Buy Balrampur Chini Mills For Rs. 515 Target Price; New Sugarcane Varieties To Aid Production Recovery

ICICI Direct post the sugar company's Q4 earnings have recommended to buy the scrip of Balrampur Chini Mills for Rs. 515 target price. This at the current price of Rs. 362.85, mean a possible upside of up to 42%.

About the company

Balrampur Chini (BCML) is the second largest sugar company with sugar crushing capacity of 77500 TCD, distillery capacity of 560 KLD & co-generation capacity of 175.7 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 increase distillery volumes to 35 crore litre in FY24 from 18 crore litre in FY22. Moreover, the modernisation plan would result in higher sugarcane crushing & better recoveries

Q4FY22 Results

BCML reported soft results with a flat operating profit number.

Sales witnessed growth of 25.5%YoY, aided by higher domestic quota & exports of 35000 tonnes

EBITDA was flat at Rs. 331 crore, with margins at 25.9%

Consequent PAT was at Rs. 240.5 crore (up 2.1% YoY

Brokerage's recommendation on the stock

Balrampur Chini Mills share price has gone up 114% in the last five years (from Rs. 167 in May 2017 to Rs. 356 in May 2022).We expect 38% CAGR distillery volume growth, which would boost earnings with CAGR of 36.8% during FY22-24E We continue to maintain our BUY rating on the stock.The company  alue's the stock at Rs. 515, valuing the business at 12x FY24 PE.

Reasons for the 'Buy' on the stock of Balrampur Chini Mills:

With distillery capex, BCML would be able to increase its ethanol capacity 2x to 35 crore litre. Distillery sales to witness 43.5% CAGR to Rs.1939.9 crore in FY22-24E, which would be 33% of total revenues

It is undertaking modernisation and de-bottlenecking at some plants. This would lead to higher sugarcane crushing, better recoveries by FY24. We expect 9.9% revenue CAGR in FY22-24E.

BCML is introducing newer sugarcane variety in its catchment areas, which
would reduce the dependence on Co-0238 & improve sugarcane availability

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 and abundant sugarcane availability. It is increasing its distillery capacity to 2x in the next two years.

We value the stock at Rs. 145/share with BUY recommendation.