balrampur chini - re-initiation - centrum 10082012

7/28/2019 Balrampur Chini - Re-Initiation - Centrum 10082012

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Please refer to important disclosures/disclaimers insideCentrum Equity Research is available on Bloomberg, Thomson Reuters and FactSet

Buy

Target Price: Rs80

CMP: Rs66*Upside: 22%

*as on 09 August 2012

In a Sweet spot; initiate with BuyBalrampur 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 toMaharashtra 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 increasein 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 declinein 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 andwe 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 workingcapital: 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 toincrease 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 higher-

than-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).

Key Data

Bloomberg Code BRCM IN

Reuters Code BACH.BOCurrent Shares O/S (mn) 244.3

Diluted Shares O/S(mn) 244.3

Mkt Cap (Rsbn/USDmn) 16.1/290.3

52 Wk H / L (Rs) 68/33

Daily Vol. (3M NSE Avg.) 1,474,831

Face Value (Rs) 1

USD = Rs55.1

Stock to Sector Outperform

Sector to Market Neutral

Shareholding Pattern

Public &

Others

30.0%

Institutions

13.0%Foreign

16.0%

Promoter

40.9%

As on 30 June 2012

One Year Indexed Stock Performance

40

50

60

70

80

90

100

110

Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12

BAL RAMPUR CH INI BSE SENSEX 30 INDEX Price Performance (%)

1M 6M 1Yr

BRCM 16.4 31.6 16.7

NIFTY (0.4) (1.1) 2.5

Source: Bloomberg, Centrum Research

*as on 09 August 2012

Sanjeev Kumar Singh

[email protected]

+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 1.31FY12 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 incrementalworking capital due to change in the accounting year

Sugar

Re-Initiation 10 August 2012

INDIA

Balrampur Chini Mills


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Balrampur Chini Mills2 Balrampur Chini Mills

Shareholding pattern (%)

Jun-12 Mar-12 Dec-11 Sept-11

Promoter 40.9 40.1 40.1 40.1

Foreign 16.0 15.0 14.6 18.8

Institutions 13.0 15.0 17.0 16.3

Public & Others 30.0 29.9 28.4 24.8Source: BSE

Company BackgroundBalrampur 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 organicmanure. 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 Capacity

Balrampur Balrampur, U.P

Sugar (TCD) 12,000

Power (MW) 24.55

Distillery (KLPD) 160

Organic Manure (MT) 30,000

Babhnan Gonda, U.P

Sugar (TCD) 10,000



Tulsipur Balrampur, U.P Sugar (TCD) 7,000

Haidergarh Barabanki, U.PSugar (TCD) 5,000

Power (MW) 23.25

Akbarpur Ambedkarnagar, U.PSugar (TCD) 7,500

Power (MW) 18

Rauzagaon Barabanki, U.PSugar (TCD) 8,000

Power (MW) 25.75

Mankapur Gonda, U.P

Sugar (TCD) 8,000

Power (MW) 34



Kumbhi Lakhimpur Kheri, U.P.Sugar (TCD) 8,000

Power (MW) 20

Gularia Lakhimpur Kheri, U.P Sugar (TCD) 8,000Power (MW) 31.3

Maizapur Gonda, U.P Sugar (TCD) 3,000

Source: Company, Centrum Research

Key events/timeline

1975 1990 1995 2000 2005 2010

1975: Incorporated as

Balrampur ChiniMills

Limited by taking over the

operations of the erstwhile

sugar factory of Balrampur

Sugar Company Limited in

East Uttar Pradesh.

1990:Acquired Babhnan

Sugar Mills Limited with a

capacity of 1,000 TCD.

1995: Diversified into

distillery operations at the

Balrampur unit through

the commissioning of a 60

klpddistillery.

1998:Acquired Tulsipur

Sugar Company Limited

with a capacity of

2,500 TCD.

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.

2003: Ventured into a

19.55 MW bagasse-based

power generation unit at

the Balrampurfacility.

2004:Set up distillery

operations at the Babhnan

unit, with a capacity of

60 klpd.

2005:Acquired the

Rauzagaonunit

from The Dhampur

Sugar Mills with a

sugarcane crushing

capacity of 7,500

TCD and co-

generation

capacity of 12 MW.

2005:Established an


sugar complex at

Akbarpurin East Uttar

Pradesh with a

sugarcane crushing


and co-generation

capacity of 18 MW.

2006:Set up an


sugar complex at

Mankapur in East

Uttar Pradesh with a

sugarcane crushing


and co-generation

capacity of 34 MW.

