Report Group 3 -agriculture.pdf

PGDM (e-Business) Semester- II Batch 2018-2020 Agricultural Industry Group No.- 3 Submitted to Professor : Chirag Sheth

Presented By

Roll Number

Nirmit Patel

07

Tanisha Sharma

46

Hinal Shah

55

Sayli Joshi

65

Dhruvi Shah

92

Divya Poojary

117

Agriculture Industry India has the 10th-largest arable land resources in the world. With 20 agri-climatic regions, all 15 major climates in the world exist in India. The country also possesses 46 of the 60 soil types in the world. India is the largest producer of spices, pulses, milk, tea, cashew and jute; and the second largest producer of wheat, rice, fruits and vegetables, sugarcane, cotton and oilseeds. Further, India is second in global production of fruits and vegetables, and is the largest producer of mango and banana. During 2017-18 crop year, food grain production is estimated at record 284.83 million tonnes. In 2018-19, Government of India is targeting foodgrain production of 285.2 million tonnes. Production of horticulture crops is estimated at 306.82million tonnes (mt) in 2017-18 as per third advance estimates. India is among the 15 leading exporters of agricultural products in the world. Agricultural exports from India reached US$ 38.21 billion in FY18 and US$ 21.61 billion between Apr-Oct 2018. Exports of ready to eat items from India reached US$ 689.80 million in FY18 and have reached US$ 419.04 million in FY19 (up to October 2018). The Agriculture Export Policy, 2018 was approved by Government of India in December 2018. The new policy aims to increase India’s agricultural exports to US$ 60 billion by 2022. India was the ninth largest exporter of agricultural products in 2017.

Summary of Agricultural Industry in India Agriculture is the primary source of livelihood for about 58 per cent of India’s population. Gross Value Added by agriculture, forestry and fishing is estimated at Rs 17.67 trillion (US$ 274.23 billion) in FY18. The Indian food industry is poised for huge growth, increasing its contribution to world food trade every year due to its immense potential for value addition, particularly within the food processing industry. The Indian food and grocery market is the world’s sixth largest, with retail contributing 70 per cent of the sales. The Indian food processing industry accounts for 32 per cent of the country’s total food market, one of the largest industries in India and is ranked fifth in terms of production, consumption, export and expected growth. It contributes around 8.80 and 8.39 per cent of Gross Value Added (GVA) in Manufacturing and Agriculture respectively, 13 per cent of India’s exports and six per cent of total industrial investment.

Market Size During 2017-18 crop year, food grain production is estimated at record 284.83 million tonnes. In 2018-19, Government of India is targeting foodgrain production of 285.2 million tonnes. Milk production was estimated at 165.4 million tonnes during FY17, while meat production was 7.4 million tonnes. As of September 2018, total area sown with kharif crops in India reached 105.78 million hectares. India is the second largest fruit producer in the world. Production of horticulture crops is estimated at record 306.82 million tonnes (mt) in 2017-18 as per third advance estimates.

Total agricultural exports from India grew at a CAGR of 16.45 per cent over FY10-18 to reach US$ 38.21 billion in FY18. Between Apr-Oct 2018 agriculture exports were US$ 21.61 billion. India is also the largest producer, consumer and exporter of spices and spice products. Spice exports from India reached US$ 3.1 billion in 2017-18. Tea exports from India reached a 36 year high of 240.68 million kgs in CY 2017 while coffee exports reached record 395,000 tonnes in 2017-18. Food & Grocery retail market in India was worth US$ 380 billion in 2017.

Investment Scenario According to the Department of Industrial Policy and Promotion (DIPP), the Indian food processing industry has cumulatively attracted Foreign Direct Investment (FDI) equity inflow of about US$ 8.57 billion between April 2000 and June 2018. Some major investments and developments in agriculture are as follows: ● ● ●

●

By early 2019, India will start exporting sugar to China. The first mega food park in Rajasthan was inaugurated in March 2018. Agri food start- ups in India received funding of US$ 1,66 billion between 2013-17 in 558 deals. In 2017, agriculture sector in India witnessed 18 M&A deals worth US$ 251 million.

