As per the brokerage “BCML reported a YoY revenue growth of 13.1 % to Rs 1,212 Cr in Q3FY22 on account of higher sugar realization (YoY growth of 11.9 % to Rs 36.3/kg) and a significant surge in B-heavy ethanol volumes by 130.7% YoY to 2.3 Cr litres during the quarter. The lower sugarcane availability in the current season due to weather conditions and red-rot disease in the company’s catchment areas reduced the sugar production and impacted the sales volumes. Distillery revenue grew at a YoY rate of 27.7% to Rs 172 Cr, while distillery volumes (B-heavy & C- heavy ethanol) recorded a YoY growth of 4.0% to 2.6 Cr litres. The impact on revenue was lower than the sales volume due to the higher proportion of B-heavy ethanol volume in the segment. The share of B- heavy ethanol stood at 90.0% in Q3FY22, compared to 40.6% in Q3FY21.”
HDFC Securities has noted that “The company reported a YoY growth of 47.6% to Rs 268 Cr in gross profit, while the gross margins improved at a YoY rate of 518 bps to 22.1% due to a favourable product mix. Similarly, EBITDA witnessed a YoY growth of 174.2% to Rs 100 Cr, while EBITDA margins improved by 484 bps YoY to 8.2% during the quarter. Interest cost declined at a YoY rate of 25.6% to Rs 4 Cr owing to lower interest rates and faster repayment of debt, while other income grew at a YoY rate of 138.4% to Rs 26.5 Cr due to dividend (Rs. 14.92 Cr) received from associate company. As a result, net profit reported a YoY growth of 138.5% to Rs 64 Cr, while net margins improved by 278 bps YoY to 5.3% during the quarter.”
The brokerage has also stated “The company completed the expansion of its Gularia distillery from 160 KLPD to 200 KLPD. The greenfield/brownfield expansion programmes for distillery at Maizapur and Balrampur are on track, expected to commence production at the expanded capacity from November 2022.”
Buy for a target price of Rs. 579
HDFC Securities has highlighted that “The sugar sector is known for its cyclical nature. However, it has seen structural changes with: (1) rational alterations in the government’s policies, and (2) flexibility provided, as diversion of surplus cane and B-heavy molasses is now allowed to produce ethanol that can be used for blending with petrol c) differentiated pricing for ethanol (based on raw material). These structural changes in the basic fundamentals of the sugar industry in India, offering the fungibility from Sugar to ethanol and vice-versa has helped the sector to improve their profitability and stabilize the cyclicality. This would automatically help to optimize the sugar production and inventory, thus improving profitability and liquidity position of sugar mills.”
“BCML has leveraged the unprecedented policy tailwinds with increase in distillery capacities, likely to achieve 1050 KLPD by December 2022, making it the largest ethanol producer in Uttar Pradesh. This provides a solid revenue visibility while higher margins could aid the profitability growth. Higher salience of ethanol will further improve the working capital cycle leading to superior cash generation. We expect BCML revenues and PAT to grow at CAGR of 10% and 19% over FY21-24E. EBITDA margins to improve by 316 bps over FY21-24E,” said the brokerage.
The brokerage also claims that “We like BCML on account of its strong balance sheet, high level of integration (the company to maximise value for every cane stick crushed) and strong cash flow generation. The company has also created handsome shareholder value through consistent dividends and buybacks. We think the base case fair value of the stock is Rs 542 (14.5x FY24E EPS) and the bull case fair value is Rs 579 (15.5x FY24E EPS). Investors can buy the in stock Rs. 481-488 band (14x FY24E EPS) and add more on dips in Rs 432-488 band.”
The stock has been picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.