With a market capitalization of over Rs 8,200 crore, the shares are trading above the short-term moving averages of 10, 20, 200-DMA but below 5, 50, 100-DMA. Long-term investors have made big gains investing in this stock, as it has jumped more than 700% in the past ten years.
In a recent report, CareEdge Research noted that an important factor for the sugar industry in India is the Ethanol Blended Petrol (EBP) program which aims to reduce the sugar glut situation in India.
The EBP program supports the diversion of sugar cane and surplus sugar into the manufacture of ethanol which has now become the focal point for the future of the sugar industry. The government also publishes purchase prices for ethanol to divert sugarcane to ethanol production.
Centrum Broking believes there has been a structural change in the dynamics of the industry. “Crude price volatility, environmental risks from fossil fuel consumption and energy security concerns have prompted the implementation of the Ethanol Blending Program (EBP) by the Government of India (GoI),” said he declared.
The brokerage noted that ethanol blend demand is expected to reach 1,016 crore liters from the current 425 crore liters on ESY21-26, with a CAGR of 25.1%. This is mainly due to the sugar industry and resulted in an expansion of the TAM for integrated sugar mill owners from Rs 0.95 trillion to Rs 1.4 trillion in FY21-24.
“Balrampur Chini Mills (BRCM) stands to benefit from the expansion of distillery capacity from 560 KLPD currently to 1,050 KLPD in 2HFY23 and the simultaneous increase in the addressable ethanol market (expected to nearly double from Rs 240 billion to Rs 450 billion during FY21-24),” Centrum Broking pointed out.
“As BRCM transforms into a bio-energetic play, there will be steady earnings growth and stability calling for higher valuation multiples. We are initiating coverage on BRCM with a ‘Buy’ rating and assigning a PE of 14x (premium at LTA given the evolution of earnings quality) at FY24E EPS of Rs 36.8 and arrive at a target price of Rs 515.
Elara Capital also believes that ethanol capacity, refinery expansion plans and the debottlenecking of one of the facilities are on track. After the completion of the investments, the distillation capacity would increase to 350 million liters; therefore, the distillery’s EBIT contribution is expected to follow a secular upward trend.
However, he pointed out that as more cane is diverted to higher-margin ethanol, sugar volume may stagnate with a downward bias, which may impact sugar revenues, but will likely be offset by better realization and higher profitability in the ethanol segment.
“We reiterate the buy with a lower target price of Rs 506 to Rs 536 on a SOTP valuation, which assumes distillery at 10x FY24E EV/EBIT and sugar at 7x FY24E EV/EBIT,” he added.
BRCM is an ETI operating in the sugar sector. Major products/revenue segments include sugar, alcohol (industrial), export incentives, energy and bagasse.
The promoters held 42.42% of the company’s capital as of March 31, 2022, while the FIIs held 19.23% and the DIIs 17.02%.
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