2006:Taken over the

management of

Maizapur ChiniMills a

unit of Balrampur

ChiniMills Limited.

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.


Greenfield sugar complex at

Gulariain Central UP with

sugarcane crushing capacity of

8000 TCD and cogeneration


1975 1990 1995 2000 2005 2010

1975: Incorporated as

Balrampur ChiniMills

Limited by taking over the

operations of the erstwhile

sugar factory of Balrampur

Sugar Company Limited in

East Uttar Pradesh.

1990:Acquired Babhnan

Sugar Mills Limited with a

capacity of 1,000 TCD.

1995: Diversified into

distillery operations at the

Balrampur unit through

the commissioning of a 60

klpddistillery.

1998:Acquired Tulsipur

Sugar Company Limited

with a capacity of

2,500 TCD.

2003:Set up an


sugar complex at

Haidergarh in East Uttar

Pradesh with a

sugarcane crushing


and co-generation


2003: Ventured into a

19.55 MW bagasse-based

power generation unit at

the Balrampurfacility.

2004:Set up distillery

operations at the Babhnan

unit, with a capacity of

60 klpd.

2005:Acquired the

Rauzagaonunit

from The Dhampur

Sugar Mills with a

sugarcane crushing

capacity of 7,500

TCD and co-

generation

capacity of 12 MW.

2005:Established an


sugar complex at

Akbarpurin East Uttar

Pradesh with a

sugarcane crushing


and co-generation

capacity of 18 MW.

2006:Set up an


sugar complex at

Mankapur in East

Uttar Pradesh with a

sugarcane crushing


and co-generation

capacity of 34 MW.

2006:Taken over the

management of

Maizapur ChiniMills a

unit of Balrampur

ChiniMills Limited.


Greenfield sugar

complex at Kumbhi in

Central UP with

sugarcane crushing

capacity of 8000 TCD

and cogeneration

capacity of 20 MW.


Greenfield sugar complex at

Gulariain Central UP with

sugarcane crushing capacity of

8000 TCD and cogeneration


Key management personnel

Name Position

Kamal Nayan Saraogi Chairman Emeritus

Naresh Chandra Chairman

Vivek Saraogi Managing Director

Meenakshi Saraogi Joint Managing Director

Kishor Shah Director- cum- Chief Financial Officer


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Investment Rationale

BCML will benefit from higher sugarcane production (sugarcaneproduction 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.

Higher sugar crushing will drive increased revenues from Powerbusiness and distillery.

Higher production coupled with our expectation of better pricing leadby expected decline in the inventory levels for the industry is likely to

drive earnings CAGR of 61.7% over FY12-FY14E for the company.

Plant locations of BCML

Tulsipur

Balrampur

Mankapur

AkbarpurHaidergarh

Rauzagaon

Maizapur

Babhnan

Kumbhi

Gularia

Tulsipur

Balrampur

Mankapur

AkbarpurHaidergarh

Rauzagaon

Maizapur

Babhnan

Kumbhi

Gularia

Summary FinancialsKey Income Statement SY09 FY11* FY12 FY13E FY14E

Revenue 17,000 29,724 23,095 30,513 31,609

YoY growth (%) 16.2 74.8 (22.3) 32.1 3.6

EBITDA 4,569 5,140 3,306 5,143 5,233

YoY growth (%) 42.2 12.5 (35.7) 55.6 1.8

EBITDA margin (%) 26.9 17.3 14.3 16.9 16.6

Depreciation 1,079 1,681 1,108 1,150 1,157

Interest expenses 1,083 1,486 1,474 1,391 1,449

Other non operating income 89 282 277 33 36

PBT 2,407 1,973 724 2,602 2,627

Provision for tax 231 611 12 790 799

PAT (adjusted) 2,281 1,644 713 1,844 1,864

YoY growth (%) 129.2 (27.9) (56.7) 158.8 1.1

PAT margin 13.4 5.5 3.1 6.0 5.9Key CF Statement

Cash generated from operations 6,416 (6,187) 1,950 920 (751)

Cash flow from investing activities (231) (1,266) (554) (183) (125)

Cash flow from financing activities (4,987) 7,448 (2,834) (703) 923

Net cash increase/decrease 1,197 (5) (1,437) 33 47

Key Balance Sheet Data

Shareholders' fund 11,751 12,892 12,179 13,601 15,037

Debt 9,720 20,067 19,755 20,866 23,666

Deferred Tax 2,039 2,248 2,245 2,245 2,245

Total Capital Employed 23,510 35,207 34,179 36,711 40,947

Fixed Assets 17,766 17,158 16,127 15,125 14,118

Investments 1,266 36 442 442 442

Net current assets 4,469 18,009 17,606 21,140 26,383

Total Assets 23,510 35,207 34,179 36,711 40,947Key Ratio (%)

