Balrampur Chini (Buy)

CMP: ₹72.35

Target: ₹84

Balrampur Chini Mills (BCML) is one of the largest integrated sugar manufacturing company in India. It also offers molasses, industrial alcohol, ethanol, and bagasse. In addition, the company is involved in the generation and sale of electricity.

India is possibly the most exciting sugar market in the world for a reason that extends beyond mere under-consumption. Even at today’s relatively under-consumed levels, the increase in the country’s consumption of sugar is equivalent to the entire consumption of a country such as Canada or Australia.

We have valued BCML based on average of P/B & EV/EBITDA as nature of sugar business is cyclic. At current levels the stock is available at 3.8x EV/EBITDA and 0.8x P/B on FY2020E earnings. Hence, we have ‘buy’ on stock based on average of EV/ EBITDA & P/B i.e 3.5x EV/EBITDA & 1x P/B of FY20E. We have arrived at price target of ₹84 with upside potential of 15 per cent.