>BALRAMPUR CHINI (LKP SHARES)

■ Robust Cash Flow To Help Strengthen Balance Sheet
We are in the up-cycle of the sugar sector with acute shortage of sugarcane and there by acute shortage of sugar. Higher cash flows and negligible capex would help Balchini to improve its balance sheet and strengthen it further.

■ Lower Debt = Lower Interest Cost = Better Profitability
The higher free cash generation by Balchini will enable it to reduce its debt, thereby reducing the interest cost. Lower interest cost would result in better profitability, despite pressures on the operating profitability due to high sugarcane cost.

■ New Power Policy - "Santa's Gift
The new UP govt power policy has two key positives for the co-gen segment. Firstly, UPPCL has increased the power tariff by approximately 30% to around Rs 4 per unit effective from 1st October 2009. The state has also proposed a policy where they will facilitate sale of 10% bagasse based power through open access. This is during the season. UPPCL has further allowed 50% of off-season power through open access, which is from alternate fuel like Coal, etc. The balance 50%, would be bought by the grid at their own discretion for which they will have to fix up a tariff based on coal as feedstock. This would give a boost to the co-gen revenue not only during the up cycle but also during the down cycle mainly due to rising power deficit situation in the state of UP.

■ Moderate Sugar Volumes coupled With Higher Sugar Prices To Boost Revenue & Shoot Up Profitability.
The revenue from the sugar segment has been growing at a CAGR of 36% for the period between FY08-FY10E. The co-gen division has also performed moderately with 10% CAGR for the same period, however distillery division performance has been disappointing. The total revenue has been growing at 32% CAGR for the period between FY08- FY10E. We expect the profit to grow at 117% CAGR between FY08-FY10E on the back of rising sugar prices.

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