Government Initiatives Some of the recent major government initiatives in the sector are as follows: ●

The Agriculture Export Policy, 2018 was approved by Government of India in December 2018. The new policy aims to increase India’s agricultural exports to US$ 60 billion by 2022 and US$ 100 billion in the next few years with a stable trade policy regime.

●

In September 2018, the Government of India announced Rs 15,053 crore (US$ 2.25 billion) procurement policy named ‘Pradhan Mantri Annadata Aay SanraksHan Abhiyan' (PMAASHA), under which states can decide the compensation scheme and can also partner with private agencies to ensure fair prices for farmers in the country.

●

In September 2018, the Cabinet Committee on Economic Affairs (CCEA) approved a Rs 5,500 crore (US$ 820.41 million) assistance package for the sugar industry in India.

●

The Government of India is going to provide Rs 2,000 crore (US$ 306.29 million) for computerisation of Primary Agricultural Credit Society (PACS) to ensure cooperatives are benefitted through digital technology.

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With an aim to boost innovation and entrepreneurship in agriculture, the Government of India is introducing a new AGRI-UDAAN programme to mentor start-ups and to enable them to connect with potential investors.

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The Government of India has launched the Pradhan Mantri Krishi Sinchai Yojana (PMKSY) with an investment of Rs 50,000 crore (US$ 7.7 billion) aimed at development of irrigation sources for providing a permanent solution from drought.

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The Government of India plans to triple the capacity of food processing sector in India from the current 10 percent of agriculture produce and has also committed Rs 6,000 crore (US$ 936.38 billion) as investments for mega food parks in the country, as a part of the Scheme for Agro-Marine Processing and Development of Agro-Processing Clusters (SAMPADA).

●

The Government of India has allowed 100 percent FDI in marketing of food products and in food product e-commerce under the automatic route.

Achievements in the sector ●

The Electronic National Agriculture Market (eNAM) was launched in April 2016 to create a unified national market for agricultural commodities by networking existing APMCs. Up to May 2018, 9.87 million farmers, 109,725 traders were registered on the e-NAM platform. 585 mandis in India have been linked while 415 additional mandis will be linked in 2018-19 and 2019-20.

●

Agriculture storage capacity in India increased at 4 per cent CAGR between 2014-17 to reach 131.8 million metric tonnes.

●

Coffee exports reached record 395,000 tonnes in 2017-18.

●

Between 2014-18, 10,000 clusters were approved under the Paramparagat Krishi Vikas Yojana (PKVY).

●

Between 2014-15 and 2017-18 (up to December 2017), capacity of 2.3 million metric tonnes was added in godowns while steel silos with a capacity of 625,000 were also created during the same period.

●

Around 100 million Soil Health Cards (SHCs) have been distributed in the country during 2015-17 and a soil health mobile app has been launched to help Indian farmers.

Future of agriculture Industry India is expected to achieve the ambitious goal of doubling farm income by 2022. The agriculture sector in India is expected to generate better momentum in the next few years due to increased investments in agricultural infrastructure such as irrigation facilities, warehousing and cold storage. Furthermore, the growing use of genetically modified crops will likely improve the yield for Indian farmers. India is expected to be self-sufficient in pulses in the coming few years due to concerted efforts of scientists to get early-maturing varieties of pulses and the increase in minimum support price. The government of India targets to increase the average income of a farmer household at current prices to Rs 219,724 (US$ 3,420.21) by 2022-23 from Rs 96,703 (US$ 1,505.27) in 2015-16. Going forward, the adoption of food safety and quality assurance mechanisms such as Total Quality Management (TQM) including ISO 9000, ISO 22000, Hazard Analysis and Critical Control Points (HACCP), Good Manufacturing Practices (GMP) and Good Hygienic Practices (GHP) by the food processing industry will offer several benefits

Fertilizer Industry Fertilizers are substances that supply one or more of the chemicals required for plant growth. Fertilizers can be both organic and inorganic. As per industry experts it is said that there are sixteen elements that are absolutely necessary for plant growth. Out of these sixteen 9 elements are required in large quantities while the other seven are needed in smaller amounts. Since agriculture is a very important sector it goes without saying that the fertilizer industry is one which the Indian economy cannot do without. The fertilizer industry in India is extremely vital as it manufactures some of the most important raw materials required for crop production. The primary objective of this industry is to ensure the inflow of both primary and secondary elements required for crop production in the desirable quantities.