ROCE 13.0 8.6 4.4 7.9 7.3

ROIC 13.6 9.1 4.6 8.0 7.5

ROE 20.7 13.3 5.7 14.3 13.0

Per share Ratios (Rs)

Fully diluted EPS 8.9 6.4 2.9 7.5 7.6

Book value 45.8 50.3 49.9 55.7 61.5

Solvency Ratio (x)

Debt-equity 0.8 1.4 1.6 1.5 1.6

Interest coverage ratio 3.2 2.3 1.5 2.9 2.8

Valuation parameters(x)

P/E (Fully Diluted) 7.4 10.2 22.5 8.7 8.6

P/BV 1.44 1.31 1.32 1.18 1.07

EV/Sales 1.5 0.9 1.1 0.9 1.0

EV/EBITDA 8.6 5.1 8.0 5.3 5.8

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


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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 tillJanuary 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

16.216.8

18.4

17.3

18.5 18.5

19.9

21.9

22.9

21.320.8

22.022.8

23.7

12

15

18

21

24

27

SY01

SY02

SY03

SY04

SY05

SY06

SY07

SY08

SY09

SY10

SY11

SY12E

SY13E

SY14E

(Mn Tonnes)

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. Theinventory 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 inSY13E, 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


5/22


(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 notpose 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 IndiaParticulars SY02 SY03 SY04 SY05 SY06 SY07 SY08 SY09 SY10 SY11 SY12E SY13E SY14E

Opening Stock 10.7 11.3 11.6 8.5 4.0 4.3 11.0 10.5 4.4 5.0 5.8 7.2 7.2

% increase/ (decrease) 14.2 6.1 2.6 (26.8) (52.9) 7.5 155.8 (4.5) (58.4) 14.1 16.1 25.2 25.2

Production 18.5 20.1 14.0 12.7 19.3 28.3 26.4 14.5 18.9 24.4 26.0 24.0 25.5

% increase/ (decrease) 0.1 8.7 (30.5) (9.3) 51.8 47.0 (7.0) (44.8) 30.1 29.0 6.6 (7.7) 6.1

Imports 0.0 0.0 0.4 2.1 0.0 0.0 0.0 2.4 4.1 0.0 0.0 0.0 0.0

Total availability 29.2 31.5 26.0 23.3 23.3 32.6 37.4 27.4 27.4 29.4 32.0 30.5 31.1

% increase/ (decrease) 4.8 7.9 (17.4) (10.3) (0.3) 40.2 14.5 (26.5) (0.3) 7.4 9.0 (4.7) 2.0

Domestic Consumption 16.8 18.4 17.3 18.5 18.5 19.9 21.9 22.9 21.3 20.8 22.0 22.8 23.7

% increase/ (decrease) 3.6 9.6 (6.0) 7.0 0 7.6 10.1 4.6 (6.9) (2.6) 3.8 3.8 3.8

Exports 1.1 1.5 0.2 0.0 1.1 1.7 5.0 0.2 0.2 2.6 3.5 2.0 2.0

Total consumption (domestic + imports) 17.9 19.9 17.5 18.5 19.6 21.6 26.9 23.1 21.5 23.4 25.5 24.8 25.7

% increase/ (decrease) 4.0 11.2 (11.9) 5.7 6.0 10.3 24.2 (14.1) (6.6) 8.5 9.1 (2.6) 3.5Closing Stock 11.3 11.6 8.5 4.8 3.7 11.0 10.5 4.4 5.8 6.0 6.5 5.7 5.4

% increase/ (decrease) 6.1 2.6 (26.8) (43.2) (24.1) 200.5 (4.5) (58.4) 33.2 3.3 8.3 (13.0) (4.5)

Average monthly domestic consumption 1.5 1.7 1.5 1.5 1.6 1.8 2.2 1.9 1.8 1.9 2.1 2.1 2.1

% increase/ (decrease) 4.0 11.2 (11.9) 5.7 6.0 10.3 24.2 (14.1) (6.6) 8.5 9.1 (2.6) 3.5

Closing stock as months' consumption 7.6 7.0 5.8 3.1 2.2 6.1 4.7 2.3 3.2 3.1 3.1 2.7 2.5

% increase/ (decrease) 2.1 (7.7) (16.9) (46.3) (28.4) 172.5 (23.1) (51.6) 42.6 (4.7) (0.7) (10.7) (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 sugarto 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.


