidance for sugarcane crushing and recovery for SSY23

Cane crushing during the quarter was higher owing to higher cane area and better yield at farm level. During the quarter 140 lac quintal cane (+202%) was crushed in line with our expectations of 140 lac quintals. On recovery front, print came in at 11.8% an uptick of +58bps YoY and higher than guidance of +10-15bps. Sugar production for the quarter came in at 13.74 lac quintals in line with our expectations of 13.76 lac quintals.

Downgrade to Reduce with downside of 9%;

The outlook for sugar division appears positive with strong domestic sugar prices. However, given cut in ethanol volume guidance, delay in offtake by OMCs and looming overhang of SAP increase given election year we downgrade the stock to Reduce from ADD. Further, given environment conducive for delay in export policy for SSY24 would also work negatively for the sector. We have cut our EPS estimates for FY24/25 (-10.2%/16.7%) led by both lower volume growth and consistent margin compression in distillery division. Our revised target price stands at Rs365/share (Previous TP Rs437/-). Key risks to our recommendations: 1) Upward revision in ethanol prices for ESY23; 2) Ethanol from grain is made attractive either by lifting the current FCI rice embargo or further upward revision in ethanol prices from damaged grain; and 3) Spurt in sugar prices for remaining part of SSY23.

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