Result Update

February 2, 2010

Rating matrix
Rating : Strong Buy Balrampur Chini (BALCHI)
Target : Rs 164
Target Period : 12 months Rs 120.3
Potential Upside : 36.3%
WHAT’S CHANGED…
Key Financials PRICE TARGET...............................................................................................Unchanged
(Rs Crore) SY08 SY09 SY10E SY11E EPS (SY10E)............................................................ …changed from Rs 13.7 to Rs 16.4
Net Sales 1490.9 1700.0 2505.3 2436.0 EPS (SY11E).................................................................. changed from Rs 8.9 to Rs 10.6
EBITDA 314.2 452.0 726.0 527.9 RATING ..........................................................................................................Unchanged
Net Profit 78.4 226.3 433.8 280.6 Remains sweet…
Balrampur Chini reported robust results for Q1SY10 (sugar year) as net
Valuation summary sales rose by 14.4% QoQ to Rs 433.6 crore from Rs 378.9 crore in
SY08 SY09 SY10E SY11E Q4FY09 on the back of higher realisations from sugar. Sugar recoveries
PE (x)
for the quarter increased to 8.9% as against 8.8% in Q1FY09. The
39.1 14.1 7.3 11.3
company sold 1.3 lakh tonnes of sugar at an average realisation of Rs
Target PE (x) 53.2 19.2 10.0 15.5 30.3 per kg. The EBITDA margin improved drastically from 20.0% in
EV to EBITDA (x) 14.0 9.1 5.2 6.4 Q4FY09 to 30.4% in Q1FY10 led by the surge in sugar prices. Interest
Price to book (x) 3.1 2.6 1.9 1.6
expenses witnessed a 30.6% YoY and 5.8% QoQ decline to Rs 17.3
RoNW (%)
crore. This, along with a decrease in depreciation provisioning and a
6.1 14.3 24.7 15.1
concomitant rise in EBITDA margin, led to a 79.4% QoQ rise in net profit
RoCE (%) 8.3 13.7 25.2 17.2 from Rs 42.7 crore in Q4SY09 to Rs 76.6 crore in Q3FY10.

Highlight of the quarter

Stock data
The current raw sugar imports for the company stand at 81,750 tonnes,
Market Capitalisation Rs 3188.0 crore
of which 21,000 tonnes has already reached the factory and 8,180 tonnes
Debt (SY09) Rs 900.0 crore have already been processed. Sales from the distillery and power
Cash (SY09) Rs 37.2 crore segments reported a 69.9% and 8.6% de-growth in sales due to lower
EV Rs 4050.8 crore
availability of molasses and bagasse. Average realisation from the
distillery and power segments stood at Rs 27.6 per litre and Rs 3.9 per
52 week H/L 168 / 42.3
unit, respectively.
Equity capital Rs 26.5
Face value Rs 1
Valuation
MF Holding (%) 14.8
At the current price of Rs 120.3 the stock is trading at 7.3x its SY10E EPS
F I I Holding (%) 17.1 of Rs 16.4 and 11.3x its SY11E EPS of Rs 10.6. Given the tight domestic
and global demand supply deficit sugar prices are likely to remain firm,
going forward. Simultaneously, raw sugar imported by the company
Price movement (Stock vs. Nifty)
would help sustain volumes in SY10E. This would enable the company to
165 enhance margins and, subsequently, boost the bottomline in SY10. We
145 5000 have valued the stock at 10x its SY10E EPS of Rs 16.4 to arrive at a target
125
105 4000 price of Rs 164 with a STRONG BUY rating.
85
65 3000 Exhibit 1: Performance highlight (Rs crore)
45
25 2000 Q1SY10 Q1SY10E Q1SY09 Q4SY09 YoY(%) QoQ(%)
Net Sales 433.6 525.2 428.7 378.9 1.1 14.4
Apr-09
Feb-09

