Company Name – Balrampur Chini Mills Limited (Balrampur Chini Mills) Current Share Price – INR 483 (April 1, 2022) Market Cap – INR 9,852 cr |
1. What is interesting about the stock?
With a projected production of 308 lakh tons in the Sugar Year 2020-21, India is the second-largest sugar producer in the world. Sugarcane availability improved, resulting in a 13% rise in production over the previous year's 274 lakh tons. During the sugar season 2020-21, 502 sugar mills crushed sugar cane, compared to 453 mills the last year. In nine Indian states (Andhra Pradesh, Bihar, Gujarat, Haryana, Karnataka, Maharashtra, Punjab, Uttar Pradesh, and Tamil Nadu), the sugar sector employs around 12% of the rural population.
Balrampur Chini Mills, founded on July 14, 1975, is India's second-largest integrated sugar production firm. The Company is led by Vivek Saraogi and managed by individuals with a thorough grasp of the field. The Company was one of the first to diversify away from sugar and establish distilleries and cogeneration plants. Across the cane-rich regions of Eastern and Central Uttar Pradesh, the Company has ten manufacturing facilities with the effective framework of sugar mills, distilleries, and cogeneration facilities. Sugar, Alcohol (Industrial), Export Incentives, Power, Bagasse, and Other operating revenue are among the essential products/revenue segments at Balrampur Chini Mills.
The Sugar division accounted for 86% of the Company's sales in Q3 FY22.The revenue from this segment came in at INR 1,123 cr in Q3 FY22, up 11.5% from the previous year’s same quarter.
Balrampur Chini Mills is concentrating on boosting its distillery activities' revenue and profit share. The Company has built four distilleries with a total capacity of 560 kilolitres per day at Balrampur, Babhnan, Mankapur, and Gularia. The distillery capacity of the Company is primarily dedicated to the manufacturing of ethanol for use in gasoline blends and is provided to Oil Marketing Companies. During Q3FY22, the Company's distillery business fared exceptionally well. Sales from the distillery category accounted for 13% of total revenue in Q3 FY22. In the future, the distillery segment is expected to account for 35% of the total revenue of the Company based on management expectations. Therefore, the Gularia distillery was expanded from 160-kilo litres per day to 200-kilo litres per day by the Company. In addition, Balrampur Chini Mills would open a plant at Maizapur, , in September 2022, for INR 450 crore to focus on ethanol.
In 2022, Balrampur Chini Mills expects to transport 75 lakh tons of sugar. Furthermore, with crude oil prices hovering around USD 100 per barrel, the firm will profit from increased ethanol mixing in fuel.
Key Strengths
Company has approximately two decades of expertise
Company has increased its ethanol capacity by more than double in only three years. The Company produces ethanol using the C-Heavy and B-Heavy pathways, allowing it to participate in government bids with greater flexibility
With an aggregate crushing capacity of 76,500 tonnes of cane per day, the Company has India's second-biggest sugar-producing capacity.
In exchange for higher yields, the Company promotes mechanized farming. By facilitating the availability of better seeds and supplying excellent Agri inputs to farmers, the Company has achieved one of the finest recoveries in East and Central Uttar Pradesh, resulting in superior cane quality.
Superior cane quality can be found in Eastern and Central Uttar Pradesh, where the Company's production operations are located.
Key Weaknesses
High dependence on a cyclical business - Balrampur Chini Mills is heavily dependent on its sugar business. The sugar business accounts for almost 86% of the Company's revenue, with the distillery accounting for the remaining 13-14%
In comparison to worldwide norms, the price of cane is far higher in India
Key competitors
E.I.D. – Parry (India) Limited - is a publicly-traded firm that deals in sugar and nutraceuticals. The Company is a Murugappa Group subsidiary, one of India's most prominent corporate giants with a market capitalization of INR 8,300 crore
Shree Renuka Sugars - is a multinational agricultural and biofuels Company. The Company is one of the largest sugar producers, India's major sugar factory, and one of the world's largest sugar refiners
Dalmia Bharat Sugar & Industries - is primarily involved in the production of sugar, the generation of electricity, the production of industrial alcohol, and the production of refractory materials
Since July 3, 1987, Vivek Saraogi has been a part of Balrampur Chini Mills. Balrampur Chini Mills Ltd has risen under his leadership, using organic and inorganic methods, to become a leader in the Indian sugar business.
2. Key Historical Financials
Balrampur Chini Mills provided a robust set of figures. For the quarter ended December 2021, the Company posted revenue of INR 1,212 crore, up 13% from last year's same quarter, aided by sugar & ethanol realization. EBITDA was INR 100 crore, up 178% year on year, with 8% margins. Consequently, profit after tax (PAT) increased by 137% year on year to Rs 64 crore.
Revenues from operations for FY21 were INR 4,812 crore, up from INR 4741 crore the previous year, representing a 1% rise. Company’s PAT fell by 8% in FY21 vs FY20 on account of the higher effective tax rate.
The Company's capital structure is sound, with a gearing (D/E) of 0.4x as of March 31, 2021, down from 0.5x times as of March 31, 2020. It has maintained a decent ROE of 23% over the previous three years. However, the Company's earnings per share have decreased since 2019.
3. What is my view on company valuation?
In the last year, Balrampur Chini Mills stock has increased by ~130%.
The Company trades at a P/E (TTM) of ~21x. Comparing this metric with its direct competitors, we saw that E.I.D. – Parry (India) Limited trades at P/E (TTM) of ~13x, and Dalmia Bharat Sugar & Industries trades at P/E (TTM) of ~13x. The average P/E (TTM) 5-year ratio of the Company is ~6x.
Sugar is a cyclical business with a 3/5 year cycle. However, the government has increased focus on Ethanol blending which will provide more stability to the revenue and profitability of the sugar companies. Investors can evaluate the stock for long term at lower levels. Current price seems to be high as it is driven by the ethanol narrative in the market.
Compared to the previous quarter, promoter holdings of Balrampur Chini Mills. have climbed by 1% which is a positive indicator for the stock. As of December 31, 2021, promoters owned 42.4% of the Company, FIIs 19.1%, and DIIs 16.8%.
4. What are the risks to the investment analysis?
Cropping patterns and yields are changing due to climate change
Profitability is dependent on sugar prices on crops in the geographies like Brazil – a bumper crop or a crop failure has a big impact on the prices
Government policy on export and import restrictions impact the local sugar industry
About the Author
I write about the stock market, cryptocurrency, blockchain. I have Bachelor of Arts degree with more than 10 years of experience in finance and cryptocurrencies.
Disclosure
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I am not a SEBI registered advisor. This article is purely for educational purpose and not to be construed as an investment advice. Please consult your financial advisor before acting on it.
I have used publicly available information while writing this article.