13-Mar-2021

BALRAMPUR CHINI MILLS LIMITED

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Balrampur Chini Mills Limited (BCML), incorporated in 1975, is one of the largest integrated sugar companies in India. The allied
businesses of the company comprise of manufacturing of downstream products like ethanol, power (co-generation), alcohol,
molasses and bagasse.
Its products include sugar, molasses, alcohol, ethanol, bagasse and power. It sales its products within India and export as per the
government quota allocation.
The company functions through three primary segments: Sugar, Co-generation and Distillery.
The company presently has ten sugar factories located in Eastern and Central Uttar Pradesh (India) having an aggregate sugarcane
crushing capacity of 76,500 TCD (tonnes per day), 4 distillery units with a capacity of 520 KLPD (kilolitres per day) and 8 co-
generation units with 168.7 MW (megawatt) saleable capacity. It has grown its capacity by well-planned capacity expansion projects
and the acquisition of existing companies over recent years.

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DHD REVENUE MIX (FY20)

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 GROWTH
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DHD SALES GROWTH

In 9M FY21, net sales was ₹3792 cr, a growth of
26.4% YoY. This was mainly driven by the sugar
segment which grew by 25.4% YoY and the distillery
which grew by 65.2% YoY.
However, despite the growth in the 9M period, lower
sugar yield due to red rot virus and decline in sugar
recoveries due to adverse weather conditions would
impact sugar sales volume in the current season.
In the long run, ethanol is likely to be the key
revenue driver for sugar companies. BCML is well
poised to take advantage of the same and is likely to
sell ~180 mn litres of ethanol/ENA in FY22. Also, GOI
has increased ethanol prices for B & C heavy
molasses route by ~4%-6% from December 2020.

5 Year CAGR: 9.7%

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 GROWTH
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DHD EBITDA GROWTH

In FY20, EBITDA was ͅ₹682 cr, a decline of 1% YoY.
In 9M FY21, EBITDA stood at ͅ₹382 cr, a decline of
15.62% YoY on the back of higher cost of production.
The management after taking into account the
recovery loss combined with higher diversion
towards B-heavy molasses anticipates costing to be
between ₹31-ͅ₹31.5 per kg. Current selling prices are
at ₹32.5-₹33 per kg.
Thus, impacting the operating profitability in the
near term.
However, sugar prices may move up in anticipation
of the reduction of sugar inventory and lower than
expected sugar production.

5 Year CAGR: 40.2%

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DHD PAT GROWTH

In FY20, PAT was ₹512 cr, a decline of 10.10% YoY.
In 9M FY21, PAT was ₹228 cr, a decline of 16.54% YoY.
PAT was impacted by lower operating profit and
higher depreciation.
In the long run, a higher contribution of B-heavy
ethanol along with an increase in ethanol prices may
contribute to profit growth.

5 Year CAGR: NA

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 GROWTH EDGE METER: 3
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 PROFITABILITY
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DHD EBITDA MARGIN

In FY20, the EBITDA margin stood at 15.31%, a
contraction of 177 bps YoY.
In 9M FY21, the EBITDA margin was 10.06%, a
contraction of 464 bps YoY.
Going forward, continued higher cost of production
due to lower sugar production and diversion of ~65%
of sugarcane for B-heavy molasses is likely to weigh
on the metric.

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DHD PAT MARGIN

In FY20, PAT margins stood at 10.79% v/s 13.28% in
FY19.
In 9M FY20, PAT margin was 6.02%, a contraction of
309 bps YoY.

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DHD ROCE
In FY20, ROCE was 16.11% v/s 19.69% in FY19.
The metric was impacted by higher non-current
assets led by an increase in property, plant and
equipment and investments in associates.

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DHD ROE
In FY20, ROE stood at 22.57% v/s 30.47% in FY19.
The company’s profit growth is likely to remain
impacted during the current fiscal.

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 PROFITABILITY EDGE METER: 3
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 EFFICIENCY
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DHD CASH FLOWS

In FY20, the company generated ₹850 cr from its
cash from operations.
Despite a decline in operating profit, the company
reported a positive CFO on the back of working
capital changes.
The increase in cash outflows from investing
activities was mainly on the back of increased
additions to property, plant & equipment and
intangibles assets.
Cash from financing activities saw a significant
outflow on the back of buyback (amounting to
₹147.67 cr) undertaken by the company as well as
repayment of short term borrowings.