Sep-09
Oct-08
Dec-08

May-09
Jul-09

Nov-09

Jan-10

EBITDA margin (%) 30.4 28.8 27.0 20.0

Depreciation 26.9 27.8 27.5 27.1 -2.4 -0.7
Balrampur chini Nifty Interest 17.3 17.3 24.9 18.4 -30.6 -5.8
Other Income 2.0 1.0 0.5 0.8 269.8 157.9
Analyst’s name Reported PAT 76.6 79.0 51.3 42.7 49.2 79.4
Sanjay Manyal EPS (Rs) 2.9 3.0 1.9 1.6 49.2 79.4
sanjay.manyal@icicisecurities.com Source: Company, ICICIdirect.com Research
Ritika Shewakramani
ritika.shewakramani@icicisecurities.com

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Balrampur Chini (BALCHI)

• Revising estimates
With sugar prices having risen considerably and almost 81,750 tonnes of
raw sugar having been imported we expect the company to register a
higher revenue and earnings growth in SY10. Subsequently, we have
revised our estimates.

Exhibit 2: Revising estimate

SY10E Estimates SY11E Estimates
Previous Revised % ch. Previous Revised % ch.
Revenue 2302.6 2505.3 8.8 2376.6 2436.0 2.5
EBITDA 657.4 726.0 10.4 478.0 527.9 10.4
EBITDAM(%) 28.5 29.0 20.1 21.7
PAT 364.2 433.8 19.1 235.9 280.6 19.0
Source: Company, ICICIdirect.com Research

Sugar prices remain firm

Although higher sugar cane prices will lead to better cane availability
next year, India still needs to import 3 MT of sugar to meet the demand
for SY11. Sugar prices have, therefore, surged to Rs 43.0 per kg and are
expected to remain firm until January 2011 as India is likely to produce
around 15.0 MT, falling severely short of domestic consumption demand
of around 23.0 MT in SY10. Concurrently, the global sugar market is also
witnessing a sugar deficit due to lower production in Brazil due to excess
rains. As a result, sugar prices have risen to around $750 per tonne and
are likely to remain firm, going forward.
Exhibit 3: Sugar prices
Sugar prices have surged domestically
and globally and are likely to stay firm 30
4500
25 3800

20 3100
2400
15
1700
10 1000
Apr-09

Sep-09
Jan-08

Aug-08
Oct-08
Mar-08
May-08
Jun-08

Nov-08
Jan-09
Mar-09

Jun-09
Aug-09

Nov-09
Dec-09

USc per Ib Rs per quintal

Source: Company, ICICIdirect.com Research

Exhibit 4: Sugar prices

255 30.3 35
Sugar realisations have doubled leading 23.1 25.8 30
205
to a rise in margin 20.3 25
155 17.7
20
105 15
10
55
202 124 203 135 126 5
5 0
Q1SY09 Q2SY09 Q3SY09 Q4SY09 Q1SY10

Sugar Volumes (in '000 tonnes) Sugar Realisations (Rs per kg)

