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INDIA Sugar

Balrampur Chini Mills


Re-Initiation 10 August 2012
Key Data
Bloomberg Code Reuters Code Current Shares O/S (mn) Diluted Shares O/S(mn) Mkt Cap (Rsbn/USDmn) 52 Wk H / L (Rs) Daily Vol. (3M NSE Avg.) Face Value (Rs) USD = Rs55.1 Stock to Sector Sector to Market BRCM IN BACH.BO 244.3 244.3 16.1/290.3 68/33 1,474,831 1 Outperform Neutral

Buy
Target Price: Rs80 CMP: Rs66* Upside: 22%
*as on 09 August 2012

In a Sweet spot; initiate with Buy


Balrampur Chini Mills (BCML) is one of Indias largest integrated sugar manufacturing companies with a crushing capacity 76,500 tonnes/day. Considering higher production in UP compared to Maharashtra and Karnataka (affected by lower planting and deficient rainfall), we believe BCML will be the key beneficiary due to its locational advantage as we expect sugar production in UP (due to better planting and stable climatic condition) to grow by 12.1% in SY13E compared to drop of 7.6% in SY13E for pan India. Higher production coupled with our expectation of better pricing (Rs32/kg in FY13E and Rs34/kg in FY14E) led by expected decline in the inventory levels for the industry is likely to drive earnings CAGR of 61.7% over FY12-FY14E for the company. Also, we expect gearing for the company to remain comfortable over FY13E-FY14E factoring the increase in working capital requirement due to change in the accounting year. We initiate coverage with a Buy rating and a target price of Rs80. Sugarcane crushing to increase in line with expected increase in UP: BCML would benefit from higher sugarcane production (sugarcane production in UP is expected to increase by 8-10% in SY13E). We expect sugarcane crushing for BCML to increase by 10% YoY to 9.3mt in crushing season SY13E and 8% YoY to 10.1mt in crushing season SY14E. In SY12 (current season), BCMLs sugarcane crushing increased by 22.6% YoY to 8.5mn tonnes against 6.9mt in SY11. Recovery rate was also higher at 9.54% in SY12 against 9.4% in SY11. Sugar prices to remain firm: We believe that expected decline in inventory level in India would support higher domestic sugar prices. We have assumed BCMLs free market realizations at Rs32/kg in FY13E and Rs34/kg in FY14E against Rs28.7/kg in FY12. Current ex-mill realization has increased significantly over the last 45 days due to weather-related uncertainties in a few states and we expect the prices to cool-off post Oct 12 when the crushing season starts. The company will benefit for the next two quarters if prices sustain at current levels (of ~Rs35/kg) as it had higher inventory of 0.47mn tonnes at the end of June 12. Gearing comfortable, adjusted for increase in working capital: BCMLs D/E ratio increased to 1.4x in FY11 and 1.6x in FY12 from 0.8x in SY09 due to increase in working capital requirements due to change in its accounting year. Adj. for additional increase in working capital requirements, we believe that D/E of the company is comfortable compared with other players (D/E of Bajaj Hindustan was at 2.8x at SY11-end; whereas Shree Renuka Sugars was at 4.6x as of Mar-12). We expect D/E (adj. for working capital requirements) to be at 0.8x in FY13E and 0.78x in FY14E against 0.87x in FY12. Outlook and Valuation: The company is highly sensitive to increase in sugar prices and as per our calculation every Re1 increase in sugar realization would boost the bottom-line by Rs546mn in FY13E (EPS increase of Rs2.23) and hence, higher sugar prices than our estimates would result in much higherthan-estimated profit for the company. The stock is currently trading at 8.7x FY13E and 8.6x FY14E EPS of Rs7.5 and Rs7.6, respectively. On a P/BV basis, it trades at 1.18x FY13E and 1.07x FY14E. We initiate coverage with a Buy rating and a target price of Rs80 (based on 10.5x FY14E EPS).

Shareholding Pattern
Public & Others 30.0%

Promoter 40.9%

Institutions 13.0%

Foreign 16.0%

As on 30 June 2012

One Year Indexed Stock Performance


110 100 90 80 70 60 50 40 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12

BALRAMPUR CHINI

BSE SENSEX 30 INDEX

Price Performance (%)


1M BRCM NIFTY 16.4 (0.4) 6M 31.6 (1.1) 1Yr 16.7 2.5

Source: Bloomberg, Centrum Research *as on 09 August 2012

Sanjeev Kumar Singh sanjeev.singh@centrum.co.in +91 22 4215 9643

Y/E Mar (Rsmn) Rev YoY (%) EBITDA EBITDA (%) Adj PAT YoY (%) Fully DEPS RoE (%) RoCE (%) P/E (x) EV/EBITDA (x)# P/BV (x) SY09 17,000 16.2 4,569 26.9 2,281 129.2 8.9 20.7 13.0 7.4 8.6 1.44 FY11^ 29,724 74.8 5,140 17.3 1,644 (27.9) 6.4 13.3 8.6 10.2 5.1 1.31 FY12 23,095 (22.3) 3,306 14.3 713 (56.7) 2.9 5.7 4.4 22.5 8.0 1.32 FY13E 30,513 32.1 5,142 16.9 1,844 158.8 7.5 14.3 7.9 8.7 5.3 1.18 FY14E 31,609 3.6 5,233 16.6 1,864 1.1 7.6 13.0 7.3 8.6 5.8 1.07 Source: Company, Centrum Research Estimates, ^ FY11 financials is for 18 months period and hence, not comparable with SY09 and FY12 financials, # Adjusted for incremental working capital due to change in the accounting year

Please refer to important disclosures/disclaimers inside


Centrum Equity Research is available on Bloomberg, Thomson Reuters and FactSet

Shareholding pattern (%)


Jun-12 Promoter Foreign Institutions Public & Others Source: BSE 40.9 16.0 13.0 30.0 Mar-12 40.1 15.0 15.0 29.9 Dec-11 40.1 14.6 17.0 28.4 Sept-11 40.1 18.8 16.3 24.8

Company Background
Balrampur Chini Mills (BCML) was incorporated in 1975 by taking over the operations of Balrampur Sugar Company Ltd (the name was changed to Balrampur Commercial Enterprises Ltd) in eastern Uttar Pradesh. It is one of the largest integrated sugar manufacturing companies in India. Its allied business consists of manufacturing and marketing of Ethyl Alcohol & Ethanol, power generation and selling, manufacturing and marketing of organic manure. The company operates 9 sugar factories in eastern UP with an aggregate crushing capacity of 76,500tpd. The company came out with its maiden public issue in 1978-79. BCML ceased to be a subsidiary of BCEL with effect from 25 June 1979.

Factories
Unit Location Plant Sugar (TCD) Power (MW) Distillery (KLPD) Organic Manure (MT) Sugar (TCD) Distillery (KLPD) Organic Manure (MT) Sugar (TCD) Sugar (TCD) Power (MW) Sugar (TCD) Power (MW) Sugar (TCD) Power (MW) Sugar (TCD) Power (MW) Distillery (KLPD) Organic Manure (MT) Sugar (TCD) Power (MW) Sugar (TCD) Power (MW) Sugar (TCD) Capacity 12,000 24.55 160 30,000 10,000 60 18,000 7,000 5,000 23.25 7,500 18 8,000 25.75 8,000 34 100 10,000 8,000 20 8,000 31.3 3,000

Balrampur

Balrampur, U.P

Babhnan
Tulsipur

Gonda, U.P
Balrampur, U.P

Haidergarh Akbarpur Rauzagaon

Barabanki, U.P Ambedkarnagar, U.P Barabanki, U.P

Mankapur

Gonda, U.P

Kumbhi Gularia
Maizapur

Lakhimpur Kheri, U.P. Lakhimpur Kheri, U.P


Gonda, U.P

Source: Company, Centrum Research

Key events/timeline
2004: Set up distillery operations at the Babhnan unit, with a capacity of 60 klpd. 2005: Acquired the Rauzagaon unit from The Dhampur Sugar Mills with a sugarcane crushing capacity of 7,500 TCD and cogeneration capacity of 12 MW. 2008: Set up integrated Greenfield sugar complex at Gularia in Central UP with sugarcane crushing capacity of 8000 TCD and cogeneration capacity of 31.3 MW. 2006: Taken over the management of Maizapur Chini Mills a unit of Balrampur Chini Mills Limited.

1990: Acquired Babhnan Sugar Mills Limited with a capacity of 1,000 TCD.

1998: Acquired Tulsipur Sugar Company Limited with a capacity of 2,500 TCD.

