Fundamental AnalysisIndia

Balrampur Chini Mills Ltd. Fundamental Analysis

What is the national economic outlook?

  • How well are we recovering from the pandemic? [High]
    • There has been a fall in the inflation rate in the country and India recorded its highest export in history at $37.3 billion in the month of December 2021.
    • Moody’s financial services has pegged Indian GDP growth in fiscal year 2022 at 9.5%.
    • India has signed a CEPA with the United Arab Emirates which is said to boost exports between both nations to $100 billion within 5 years.
    • IHS Markit has estimated that India will surpass Japan, Germany and UK in GDP by 2030.
    • However the global economy is currently in turmoil over the Russian-Ukrainian crisis, Indian markets were affected by the invasion and the prices of oil and other important products are all set to rise further in the near future. So the time will tell to what extent this crisis will impact India’s economic growth.
  • Change in purchasing power? [High]
    • India had an all-time high imports of $59.3 billion in December 2021. The overall purchasing power of the customer is rising and could lead to greater demand in the coming future.

What is the industry outlook?

  • What is the current industry category for the company?
    • BCML is a sugar manufacturing company (FMCG sector).
  • What are the growth prospects? [High]
    • BCML is one of the largest manufacturers of sugar in India and also manufactures Alcohol, Bagasse, Power and Agri-Inputs.
    • As global warming continues to rise, corporations as well as the government are looking into renewable sources of energy. BCML uses bagasse from sugarcane as biofuel to produce heat and electricity, which is a renewable form of energy and promotes sustainable development. The company currently produces 279 Mw of electricity of which it sells 169 Mw.
    • Bagasse is also used as a substitute for wood in eco-friendly production of paper in countries like India, Argentina and Colombia.
    • BCML was the first company to use Potassic ash to make Potash-fertiliser.
    • Ethanol consumption is growing in India as its demand has risen significantly over the past 5 years due to manufacturing capacity which has doubled in India and there has been only a 40% growth in distilleries.
    • The demand for molasses/cane-based ethanol is projected to touch 700 crore litres in 2030 whereas the production currently is only close to 426 crore litres nationally.
  • What is the competitor landscape?
    • By production capacity, BCML is the second largest manufacturer in India. However, by sales, it stands at the fourth position. The top 3 sugar production companies are Bajaj Hindusthan Sugar Ltd., Shree Renuka Sugars Ltd. and EID Parry (India) Ltd.
    • EID Parry (India) Ltd. is one of the oldest companies in India as it has been in business for 225 years. It had a revenue of Rs 16,167 crores for FY 2020-21, almost 4x times higher than BCML’s.

What is the company profile?

Shareholding Pattern:-

SHAREHOLDERSAs on 31/12/21As on 30/9/21As on 30/6/21
Public (Individuals and Institutions combined)57.58%58.6%58.79%
  • Business Overview
    • BCML is one of the largest sugar manufacturers in India, founded in 1975, and was one of the first sugar companies to diversify its business from sugar to distillery and co-generation. It has 5 main products: Sugar, Ethanol, Bagasse, Power and Agri-Inputs.
    • SWOT Analysis
STRENGTHSo Large addressable market
o Sustainable Competitive advantage
o Progressive decline in cost of funds
o Sugarcane is one the most profitable cash crops in India as it is the second largest producer and the largest consumer of sugar
WEAKNESSESo Higher sugarcane prices as opposed to global standards
o Usage of legacy technology in most of the industry
o Most mills remain under-capitalized 
OPPORTUNITIESo The Indian sugar market’s consumption is growing at a reasonable rate each year o India is likely to accommodate a larger portion of renewable energy in its electricity mix
o Ethanol consumption is set to increase as its demand have increased 5x in the last six years
THREATSo Climate change is altering crop yields
o Policy formulation in the industry is mostly done by political instead of economic consideration
o Highly dependent on the season
o Lack of infrastructure
  • Financials
    • Majority of the company’s sales comes from the sale of sugar. In FY 2020-21, Rs 3,625.22 crores was the sales of sugar, i.e. over 75% of its revenue from operations. However, alcohol saw a large spike in sales, up nearly Rs 300 crores from the previous year.
    • The revenue of the company for the year ended on March 2021 was Rs 4,811.66 crores as opposed to Rs 4,741.29 crores for the year ended on March 2020. The profit for the year ended on March 2021 was Rs 469.77 crores against Rs 509.28 crores for the corresponding period last year, a 7.76% decline in profits. The EPS fell from 22.98 to 22.01 in FY 2020-21.
    • For the quarter ended on December 2021, the revenues for the company stood at Rs 1,212.15 crores, lower than the previous quarter, and the profits for the period was Rs 71.1 crores, significantly lower than the profits for the last quarter.
    • It’s results for 9 months ended on December 2021 were disappointing as revenues fell 200 crores and profits fell over Rs 6 crores YoY.
  • Other Data
    • BCML has an operating profit margin of 14.84%
    • Has a net profit margin of 9.75%
    • Debt-equity ratio is 0.14
    • Return on equity is 19.04%

Beyond the numbers: ProCapitas Think Tank

Let’s look beyond these numbers and look at – “What Matters”

  • As per its recent earnings submission for the quarter ended on December 2021, the company’s profits and revenues were down QoQ. They saw a significant rise YoY but they fell QoQ.
  • Although the company’s revenue in Q3 was lower than Q2, its cost of materials consumed was substantially higher. Also, the company’s expenses rose sharply in the quarter.
  • The sugar sales were higher for Q3 but its distillery sales saw a decline of Rs 8,400 lacs in the quarter.
  • The company’s main product is sugar, which is a seasonal product. Moreover, agricultural products tend to be severely affected by climate changes which makes the company vulnerable to factors beyond its own control. As shown in the chart below, the company’s sales are extremely dependent on seasons and its impact on both sales and profit is severe. Every fiscal year, revenues and profits grow in the third and fourth quarter but fall in the first and second.
  • Moreover, as visible in the chart below, the profits of the company have been constantly falling. It shows that the company is unable to manage its costs properly as its revenues continue to grow. As the company tries to improve its sales, the company ends up being inefficient which causes their production and administration costs to rise.
  • Being the second largest producer of sugar in the country with a capacity to crush 76,500 tons of sugarcanes per day and having distilleries with a capacity of processing 560 KL per day, the company possesses the ability to improve profitability under better management practices.  

It will be interesting to see how things work out for Balrampur Chini in the future.

This research is brought to you by ProCapitas in association with Jobaaj Learnings.

Disclaimer: This is for educational purposes and not an investing suggestion.

Balrampur Chini Mills Ltd. Technical Analysis

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