With a market capitalization of more than 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 by investing in this stock as it has surged over 700 per cent in the last ten years.
In a recent report, CareEdge Research noted that an important factor for the sugar industry in India is Ethanol Blended Petrol (EBP) program that aims to reduce the sugar glut situation in India.
The EBP program supports the diversion of sugarcane and surplus sugar towards the manufacturing of ethanol which has now become the key focus point for the future of the sugar industry. The government also releases procurement prices for ethanol to divert sugarcane toward production of ethanol.
Centrum Broking believes that there has been a structural change in the industry dynamics. “Volatility in crude prices, environmental hazards from fossil fuels consumption and energy security concerns have resulted into Ethanol Blending Program (EBP) being implemented by Government of India (GoI),” it said.
The brokerage house noted that the demand for ethanol blending is estimated to reach 1,016 crore litres from current 425 crore litres over ESY21-26, clocking a CAGR of 25.1 per cent. This is primarily driven by the sugar industry and has resulted in an expansion in TAM for integrated sugar mill owners from Rs0.95 trillion to Rs1.4 trillion over FY21-24.
“Balrampur Chini Mills (BRCM) is all set to benefit from expansion in distillery capacity from 560 KLPD currently to 1,050 KLPD in 2HFY23 and concurrent increase in the addressable ethanol market (expected to nearly double from Rs 240 billion to Rs 450 billion over FY21-24),” highlighted Centrum Broking.
“As BRCM transforms into Bio-energy play there will be consistent growth and stability in earnings calling for higher valuation multiples. We initiate coverage on BRCM with a ‘Buy’ rating and assign a PE of 14x (premium to LTA given change in earnings quality) ) to 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 debottlenecking of one of the facilities are on track. Post capex completion, distillation capacity would rise to 350 million liters; As a result, EBIT contribution from the distillery is likely to be on a secular uptrend.
However, it highlighted that as more cane is diverted to higher-margin ethanol, sugar volume may stagnate with a downward bias, which may impact sugar revenue but will likely be offset by better realization and higher profitability in the ethanol segment.
“We repeat Buy with a lower target price of Rs 506 from Rs 536 on a SOTP valuation, which assumes distillery at 10x FY24E EV/EBIT and sugar at 7x FY24E EV/EBIT,” it added.
BRCM is a mid-cap company operating in the sugar sector. The key products/revenue segments include sugar, alcohol (Industrial), export incentives, power and bagasse.
Promoters held 42.42 per cent stake in the company as of 31 March, 2022, while FIIs owned 19.23 per cent, DIIs 17.02 per cent.
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