2003: Ventured into a 19.55 MW bagasse-based power generation unit at the Balrampur facility.

1975
1975: Incorporated as Balrampur Chini Mills Limited by taking over the operations of the erstwhile sugar factory of Balrampur Sugar Company Limited in East Uttar Pradesh.

1990

1995
1995: Diversified into distillery operations at the Balrampur unit through the commissioning of a 60 klpd distillery.

2000
2003: Set up an integrated greenfield sugar complex at Haidergarh in East Uttar Pradesh with a sugarcane crushing capacity of 4,000 TCD and co-generation capacity of 20.25 MW.

2005
2005: Established an integrated greenfield sugar complex at Akbarpur in East Uttar Pradesh with a sugarcane crushing capacity of 7,000 TCD and co-generation capacity of 18 MW. 2006: Set up an integrated greenfield sugar complex at Mankapur in East Uttar Pradesh with a sugarcane crushing capacity of 8,000 TCD and co-generation capacity of 34 MW.

2010
2007: Set up integrated Greenfield sugar complex at Kumbhi in Central UP with sugarcane crushing capacity of 8000 TCD and cogeneration capacity of 20 MW.

Key management personnel


Name Kamal Nayan Saraogi Naresh Chandra Vivek Saraogi Meenakshi Saraogi Kishor Shah Position Chairman Emeritus Chairman Managing Director Joint Managing Director Director- cum- Chief Financial Officer

Balrampur BalrampurChini ChiniMills Mills

Investment Rationale
BCML will benefit from higher sugarcane production (sugarcane production in UP is expected to increase by 8-10% in SY13E). We expect sugarcane crushing for BCML to increase by 10% YoY to 9.3mt in crushing season SY13E and 8% YoY to 10.1mt in crushing season SY14E.
We believe that expected decline in inventory level in India would support higher domestic sugar prices. We have assumed BCMLs free market realizations at Rs32/kg in FY13E and Rs34/kg in FY14E.

Plant locations of BCML

Gularia Kumbhi Babhnan Rauzagaon Maizapur Akbarpur Haidergarh Balrampur Tulsipur

Mankapur

Higher sugar crushing will drive increased revenues from Power business and distillery. Higher production coupled with our expectation of better pricing lead by expected decline in the inventory levels for the industry is likely to drive earnings CAGR of 61.7% over FY12-FY14E for the company.

Summary Financials
Key Income Statement Revenue YoY growth (%) EBITDA YoY growth (%) EBITDA margin (%) Depreciation Interest expenses Other non operating income PBT Provision for tax PAT (adjusted) YoY growth (%) PAT margin Key CF Statement Cash generated from operations Cash flow from investing activities Cash flow from financing activities Net cash increase/decrease Key Balance Sheet Data Shareholders' fund Debt Deferred Tax Total Capital Employed Fixed Assets Investments Net current assets Total Assets Key Ratio (%) ROCE ROIC ROE Per share Ratios (Rs) Fully diluted EPS Book value Solvency Ratio (x) Debt-equity Interest coverage ratio Valuation parameters(x) P/E (Fully Diluted) P/BV EV/Sales EV/EBITDA SY09 17,000 16.2 4,569 42.2 26.9 1,079 1,083 89 2,407 231 2,281 129.2 13.4 6,416 (231) (4,987) 1,197 11,751 9,720 2,039 23,510 17,766 1,266 4,469 23,510 13.0 13.6 20.7 8.9 45.8 0.8 3.2
7.4 1.44 1.5 8.6

FY11* 29,724 74.8 5,140 12.5 17.3 1,681 1,486 282 1,973 611 1,644 (27.9) 5.5 (6,187) (1,266) 7,448 (5) 12,892 20,067 2,248 35,207 17,158 36 18,009 35,207 8.6 9.1 13.3 6.4 50.3 1.4 2.3
10.2 1.31 0.9 5.1

FY12 23,095 (22.3) 3,306 (35.7) 14.3 1,108 1,474 277 724 12 713 (56.7) 3.1 1,950 (554) (2,834) (1,437) 12,179 19,755 2,245 34,179 16,127 442 17,606 34,179 4.4 4.6 5.7 2.9 49.9 1.6 1.5
22.5 1.32 1.1 8.0

FY13E 30,513 32.1 5,143 55.6 16.9 1,150 1,391 33 2,602 790 1,844 158.8 6.0 920 (183) (703) 33 13,601 20,866 2,245 36,711 15,125 442 21,140 36,711 7.9 8.0 14.3 7.5 55.7 1.5 2.9
8.7 1.18 0.9 5.3

FY14E 31,609 3.6 5,233 1.8 16.6 1,157 1,449 36 2,627 799 1,864 1.1 5.9 (751) (125) 923 47 15,037 23,666 2,245 40,947 14,118 442 26,383 40,947 7.3 7.5 13.0 7.6 61.5 1.6 2.8
8.6 1.07 1.0 5.8

Source: Company, Centrum Research Estimates * FY11E financials is for 18 months period and hence, not comparable with SY09 and FY12 financials

Balrampur BalrampurChini ChiniMills Mills

Sector Outlook
Domestic consumption to grow at 2.7% CAGR between SY10-SY14E
As per ISMA (Indian Sugar Mills Association), domestic consumption of sugar declined by 6.9% YoY and 2.6% YoY to 21.3mt and 20.8mt in SY10 and SY11 respectively. The lower consumption was mainly due to lower off-take by bulk consumers on the back of restriction on bulk holding limits till January 11 and expectation of a fall in sugar prices due to higher production estimates. Expecting an increase in production, the government hiked inventory holding limits for bulk consumers to 90 days from 15 days in February 2011. Going forward, we estimate sugar consumption to grow 3.84% YoY (domestic consumption grew at a CAGR of 3.84% between 1990-91 and 2008-09). Accordingly, domestic demand will grow at a CAGR of 2.7% between SY10-SY14E. Consumption growth will be driven by higher usage from industrial consumers including confectioners and chocolates, sweets, soft drinks and fruit drink makers. As the worlds largest consumer and second largest producer of sugar, any major development in India can have a significant impact on the global sugar market. Exhibit 1: Constant increase in consumption expected
(Mn Tonnes) 27 24 21 18.4 18 15 12 SY01 SY06
SY02 SY03 SY04 SY05 SY07 SY08 SY09 SY10

22.9 21.9 19.9 18.5 18.5 17.3 16.8 21.3 20.8

22.0

22.8

23.7

16.2

SY11

SY12E

SY13E

Source: ISMA, Centrum Research Estimates

India to remain a sugar surplus region till SY14E; however inventory levels could decline
We believe sugar production in the country will outstrip consumption till SY14E. Domestic consumption is expected to grow at a CAGR of 2.7% between SY10-SY14E, whereas, sugar production in the period is expected to grow at a CAGR of 7.7%. Higher production in SY11 and SY12E will result in increase in inventory levels to 6.5mt by SY12E against 5.8mt at SY10-end. The inventory level is expected to decline gradually to 5.4mt by SY14E due to higher domestic consumption and sugar export of 2mt each for SY13E and SY14E (we expect the government to allow exports going forward due to its favourable approach in SY11 and SY12E. In SY12E, the government was prompt to allow exports at the beginning of the production season which helped the indusry to control cane arreras). Though, the area under sugarcane plantation is expected to increase by 0.8% to 5.05mn hectares in SY13E, sugar production is estimated to decline by 7.7% to 24mt in SY13E. This decline is expected primarily due to lower rainfall in key sugarcane growing states like Maharastra and Karnataka. In Maharastra, planting was lower due to non-availability of water. Though, the ISMA maintains sugar output at 25mt for SY13E, we have considered it to be 24mt based on media reports which suggeats that sugar output in Maharshtra could further be revised downwards due to lower rainfall. Though the area under sugarcane plantation is expected to remain flat at 5.1mn hectares in SY13E, sugar production is estimated to decline by 7.7% to 24mt in SY13E. This decline is expected primarily due to lower rainfall in key sugarcane growing states like Maharastra and Karnataka. In Maharastra, the planting was lower due to non-availability of water. This year