6/22


Exhibit 3: Inventory level to decline post SY12E Exhibit 4:Continuous decline in stock-to-use ratio

10.711.3 11.6

8.5

4.83.7

11.0 10.5

4.4

5.8 6.06.5

5.7 5.4

2.0

5.0

8.0

11.0

14.0

SY01

SY02

SY03

SY04

SY05

SY06

SY07

SY08

SY09

SY10

SY11

SY12E

SY13E

SY14E

(MT)

0

10

20

3040

50

60

70

SY01

SY02

SY03

SY04

SY05

SY06

SY07

SY08

SY09

SY10

SY11

SY12E

SY13E

SY14E

(%)

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 SY07and 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

(30)

(15)0

15

30

45

60

(140)

(70)0

70

140

210

280

SY05

SY06

SY07

SY08

SY09

SY10

SY11

SY12E

SY13E

SY14E

(%)(%)

Closing stock (inc/dec) Mumbai price (inc/dec)

16.2 16.8

18.417.3

18.5 18.5

19.9

21.922.9

21.320.8

22.022.8

23.7

12

15

18

21

24

27

SY01

SY02

SY03

SY04

SY05

SY06

SY07

SY08

SY09

SY10

SY11

SY12E

SY13E

SY14E

(Mn Tonnes)

Source: ISMA, Industry, Centrum Research Estimates Source: ISMA, Industry, Centrum Research Estimates


7/22


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 estimatesSugar supply dynamics SY02 SY03 SY04 SY05 SY06 SY07 SY08 SY09 SY10 SY11 SY12E SY13E SY14E

Crop acreage (mn hectares) 4.4 4.5 3.9 3.7 4.2 5.2 5.1 4.4 4.2 4.95.1 5.1 5.1

YoY change (%) 2.1 2.5 (13.1) (6.9) 14.8 22.6 (1.7) (12.7) (5.4) 17.0 4.0 0.0 0.0

Crop yield (tonne/hectare) 67.4 63.6 59.4 64.8 66.9 69.0 68.9 64.6 70.0 70.1 70.1 67.5 70.0

YoY change (%) (1.8) (5.6) (6.6) 9.0 3.4 3.1 (0.2) (6.3) 8.5 0.1 0.0 (3.7) 3.7

Sugarcane production (mt) 297.2 287.4 233.9 237.1 281.2 355.5 348.2 285.0 292.3 342.4 356.1 343.0 355.7

YoY change (%) 0.4 (3.3) (18.6) 1.4 18.6 26.4 (2.1) (18.1) 2.6 17.1 4.0 (3.7) 3.7

Non-sugar usage of sugarcane 116.9 92.5 101.3 112.3 92.5 77.7 92.7 140.1 97.0 102.5 100.1 102.9 103.1

YoY change (%) (2.1) (20.8) 9.5 10.8 (17.6) (16.0) 19.2 51.1 (30.7) 5.7 (2.4) 2.8 0.2

% of cane used for drawal 60.7 67.8 56.7 52.6 67.1 78.1 73.4 50.9 66.8 70.1 71.9 70.0 71.0

% of cane used for non-sugar purpose 39.3 32.2 43.3 47.4 32.9 21.9 26.6 49.1 33.2 30.0 28.1 30.0 29.0

Sugarcane used for sugar production 180.3 194.9 132.5 124.8 188.7 277.8 255.5 145.0 195.3 239.8 256.0 240.1 252.5

YoY change (%) 2.1 8.0 (32.0) (5.9) 51.2 47.2 (8.0) (43.3) 34.7 22.8 6.8 (6.2) 5.2

Recovery rate (%) 10.3 10.3 10.6 10.2 10.2 10.2 10.3 10.0 9.7 10.2 10.2 10.0 10.1

Sugar production (mt) 18.5 20.1 14.0 12.7 19.3 28.3 26.4 14.5 18.9 24.4 26.0 24.0 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

2.25.2

9.17.0

7.8

2.5

2.93.0

4.2

4.93.7

6.23.2

9.14.6 7.1

9.1 9.0

5.7

4.6 5.0

5.8

8.5 7.3

5.25.9 7.0

4.1

1.6

0.9 1.1

2.1

2.52.1

1.3

1.6 1.8

1.6

1.9

1.1 1.0

1.9

2.7

1.7

3.6

2.6

3.74.8

3.8 3.3

5.6

2.6

2.8

4.24.5

0

6

12

18

24

30

SY03

SY04

SY05

SY06

SY07

SY08

SY09

SY10

SY11

SY12E

SY13E

(Mn tonnes)