Source: Company, ICICIdirect.com Research

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Balrampur Chini (BALCHI)
Demand supply economics remain sound
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Exhibit 5: Sugar demand supply (million tonnes)
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11
Production 20.1 13.5 12.7 19.3 28.5 26.3 14.7 15.0 20
Domestic consumption 17.5 17.9 18.5 19.0 21.0 22.0 22.5 23.0 23.5
Exports 1.5 0.2 0.0 1.1 1.5 4.8 0.0 0.0 0
Imports 0.0 0.4 2.1 0.0 0.0 0.0 2.5 5.0 3.0
Opening stock 11.2 12.3 8.1 4.4 3.6 9.6 9.1 3.8 0.8
Closing stock 12.3 8.1 4.4 3.6 9.6 9.1 3.8 0.8 0.3
Closing Stock (Months) 8.4 5.4 2.9 2.3 5.4 5.0 2.0 0.4 0.2
Source: Company, ICICIdirect.com Research
Segment wise performance
Revenues from the distillery segment dipped to Rs 9.9 crore as against
Rs 33.1 crore in Q1FY09. The distillery sales volumes stood at 3559.9 kilo
litres (KL) during the quarter as against 12,266.0 KL in Q1FY09 on
account of lower availability of molasses. Ethanol sales for the quarter
stood at 152 KL compared with 2430 KL in the corresponding quarter of
last year. Average realisations rose to Rs 27.6 per litre as against Rs 26.8
per litre. Concurrently, the co-generation segment also reported an 8.6%
decline in revenues to Rs 50.8 crore this quarter from Rs 55.6 crore in
Q1FY09. The average realisation per unit of power sold to the state grid
was around Rs 3.9 per unit vis-à-vis Rs 3.05 per unit in Q1FY09. We
expect the revenue contribution from by-products to remain subdued
due to lower availability of bagasse and molasses in the second quarter.
Other developments
The company has undertaken the modification of boilers at the
Haidergarh and Mankapur units into multi-feed units, which is currently
under implementation. While Haidergarh is to be commissioned by April
2010, the Mankapur unit will be commissioned during the 2010-11
season. This will enable the company to capitalise on the Uttar Pradesh
government’s open access power policy and sell power during the off-
season. This continuous availability of power will also enable the
company to refine raw sugar throughout the year. As a result, the
company is installing a 500 metric tonne refinery at Haidergarh.
Valuation
At the current price of Rs 120.3, the stock is trading at 7.3x its SY10E EPS
of Rs 16.4 and 11.3x its SY11E EPS of Rs 10.6. Given the tight domestic
and global demand-supply deficit, sugar prices are likely to remain firm,
going forward. Simultaneously, raw sugar imported by the company
would help sustain volumes in SY10E. This would enable the company to
enhance margins and, subsequently, boost bottomline in SY10. We value
the stock at 10x its SY10E EPS of Rs 16.4 to arrive at a target price of Rs
164 with a STRONG BUY rating.
Exhibit 6: Valuation Matrix for Balrampur Chini
Sales (Rs crore) Sales Gr (%) EPS (Rs) EPS Gr (%) PE (x) EV/E (x) RoNW (%) RoCE (%)
SY09 1700.0 14.0 8.5 177.8 14.1 9.1 14.3 13.7
SY10E 2505.3 47.4 16.4 91.7 7.3 5.2 24.7 25.2
SY11E 2436.0 -2.8 10.6 -35.3 11.4 6.4 15.1 17.2
Source: Company, ICICIdirect.com Research
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Balrampur Chini (BALCHI)

Valuation Matrix

Shree Renuka Sugars Sales (Rs cr) EPS (Rs) PE (x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code RENSUG CMP 208 SY09 2816.0 7.1 29.3 15.9 23.7 16.5
Target 312 SY10E 5192.4 33.0 6.3 4.6 66.0 63.4
MCap 3880 Upside 50.0% SY11E 4194.5 20.8 10.0 5.9 27.0 35.0
Balrampur Chini Sales (Rs cr) EPS (Rs) PE (x) EV/E (x) RoNW (%) RoCE (%)

Idirect Code BALCHI CMP 120.3 SY09 1700.0 8.5 14.1 9.1 14.3 13.7
Target 164 SY10E 2505.3 16.4 7.3 5.2 24.7 25.2
MCap 3188 Upside 36.3% SY11E 2436.0 10.6 11.4 6.4 15.1 17.2

Bajaj Hindustan Sales (Rs cr) EPS (Rs) PE (x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code BAJHIN CMP 206 SY09 1774.3 8.9 23.1 12.2 5.1 6.8
Target 308 SY10E 2302.6 34.3 6.0 5.1 18.1 18.8
MCap 3010 Upside 49.5% SY11E 2376.6 21.4 9.6 7.0 10.5 11.9

Dhampur Sugar Sales (Rs cr) EPS (Rs) PE (x) EV/E (x) RoNW (%) RoCE (%)
Idirect Code DHASUG CMP 138.0 SY09 935.6 10.6 13.0 7.6 11.8 11.0
Target 200.0 SY10E 1598.3 42.6 3.2 3.5 26.7 26.6
MCap 690 Upside 44.9% SY11E 1475.0 22.4 6.2 3.9 15.4 17.1

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 Balrampur Chini (BALCHI)

RATING RATIONALE
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Strong Buy: 20% or more;

Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;

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