Sunday, January 9, 2011

Balrampur Chini Buy on declines

Despite being one of the stronger companies in the sector, the stock of Balrampur Chini Mills joined that of many other domestic sugar producers in the list of stocks that have shed the most value over the past one year. Speculation about a stake sale by the company's promoters also led to a spike and then a decline in stock price mid-year. Buoyant market conditions did little to help sentiment towards sugar producers as the sector was besieged by adverse sector fundamentals topped off by frequent policy changes. The shortfalls in sugarcane output in the 2009 season saw a sharp spike in sugarcane procurement prices, even as sugar prices in the open market corrected from their earlier peaks.

Sugar producers in the state of Uttar Pradesh bore the brunt of higher procurement prices for cane as cane was diverted to the gur (jaggery) manufacturers and the concentration of capacities in the State prompted a scramble for cane. The impact of this double whammy began to show up in the results of Balrampur Chini (much like its peers) from the March quarter of 2010. Net profits began to slip year-on-year, with the results slipping into the red in the latest quarter ended September 2010. The company has closed the year ended September 2010 with net profits of Rs 36.9 crore on sales of Rs 1,950 crore compared to Rs 226 crore on Rs 1,700 crore last year. While 2009-10 proved a challenging year for most sugar producers, the current year promises to be better with a rebound in market prices of sugar, better realisations on ethanol sales and lower cane prices owing to higher output.

— Aarati Krishnan

Source - BusinessLine

Our Recommendation :

The stock is finding good support around Rs.72 levels. Buy on declines @ Rs.70 and hold for a spike of 30-35% holding period of 9-12 Months.

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