Balrampur BalrampurChini ChiniMills Mills

SY14E

(SY12E) sugarcane production in Maharastra was at 82mn tonnes, which resulted in ~9mt of sugar production. Though for the next year, ISMA has revised its sugar production estimates for Maharashtra at 7.6mt (earlier: 8mt), lower rainfall may further curb production. As per media reports, sugarcane availability in Maharashtra is expected to be 60.5mn tonnes and the sugar production will be ~7mn tonnes. In Karnataka, production estimates for SY13E is expected to be at 3mt against 3.71mt for the current season. Current sugarcane arrears are estimated to be at Rs40bn and as we understand, it will not pose a threat to sugarcane planting in the next year (i.e. sugar production in SY14E). In SY08, cane arrears was at Rs56bn due to which there was a shift in sugarcane planting and the area under sugarcane plantation had declined by 12.7% YoY for crushing season SY09. Here, we have to consider that at that time, SAP (State Advised Price) in UP was Rs125/quintal which has gradually increased to Rs240/quintal for SY12E. Central governments fixed price for sugarcane has also been revised upwards to Rs145/quintal for SY12E against Rs81.2/quintal in SY08. Though there has been a significant increase in the SAP and FRP, sugarcane arrears are still lower than the peak time arrears in SY08 and hence, we believe that sugarcane planting in the next year will be similar to current years figures. Exhibit 2: Sugar demand-supply situation in India
Particulars Opening Stock % increase/ (decrease) Production % increase/ (decrease) Imports Total availability % increase/ (decrease) Domestic Consumption % increase/ (decrease) Exports Total consumption (domestic + imports) % increase/ (decrease) Closing Stock % increase/ (decrease) Average monthly domestic consumption % increase/ (decrease) Closing stock as months' consumption % increase/ (decrease) SY02 10.7 14.2 18.5 0.1 0.0 29.2 4.8 16.8 3.6 1.1 17.9 4.0 11.3 6.1 1.5 4.0 7.6 2.1 SY03 11.3 6.1 20.1 8.7 0.0 31.5 7.9 18.4 9.6 1.5 19.9 11.2 11.6 2.6 1.7 11.2 7.0 (7.7) SY04 11.6 2.6 14.0 (30.5) 0.4 26.0 (17.4) 17.3 (6.0) 0.2 17.5 (11.9) 8.5 (26.8) 1.5 (11.9) 5.8 (16.9) SY05 8.5 (26.8) 12.7 (9.3) 2.1 23.3 (10.3) 18.5 7.0 0.0 18.5 5.7 4.8 (43.2) 1.5 5.7 3.1 (46.3) SY06 4.0 (52.9) 19.3 51.8 0.0 23.3 (0.3) 18.5 0 1.1 19.6 6.0 3.7 (24.1) 1.6 6.0 2.2 (28.4) SY07 4.3 7.5 28.3 47.0 0.0 32.6 40.2 19.9 7.6 1.7 21.6 10.3 11.0 200.5 1.8 10.3 6.1 172.5 SY08 11.0 155.8 26.4 (7.0) 0.0 37.4 14.5 21.9 10.1 5.0 26.9 24.2 10.5 (4.5) 2.2 24.2 4.7 (23.1) SY09 10.5 (4.5) 14.5 (44.8) 2.4 27.4 (26.5) 22.9 4.6 0.2 23.1 (14.1) 4.4 (58.4) 1.9 (14.1) 2.3 (51.6) SY10 4.4 (58.4) 18.9 30.1 4.1 27.4 (0.3) 21.3 (6.9) 0.2 21.5 (6.6) 5.8 33.2 1.8 (6.6) 3.2 42.6 SY11 5.0 14.1 24.4 29.0 0.0 29.4 7.4 20.8 (2.6) 2.6 23.4 8.5 6.0 3.3 1.9 8.5 3.1 (4.7) SY12E 5.8 16.1 26.0 6.6 0.0 32.0 9.0 22.0 3.8 3.5 25.5 9.1 6.5 8.3 2.1 9.1 3.1 (0.7) SY13E 7.2 25.2 24.0 (7.7) 0.0 30.5 (4.7) 22.8 3.8 2.0 24.8 (2.6) 5.7 (13.0) 2.1 (2.6) 2.7 (10.7) SY14E 7.2 25.2 25.5 6.1 0.0 31.1 2.0 23.7 3.8 2.0 25.7 3.5 5.4 (4.5) 2.1 3.5 2.5 (7.8)

Source: ISMA, Industry, Centrum Research Estimates

Inventory levels to decline post SY12E


Sugar inventory declined significantly to 4.4mt in SY09 led by 44.8% YoY decline in production to 14.5mt in SY09. Domestic consumption in SY09 was 22.9mt. In SY10 too, production at 18.9mt was significantly lower than consumption at 21.3mt. The government allowed duty-free import of sugar to meet the fall in production, which resulted in import of 2.4mt in SY09 and 4.1mt in SY10. Consequently, closing inventory at the end of SY10 was 5.8mt. Though, sugar production increased by 29% YoY to 24.4mt in SY11 and is expected to increase further by 6.6% YoY to 26mt in SY12E, the government has allowed exports of 2.6mt in SY11 and 3.5mt in SY12E, which will keep inventory level at lower limits in the country. Inventory at SY11-end was 6mt which is expected to increase to 6.5mt at SY12-end. Going forward, based on our production and exports assumptions, we expect the inventory level to decline to 5.7mt and 5.4mt by SY13E and SY14E respectively.

Balrampur BalrampurChini ChiniMills Mills

Exhibit 3: Inventory level to decline post SY12E


(MT) 14.0 11.0 8.0 5.0 2.0 SY01 SY02 SY03 SY04 SY05 SY06 SY07 SY08 SY09 SY10 SY11 SY12E SY13E SY14E 4.8 3.7 4.4 10.7

Exhibit 4: Continuous decline in stock-to-use ratio


(%)

11.3 11.6 8.5

11.0 10.5 6.5 5.8 6.0 5.7 5.4

70 60 50 40 30 20 10 0

SY02

SY05

SY08

SY01

SY03

SY04

SY06

SY07

SY09

SY10

SY11

SY12E

SY13E
22.8

Source: ISMA, Industry, Centrum Research Estimates

Source: ISMA, Industry, Centrum Research Estimates

Decline in inventory will support upward movement in sugar price


Sugar price reached an all time high of Rs4,115/quintal in January 2010 due to low inventory and estimates of lower production in SY10. Closing inventory fell to 4.4mt in SY09 against 11mt in SY07 and 10.5mt in SY08. Stock-to-use ratio too fell to 18.9% in SY09 against 50.9% in SY07 and 39.1% in SY08. At that time, the government took many measures to check prices including restricting exports and curbing bulk holding limit. These measures, along with better production estimates for SY11, cooled off sugar prices which corrected to Rs2,745/quintal in 2HSY10 against Rs3,435 in 1HSY10. Average sugar price for SY10 was Rs3,157/quintal which corrected to Rs2,874/quintal in SY11. Though, production estimates for SY12E was higher at 26mt (against 24.4mt in SY11), governments promptness to allow exports from the beginning of production season resulted in higher average sugar price of Rs3,043/quintal till Oct-Jun 12. With lower rainfall across the country in the monsoon season and subsequent revision in sugar production estimates for SY13E, sugar price has increased significantly in July and August and current average price for Mumbai M grade sugar is at Rs3,752/quintal as on August 3, 2012. Though, we do not expect the prices to sustain at such high levels due to production estimates of 24mt in SY13E (against consumption of 22.8mt), we believe that lower expected inventory in SY13E and SY14E would support sugar prices as they are higher than average price of SY11 and 9MSY12E. With our expectation of decline in inventory in SY13E and SY14E, we have assumed average realization at Rs3,200/quintal and Rs3,400/quintal in SY13E and SY14E respectively. Exhibit 5: Sugar price and inventory level is inversely correlated Exhibit 6: Inventory decline would support higher prices
(%) 280 210 140 70 0 (70) (140) (%) 60 45 30 15 0 (15) (30)
21 18.4 18 15 12 16.2 16.8 17.3 18.5 18.5 (Mn Tonnes) 27 24 19.9 22.9 21.9 21.3 20.8 23.7

22.0

SY07

SY05

SY06

SY08

SY09

SY10

SY11

SY12E

SY13E

SY14E

SY01

SY02

SY06

SY07

SY03

SY04

SY05

SY08

SY09

SY10

SY11

SY13E

Closing stock (inc/dec)

Mumbai price (inc/dec)