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 EFFICIENCY
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WORKING
DHD CAPITAL CYCLE
The working capital cycle of the company stood at
146 days in FY20 as compared to 141 days in FY19.
The days of payable slightly deteriorated during the
year while the receivable days and inventory days
remained flat during the year.

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DHD FREE CASH FLOW

In FY20, the free cash flow per share was ₹27.13.
The company is undertaking capex of ͅ₹320 cr for a
new distillery of 320 KLD, which would be
commissioned by November 2022.

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ASSET
DHD TURNOVER RATIO
In FY20, the asset turnover ratio was 0.92 as
compared to 0.95 in FY19.

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 EFFICIENCY EDGE METER: 3
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 SOLVENCY
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DHD DEBT TO EQUITY

The company had a debt of ₹1482 cr as on 31st
March 2020.
As on 31st December 2020, the total debt of the
company stood at ͅ₹585 cr.
Of the ₹320 cr capex undertaken by the company,
₹200 cr will be borrowed from banks.

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INTEREST
DHD COVERAGE RATIO
In FY20, the metric was 9.73 as compared to 15.54 in
FY19. Interest cost saw a surge on the back of higher
long term borrowings.
The company, as on 31st December, has reduced its
debt levels, thereby reducing its interest payment
obligations.
The debt undertaken by the company for its distillery
project will be available at ~3.5% interest rate under
the ethanol capacity enhancement plan by the
government.
Thus, not impacting the metric much.

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 SOLVENCY
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DHD CURRENT RATIO

In FY20, the metric was 1.46 as compared to 1.37 in
FY19. The inventory and working capital debt
maximise in March.
As on 30th September 2020, cash and cash
equivalents stood at ͅ₹120 cr.
The company has sufficient resources to meet its
short term liabilities.

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 SOLVENCY EDGE METER: 4
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 VALUATION
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DHD PE RATIO
Balrampur Chini Mills is currently trading at a TTM PE
multiple of 9.51x.

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DHD DIVIDEND YIELD

For the fiscal FY20, the payout ratio was 10.67%,
amounting to ₹2.50 per share.
At the current price of ₹220.05, the dividend yield
stands at 1.14%.
In July 2020, the Board of Directors approved the
buyback of shares for an amount not exceeding ₹180
cr. It offered to buyback up to 1 cr fully paid-up
equity share, representing 4.55% of the of the
issued, subscribed and paid-up equity shares.

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DHDTECHNICAL ANALYSIS
Balrampur Chini Mills had been consolidating in the
range of ₹140 to ₹180 in the last six months.
However very recently, the stock has broken out of
the upper band of this zone and has also managed to
make new life time highs.
The breakout has also been supported by decent
trading volumes. However, the delivery percentage -
has been on the lower side.
₹180 - ₹190 is likely to act as a strong support in the
near term.

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 VALUATION EDGE METER: 3
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 QUALITY
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DHD MANAGEMENT
Meenakshi Saraogi was the key architect of the
company who transformed BCML from a single
factory to one of the country’s largest integrated
sugar company with 10 manufacturing units.
In 2016 she stepped down as the director of the
company, handing over the reins to her son Vivek
Saraogi, the managing director of the company. She
passed away on 5th December 2020, leaving behind a
strong legacy.
The management continues to focus on remaining
Balance Sheet-light along with enhancing the
operational efficiency.
It is likely to take advantage of the tailwinds available
in the ethanol segment by expanding its existing
distillery capacities and diverting cane for the
production of B heavy ethanol.

