Buy Balrampur Chini Mills Ltd for Target Rs 874 by Elara Capital
Sweetening growth prospects
Balrampur Chini Mills (BRCM IN) reported strong growth in topline (+12%) and EBITDA (+42%) but below our estimates of 22% and 131% , respectively. The underperformance was mainly due to lower -than -expected margin and lower sales volume in the sugar segment. Sugar sales volume was up 8% , while reali zations grew 15% YoY to INR 46.4 per kg. Even though cane crushing has started for Sugar Season (SS) 26 -27, sugar prices continue to surge and prices are up more than 25% YoY , primarily due to lower production expectation this year. We expect some increase in state advised price (SAP) of cane in Uttar Pradesh (UP). BRCM has invested INR 24bn in Poly Lactic Acid (PLA) project till date , which is slated for commissioning this year and will be a key earnings growth driver for the next two years. We continue to be bullish on BRCM and the sugar sector as a whole. Revise to Buy (from Accumulate ) with SoT P-TP of INR 874.
PLA plant construction in full swing:
BRCM invested ~INR 24bn till date of total stated capex of INR 31bn. Construction is in full swing with many portions of the plant under different stages of completion. Product development and analysis are continuing at full scale.
About 83% of debt is long-term by tenure:
Out of total gross debt of INR 15.4bn, INR 13bn is long -term debt. Nearly 50% of investment in PLA is funded through debt (INR 12.2bn). About INR 0.53bn of long -term debt is due for repayment in the next 18 months. BRCM has availed INR 3.2bn of long -term debt , which is eligible for 5% interest subvention under UP Bioplastic Industrial Policy.
Ethanol sales volume down 20%:
Ethanol sales volume declined due to lower contribution from both sugar/molasses -based as well as grain -based feedstock. Cane/ molasses -based ethanol declined 11% YoY to 25 ,900kilolitres while grain based ethanol declined 31% to 16,500kilolitres. Contribution of cane/molasses -based feedstock will reduce significantly driven by government directions to address the sugar shortage. Contribution of Maize ethanol will increase meaningfully but overall volumes for the year will be lower.
Sugar realisations up 15% YoY:
Sugar realisations surged to INR 46.4 per kg vs . INR 40.5 last year and INR 41.6 in Q1FY27 , driven by concerns around sugar shortages in India . Current sugar prices are ~INR 50-55, up 25% YoY. We expect both sugar sales volume as well as rea lisations to increase in FY28E.
Revise to Buy with a TP of INR 874:
Rising sugar prices have come at a very opportune time to offset the input cost pressure in both sugar and distillery segments. Growth in and beyond FY28 will be driven by commencement of PLA plant as well as improving sugar realizations . Hence , expect BRCM to be on good growth trajectory in the next two to three years. We retain FY28E EBITDA estimates but reduce FY27E EBITDA estimates by ~11%. Due to Due to 11% decline in stock price in the last 2.5 months, we Upgrade to Buy (from Accumulate ) with TP of INR 874 based on SoTP. A steep decline in sugar price from current levels is a key risk to our call.
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SEBI Registration number is INH000000933