Source: ISMA, Industry, Centrum Research Estimates

Source: ISMA, Industry, Centrum Research Estimates

Balrampur BalrampurChini ChiniMills Mills

SY12E

SY14E

SY14E

Key assumptions for domestic sugarcane production


The area under sugarcane cultivation is expected to grow to 5.1 mn hectares in SY12E against 4.2 mn hectares in SY10. We expect sugarcane planting area to remain at same levels till SY13E. However, lower rainfalls in Maharashtra and Karnataka could affect yield in SY13E. WE expect the yield to decline to 67.5tonne/hectare in SY13E against 70.1tonne/hectare in SY12E. We expect the yield to improve further to 70tonnes/hectare in SY14E. Based on these estimates, we believe that sugarcane production in India will increase at a CAGR of 4% during SY10-SY14E. In this period, sugarcane diverted for non-sugar usage is expected to remain at 29-30% driven by higher sugarcane prices which the mills are expected to pay to the farmers. We have factored into our assumptions sugar recovery rate of 10% in SY13E and 10.1% in SY14E. Based on these assumptions, we estimate sugar production in India to grow at a CAGR of 7.8% for SY10-SY14E period. Domestic consumption is set to increase at a CAGR of 2.7% in the same period. We expect sugar export of 3.5mt in SY12E and 2mt each in SY13E and SY14E. Based on the above assumptions, we believe closing sugar inventory will be 6.5mt in SY12E, 5.7mt in SY13E and 5.4mt in SY14E. Decline in inventory levels will support higher sugar prices, in our view. Exhibit 7: Crop acreage and sugarcane production estimates
Sugar supply dynamics Crop acreage (mn hectares) YoY change (%) Crop yield (tonne/hectare) YoY change (%) Sugarcane production (mt) YoY change (%) Non-sugar usage of sugarcane YoY change (%) % of cane used for drawal % of cane used for non-sugar purpose Sugarcane used for sugar production YoY change (%) Recovery rate (%) Sugar production (mt) SY02 4.4 2.1 67.4 (1.8) 297.2 0.4 116.9 (2.1) 60.7 39.3 180.3 2.1 10.3 18.5 SY03 4.5 2.5 63.6 (5.6) 287.4 (3.3) 92.5 (20.8) 67.8 32.2 194.9 8.0 10.3 20.1 SY04 3.9 (13.1) 59.4 (6.6) 233.9 (18.6) 101.3 9.5 56.7 43.3 132.5 (32.0) 10.6 14.0 SY05 3.7 (6.9) 64.8 9.0 237.1 1.4 112.3 10.8 52.6 47.4 124.8 (5.9) 10.2 12.7 SY06 4.2 14.8 66.9 3.4 281.2 18.6 92.5 (17.6) 67.1 32.9 188.7 51.2 10.2 19.3 SY07 5.2 22.6 69.0 3.1 355.5 26.4 77.7 (16.0) 78.1 21.9 277.8 47.2 10.2 28.3 SY08 5.1 (1.7) 68.9 (0.2) 348.2 (2.1) 92.7 19.2 73.4 26.6 255.5 (8.0) 10.3 26.4 SY09 4.4 (12.7) 64.6 (6.3) 285.0 (18.1) 140.1 51.1 50.9 49.1 145.0 (43.3) 10.0 14.5 SY10 4.2 (5.4) 70.0 8.5 292.3 2.6 97.0 (30.7) 66.8 33.2 195.3 34.7 9.7 18.9 SY11 4.9 17.0 70.1 0.1 342.4 17.1 102.5 5.7 70.1 30.0 239.8 22.8 10.2 24.4 SY12E SY13E SY14E

5.1 4.0 70.1 0.0 356.1 4.0 100.1 (2.4) 71.9 28.1 256.0 6.8 10.2 26.0

5.1 0.0 67.5 (3.7) 343.0 (3.7) 102.9 2.8 70.0 30.0 240.1 (6.2) 10.0 24.0

5.1 0.0 70.0 3.7 355.7 3.7 103.1 0.2 71.0 29.0 252.5 5.2 10.1 25.5

Source: Ministry of agriculture, Centrum Research Estimates

Regional production scenario


Uttar Pradesh and Maharashtra account for ~60% of the total sugar produced in the country. In SY10, these two states contributed 64.8% with Maharashtra contributing 37.4% and Uttar Pradesh 27.4% to the countrys sugar output. Contribution of these two states declined to 61.4% of Indias total sugar output in SY11 and is expected to be in the same range till SY13E. Maharashtras sugar production is estimated to decline to 7mn tonnes in SY13E against 9mn tonnes in SY12E; while Uttar Pradeshs sugar production is expected at a CAGR of 15.2% between SY11-13E. Sugar production in UP is expected to be at 7mn tonnes and 7.8mn tonnes in SY12E and SY13E against 5.9mn tonnes in SY11. Exhibit 8: Regional production scenario: increase in production expected
(Mn tonnes) 30 24 18 12 6 0 4.8 1.9 1.6 4.2 1.9 2.1 5.6 2.7 2.5 8.5 4.9 2.9 2.1 7.3 2.6 1.7 4.1 4.6 SY09 7.1 SY10 2.8 2.6 1.6 5.2 9.1 SY11 9.0 SY12E 4.2 3.6 1.6 1.3 5.9 4.5 3.7 1.8 7.0

3.7 3.0 2.5 7.8 7.0 SY13E

3.3 1.1 5.7 0.9 1.0 5.8 1.1 4.6 5.0 6.2 5.2 3.2 2.2 SY03 SY04 SY05 SY06

3.8

9.1 SY07

9.1 SY08

Maharastra
Source: ISMA, Centrum Research Estimates

Uttar Pradesh

Tamilnadu

Karnataka

Others

Balrampur BalrampurChini ChiniMills Mills

Investment Arguments
Sugarcane crushing to increase going forward: in line with expected increase in UP
Sugarcane production in Uttar Pradesh (UP) is expected to increase by 8-10% in SY13E. BCML would benefit from higher sugarcane production as it would be able to crush more sugarcane and produce more sugar. In SY12 (current season), BCMLs sugarcane crushing increased by 22.6% YoY to 8.5mn tonnes against 6.9mt in SY11. Recovery rate was also higher at 9.54% in SY12 against 9.4% in SY11. Going forward, we expect the sugarcane crushing by the company to increase by 10% YoY to 9.3mt in crushing season SY13E and 8% YoY to 10.1mt in crushing season SY14E. Exhibit 9: Increase in sugarcane crushing
(MT) 12 10 8 6 4 2 8.1 0 SY08 SY09 SY10 SY11 SY12 SY13E SY14E 4.8 5.4 6.9 8.5 9.3 10.1 8.4 9.4 9.1 9.4 9.5 9.4 9.4 9.6 9.3 9.0 8.7 (%) 10.5 10.2 9.9

10.2

Sugarcane crushed
Source: Company, Centrum Research Estimates

Recovery rate (RHS)

Higher sugarcane crushing in SY13E and SY14E would enable the company produce more sugar. We expect BCMLs sugar production to increase by 8.4% YoY to 0.88mt for the crushing season SY13E and 8% YoY to 0.95mt for crushing season SY14E. In SY13E, sugar production in UP is expected to increase by 12.1% YoY to 7.8mt, while pan-India production is expected to decline 7.6% YoY to 24mt at the same time. Decline in Indias production will primarily be due to 22.2% YoY decline expected in Maharashtra and 18.9% YoY decline expected in the Karnataka region due to lower planting and deficient rainfall. Hence, UP based companies will benefit in the next year due to higher production and our expectation of improving realization led by gradual decline in inventory level in the industry. Exhibit 10: Higher crushing will lead to increase in production
(MT) 1.08 0.90 0.72 0.54 0.36 0.18 0.00 SY08 SY09 SY10 SY11 SY12 SY13E SY14E 0.44 0.50 0.82 0.65 0.88 0.81

0.95

Source: Company, Centrum Research Estimates

Balrampur BalrampurChini ChiniMills Mills

BCMLs sugar sales volume is estimated at 0.83 mt in FY13E and 0.81mt in FY14E against 0.67mt in FY12. Higher sugar sales in FY13E will be led by expected decline in Indias sugar production to 24mt against 26mt in SY12E. We expect a slight decline in sales volume in FY14E as during the same time, sugar production in India is expected to improve to 25.5mt in SY14E against 24mt in SY13E. Exhibit 11: Sales volume to increase in SY13E
(MT) 1.00 0.83 0.75 0.74 0.66 0.67 0.83 0.81