Maharastra Uttar Pradesh Tamilnadu Karnataka Others

Source: ISMA, Centrum Research Estimates


8/22


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 producemore 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

8.1 4.8 5.4 6.9 8.5 9.3 10.1

9.4

9.1

10.2

9.4 9.49.5 9.4

0

2

4

6

8

10

12

SY08 SY09 SY10 SY11 SY12 SY13E SY14E

(MT)

8.4

8.7

9.0

9.3

9.6

9.9

10.2

10.5

(%)

Sugarcane crushed Recovery rate (RHS)

Source: Company, Centrum Research Estimates

Higher sugarcane crushing in SY13E and SY14E would enable the company produce more sugar. Weexpect 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

0.82

0.440.50

0.65

0.810.88

0.95

0.00

0.18

0.36

0.54

0.72

0.90

1.08


(MT)



9/22


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

0.74

0.66

0.83

0.67

0.83 0.81

0.00

0.25

0.50

0.75

1.00

SY08 SY09 FY11 FY12 FY13E FY14E

(MT)


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 andAugust 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

273263

251

216

153

241

121

57.5

3.84.4

16.4

(10.4)(11.0)

26.4

0

50

100

150

200

250

300


(Rs/qunital)

(20)

(5)

10

25

40

55

70(%)

Sugarcane cost YoY growth (RHS)



10/22


Power business too will add to revenues and bottom-line

Higher sugarcane crushing would result in higher production of bagasse, which is used in co-

generation 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 FY14Eagainst Rs4.02/unit in FY12.

Exhibit 13:Increase in power sales volume in FY13E and FY14E

609568530710360577

4.24.14.14.1

3.5

3.0

0

100

200300

400

500

600

700

800


(Mn units)

0

1

2

3

4

5

(Rs/kwh)

Power sales Realization/kwh (RHS)


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

87 51 63 55 70 70

21.4

26.126.7

25.1

27.727.7

0

20

40

60

80

100


(Mn/litres)

15

18

21

24

27

30(Rs/litre)

Disti llery sales Realization/litre (RHS)



11/22


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

75.884.0 83.1 81.5 83.3 83.1

12.07.6 5.6 6.6 7.0 6.8

11.2 7.0 9.9 9.1 7.4 7.81.0 1.4 1.4 2.8 2.3 2.4

0

20

40

60

80

100

SY08 SY09 FY11E FY12E FY13E FY14E

(%)

Sugar Distillery Power Others


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. Closinginventory 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

0.810.680.640.510.090.320.240.08

1.5

3.1

4.6

2.5

4.9

9.5 9.410.3

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

SY06 SY07 SY08 SY09 FY11 FY12 FY13E FY14E

(MT)

0

2

4

6

8

10

12

(Months)

Sugar Inventory Inventory as months of production (RHS)



12/22


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

1.3

0.8

1.4

1.61.5 1.6

1.3

0.8 0.80.9

0.8 0.8

0.3

0.6

0.9

1.2

1.5

1.8

SY08 SY09 FY11* FY12 FY13E FY14E

(x)

D/E Adj (for working capital) D/E



13/22


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 highlysensitive 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 Exhibit 19:1 year forward EV/EBITDA Band

0.0

1.7

3.5

5.2

7.0

Apr-02

Apr-03

Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Apr-12

(x)

Act ual P/BV Mean P/BV Median P/BV

0

9

18

27

36

45

Apr-02

Apr-03

Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Apr-12

(x)

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 Exhibit 21: year forward EV/Sales Band

0

1

2

3

4

Apr-0

2

Apr-0

3

Apr-0

4

Apr-0

5

Apr-0

6

Apr-0

7

Apr-0

8

Apr-0

9

Apr-1

0

Apr-1

1

Apr-1

2

(x)

Actual MCap/Sales Mean MCap/Sales Median MCap/Sales

0

1

2

3

4

Apr-0

2

Apr-0

3

Apr-0

4

Apr-0

5

Apr-0

6

Apr-0

7

Apr-0

8

Apr-0

9

Apr-1

0

Apr-1

1

Apr-1

2

(x)

Actual EV/Sales Mean EV/Sales Median EV/Sales Source: Capitaline, Company, Centrum Research Estimates Source Capitaline, Company, Centrum Research Estimates


14/22


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

0

5,000

10,000

15,000

20,000

25,000

30,000


(Rsmn)

Revenue EBITDA PAT


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 isexpected 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.