The success of the agricultural sector in India is largely dependent on the fertilizer industry. The benchmark that the food industry in India has set is mainly due to the many technically competent fertilizer producing companies in the country. In the present scenario, there are more than 57 large and 64 medium and small fertilizer production units under the India fertilizer industry. The main products manufactured by the fertilizer industry in India are phosphate based fertilizers, nitrogenous fertilizers, and complex fertilizers. The fertilizer industry in India with its rapid growth is all set to make a long lasting global impression.

Summary of fertilizer industry in India

India is the second biggest consumer of fertilizer in the world next only to China.India has 30 manufacturing units of Urea with an Installed capacity of 21.6 million tonnes till 2013. There are 12 units of DAP producing plants with a combined capacity of 8.3 million tonnes. Complex fertilizers in the country have installed capacity of 6.4 million tonnes from 19 units. Highest number of fertilizer units in the country belongs to SSP. India has 85 SSP units with a combined production capacity of 7.7 million tonnes. India is meeting 80 per cent of its urea requirement through indigenous production but is largely import dependent for its requirements of phosphatic and potassic (P & K) fertilizers either as finished fertilizers or raw materials. Its entire potash requirement, about 90 per cent of phosphatic requirement, and 20 percent urea requirement is met through imports. In India , complex fertilizer is produced by public sector, cooperative sector and private sector players. Taking a closer look at the production scenario of complex fertilizer in the country which has witnessed an overall negative growth for the period from 2008-09 to 2012-13, maximum fall in production by both cooperative and the private sector was witnessed between 2010-11 and 201213. The entire requirement of around five million tonnes of potassic fertilisers would be met through imports as India does not have commercially viable sources of potash. With a view to make the nation self-sufficient in urea fertiliser, the Fertiliser Ministry has moved a proposal to boost investment in the sector.

Comparing two Peer competitors of UPL – Pidilite Ind & Aarti Industries 1. Pidilite Industries Pidilite Industries, a well known name in adhesives market, was incorporated in 1969. Pidilite Industries is the market leader in adhesives and sealants, construction chemicals, hobby colours and polymer emulsions in India. Over two-third of the company sales come from products and segments it has pioneered in India. The company has diversified in various segments such as adhesives and sealants, construction and paint chemicals, automotive chemicals, art materials, industrial adhesives, industrial and textile resins and organic pigments and preparations. It has created brands like Fevicol, Dr Fixit, Cyclo, hobby ideas, Roff and M-Seal. To facilitate better global networking, Pidilite Industries has established offices / subsidiaries in several countries including Singapore, USA, Brazil, UAE, Saudi Arabia, Indonesia, Egypt, Bangladesh, UK, Kenya, South Africa and Ghana.In India it has subsidiaries namely Bhimad Commercial Company and Madhumala Traders. Pidilite also established a state-of-the-art research centre in Singapore that is now a member of Singapore Chemical Industry Council (SCIC).

2. Aarti Industries Aarti Industries Limited, an Aarti Group company was incorporated in 1984 by a group of technocrats. It is the leading and highly integrated chemical manufacturer involved in mainly manufacturing of various benzene based downstream and derivative products. The company owns a state-of-the-art plant near Mumbai, India. It is recognized as the star trading export house, by government of India. The products of the company are exported to various countries like United States, United Kingdom, Germany, Spain, Italy, Switzerland, Belgium, Japan, Korea, China, and Russia.