0.50

0.25

0.00 SY08 SY09 FY11 FY12 FY13E FY14E


Source: Company, Centrum Research Estimates

We believe that expected decline in inventory level in India would support higher domestic sugar prices. We have assumed BCMLs free market realizations at Rs32/kg in FY13E and Rs34/kg in FY14E. Average price for Mumbai M-grade sugar in SY10 was Rs3,157/quintal which corrected to Rs2,874/quintal in SY11. Though the production estimates for SY12E was higher at 26mt (against 24.4mt in SY11), governments promptness to allow exports from the beginning of the production season resulted in higher average sugar price of Rs3,043/quintal till Oct-Jun 12. With lower rainfall across the country in the monsoon season and subsequent revision in sugar production estimates for SY13E, sugar price has increased significantly in July and August and current average price for Mumbai M grade sugar is at Rs3.752/quintal as on August 3, 2012. Though, we do not expect prices to sustain at such high levels due to production estimates of 24mt in SY13E (against consumption of 22.8mt), we believe that lower expected inventory in SY13E and SY14E would support sugar prices being higher than average price of SY11 and 9MSY12E. Further, we expect the companys sugarcane procurement cost to increase to Rs263/quintal and Rs273/quintal for crushing season SY13E and SY14E against Rs251/quintal for current crushing season (SY12E). It should be noted that sugar manufacturers paid higher prices for sugarcane in SY10 in anticipation of higher sugar realizations and lower sugarcane availability. Exhibit 12: Sugarcane cost to increase going forward
(Rs/qunital) 300 241 250 57.5 200 153 150 100 50 0 (11.0) SY08 SY09 SY10 (10.4) SY11 SY12 SY13E SY14E 121 26.4 16.4 4.4 3.8 10 (5) (20) YoY growth (RHS) 25 216 251 263 273 (%) 70 55 40

Sugarcane cost
Source: Company, Centrum Research Estimates

Balrampur BalrampurChini ChiniMills Mills

Power business too will add to revenues and bottom-line


Higher sugarcane crushing would result in higher production of bagasse, which is used in cogeneration of power. Hence, we believe power sales volume will increase over the next two years. The company had also converted its Mankapur and Haidergarh boilers (with capacity of 20MW each) into multi-fuel power plants and now, coal can be used as a feed for these plants. Power sales volume of the company is expected to be 568 mn units in FY13E and 609 mn units in FY14E. We have assumed BCMLs average power realizations at Rs4.1/kwh in FY13E and Rs4.18/kwh in FY14E against Rs4.02/unit in FY12. Exhibit 13: Increase in power sales volume in FY13E and FY14E
(Mn units) 800 700 600 500 400 300 200 100 0 SY08 SY09 FY11 Power sales
Source: Company, Centrum Research Estimates

(Rs/kwh) 4.1 3.5 3.0 3 2 1 577 360 710 530 FY12 568 FY13E 609 0 FY14E Realization/kwh (RHS) 4.1 4.1 4.2 5 4

Increased revenue from distillery segment led by higher production and realizations
Higher cane crushing would also result in increased production of molasses (used to produce ethanol) and hence revenue from this segment is expected to increase over the next two years. We expect the company to sell 70mn litres of alcohol/ethanol in FY13E and FY14E against 55mn litres in FY12. In Oct 2010, the Central government increased the price at which OMCs procure ethanol to Rs27/litre from Rs21.5/litre earlier. There is also a high probability that ethanol procurement prices would be linked to petrol prices (a committee has been formed to fix a pricing formula). Hence, we believe ethanol prices will increase further, a positive move for the profitability of sugar companies. Higher ethanol procurement prices would also lead to an increase in prices of rectified spirit or ENA (Extra-neutral alcohol). We have assumed the blended realizations from the distillery segment at Rs27.7/litre in FY13E and FY14E against Rs26.7/litre in FY12. Exhibit 14: Distillery sales and realizations are expected to increase
(Mn/litres) 100 80 60 40 20 87 0 SY08 SY09 FY11 FY12 FY13E FY14E Distillery sales
Source: Company, Centrum Research Estimates

27.7 26.1 25.1 26.7

27.7

(Rs/litre) 30 27 24 21 18

21.4

51

63

55

70

70 15

Realization/litre (RHS)

10

Balrampur BalrampurChini ChiniMills Mills

We expect sugar segments revenue share to increase to ~83% in FY13E and FY14E against 81.5% in FY12. Distillery segments revenue share is expected to be at 7% in FY13E and 6.8% in FY14E against 6.6% in FY12. We expect power segments revenue share to decline to 7.4% in FY13E against 9.1% in FY12. Exhibit 15: Revenue break-up: Sugar and Distillery segments contribution to increase
(%) 100 80 60 40 20 0 SY08 SY09 Sugar
Source: Company, Centrum Research Estimates

1.0 11.2 12.0

7.0 7.6

1.4

9.9 5.6

1.4 9.1 6.6

2.8

7.4 7.0

2.3

7.8 6.8

2.4

75.8

84.0

83.1

81.5

83.3

83.1

FY11E Distillery

FY12E Power

FY13E Others

FY14E

Change in financial year to put pressure on working capital requirements


BCML changed its accounting year from Oct-Sept to Apr-March in FY11. Sugar manufactures usually follow an Oct-Sept accounting year, which results in lower inventory at the date of preparation of the balance sheet. The change in accounting year would lead to higher working capital in the books due to higher sugar inventory at the end of the financial year. Working capital cycle of the company increased to 282 days in FY12 against 138 days in FY11. Going forward, we expect it to decline to 232 days in FY13E and increase further to 275 days in FY14E. The increase in working capital cycle would be primarily driven by the increase in sugar inventory at the end of the financial year. Closing inventory as months of production increased to 9.5 months in FY12 against 4.9 months in FY12. It is expected to be in the range of 9-10 months going forward. Exhibit 16: Inventory levels to increase due to change in accounting year
(MT) 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 0.08 SY06 1.5 0.24 SY07 0.32 SY08 0.09 SY09 0.51 FY11 0.64 FY12 0.68 FY13E 0.81 0 FY14E 3.1 9.5 9.4 (Months) 12 10.3 10 8 4.6 2.5 4.9 6 4 2

Sugar Inventory
Source: Company, Centrum Research Estimates

Inventory as months of production (RHS)

11

Balrampur BalrampurChini ChiniMills Mills

However, adjusted for increase in working capital requirements, D/E is in comfortable position
BCMLs debt-to-equity ratio increased to 1.4x in FY11 and 1.6x in FY12 from 0.8x in SY09 mainly due to increase in working capital requirements following the change in its accounting year. Adj. for additional increase in working capital requirements due to change in accounting year, we believe that D/E of the company is still in a comfortable position compared with many other players (D/E of Bajaj Hindusthan was at 2.8x at SY11-end; whereas Shree Renuka Sugars D/E was at 4.6x at Mar-12). We expect D/E (adj. for working capital requirements) to be at 0.8x in FY13E and 0.78x in FY14E against 0.87x in FY12. Exhibit 17: Adj Debt-Equity is in comfortable position
(x) 1.8 1.5 1.2 0.9 0.6 0.3
SY08 SY09
D/E
Source: Company, Centrum Research Estimates

1.6 1.4 1.3

1.5

1.6

0.8

0.8

0.9

0.8

0.8

FY11*

FY12

FY13E

FY14E

Adj (for working capital) D/E

12

Balrampur BalrampurChini ChiniMills Mills

Outlook & Valuations


The stock is currently trading at 8.7x FY13E and 8.6x FY14E EPS of Rs7.5 and Rs7.6, respectively. On EV/EBITDA basis (adjusted for higher working capital due to change in the accounting year), it trades at 5.3x FY13E and 5.8x FY14E, respectively. On a P/BV basis, it trades at 1.18x FY13E and 1.07x FY14E. We believe that our expectation of a fall in domestic inventory would led to higher sugar realization going forward and the profitability of the company would improve. We expect the profit of the company to increase at a CAGR of 61.7% over FY12-FY14E led by higher sugarcane crushing which will lead to improvement in each segments sales volume and improved realization of sugar. With steep increase in profitability in FY13E (158.8% YoY), RoE of the company is expected to improve to 14.3% in FY13E against 5.7% in FY14E. Current ex-mill realization has increased significantly over the last 45days on concerns of domestic sugar production (estimates have been revised downwards to 25mt against 26mt earlier) next year due to lower rainfall in Maharashtra and Karnataka. Media reports suggest that this current estimate of 25mt could further be revised downwards as production in Maharashtra is expected to be revised further downwards. We have factored in Indias production to be 24mt next year; however, better clarity is expected to emerge after few months. The companys mills are located in UP where the production is expected to increase in the next crushing season led by higher sugarcane planting (~8-10% YoY increase in planting area) and stable climatic conditions in the region. Most of the companys capacity is located in East UP where production is expected to be better compared to other parts of the state. The company is highly sensitive to increase in sugar prices and as per our calculation every Re1 increase in sugar realization will boost the bottom-line by Rs546mn in FY13E (EPS increase of Rs2.23) and hence, higher sugar prices than our estimates would result in much higher-than-estimated profit for the company. We have estimated non-levy sugar realization at Rs32/kg in FY3E against current price of Rs35/kg. We value the stock at 10.5x EPS, which is the mean multiple in which the stock has traded over the last 10 years except for the period SY06 & SY07 when the multiple was in an abnormal range due to losses in SY07. On our target multiple of 10.5x FY14E EPS, we arrive at a price target of Rs80 for the stock, which gives an upside of 22% from the CMP. It is to note here that the replacement cost/share for the company works out to Rs154 and based on the CMP, the stock trades at 135% discount to the replacement cost. We initiate coverage on the stock with a Buy rating. Exhibit 18: year forward P/BV Band
(x) 7.0 5.2 3.5 1.7 0.0 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12