15/22


Exhibit 23:Margins are expected to improve post FY12

22.0

26.9

17.314.3

16.9 16.6

13.9

20.5

11.69.5

13.1 12.9

6.8

13.4

5.5

3.1

6.0 5.9

0

5

10

15

20

25

30


(%)

EBITDA EBIT PAT


With our expectation of improvement in profit at a CAGR of 61.7% between FY12-FY14E, we expectRoE 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

10.5

20.7

13.3

5.7

14.313.0

6.7

13.0

8.6

4.4

7.9 7.3

0

5

10

15

20

25


(%)

RoE RoCE


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


16/22


Key operational matrix

Exhibit 25:Key assumptionsY/E March Unit FY13E FY14E

Revenue

Sugarcane crushed ('000 tones) 9,309 10,054

Sugar production-cane ('000 tones) 875 945

Total sugar production ('000 tones) 875 945

Sugar sale ('000 tones) 833 813

Inventory ('000 tones) 682 813

Sugar price (ex excise - free sale) Rs/tonne 32,000 34,000

Sugar price (ex excise - levy sale) Rs/tonne 18,520 18,520

Sugar price (average-incl. excise) Rs/tonne 31,569 33,369

Sugar revenue Rs mn 26,310 27,145

Alcohol sale KL 70,000 70,000

Alcohol price (Blended) Rs/KL 27,700 27,700

Distillery revenue Rs mn 2,219 2,219

Power sales mn units 568 609

Power price Rs/unit 4.1 4.2

Power revenue Rsmn 2,323 2,534

Molasses revenue Rsmn 244 262

Other revenue Rsmn 476 514

Total revenue Rsmn 31,572 32,674

Excise duty Rsmn 1,059 1,065

Net revenue Rsmn 30,513 31,609

EBITDA

Sugar Rsmn 2,797 2,802

Alcohol Rsmn 841 761

Power Rsmn 1,249 1,394

Molasses Rsmn 81 87

Others Rsmn 476 514

Total EBITDA Rsmn 5,444 5,559

Less: Corporate overheads Rsmn 302 326

EBITDA Rsmn 5,143 5,233

Margin % 16.9 16.6

Revenue Mix

Sugar % 83.3 83.1

Alcohol % 7.0 6.8

Power % 7.4 7.8

Others % 2.3 2.4



17/22


Sensitivity Analysis on EBITDA

Exhibit 26:FY13ESugar realization/tonne

Sugarcane cost 29,000 30,000 31,000 32,000 33,000 34,000 35,000

2,400 3,201 3,951 4,701 5,451 6,201 6,951 7,7012,450 3,098 3,848 4,598 5,348 6,098 6,848 7,598

2,500 2,995 3,745 4,495 5,245 5,995 6,745 7,496

2,550 2,892 3,642 4,392 5,143 5,893 6,643 7,393

2,600 2,790 3,540 4,290 5,040 5,790 6,540 7,290

2,650 2,687 3,437 4,187 4,937 5,687 6,437 7,187

2,700 2,584 3,334 4,084 4,834 5,584 6,334 7,084



Sugarcane cost 31,000 32,000 33,000 34,000 35,000 36,000 37,000

2,500 3,246 3,979 4,711 5,443 6,175 6,907 7,6392,550 3,176 3,909 4,641 5,373 6,105 6,837 7,569

2,600 3,106 3,839 4,571 5,303 6,035 6,767 7,499

2,650 3,036 3,769 4,501 5,233 5,965 6,697 7,429

2,700 2,966 3,699 4,431 5,163 5,895 6,627 7,359

2,750 2,896 3,629 4,361 5,093 5,825 6,557 7,289

2,800 2,826 3,559 4,291 5,023 5,755 6,487 7,219


Sensitivity Analysis on PAT


Sugarcane cost 29,000 30,000 31,000 32,000 33,000 34,000 35,000

2,400 461 1,007 1,553 2,098 2,644 3,190 3,736

2,450 376 922 1,468 2,014 2,559 3,105 3,651

2,500 292 837 1,383 1,929 2,475 3,021 3,566

2,550 207 753 1,299 1,844 2,390 2,936 3,482

2,600 122 668 1,214 1,760 2,305 2,851 3,397

2,650 38 583 1,129 1,675 2,221 2,766 3,312

2,700 (47) 499 1,044 1,590 2,136 2,682 3,228



Sugarcane cost 31,000 32,000 33,000 34,000 35,000 36,000 37,000

2,500 470 1,002 1,535 2,068 2,600 3,133 3,666

2,550 406 939 1,472 2,005 2,537 3,070 3,603

2,600 343 876 1,409 1,941 2,474 3,007 3,540

2,650 280 813 1,346 1,878 2,411 2,944 3,476

2,700 217 750 1,283 1,815 2,348 2,881 3,413

2,750 154 687 1,219 1,752 2,285 2,818 3,350

2,800 91 624 1,156 1,689 2,222 2,754 3,287



18/22


Sensitivity Analysis on RoE (%)


