Balrampur Chini snaps 3-day losing streak; stock gains 5% on heavy volumes

Analysts believe that the government's curb on 10 metric ton sugar exports would not cause a major impact as their expectation was lower than the limit for this year.

Shares of Balrampur Chini Mills (BCML) moved higher by 5 per cent to Rs 373 on the BSE in Thursday’s trade on the back of heavy volumes. In the past three days, the stock slipped 16 per cent after the government imposed restrictions on sugar exports effective from June 1.

At 01:35 am; BCML was up 4 per cent at Rs 370, as compared to 0.69 per cent rise in the S&P BSE Sensex. The trading volumes on the counter nearly doubled as 6.8 million equity shares changed hands on the NSE and BSE.

Analysts at ICICI Securities believe that the government's curb on sugar exports would not cause a major impact. "The government's announcement of sugar export restriction at 10 metric ton (MT) would not have any impact given actual exports would be lower than 10 MT. Further, the government is working with closing inventory of 6 MT by October 1, which would be maintained even after considering 10 MT exports," the brokerage firm said.

Meanwhile, oil marketing companies (OMCs) have contracted 416 crore litre of ethanol for 2021-22, which would be close to 10 per cent ethanol blending. BCML contracted for 157 million litre (148 million litre of B-heavy & 90 million litre of C-heavy), out of which 50 per cent has already been supplied. The company anticipates ethanol blending to reach 12.5 per cent in 2022-23 and 15 per cent in 2023-24.

"Ongoing geopolitical tensions related supply disruptions along with historic drought in Brazil are likely to strengthen sugar prices further. It looks apparent that the sugar consumptions to go up and thus providing supports to sugar price. Hence the downside on NY11 raw sugar price seems to be limited while on the upside it is expected that the price to remain strong with upward bias from its current level of ~20 c/lb," the management said.

That apart, rising oil prices and lower plantations of US corn may also keep Brazilian millers to switch to sucrose contents from ethanol which may reduce sugar availability from Brazil.

However, analysts at ICICI Securities maintain a ‘buy’ rating on BCML with a target price of Rs 515 per share over twelve months. They expect 38 per cent CAGR distillery volume growth, which would drive earnings with CAGR of 36.8 per cent during FY22-24E.

Besides this, analysts believe that the company's modernisation or de-bottlenecking at some plants would lead to higher sugarcane crushing and better recoveries by FY24. “We expect 9.9 per cent revenue CAGR in FY22-24E. BCML is introducing newer sugarcane variety in its catchment areas, which would reduce the dependence on Co-0238 & improve sugarcane availability,” ICICI Securities added.