Exhibit 19: 1 year forward EV/EBITDA Band


(x) 45 36 27 18 9 0 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-12

Actual P/BV

Mean P/BV

Median P/BV

Actual EV/EBITDA

Mean EV/EBITDA

Median EV/EBITDA

Source: Capitaline, Company, Centrum Research Estimates

Source: Capitaline, Company, Centrum Research Estimates

Exhibit 20: 1 year forward MCap/Sales Band


(x) 4 3 2 1 0 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12

Exhibit 21: year forward EV/Sales Band


(x) 4 3 2 1 0 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11

Actual MCap/Sales

Mean MCap/Sales

Median MCap/Sales

Actual EV/Sales

Mean EV/Sales

Median EV/Sales

Source: Capitaline, Company, Centrum Research Estimates

Source Capitaline, Company, Centrum Research Estimates

13

Balrampur BalrampurChini ChiniMills Mills

Financial Analysis
We expect revenue of the company to grow at a CAGR of 17% between FY12-FY14E. Revenue is expected to be at Rs30.5bn in FY13E and Rs31.6bn in FY14E against Rs23.1bn in FY12. The sugar segment is expected to contribute Rs26.3bn and Rs27.1bn to revenues in FY13E and FY14E, respectively against Rs19.5bn in FY12. Contribution from the distillery segment is expected to be Rs2.2bn in FY13E and FY14E, whereas the power division would contribute Rs2.3bn in FY13E and Rs2.5bn in FY14E. EBITDA of the company is expected to grow at a CAGR of 25.8% between FY12-FY14E. EBITDA is expected to grow 55.6% YoY to Rs5.1bn in FY13E and 1.8% YoY to Rs5.2bn in FY14E. Sugar business is expected to contribute Rs2.79bn and Rs2.8bn to EBITDA in FY13E and FY14E respectively. Power business will contribute Rs1.25bn in FY13E and Rs1.39bn in FY14E, whereas the distillery segment is expected to contribute Rs841mn in FY13E and Rs761mn in FY14E. Adj. Profit of the company is expected to grow at a CAGR of 61.7% over FY12-FY14E. WE expect adj. profit growth of 158.8% to Rs1.84bn in FY13E and 1.1% to Rs1.86bn in FY14E. Exhibit 22: Financial snapshot: Revenue, EBITDA and PAT to increase in FY13E
(Rsmn) 30,000 25,000 20,000 15,000 10,000 5,000 0 SY08 SY09 FY11* Revenue
Source: Company, Centrum Research Estimates

FY12 PAT

FY13E

FY14E

EBITDA

EBITDA margin of the company declined by 3pp to 14.3% in FY12 due to higher sugarcane price paid and decline in sugar price. Average sugarcane price paid for crushing season SY12 was Rs251/quintal compared with Rs216/quintal for crushing season SY11. Average sugar realization for FY12 was at Rs29/kg against Rs29.7/kg in FY11 (18-months period). Going forward with our expectation of increase in sugarcane crushing and thus expected increase in sugar, distillery and power production, we expect EBITDA margin to improve by 2.5pp YoY to 16.9% in FY13E. In FY14E, EBITDA margin is expected to be at 16.6%. EBIT margin declined 2.1pp to 9.5% in FY12 from 11.6% in FY11. Going forward, EBIT margin is expected to improve by 3.6pp to 13.1% in Fy13E. EBIT margin is expected to be at 12.9% in FY14E. Adjusted PAT margin is expected to improve by 3pp to 6% in FY13E against 3.1% in FY12. We expect adj. PAT margin to be 5.9% in FY14E.

14

Balrampur BalrampurChini ChiniMills Mills

Exhibit 23: Margins are expected to improve post FY12


(%) 30 25 20 15 10 5 0
SY08 SY09 FY11*
EBITDA
Source: Company, Centrum Research Estimates

26.9 22.0 20.5 17.3 13.9 6.8 13.4 14.3 11.6 9.5 5.5 3.1 6.0 5.9 16.9 13.1 16.6 12.9

FY12
EBIT PAT

FY13E

FY14E

With our expectation of improvement in profit at a CAGR of 61.7% between FY12-FY14E, we expect RoE of the company to be in the range of 13-14% over the next two years compared to 5.7% in FY12. RoCE too is expected to remain at 7-8% in FY13E and FY14E against 4.4% in FY12. Exhibit 24: Return ratios to improve significantly in FY13E
(%) 25 20.7 20 15 10.5 10 5 0 SY08 SY09 FY11*
RoE
Source: Company, Centrum Research Estimates

13.3 13.0 5.7 8.6 6.7 4.4 FY12


RoCE

14.3

13.0

7.9

7.3

FY13E

FY14E

Key upside risks


De-regulation of the sector Linking of Ethanol price to petrol prices Higher than expected increase in sugar prices

Key downside risks


Correction in sugar prices Higher than expected increase in sugarcane procurement cost Adverse government intervention Decline in sugar production area in UP which could impact the company adversely

15

Balrampur BalrampurChini ChiniMills Mills

Key operational matrix


Exhibit 25: Key assumptions
Y/E March Revenue Sugarcane crushed Sugar production-cane Total sugar production Sugar sale Inventory Sugar price (ex excise - free sale) Sugar price (ex excise - levy sale) Sugar price (average-incl. excise) Sugar revenue Alcohol sale Alcohol price (Blended) Distillery revenue Power sales Power price Power revenue Molasses revenue Other revenue Total revenue Excise duty Net revenue EBITDA Sugar Alcohol Power Molasses Others Total EBITDA Less: Corporate overheads EBITDA Margin Revenue Mix Sugar Alcohol Power Others Source: Company, Centrum Research Estimates Unit ('000 tones) ('000 tones) ('000 tones) ('000 tones) ('000 tones) Rs/tonne Rs/tonne Rs/tonne Rs mn KL Rs/KL Rs mn mn units Rs/unit Rsmn Rsmn Rsmn Rsmn Rsmn Rsmn Rsmn Rsmn Rsmn Rsmn Rsmn Rsmn Rsmn Rsmn % % % % % FY13E 9,309 875 875 833 682 32,000 18,520 31,569 26,310 70,000 27,700 2,219 568 4.1 2,323 244 476 31,572 1,059 30,513 2,797 841 1,249 81 476 5,444 302 5,143 16.9 83.3 7.0 7.4 2.3 FY14E 10,054 945 945 813 813 34,000 18,520 33,369 27,145 70,000 27,700 2,219 609 4.2 2,534 262 514 32,674 1,065 31,609 2,802 761 1,394 87 514 5,559 326 5,233 16.6 83.1 6.8 7.8 2.4

16

Balrampur BalrampurChini ChiniMills Mills

Sensitivity Analysis on EBITDA


Exhibit 26: FY13E
Sugarcane cost 2,400 2,450 2,500 2,550 2,600 2,650 2,700
29,000 3,201 3,098 2,995 2,892 2,790 2,687 2,584 30,000 3,951 3,848 3,745 3,642 3,540 3,437 3,334

Sugar realization/tonne 32,000 31,000 33,000


4,701 4,598 4,495 4,392 4,290 4,187 4,084 5,451 5,348 5,245 5,143 5,040 4,937 4,834 6,201 6,098 5,995 5,893 5,790 5,687 5,584

34,000 6,951 6,848 6,745 6,643 6,540 6,437 6,334

35,000 7,701 7,598 7,496 7,393 7,290 7,187 7,084

Source: Company, Centrum Research Estimates

Exhibit 27: FY14E


Sugarcane cost 2,500 2,550 2,600 2,650 2,700 2,750 2,800
31,000 3,246 3,176 3,106 3,036 2,966 2,896 2,826 32,000 3,979 3,909 3,839 3,769 3,699 3,629 3,559

