Company Background Balrampur Chini Mills Ltd (BCML) is one of the largest integrated sugar manufacturing companies in India, based out of Uttar Pradesh. The company has total sugar crushing capacity to the tune of 76500 TCD spread across 10 locations in eastern UP. In addition, the company has total distillery capacity of 320 KLPD, power capacity of 223.6 MW (saleable 125.5 MW) and organic manure capacity of 58000 tonnes, spread across different factory location. The company has recently merged its subsidiary Indo Gulf Industries Ltd with itself, which has cane crushing capacity of 3000 TCD at Maizapur, UP. Following table shows the capacity at various locations
Investment Argument
Lower stock to consumption ratio (s/c) in the range of 15-18% for next two consecutive years to keep sugar prices stable with an upward bias: We expect India's sugar production to increase by 30.3% and 8.0% YoY to 24.5 mn tonnes and 26.5 mn tonnes in SY11E and SY12E respectively. Despite this, after considering India's sugar consumption to the tune of 23 mn tonnes, the s/c ratio is likely to be in the range of 15%-18% (i.e., inventory will suffice only for 50 days; Hence, due to the relatively tight inventory situation, we believe, domestic sugar prices are likely to remain stable with an upward bias for at least next 10-12 months.
In addition, in Brazil, higher crude oil prices will lead to cane diversion towards ethanol. Till 1st May 2011, the ratio of cane used between sugar: ethanol stands at 35:65 as compared to 41:59 in a year ago period. This coupled with lower stock to consumption ratio of 16.9% in SY10 at global level will keep sugar prices in international market stable to buoyant. Prices of agri-commodity in India are derived through supply side dynamics and therefore a slight setback in India's sugar production for SY12E could possibly lead to a very steep rise in sugar prices.
FY12E likely to be peak year of production for the ensuing sugar cycle..Sugar, Alcohol and Power segment to benefit from higher cane crushing leading to increase in overall profitability: Going by the historical cyclical trend, we believe SY12E is likely to be the peak year of the current production upcycle. Hence, we expect FY12E to be a very profitable year for BCML led by benefits of higher volume across all the three segments along with stable sugar price and healthy realisation for alcohol and power. In FY12E, we expect the BCML's cane crushing to increase by 11.8% (to 7.7 mn tonnes) vis-a-vis 8.0% increase at pan India level, due to extensive cane development program taken by the company. Post peak in FY12E, for FY13E, we expect the company's cane crushing to decrease by 7.0% YoY to 7.2 mn tonnes, inline with the industry. Overall, we expect company to post EBITDA of ` 4359.2 mn and ` 4077.9 mn during FY12E and FY13E respectively.
Focus on debt repayment and buyback of shares would make volume growth through the inorganic route easier and also create shareholder value in the longer term: We expect BCML net debt to equity ratio to reduce from 1.3x in SY08 to levels of 0.3x & 0.2x in FY12E & FY13 respectively. Till 13th May'11, BCML has completed 84.7% of the 1100 mn buyback program. Lower debt would enable BCML to absorb shocks during the down-cycle and come out strongly.
Most regulated industry..Any decontrol will be positive for the sector and therefore a good deregulation play: The government is looking into various aspects of deregulations like buying levy sugar at market rate, linking cane price with sugar price, linking ethanol price with petrol price, de-reservation of cane area, etc. Positive development on any of these measures will lead to rerating of the sector.
Valuations: BCML currently trades at an EV/EBITDA of 4.2x and 4.3x FY12E & FY13E EBITDA respectively. On P/BV basis, the stock is trading at 1.1x and 1.0x FY12E and FY13E book respectively. BCML is currently trading at 30% discount to the last peak valuations (maturity cycle) based on 1-yr fwd EV/EBITDA and P/BV multiple. Moreover from Asset value metrics, BCML's FY11E EV/replacement ratio at 50% is far below the historical averages of 93% in SY08, 74.8% in SY09 and 75.4% in FY11 (18 months). We value BCML by assigning equal weights based on FY12E P/BV of 1.25x and EV/EBITDA of 6.0x, thereby arriving at the target of Rs 80 per share. We initiate coverage on the company with BUY rating.
LIC Housing Finance 29-05-2011
COMPANY BACKGROUND [LIC Housing Finance]Incorporated in 1989, LIC Housing Finance is one of the largest housing finance companies in India providing long term finance for purchase, construction, repair and renovation of houses. The company also grants finance on existing property for business and personal needs and also to professionals for purchase or construction of Clinics, Nursing homes, Diagnostics Centres, Office Spaces and also purchase of equipments. LIC Housing possesses one of the industry's most extensive marketing networks with 13 back offices, 181 marketing units, 773 direct sales agents, 3400 home loan agents and 615 customer relationship associates. It has also set up representative offices in Dubai and Kuwait to cater services to Non-Resident Indians. Till date, LIC `Housing has given financial assistance to over 10 lacs home owners.
LIC Housing came out with an IPO in 1994 and launched it maiden GDR in 2004. The company holds 100% stake in LIC Housing Finance Ltd Care Homes and LIC Housing Financial and Services.
Shares of LIC Housing were split from the face value of Rs 10 into five equity shares having nominal value of Rs 2-/ share. >>> More >>>
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