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Should I exit Balrampur Chini?

Since sugar prices may fall on higher production, it is better to pull out of the stock

I purchased Balrampur Chini in January 2010 at a price of around Rs140 per share. At present, the share is trading far below my purchase price. Should I exit this stock or should I purchase more of it?
-Pramit

Balrampur Chini Mills is one of the largest integrated sugar manufacturing companies in India. It is based in Uttar Pradesh. During Q4FY2010, the company's net sales increased compared to the previous quarter but there was a sharp decline of 64.01 per cent in its net profit. Moreover, the net profit for Q4FY2010 declined by 58.38 per cent year-on-year. The company's profits declined mainly because of increase in the cost of raw materials and decline in sugar prices.

In fact, in the past few months, sugar prices have corrected sharply. This correction was mainly due to surplus sugar production in India and Brazil, which are the world's largest sugar manufacturers.

Besides, higher production estimates (on hopes of a good monsoon) are likely to put further pressure on prices. This will in turn squeeze the company's profitability in the coming quarters. Since the sugar industry is cyclical in nature, this stock's performance can be quite volatile. Taking all these factors into account, it would be wise not to add more to your position in this stock. And if you can find better prospects in the market, then cut your losses, exit, and put your money where it has a better chance of growing.



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