Company: United Phosphorus Ltd Industry

Pesticides & Agrochem

Market cap

Rs 39,202 Cr (Large Cap)

P/E

18.12 (Industry P/E 25.26)

Dividend Yield

1.05 %

Debt Equity

0.67

Net sales

12.92% growth QoQ

Data Analysis

Sales growth (5yrs)

13.04%

EBIT growth (5yrs)

12.93%

ROCE (avg)

17.98%

ROE (avg)

20.95

UPL RATIOS Y/E March

2014

2015

2016

2017

2018

EPS

9.70

10.81

16.47

4.83

10.76

Current Ratio

1.73

1.48

1.48

1.88

1.59

Dividend per share

4

5

5

7

8

82.22

93.69

151.24

156.46

12.96

19.26

7.17

8

0.35

0.34

0.11

0.1

Book Value per share 77.17 ROCE 18.21

Debt equity ratio

0.35

SWOT - UPL Strength Strong product portfolio Deep marketing reach Better quality control Global manufacturing facilities

Weakness Competitive Market Higher working capital

UPL

Opportunity Expansion into the countries like brazil & Africa

Threats Unfavorable change in government policies Climate change & draught Lower commodity prices

ABOUT UPL United Phosphorous (UPL) is a producer of crop protection products, intermediates, specialty chemicals and other industrial chemicals, was incorporated in the year 1969. UPL is largest producer of agrochemicals in India. It is amongst the top five post-patent agrochemical manufacturers in the world. It offers wide range of products and has developed more than 100 insecticides, fumigants, rodenticides, fungicides PGR and herbicides. UPL is global player of crop protection products has customer base in 123 countries. It has subsidiary offices in Argentina, Australia, Bangladesh, Brazil, China, Canada, Denmark, Indonesia, France, Hong Kong, Japan, Korea, Mauritius, Mexico, New Zealand, Russia, Spain, Taiwan, South Africa, USA, UK, Vietnam and Zambia. UPL has 23 manufacturing facilities -- 9 in India, 2 in Spain, 4 in France,3 in Argentina and 1 in UK, Vietnam, Netherlands, Italy and China. All the units are certified under the ISO 9001 for quality assurance, 14001 for Environment Pollution Control norms and OHSAS1

Products ● UPL manufactures plant growth and regulatory products. Brands like Saaf, Doom, Samar, Jhatka, SaathiI, Renova and Ratol among others. ● UPL also manufactures Caustic Chlorine, White Phosphorus, Industrial Chemicals and Specialty Chemicals. It has created brands like Copter, Vijeta, Uthane, Phoskill, Sweep, UMet , TikTok, Oorja and many more. ● It also has captive power plant that has a generating capacity of 48.5 MW.

Other Businesses ● BEIL (Bharuch Enviro Infrastructure) UPL hold majority stake, in this company. It has developed centralized secured landfill facility. BEIL is engaged in collection and disposing off solid/hazardous wastes from member industries in the regions. ● CEL (Chemo Electronic Laboratory) is part of UPL's diversification strategy. It is one of the largest manufacturers of toxic gas detection devices in India; the only manufacturer of chemical detector tubes in India. ● ETL (Enviro Technology) has a common effluent treatment plant located in Gujarat.

Financial Highlights – FY 2018 Particulars Revenue growth EBITDA improvement ROCE

Growth 9% growth 47 bps 23.4%

Income statement

Comments Delivering consistent and profitable growth year on year In spite adverse business conditions Efficient utilization of scarce resources

Balance sheet

Cash flow

Valuation ●

This Large Cap stock is Good quality but has Expensive valuation ● While Price (-1.56%) has fallen, earnings (9.75%) have increased over the last year ● At the current stock price and financial performance, the stock has Expensive valuation ● UPL Outperformed Sector By 9.71% but Underperformed Sensex By -5.24%

What’s working

What’s not working

Operating cash flow highest at 2836cr

Operating profit to interest(Q): lowest at 4.00 times

the company has generated higher cash revenues from business operations Profit before tax less other income has grown at 28.79 Near term the PBT trend seems positive

Company’s ability to manage interest payments is detoriating Debt equity ratio(HY): highest at 0.89 times the company is borrowing more to fund its operations its liquidty situation maybe stressed Inventory turnover ratio(HY): lowest 2.88 times Company’s pace of selling inventory has slowed down

UPL acquires Arysta: ● Upl snaps up Florida-based Arysta Life Science Inc for USD 4.2 billion in an all-cash deal. ● The transaction will enhance the position of UPL as a global leader in the agriculture solutions market and make it a USD 5 billion entity in combined sales offering it a USD 200 million savings through operational synergies ● Combined entity will become the fifth largest generic agrochemicals company in the world after Bayer, ● Dupont, Syngenta and BASF. ● Arysta possesses expertise in speciality molecules where UPL is relatively weaker. ● Integration may help as UPL is strong in manufacturing and Arysta on the marketing side. ● Arysta has reach over Brazil, Africa, the U.S. and Asia, complementing UPL’s businesses. ● Offers cost synergies using UPL’s strong manufacturing base in India and outsourcing by Arysta. ● Greater exposure to Africa, China and a few other countries which UPL lacks. ● Greater economies of scale in marketing and distribution as a merged entity.