Sugarcane cost 29,000 30,000 31,000 32,000 33,000 34,000 35,000

2,400 3.7 8.0 12.2 16.2 20.0 23.8 27.42,450 3.1 7.4 11.5 15.5 19.4 23.2 26.9

2,500 2.4 6.7 10.9 14.9 18.8 22.6 26.3

2,550 1.7 6.0 10.2 14.3 18.2 22.1 25.7

2,600 1.0 5.4 9.6 13.7 17.6 21.5 25.2

2,650 0.3 4.7 9.0 13.1 17.0 20.9 24.6

2,700 (0.4) 4.0 8.3 12.4 16.4 20.3 24.0



Sugarcane cost 31,000 32,000 33,000 34,000 35,000 36,000 37,000

2,500 3.4 7.2 10.8 14.4 17.8 21.2 24.42,550 3.0 6.7 10.4 13.9 17.4 20.8 24.0

2,600 2.5 6.3 10.0 13.5 17.0 20.4 23.7

2,650 2.0 5.8 9.5 13.1 16.6 20.0 23.3

2,700 1.6 5.4 9.1 12.7 16.2 19.6 22.9

2,750 1.1 5.0 8.7 12.3 15.8 19.2 22.5

2,800 0.7 4.5 8.2 11.9 15.4 18.8 22.1



19/22

19Balrampur Chini Mills19 Balrampur Chini Mills

Financials

Exhibit 32:Income StatementY/E Sep (Rsmn) SY09 FY11^ FY12 FY13E FY14E

Net Sales 17,000 29,724 23,095 30,513 31,609

Cost of goods sold 11,820 22,779 18,631 24,529 25,499% of sales 69.5 76.6 80.7 80.4 80.7

Gross Profit 5,181 6,945 4,465 5,984 6,110

% of sales 30.5 23.4 19.3 19.6 19.3

Staff cost 361 671 471 469 497

Other operating expenses 250 1,134 688 372 380

EBIDTA 4,569 5,140 3,306 5,143 5,233

EBIDTA margin (%) 26.9 17.3 14.3 16.9 16.6

Depreciation 1,079 1,681 1,108 1,150 1,157

EBIT 3,490 3,459 2,198 3,993 4,076

Interest expenses 1,083 1,486 1,474 1,391 1,449

PBT from operations 2,407 1,973 724 2,602 2,627

Other non operating income 89 282 277 33 36

PBT 2,496 2,255 1,001 2,635 2,662

PBT margin (%) 14.7 7.6 4.3 8.6 8.4

Provision for tax 231 611 12 790 799

Effective tax rate (%) 9.3 27.1 14.8 30.0 30.0

Reported PAT 2,265 1,644 66 1,844 1,864

Adjusted PAT 2,281 1,644 713 1,844 1,864

Net profit margin (%) 13.4 5.5 3.1 6.0 5.9


Exhibit 33:Balance SheetY/E Sep (Rsmn) SY09 FY11^ FY12 FY13E FY14E

Share capital 257 256 244 244 244

Reserves & surplus 11,494 12,635 11,935 13,356 14,793

Total shareholder's fund 11,751 12,892 12,179 13,601 15,037

Loan fund 9,720 20,067 19,755 20,866 23,666

Deferred tax liability 2,039 2,248 2,245 2,245 2,245

Total capital employed 23,510 35,207 34,179 36,711 40,947Gross block 23,745 25,006 25,117 25,306 25,456

Accumulated depreciation 6,044 7,907 8,992 10,199 11,356

Net Block 17,701 17,099 16,125 15,107 14,100

Capital WIP 65 59 2 18 18

Investments 1,266 36 442 442 442

Cash and bank 330 1,562 115 148 195

Inventories 3,434 14,913 19,978 23,028 28,029

Debtors 171 899 1,470 1,565 1,621

Other CA & Loans & Adv. 3,110 3,544 3,858 4,299 4,713

Total current assets & loans 7,045 20,918 25,420 29,039 34,558

Current liabilities & provisions 2,576 2,909 7,815 7,899 8,175

Net current assets 4,469 18,009 17,606 21,140 26,384

Total assets 23,510 35,207 34,179 36,711 40,947

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

and FY12 financials

Exhibit 34:Cash flowY/E Sep (Rsmn) SY09 FY11^ FY12 FY13E FY14E

Cash flow from operating

PBT 2,496 2,255 1,001 2,635 2,662Depreciation 1,079 1,681 1,108 1,150 1,157

Interest expenses 969 1,391 1,323 1,380 1,436

Other charges 155 274 31 - -

Operating profit bef. WC Chg 4,700 5,601 3,463 5,165 5,255

Working capital adjustments 2,117 (11,569) (409) (3,454) (5,207)

