ICICI Direct is bullish on Balrampur Chini recommended buy rating on the stock with a target price of Rs 210 in its research report dated September 08, 2020.
ICICI Direct's research report on Balrampur Chini
Balrampur Chini (BCML) is likely to witness one of the best years in terms of profitability, cash flow generation and total debt reduction. With 2.8 lakh tonnes (lt) of export in sugar season 2019-20 and 0.51 lt of sugar sacrifice for B heavy ethanol, sugar inventories are likely to come down to 2.43 lt at the end of September 2020 against 4.92 lt in September 2019. The huge liquidation of inventory would result in working capital debt coming down to less than Rs 100 crore by September 2020 against Rs 1173 crore in September 2019. At the start of sugar season 2020-21, the company would be holding one month of sugar inventory against industry average of 3.5 months. This would significantly strengthen the balance sheet.
Outlook
BCML is the most efficient sugar company with sustainable earnings & strong cash flow generation. It has been giving ~40% payout through dividends and buybacks. With the significant increase in cash flow generation, we expect the payout to increase to 60% in FY22E, which would be ~10% payout yield at current price. We value the stock at 1.6x FY21E P/BV with a revised target price of Rs 210/share. We maintain our BUY rating.
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