>Balrampur Chini (CENTRUM)

Positive surprise on inventory gains

■ Results above expectations: Q2 adjusted profit stood at Rs662mn vs. our estimate of Rs405mn. PBIT margin in the sugar segment stood at 21.3% and in distillery at 36.6%.
Inventory gains on carry forward inventory of sugar and 39.1% rise in sugar prices led to improved performance.

■ Estimates/target price raised: We have raised earnings by 39.9% for FY09E and by 4.3% for FY10E, led by upward revision in sugar prices and reduction in interest cost (due to repayment of loan on higher cash flows). Accordingly, target price is raised to Rs81 from Rs78.

■ Inventory gains on carry-over stocks: Out of 124,000 tonnes of sugar sold, 110,000 tonnes was from carry-over stock, valued at Rs15,050/tonne vs average sugar price of Rs20,300. This accounted for Rs578mn out of total Rs625mn PBIT in sugar. The current cost of production is
much higher than last year’s inventory, the effect of which will be felt in the coming two quarters through lower PBIT margin in sugar on QoQ basis.

■ Retain Buy: At CMP, the stock trades at 8.6x FY09E and 8.4x FY10E. Reiterate Buy on the back of buoyant outlook for sugar prices with the upside potential of 24.6%.

To see full report: BALRAMPUR CHINI