ICICI Direct Bullish On This Small Cap Sugar Stock, Suggests Buy For 48% Gains In 12 Months

ICICI Direct is positive on Balrampur Chini Mills Limited (BCML), a small-cap sugar industry company having a market capitalization of Rs 6,711.90 crore. The brokerage recommended buy the stock with a target price of Rs 485 per share.

BCML is the second largest sugar company with a sugar crushing capacity of 77500 TCD, distillery capacity of 560 KLD and cogeneration capacity of 175.7 MW. It will complete its distillery capex of 490 KLD and modernisation, de-bottlenecking of its sugarcane crushing capacity by December 2022, which would take its total distillery capacity to 1050 KLD (35 crore litre).

The company is working on replacing the existing Co-0238 sugarcane variety in its catchment area with newer varieties, which would improve sugarcane yields and recovery.

Stock Outlook & Returns on Investments

With the given target price, the brokerage claims a potential upside of up to 48% in 12 months if the stock is purchased at the current market price. The current market price (CMP) of BCML is Rs 328.95 apiece on NSE. The 52-week high of the stock on NSE is Rs 525.90 and the 52 week low is Rs 299, respectively. 
 
 The stock has given 2.58 negative returns in 1 week, whereas, in the past 1 month,it given 6.44% negative return. Over a year, the stock has given 3.28% negative returns. However, the stock has give maximum 119.52% returns in 3 years and 101.56% in 5 years, respectively. 

Q2FY23 Results

BCML reported dismal results with 8.3% dip in revenues.  Sales down 8.3% with 1%, 14% dip in sugar, ethanol sales, respectively.  BCML posted EBITDA loss of Rs 15.9 crore due to higher cost of production. Consequently, the company posted a loss of Rs 28.9 crore.

Buy for Rs 485 target price

BCML's share price has doubled in the last five years (from Rs 162 in November 2017 to Rs 329 in November 2022). "We expect 39.5% distillery volume CAGR, which would boost the company's earnings at 20.4% CAGR during FY22-24E. We maintain our BUY rating on the stock. We value the stock at Rs 485, valuing the business at 13x FY24 PE," the brokerage has said.

Key triggers for future price performance

With distillery capex, BCML would be able to increase its ethanol capacity 2x to 35 crore litre. Distillery sales are expected to witness 44.0% CAGR to Rs 2021.2 crore in FY22-24E, which would be 33% of total revenues.  It is undertaking modernisation and de-bottlenecking at some plants. This would lead to higher sugarcane crushing, better recoveries by FY24. We expect 11.9% revenue CAGR in FY22-24E. BCML would be replacing Co-0238 with newer sugarcane variety in its catchment areas, which would enhance sugarcane availability and sugar production through higher yields & better sugar recovery.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.