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SHAREHOLDING
DHD PATTERN
Promoters’ stake continues to remain the same for
the last two quarters at 41.21%.
DII increased their stake from 11.39% in Q2 FY21 to
13.99% in Q3 FY21.
Non-Institution’s stake has decreased from 27.14% in
Q2 FY21 to 24.73% in Q3 FY21.
Top Public Shareholding:-
Nippon Life India Trustee Ltd. 5.20%
L&T Mutual Fund Trustee Ltd. 3.16%
Goldman Sachs India Ltd. 2.06%
Morgan Stanley Asia (Singapore)PTE. 1.61%

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DHD SECTOR POTENTIAL

• India is the world’s second largest sugar producing country. The Indian sugar units today are integrated plants which apart from
manufacturing sugar, also have chemicals, sugar complexes, distillery to produce ethyl alcohol and makes surplus exportable power
through co-generation.
• Indian Sugar Mills Association (ISMA) has revised its sugar production estimate to 30.2 million tonnes due to a decline in sugar
production in Uttar Pradesh mainly on account of a dip in sugarcane yield as well as sugar recoveries.
• The sugar consumption in India is around 26 million tones, out of which 60% is for industrial application (Dairy, confectionery,
baking, soft drinks etc) and the rest 40% is used for consumer consumption.
• The sugar prices are expected to remain largely range-bound, backed by an MSP of ₹31 per kg. Domestic prices are unlikely to
increase unless sugar MSP is hiked by the government.
• The sugar sector is highly regulated wherein the government decides upon the quantity to be sold and exported and also bails out
the industry in bad times.
• Under the Ethanol Blended Petrol Programme (EBP Programme). In January 2021, the Government announced its plans to
achieve 20% ethanol blending in fuels by 2025, reducing the timeline by 5 years.
• The Indian sugar industry continues to face excess supply which has resulted in sugar prices to go below the cost of production and
piling cane price arrears of farmers.

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COMPETITIVE
DHD LANDSCAPE
BCML continues to maintain its dominant market
position in the sugar industry and is the second
largest player in terms of scale on a pan-India basis.
These are further strengthened by the diversified
revenue streams which continues to partly offset the
cyclicality in the sugar business.
The company continue to strengthen its balance
sheet and maintains a superior debt to equity ratio
as compared to its peers.
The company is focusing on enhancing its ethanol
sales and is aggressively diverting sugarcane for
ethanol production. This move is likely to improve
profitability, help maintain inventory at optimum
levels and moderate working capital outlay, which is
likely to help the company stay ahead of its
competitors in the long run.

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DHD FUTURE OUTLOOK

• The company will continue to benefit from its established market position and superior operating efficiencies in the sugar business.
Moreover, the company's financial risk profile is expected to remain comfortable.
• It expects ~12%-14% decline in cane crushing in the current sugar season as compared to the last season. Sugar output is likely to
decline on yearly basis due to the diversion of cane to produce B-heavy molasses and lower sugar recovery. It plans to divert ~65%
of cane for B-heavy molasses in the current sugar season.
• Cost of production is likely to remain high. The management has indicated that their cost of production is likely to be ~₹31-₹31.5
per kg without considering any further price rises for sugarcane
• It is undertaking capex of ₹320 cr for the new distillery of 320 KLD at its Maizapur plant, which would be fungible for the sugarcane
juice, molasses and grains. The new capacity would be commissioned by November 2022 and is likely to start contributing to
revenues and EBITDA by FY23e.
• The cane dues as on 31st December 2020, stood at ₹406 cr as compared to ₹295 cr in the corresponding period last year.
• Key concerns: susceptibility of business performance to a downturn in the overall sugar business; exposure to stringent regulatory
environment and government intervention; lower than expected sugar exports and lower recoveries.

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 QUALITY EDGE METER: 4
An Edge Meter is a graded measurement of certain aspects of a company on a scale of 1 to 5, 5 denoting the highest rating. Since
judgement on equity is subjective because different people will have different expectation from their investments, it is better to study
each aspect and give an individual grading to arrive at the final evaluation of a stock.
 FINAL
ABOUTEDGE
THE MATRIX
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DHD
Edge Meter Aspects Grade
Growth 3
Profitability 3
Efficiency 3
Solvency 4
Valuation 3
Quality 4
TOTAL 20

The maximum grade for a company could be 30. Any company above grade 20
is worth considering. A grade below 15 is considered to be poor.
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DHD

THANK YOU
This document and the process of identifying the potential of a company has been produced only for learning purposes. Since
equity involves individual judgements, this analysis should be used for only learning enhancements and cannot be considered to
be a recommendation on any stock or sector. Our knowledge team has limited understanding and we all are learning the art and
science behind this.

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