Recommendations for UPL  

   

Sustained revenue growth – set to Continue UPL has been expanding its footprint into multiple geographies and enhances its reach through acquiring brands that are reasonably valued and having a payback period of 3-4 years The management has set an estimated revenue target of $ 4bn in the next 4 years, which if achieved, will set UPL apart from the competition in terms of ROE and ROI International penetration de – risks UPL’s business model Increased focus on per hectare productivity will increase demand for Agrochemicals The world’s population is estimated to reach 11bn in 2100, posing grave challenges for food supplies. Hence, it is crucial to increase per hectare, productivity to meet food supply that can segment, is expected to benefit proportionately from strong demand for agrochemical.

BUY: At 782.68 TARGET PRICE: Rs 1004

Sugar Industry The sugar industry subsumes the production, processing and marketing of sugars. Globally, most sugar is extracted from sugar cane and sugar beet. Sugar is an essential basis for soft drinks/sweetened beverages, convenience foods, fast food, candy / sweets, confectionery, baking products and the respective industries. Around 160 million tonnes of sugar is produced every year. The largest producers are Brazil (22%), India (15%) and the European Union (10%). There are more than 123 sugar-producing countries, but only 30% of the produce is traded on the international market.

Sugar Production Process

Summary of Sugar Industry of India

India is the largest sugar consumer and second largest producer of sugar in the world according to the USDA foreign Agricultural Service. Sugar Industry has a total turnover of Rs. 500 billion

per annum and contributes almost Rs. 22.5 billion to central and state exchequer as tax, cess, and excise duty every year according to the sources of Ministry of Food & Government of India. Sugar Industry is regarded second after the Textile Industry in India as per the agro- processing industry in the country. The industry has 453 operating sugar mills in different parts of the country. Today nearly 50 million sugarcane farmers and a large number of agricultural laborers are involved in sugarcane cultivation and ancillary activities contributing to 7.5% of the rural population. Indian Sugar Industry generates power for its own requirement and even gets surplus power for export to the grid based on byproduct bagasse. There is even production of ethanol, an ecology friendly and renewable energy for blending with petrol. Sugar Companies have been established in large sugarcane growing states like Uttar Pradesh, Maharashtra, Karnataka, Gujarat, Tamil Nadu and Andhra Pradesh and are the six states contributing more than 85% of total sugar production in India. And 57% of total production is together contributed by Uttar Pradesh and Maharashtra.

Types of Sugar Industries in India The Sugar industry in India has two sectors including organized and unorganized sector. The sugar factories usually belong to the organized sector and those producers who produce traditional sweeteners fall into unorganized sector. Gur and khandsari are the traditional sweeteners. · Extracting juice by pressing sugarcane · Boiling the juice to obtain crystals · Creating raw sugar by spinning crystals in extractors · Taking raw sugar to a refinery for the process of filtering and washing to discard remaining non-sugar elements and hue · Crystallizing and drying sugar · Packaging the ready sugar

Key Characteristics of Sugar industry: ● ● ● ● ●

Capital intensive Government regulated Seasonal fluctuation in the industry (demand increases during festive season) Raw materials constitute major cost No proper substitutes

Key success factors (key performance indicators) ● Capital utilization

● Optimum utilization of by-products for additional revenue ● Captive power generation

Global Sugar Industry

Brazil, India, EU and Thailand together account for over 50% global sugar production. India is 2nd largest sugar producer in the world and the largest sugar consumer country. Brazil is the largest sugar producer with 50-60% of sugarcane used for production of Ethanol as a substitute for the fuel.

