Buy Balrampur Chini; target of Rs 176: ICICI Direct

ICICI Direct's research report on Balrampur Chini

Balrampur Chini reported strong Q4FY20 results with 31.1% growth in revenues led by 40% growth in sugar sales & 53.2% growth in distillery sales. The higher growth in sugar sales was led by 19.4% jump in sugar volumes aided by ~1.7 lakh tonnes (lt) of sugar exports during the quarter. Domestic sugar realisation was marginally up 2.4%. The growth in distillery sales was led by 34.9% higher volumes led by commissioning of new 160 KLD distillery in January 2020. Distillery realisation was also up 15.8% aided by higher proportion of B heavy ethanol. However, power sales were down 22.9% on account of reduced power tariff by UPERC in July 2019. This led to the 6.6% decline in operating profit. The company has been able to reduce its sugar inventory by 39,000 tonnes in FY20. This along with strong earnings led to the operating cash flow generation of Rs 850 crore. The company reduced its working capital debt by Rs 336 crore.

Outlook

Balrampur Chini is the most efficient company in sugar industry with optimum distillery & power capacities, low working capital debt requirement & strong cash flows. Given the sustainable earnings & cash flow generation, we believe working capital debt to further come down by ~Rs 560 crore in next two years. The company has been continuously paying out 35-40% through dividend & buybacks. With no further capex requirement, the pay-out can also increase in future. We value the stock 1.4x FY21E price to book with target price of Rs 176 / share and maintain our BUY recommendation.

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