Less: Direct taxes paid (401) (219) (180) (790) (799)

Net cash from operating 6,416 (6,187) 1,950 920 (751)

Cash flow from investing

Capex (81) (534) (95) (205) (150)

Investments (261) (789) (639) - -

Int. and dividend recd. 111 57 181 22 25

Net cash from investing (231) (1,266) (554) (183) (125)

Cash flow from financing

Proceeds from sh. Cap 55 (193) (770) 0 -

Borrowings/(Repayments) (3,789) 10,082 (312) 1,111 2,800

Interest paid (1,104) (1,533) (1,539) (1,391) (1,449)

Dividend paid (149) (907) (213) (423) (427)

Net cash from financing (4,987) 7,448 (2,834) (703) 923

Net cash increase/(decrease) 1,197 (5) (1,437) 33 47


Exhibit 35:Key RatiosY/E Sep SY09 FY11^ FY12 FY13E FY14E

Profitability ratios (%)

EBIDTA margin 26.9 17.3 14.3 16.9 16.6

PBIT margin 20.5 11.6 9.5 13.1 12.9

PBT margin 14.7 7.6 4.3 8.6 8.4

PAT margin 13.4 5.5 3.1 6.0 5.9

Growth (%)Revenue 16.2 74.8 (22.3) 32.1 3.6

EBIDTA 42.2 12.5 (35.7) 55.6 1.8

Net profit 129.2 (27.9) (56.7) 158.8 1.1

Return ratios (%)

ROCE 13.0 8.6 4.4 7.9 7.3

ROIC 13.6 9.1 4.6 8.0 7.5

ROE 20.7 13.3 5.7 14.3 13.0

Turnover Ratios

Asset turnover ratio (x) 0.6 0.9 0.6 0.7 0.7

Working capital cycle (days) 115 138 282 232 275

Cash conversion cycle (days) 91 122 262 232 287

Average Inventory days 139 147 342 320 365

Average collection days 7 7 19 18 18

Average payment days 55 32 99 107 97

Per share (Rs)

Basic EPS 8.9 6.4 2.9 7.5 7.6

Fully diluted EPS 8.9 6.4 2.92 7.549 7.628

Book value 45.8 50.3 49.9 55.7 61.5

Solvency Ratio (x)

Debt-equity 0.8 1.4 1.6 1.5 1.6

Interest coverage ratio 3.2 2.3 1.5 2.9 2.8

Valuation (x)

P/E 7.4 10.2 22.5 8.7 8.6

P/BV 1.44 1.31 1.32 1.18 1.07

EV/Sales 1.5 0.9 1.1 0.9 1.0

EV/EBIDTA 8.6 5.1 8.0 5.3 5.8

Source: Company, Centrum Research Estimates, FY11 financials is for 18 months

period and hence, not comparable with SY09 and FY12 financials


20/22


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 professionalsprovide 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

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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. Allprojections 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 accountantshave 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 orforecasts or their underlying assumptions will be achieved. For these reasons, you should only consider the projections and forecasts described in this report after

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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.


21/22


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 orat 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

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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 Stock to Market

Outperform

Outperform Buy

Neutral Buy

Underperform Accumulate

Neutral

Outperform Neutral

Neutral Neutral

Underperform Neutral

Underperform

Outperform Reduce

Neutral Sell

Underperform Sell

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.


22/22

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: [email protected]

Compliance Officer Details:

Mr. Praveen Malik; Tel: (022) 4215 9703; Email ID: [email protected]

Centrum Broking LimitedRegistered Office Address

Bombay Mutual Building ,

2nd Floor,

Dr. D. N. Road,

Fort, Mumbai - 400 001

Correspondence Address

Centrum House

6th Floor, CST Road, Near Vidya Nagari Marg, Kalina,

Santacruz (E), Mumbai 400 098.

Tel: (022) 4215 9000

balrampur chini - re-initiation - centrum 10082012

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