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No More Chini Kum

Balrampur Chini Mills is one of the largest sugar manufacturers of India. Find it if it would be a worthy investment

Synopsis
Balrampur Chini Mills Limited (BCML) is one of the largest integrated sugar manufacturing companies in India and has interests in the manufacturing and marketing of ethyl alcohol and ethanol. The company is also involved in the generation and selling of power and manufacturing & marketing of organic manure. BCML has nine sugar factories located in Eastern UP with an aggregate crushing capacity of 73,000 tonnes per day. Indo Gulf Industries Ltd — a subsidiary of BCML has a sugarcane crushing capacity of 3000 tcd.


Recent Results
BCML's total income for Q2SY08 stood at Rs 308.03 crore, as against Rs 292.45 in the corresponding quarter of the previous year, a modest increase of 5.5 per cent. The net profit jumped to Rs 65.65 crore in Q2SY08 crore from Rs 19.97 crore, an increase of 228 per cent, primarily because of the increase in stock-in-trade. The depreciation on assets for Q2SY08 increased by more than 50 per cent, from Rs 19.41 crore to Rs 30.57 crore.



  Sep-03  Sep-04  Sep-05  Sep-06  Sep-07
Operating Income  565.03 740.28 813.32 1,920.14 1,375.93
Cost of Sales  494.13 613.56 569.13 1,455.49 1,284.52
Operating Profit  70.9 126.72 244.19 464.66 91.41
Reported Net Profit  29.51 60.49 125.06 291.59 -41.84
Rs.Crore
Source: BSE

Segment-wise, the sugar business contributed Rs 247 crore to the total revenue (63 per cent), while distillery contributed 13 per cent, amounting Rs 17 crore, and power generation contributed the rest. Revenues from cogeneration (power) have almost doubled and so the contribution to profits has increased from Rs 27 crore to Rs 50 crore in Q2SY08.


Valuation
BCML is currently trading at a P/E of 14.6-19.3x. ICICI Securities expects the sugar stocks to trade at a P/E of 10x as the commodity is out of the bear cycle. Due to the high capacity additions in the past three years, the industry would not be able to report similar profits as made in the last bull cycle due to under utilisation of capacity. BCML would trade at Rs. 63, 31 per cent lower than the current market price, at SY09 P/E of 10x.