BalrampurChini Mills (BRCM) reported a strong performance for 6QFY2011 due to lower cane cost. Total sales were flat at `468cr in 6QFY2011, while PAT tripled to `113cr. As the company is switching to March year ending, we have accordingly revised our estimates. At current levels, the stock is trading at fair valuations; hence, we remain Neutral on the stock.
Low raw-material cost coupled with high contribution from other segment helps PAT grow: Gross margin almost doubled to 68% in 6QFY2011 from 35% in 2QFY2011 due to lower cane cost. BRCM incurred cost of `2,160/tonne of cane in 6QFY2011 against `2,050/tonne in 2QFY2011. During the quarter, levy sugar quota stood at 10% of the total sugar production against 20% in the last year. Given that levy sugar is sold at a loss, reduction in levy sugar quota led to lower losses. At the same time, sale of distillery and cogen increased by 38% and 33% during the quarter, which further improved the company’s overall profitability. Total PAT for the quarter more than tripled to `113cr during the quarter.
Outlook and valuation: Going ahead, we expect sugar prices to remain at
`28–30/kg. Domestic ex-mill prices have corrected from the highs of `42/kg to `28–29/kg, while the cost of inventory is at `28/kg. However, due to declaration of SAP by the UP government, margins in the sugar business are likely to be under pressure. At current levels, the stock is trading at fair valuations of 1.3x P/B and 1.0x enterprise value/invested capital on SY2012 estimates. Hence, we maintain our Neutral view on the stock.
`28–30/kg. Domestic ex-mill prices have corrected from the highs of `42/kg to `28–29/kg, while the cost of inventory is at `28/kg. However, due to declaration of SAP by the UP government, margins in the sugar business are likely to be under pressure. At current levels, the stock is trading at fair valuations of 1.3x P/B and 1.0x enterprise value/invested capital on SY2012 estimates. Hence, we maintain our Neutral view on the stock.
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