Balrampur Chini Mills soars 8%, hits record high on share buyback plan

Shares of Balrampur Chini Mills moved higher by 8 per cent to hit a record high of Rs 376.75 on the BSE in the intra-day trade on Thursday after the company announced its share buyback plan. The stock of the sweetener surpassed its previous high of Rs 370, touched on June 29, 2021.

"The board of directors of Balrampur Chini Mills is scheduled to meet on Monday, August 9, 2021, to consider buyback of equity shares of the Company and matters related/ incidental thereto," the company said in an exchange filing today. The board will also consider the financial results of the Company for the quarter ended June 30, 2021 (Q1FY22), the company said.

As on June 30, 2021, the promoter group held 41.21 per cent stake in Balrampur Chini Mills. The remaining 58.79 per cent holdings are with the foreign portfolio investors (20.79 per cent), individual shareholders (17.07 per cent) and mutual funds (13.87 per cent), shareholding pattern data shows.

In the past four consecutive calendar years, Balrampur Chini Mills had bought back shares from its shareholders. Buyback is a corporate action in which a company buysback its shares from the existing shareholders usually at a price higher than market price. When it buys back, the number of shares outstanding in the market reduces.

A buyback allows companies to invest in themselves. By reducing the number of shares outstanding on the market, buybacks increase the proportion of shares a company owns. The reasons for buyback are to improve earnings per share; to improve return on capital, return on net worth and to enhance the long-term shareholder value; to provide an additional exit route to shareholders when shares are under-valued or are thinly traded; to enhance consolidation of stake in the company; to prevent unwelcome takeover bids; to return surplus cash to shareholders; to achieve optimum capital structure; to support share price during periods of sluggish market conditions and to service the equity more efficiently.

In the past six months, the market price of Balrampur Chini Mills has zoomed nearly 120 per cent on improved outlook. In comparison, the S&P BSE Sensex was up 13.9 per cent during the same period.

The sugar sector has seen a turnaround from being a cyclical to a structural growth sector backed by government’s aggressive ethanol blending programme. With the massive increase in distillery capacities by sugar companies, ethanol sales are likely to double for most of sugar companies.

Analysts at ICICI Securities believe ethanol sales would contribute 25-30 per cent to revenues of major sugar companies by FY24. Moreover, reducing sugar inventories in the system are likely to push domestic sugar prices upwards. Both these factors would boost earnings for sugar companies in the next three years, the brokerage firm said.