Sugar realization/tonne 33,000 34,000 35,000


4,711 4,641 4,571 4,501 4,431 4,361 4,291 5,443 5,373 5,303 5,233 5,163 5,093 5,023 6,175 6,105 6,035 5,965 5,895 5,825 5,755

36,000 6,907 6,837 6,767 6,697 6,627 6,557 6,487

37,000 7,639 7,569 7,499 7,429 7,359 7,289 7,219

Source: Company, Centrum Research Estimates

Sensitivity Analysis on PAT


Exhibit 28: FY13E
Sugarcane cost 2,400 2,450 2,500 2,550 2,600 2,650 2,700
29,000 461 376 292 207 122 38 (47) 30,000 1,007 922 837 753 668 583 499

Sugar realization/tonne 31,000 32,000 33,000


1,553 1,468 1,383 1,299 1,214 1,129 1,044 2,098 2,014 1,929 1,844 1,760 1,675 1,590 2,644 2,559 2,475 2,390 2,305 2,221 2,136

34,000 3,190 3,105 3,021 2,936 2,851 2,766 2,682

35,000 3,736 3,651 3,566 3,482 3,397 3,312 3,228

Source: Company, Centrum Research Estimates

Exhibit 29: FY14E


Sugarcane cost 2,500 2,550 2,600 2,650 2,700 2,750 2,800
31,000 470 406 343 280 217 154 91

32,000
1,002 939 876 813 750 687 624

Sugar realization/tonne 34,000 33,000 35,000


1,535 1,472 1,409 1,346 1,283 1,219 1,156 2,068 2,005 1,941 1,878 1,815 1,752 1,689 2,600 2,537 2,474 2,411 2,348 2,285 2,222

36,000 3,133 3,070 3,007 2,944 2,881 2,818 2,754

37,000 3,666 3,603 3,540 3,476 3,413 3,350 3,287

Source: Company, Centrum Research Estimates

17

Balrampur BalrampurChini ChiniMills Mills

Sensitivity Analysis on RoE (%)


Exhibit 30: FY13E
Sugarcane cost 2,400 2,450 2,500 2,550 2,600 2,650 2,700
29,000 3.7 3.1 2.4 1.7 1.0 0.3 (0.4) 30,000 8.0 7.4 6.7 6.0 5.4 4.7 4.0

Sugar realization/tonne 31,000 32,000 33,000


12.2 11.5 10.9 10.2 9.6 9.0 8.3 16.2 15.5 14.9 14.3 13.7 13.1 12.4 20.0 19.4 18.8 18.2 17.6 17.0 16.4

34,000 23.8 23.2 22.6 22.1 21.5 20.9 20.3

35,000 27.4 26.9 26.3 25.7 25.2 24.6 24.0

Source: Company, Centrum Research Estimates

Exhibit 31: FY14E


Sugarcane cost 2,500 2,550 2,600 2,650 2,700 2,750 2,800
31,000 3.4 3.0 2.5 2.0 1.6 1.1 0.7

32,000
7.2 6.7 6.3 5.8 5.4 5.0 4.5

Sugar realization/tonne 33,000 34,000 35,000


10.8 10.4 10.0 9.5 9.1 8.7 8.2 14.4 13.9 13.5 13.1 12.7 12.3 11.9 17.8 17.4 17.0 16.6 16.2 15.8 15.4

36,000 21.2 20.8 20.4 20.0 19.6 19.2 18.8

37,000 24.4 24.0 23.7 23.3 22.9 22.5 22.1

Source: Company, Centrum Research Estimates

18

Balrampur BalrampurChini ChiniMills Mills

Financials
Exhibit 32: Income Statement
Y/E Sep (Rsmn) Net Sales Cost of goods sold % of sales Gross Profit % of sales Staff cost Other operating expenses EBIDTA EBIDTA margin (%) Depreciation EBIT Interest expenses PBT from operations Other non operating income PBT PBT margin (%) Provision for tax Effective tax rate (%) Reported PAT Adjusted PAT Net profit margin (%) SY09 17,000 11,820 69.5 5,181 30.5 361 250 4,569 26.9 1,079 3,490 1,083 2,407 89 2,496 14.7 231 9.3 2,265 2,281 13.4 FY11^ 29,724 22,779 76.6 6,945 23.4 671 1,134 5,140 17.3 1,681 3,459 1,486 1,973 282 2,255 7.6 611 27.1 1,644 1,644 5.5 FY12 23,095 18,631 80.7 4,465 19.3 471 688 3,306 14.3 1,108 2,198 1,474 724 277 1,001 4.3 12 14.8 66 713 3.1 FY13E 30,513 24,529 80.4 5,984 19.6 469 372 5,143 16.9 1,150 3,993 1,391 2,602 33 2,635 8.6 790 30.0 1,844 1,844 6.0 FY14E
31,609 25,499 80.7 6,110 19.3 497 380 5,233 16.6 1,157 4,076 1,449 2,627 36 2,662 8.4 799 30.0 1,864 1,864 5.9

Exhibit 34: Cash flow


Y/E Sep (Rsmn) Cash flow from operating PBT Depreciation Interest expenses Other charges Operating profit bef. WC Chg Working capital adjustments Less: Direct taxes paid Net cash from operating Cash flow from investing Capex Investments Int. and dividend recd. Net cash from investing Cash flow from financing Proceeds from sh. Cap Borrowings/(Repayments) Interest paid Dividend paid Net cash from financing Net cash increase/(decrease) SY09 2,496 1,079 969 155 4,700 2,117 (401) 6,416 (81) (261) 111 (231) 55 (3,789) (1,104) (149) (4,987) 1,197 FY11^ 2,255 1,681 1,391 274 5,601 (11,569) (219) (6,187) (534) (789) 57 (1,266) (193) 10,082 (1,533) (907) 7,448 (5) FY12 1,001 1,108 1,323 31 3,463 (409) (180) 1,950 (95) (639) 181 (554) (770) (312) (1,539) (213) (2,834) (1,437) FY13E 2,635 1,150 1,380 5,165 (3,454) (790) 920 (205) 22 (183) 0 1,111 (1,391) (423) (703) 33 FY14E 2,662 1,157 1,436 5,255 (5,207) (799) (751) (150) 25 (125) 2,800 (1,449) (427) 923 47

Source: Company, Centrum Research Estimates

Source: Company, Centrum Research Estimates

Exhibit 33: Balance Sheet


Y/E Sep (Rsmn) Share capital Reserves & surplus Total shareholder's fund Loan fund Deferred tax liability Total capital employed Gross block Accumulated depreciation Net Block Capital WIP Investments Cash and bank Inventories Debtors Other CA & Loans & Adv. Total current assets & loans Current liabilities & provisions Net current assets Total assets SY09 257 11,494 11,751 9,720 2,039 23,510 23,745 6,044 17,701 65 1,266 330 3,434 171 3,110 7,045 2,576 4,469 23,510 FY11^ 256 12,635 12,892 20,067 2,248 35,207 25,006 7,907 17,099 59 36 1,562 14,913 899 3,544 20,918 2,909 18,009 35,207 FY12 244 11,935 12,179 19,755 2,245 34,179 25,117 8,992 16,125 2 442 115 19,978 1,470 3,858 25,420 7,815 17,606 34,179 FY13E 244 13,356 13,601 20,866 2,245 36,711 25,306 10,199 15,107 18 442 148 23,028 1,565 4,299 29,039 7,899 21,140 36,711 FY14E
244 14,793 15,037 23,666 2,245 40,947 25,456 11,356 14,100 18 442 195 28,029 1,621 4,713 34,558 8,175 26,384 40,947

Exhibit 35: Key Ratios


Y/E Sep Profitability ratios (%) EBIDTA margin PBIT margin PBT margin PAT margin Growth (%) Revenue EBIDTA Net profit Return ratios (%) ROCE ROIC ROE Turnover Ratios Asset turnover ratio (x) Working capital cycle (days) Cash conversion cycle (days) Average Inventory days Average collection days Average payment days Per share (Rs) Basic EPS Fully diluted EPS Book value Solvency Ratio (x) Debt-equity Interest coverage ratio Valuation (x) P/E P/BV EV/Sales EV/EBIDTA SY09
26.9 20.5 14.7 13.4

