Multibagger Stock – Balrampur Chini Mills – Target 70% in 1 Year
Balrampur Chini Mills : CMP: Rs.89.40
Balrampur Chini has reported decent numbers on account of strong growth in allied businesses making up for sluggishness in core sugar activity. Net sales for the six-month period ended March 2008 were Rs 735.49 Crs., flat on Y-o-Y.
Here are the Investment Positives:
1) Sugar companies have been reeling under excess supply in the last season and this had resulted in high inventory and low realizations. However, the future for this agro commodity appears to be turning as the imbalance in supply-demand is getting corrected and should work in favor of producers from next year onwards.
2) Fixed and variable concessions are given to Balrampur Chini under UP Sugar Industry Promotion Policy 2004, which will positively affect its profit margins.
3) Company is eligible to get soft loans provided by Govt. from Sugar Development Fund to encourage cogeneration at an interest of 4%, which will significantly reduce the cost of financing of its new projects in the area.
4) Balrampur Chini has value adding opportunities due to its acquisition of Indo Gulf Industries Ltd, which has the sugar crushing capacity of 3000 tcd in Eastern U.P.
5) Company has competitive advantage due to its extremely good relationship with farmers in its command area
6) Supreme Court has recently fixed SMP of Rs 110 per quintal for sugarcane for FY08 as against Rs 125 demanded by U.P.Govt. This is highly beneficial for the Company. As compared to some other players in UP, Balrampur is much better placed since it has adequately provided in its accounts for a higher SMP.
7) Company’s crushing capacity increased by 16,000 TCD due to its Greenfield integrated sugar complex at Kumbhi and Gularia. Along with this it is also enjoying enhanced distillery capacity by 100 KLPD at Mankapur facility to augment volumes.
We see Balrampur Chini as an exciting volume play for the next sugar season on the back of its future plans of expanding capacity. We continue to be bullish over Balrampur Chini, which is traded at P/E 16.9x of current year’s earnings. On annualisation of recent quarter earnings, the P/E is less than 10. We view this as the best pick in the Sugar space. Though a trifle risky being a commodity stock, the stock should see itself hitting a TARGET PRICE of Rs 150 in twelve months.
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