Sugar stocks in focus; Balrampur Chini gains 3% as share buyback commences

The board of directors of Balrampur Chini on November 9 had approved Rs 145.44 crore share buyback at Rs 360 per share through the open market route.

Shares of Balrampur Chini Mills traded 2 per cent higher at Rs 355 on the BSE in Wednesday’s intra-day trade on commencement of share buyback today. The stock of sweetener quoted higher for the third straight day, and has surged 8 per cent during the period.

The board of directors of Balrampur Chini at their meeting held on November 9 had approved Rs 145.44 crore share buyback at Rs 360 per share through the open market route.

The company believes that the buyback will create long term value for shareholders. The buyback is not likely to cause any material impact on the profitability/ earnings of the company except a reduction in the investment income, which the company could have otherwise earned on the amount distributed towards the buyback, Balrampur Chini said.

The buyback will not in any manner impair the ability of the company to pursue growth opportunities or meet its cash requirements for business operations and for continued capital investment, as and when required, it added.

Despite of run-up in past three trading days, in the past six months Balrampur Chini has underperformed the market by falling 14 per cent, as compared to 17 per cent rally in the S&P BSE Sensex.

Meanwhile, analyst at ICICI Securities has ‘Buy’ rating on Balrampur Chini with a 12 month target price of Rs 485 per share.

In July-September quarter (Q2FY23), the company reported dismal results with 8.3 per cent year-on-year dip in revenues.  Sales declined 8.3 per cent with 1 per cent, 14 per cent dip in sugar, ethanol sales, respectively. The company posted EBITDA loss of Rs 15.9 crore due to higher cost of production. Consequently, the company posted a loss of Rs 28.9 crore during the quarter.

The adverse impact for Balrampur Chini was more pronounced given lower sugarcane crushing during the season (its crushing was down 18% compared to its capacity). However, analyst believe higher sugarcane availability in its catchment area, expected improvement in sugar recovery, increase in blended realisation due to refined sugar exports and commissioning of large distillery capacity would improve profitability in the 2022-23 season.

Besides, Balrampur Chini, Magadh Sugar & Energy, Dhampur Sugar Mills, Dwarikesh Sugar Industries, Avadh Sugar, Shree Renuka Sugar, Uttam Sugar Mills, Dalmia Bharat Sugar and Industries and Triveni Engineering & Industries from sugar sector were seen trading with gains in the range of 2 per cent - 5 per cent. In comparison, the S&P BSE Sensex was up 0.13 per cent at 10:41 am.

The government has allowed 6 million tonnes (MT) of exports by the industry in 2022-23 sugar season in the first tranche and is likely to allow further 3 MT of export by January-February 2023 after reassessing sugar production estimate. Industry has already contracted ~4 MT of sugar out of allowed 6 MT.

Global raw sugar prices are prevailing at 18-20 cents/lb while refined white sugar prices are prevailing at $540/tonnes. These prices are better than domestic sugar prices of Rs 36/kg. The brokerage firm believes the industry would be able to easily export 9 MT during the season. This would help keep the sugar inventory at 5.5-6.0 MT as on September 2023.

OMCs are looking to reach ethanol blending of 12 per cent in 2022-23 procurement year, which would result in ~550 crore litre of ethanol procurement. Most of these quantities would be supplies by the sugar industry. The government has increased ethanol prices between Rs 1.65 per litre to Rs 2.65 per litre for different feedstock. This would further encourage millers to set up distillery capacity in future, the brokerage firm said.