FY11^ 17.3 11.6 7.6 5.5 74.8 12.5 (27.9) 8.6 9.1 13.3 0.9 138 122 147 7 32 6.4 6.4 50.3 1.4 2.3 10.2 1.31 0.9 5.1

FY12 14.3 9.5 4.3 3.1 (22.3) (35.7) (56.7) 4.4 4.6 5.7 0.6 282 262 342 19 99 2.9 2.92 49.9 1.6 1.5 22.5 1.32 1.1 8.0

FY13E
16.9 13.1 8.6 6.0

FY14E 16.6 12.9 8.4 5.9 3.6 1.8 1.1 7.3 7.5 13.0 0.7 275 287 365 18 97 7.6 7.628 61.5 1.6 2.8 8.6 1.07 1.0 5.8

16.2 42.2 129.2 13.0 13.6 20.7 0.6 115 91 139 7 55 8.9 8.9 45.8 0.8 3.2 7.4 1.44 1.5 8.6

32.1 55.6 158.8 7.9 8.0 14.3 0.7 232 232 320 18 107 7.5 7.549 55.7 1.5 2.9 8.7 1.18 0.9 5.3

Source: Company, Centrum Research Estimates, ^ FY11 financials is for 18 months period and hence, not comparable with SY09 and FY12 financials

Source: Company, Centrum Research Estimates, ^ FY11 financials is for 18 months period and hence, not comparable with SY09 and FY12 financials

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Appendix A
Disclaimer
Centrum Broking Limited (Centrum) is a full-service, Stock Broking Company and a member of The Stock Exchange, Mumbai (BSE) and National Stock Exchange of India Ltd. (NSE). Our holding company, Centrum Capital Ltd, is an investment banker and an underwriter of securities. As a group Centrum has Investment Banking, Advisory and other business relationships with a significant percentage of the companies covered by our Research Group. Our research professionals provide important inputs into the Group's Investment Banking and other business selection processes. Recipients of this report should assume that our Group is seeking or may seek or will seek Investment Banking, advisory, project finance or other businesses and may receive commission, brokerage, fees or other compensation from the company or companies that are the subject of this material/report. Our Company and Group companies and their officers, directors and employees, including the analysts and others involved in the preparation or issuance of this material and their dependants, may on the date of this report or from, time to time have "long" or "short" positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. Centrum or its affiliates do not own 1% or more in the equity of this company Our sales people, dealers, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. We may have earlier issued or may issue in future reports on the companies covered herein with recommendations/ information inconsistent or different those made in this report. In reviewing this document, you should be aware that any or all of the foregoing, among other things, may give rise to or potential conflicts of interest. We and our Group may rely on information barriers, such as "Chinese Walls" to control the flow of information contained in one or more areas within us, or other areas, units, groups or affiliates of Centrum. Centrum or its affiliates do not make a market in the security of the company for which this report or any report was written. Further, Centrum or its affiliates did not make a market in the subject companys securities at the time that the research report was published. This report is for information purposes only and this document/material should not be construed as an offer to sell or the solicitation of an offer to buy, purchase or subscribe to any securities, and neither this document nor anything contained herein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. This document does not solicit any action based on the material contained herein. It is for the general information of the clients of Centrum. Though disseminated to clients simultaneously, not all clients may receive this report at the same time. Centrum will not treat recipients as clients by virtue of their receiving this report. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Similarly, this document does not have regard to the specific investment objectives, financial situation/circumstances and the particular needs of any specific person who may receive this document. The securities discussed in this report may not be suitable for all investors. The securities described herein may not be eligible for sale in all jurisdictions or to all categories of investors. The countries in which the companies mentioned in this report are organized may have restrictions on investments, voting rights or dealings in securities by nationals of other countries. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Persons who may receive this document should consider and independently evaluate whether it is suitable for his/ her/their particular circumstances and, if necessary, seek professional/financial advice. Any such person shall be responsible for conducting his/her/their own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this document. The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections and forecasts were based will not materialize or will vary significantly from actual results, and such variances will likely increase over time. All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company. These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accented accounting principles. No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts. You should not regard the inclusion of the projections and forecasts described herein as a representation or warranty by or on behalf of the Company, Centrum, the authors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved. For these reasons, you should only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report, including the assumptions underlying such projections and forecasts. The price and value of the investments referred to in this document/material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance. Future returns are not guaranteed and a loss of original capital may occur. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. Centrum does not provide tax advice to its clients, and all investors are strongly advised to consult regarding any potential investment. Centrum and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Foreign currencies denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition, investors in securities such as ADRs, the value of which are influenced by foreign currencies effectively assume currency risk. 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This report or recommendations or information contained herein do/does not constitute or purport to constitute investment advice in publicly accessible media and should not be reproduced, transmitted or published by the recipient. The report is for the use and consumption of the recipient only. This publication may not be distributed to the public used by the public media without the express written consent of Centrum. This report or any portion hereof may not be printed, sold or distributed without the written consent of Centrum. This report has not been prepared by Centrum Securities LLC. However, Centrum Securities LLC has reviewed the report and, in so far as it includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. Neither Centrum nor its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. This document does not constitute an offer or invitation to subscribe for or purchase or deal in any securities and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. This document is strictly confidential and is being furnished to you solely for your information, may not be distributed to the press or other media and may not be reproduced or redistributed to any other person. The distribution of this report in other jurisdictions may be restricted by law and persons into whose possession this report comes should inform themselves about, and observe any such restrictions. By accepting this report, you agree to be bound by the fore going limitations. No representation is made that this report is accurate or complete. The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Broking and are given as of this date and are subject to change without notice. Any opinion estimate or projection herein constitutes a view as of the date of this report and there can be no assurance that future results or events will be consistent with any such opinions, estimate or projection.

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This document has not been prepared by or in conjunction with or on behalf of or at the instigation of, or by arrangement with the company or any of its directors or any other person. Information in this document must not be relied upon as having been authorized or approved by the company or its directors or any other person. Any opinions and projections contained herein are entirely those of the authors. None of the company or its directors or any other person accepts any liability whatsoever for any loss arising from any use of this document or its contents or otherwise arising in connection therewith. Centrum and its affiliates have not managed or co-managed a public offering for the subject company in the preceding twelve months. Centrum and affiliates have not received compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for service in respect of public offerings, corporate finance, debt restructuring, investment banking or other advisory services in a merger/acquisition or some other sort of specific transaction. As per the declarations given by him, Mr. Sanjeev Kumar Singh, research analyst and and/or any of his family members do not serve as an officer, director or any way connected to the company/companies mentioned in this report. Further, as declared by him, he has not received any compensation from the above companies in the preceding twelve months. Our entire research professionals are our employees and are paid a salary. They do not have any other material conflict of interest of the research analyst or member of which the research analyst knows of has reason to know at the time of publication of the research report or at the time of the public appearance. While we would endeavour to update the information herein on a reasonable basis, Centrum, its associated companies, their directors and employees are under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent Centrum from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or Centrum policies, in circumstances where Centrum is acting in an advisory capacity to this company, or any certain other circumstances Key to Centrum Investment Rankings:
Stock to Sector Sector to Market Outperform Stock to Market Buy Buy Accumulate Neutral Neutral Neutral Reduce Sell Sell

Outperform

Neutral Underperform Outperform

Neutral

Neutral Underperform Outperform

Underperform

Neutral Underperform

Accumulate: Add on decline; Reduce: Sell on rise Stock to Sector This is the relative rating of the stock to the sector and reflects its relative attractiveness vis--vis other coverage stocks in the sector. Sector to Market This is the relative rating of the sector vis--vis the other sectors in the coverage space. This is derived based on the conviction of the analyst on a sector and macro view outlined in market strategy. Stock to Market The final rating on the stock is obtained as a combination of the stock to sector and sector to market view as outlined in the table above.

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Member (NSE, BSE, MCX-SX), Depository Participant (CDSL) and SEBI registered Portfolio Manager Registration Nos. CAPITAL MARKET SEBI REGN. NO.: BSE: INB011454239, NSE: INB231454233 DERIVATIVES SEBI REGN. NO.: NSE: INF231454233 (TRADING & SELF CLEARING MEMBER) CDSL DP ID: 12200. SEBI REGISTRATION NO.: IN-DP-CDSL-661-2012 PMS REGISTRATION NO.: INP000000456 MCX SX (Currency Derivative segment) REGN. NO.: INE261454236 Website: www.centrum.co.in Investor Grievance Email ID: investor.grievances@centrum.co.in Compliance Officer Details: Mr. Praveen Malik; Tel: (022) 4215 9703; Email ID: praveen.malik@centrum.co.in

Centrum Broking Limited


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