Balrampur Chini gains 4%; hits record high on strong business outlook

Wiith a favourable mix of ethanol towards B-heavy/ juice (feedstock) coupled with higher sugar realisations; operating margins of sugar companies are expected to improve.

Shares of Balrampur Chini Mills (BCML) hit a record high of Rs 462, as they rallied 4 per cent on the BSE in Thursday’s intra-day trade on strong business outlook. With a favourable mix of ethanol towards B-heavy/juice (feedstock) coupled with higher sugar realisations; operating margins of sugar companies are expected to improve.

The stock of sweetener surpassed its previous high of Rs 459.25 on January 20, 2022. In the past two weeks, the stock has surged 23 per cent, as against a 3.3 per cent rise on the S&P BSE Sensex. In the last three months, the stock has outperformed the market by surging 37 per cent, as compared to 4.6 per cent decline on the benchmark index.

The sugar industry is on the cusp of a mega transformation and has emerged as a potent driver of clean energy, driving India's shift to renewable energy faster than ever. Ethanol demand should grow at a 15 per cent CAGR over FY22-30E driven by the government's mandate of 20 per cent ethanol-blending in petrol.

Meanwhile, for October-December quarter (Q3FY22), BCML reported healthy set of numbers with 13 per cent year-on-year (YoY) sales growth at Rs 1,212 crore, aided by sugar & ethanol realisations inspite of lower sugar volumes. Earnings before interest, taxes, depreciation, and amortization (EBITDA) was up 174 per cent YoY at Rs 99.8 crore, with margins at 8.2 per cent. Profit after tax (PAT) more-than-doubled or up 138 per cent YoY at Rs 64.1 crore.

The company believes it would be able to reach higher crushing levels of sugar season 2019-20 in next crushing season, which would help the company to divert additional sugarcane for the production of ethanol through sugarcane juice route in Maizapur & Balrampur distillery.

Though BCML has been facing an issue of sugarcane availability in the last two years, analyst at ICICI Securities believe the company has been able to source additional sugarcane from surrounding sugar mills. The company would be commissioning its 320 KLD Maizapur distillery & expanding Balrampur distillery capacity by 170 KLP by November 2022, which would take its distillery capacity to 35 crore litre from current 19 crore litre.

“We continue to maintain that BCML is the most efficient sugar company with strong track record for shareholder’s payout. We maintain our positive stance on the company,” the brokerage firm said with maintain BUY recommendation on the stock and target price of Rs 600 per share.