ETHANOL INDUSTRY Ethanol is a very key by-product for integrated sugar mills. On an average, 10.8 lt of Ethanol can be produced from 1 tonne of sugar. B-Heavy molasses have better yield of Ethanol (explained in detail later on in the article) than the molasses currently used for Ethanol production. Ethanol is blended in the fuel to reduce the dependence of the country on crude imports generally, and also ethanol is a cleaner fuel. ‘E20’ is a term to express 20% blending in the fuel. India has ~330 distilleries which can produce over 4 bn litres of rectified spirit (alcohol) per year. Of these, ~162 distilleries have the capacity to distil over 200 cr litres of conventional bio-ethanol. India produces conventional bio-ethanol mostly from sugar molasses and partly from grains. Production of advanced bio-ethanol is still in the R&D stage.

India will triple its ethanol production over the next four years till 2022 and this will save ₹12,000 crore in the country’s oil import bill, Prime Minister Narendra Modi said on Friday, which is being celebrated as World Biofuels Day. The Prime Minister also blamed the previous government for not encouraging the production and adoption of ethanol, saying his government has planned 12 biofuel refineries in the country at an investment of ₹10,000 crore. “The ethanol blending programme was started during the Vajpayee government,” Mr. Modi said. “But previous governments did not take the ethanol programme seriously. Now we will produce 450 crore litres of ethanol in the next four years from the existing 141 crore litres. This will result in an import savings of ₹12,000 crore.” The government will

achieve 10% ethanol blending in petrol by 2022 and is aiming to double it to 20%,” Mr. Modi added. However, the government’s biofuel policy has come under some criticism, with Kalikesh Singh Deo, Member of the Parliamentary Standing Committee on the Ministry of Petroleum and Natural Gas saying the policy itself needs revisiting. “On the occasion of World Biofuels Day, the government needs to revisit its recently announced biofuels policy,” Mr. Deo said in a note. ‘Abysmal levels’ “India needs to adopt a holistic approach to meet the consistent targets of ethanol blending, which this government has been maintaining at abysmal levels (2% currently as per the policy document itself),” Mr. Deo said in a note. “The Union Government is highlighting the fact that it is investing significantly in the effort to transform biomass to biofuel,” Mr. Deo added. “There is a plan to set up 12 modern refineries for generating advanced biofuel. The plans announced by the government have been repeated in one form or other since 2014, with little or no success,” he added

Comparing two Peer competitors of Balrampur chini – Shree Renuka & EID Parry 1. Shree Renuka Sugars (SRSL) was established in 1995. It is a fully integrated player focused on manufacturing and marketing of sugar, power and ethanol. Shree Renuka Sugars has a leadership position with 20% market share in the current fuel ethanol tenders by the oil marketing companies (IOC, HPCL, BPCL) and would supply a total of 217 million litres over a period of 3 years.It has a Market Cap of Rs. 2,102.75 cr. Products portfolio of the company: Sugar- This being the core product of the company, Power- Out of the by-products like Bagasse and molasses it generates power for captive consumption and sale to state grid. Ethanol. Bio fertilizers- The residue product from distillery operations blended with chemical are sold as Bio fertilizers.

2. EIDParry EID Parry established in 1788, is engaged in the business of manufacturing and marketing of sugar and bio products. The company was incorporated in 1975. It has a Market Cap of Rs.3,919.55 cr. Products-Sugars- Under sugar, EID Parry operates 5 plants located at Nellikuppam, Pugalur, Pudukottai, Pettavaithallai and Puducherry. The company has a combined crushing capacity of all the five plants is 15800 (TCD) metric tonnes of cane per day. From the by-products of sugar manufacturing, the company manufactures alcohol, biofertiliser, power and ethanol. Bio Products- The bio products division of the company is a world leader in the plant extract based bio pesticides business. The company’s azadirachtin based product range-NEEMAZAL is registered in over 30 countries that include Argentina, Brazil, Australia and Korea and many more. Nutraceuticals- Under this, the company has product portfolio that includes astaxanthin and haematococeus algae, natural mixed carotenoids, Astaxanthin and Lutein(all carotenoid products).

Balance sheet (March 2018)

Amt in cr

Particulars

Balrampur chini

Shree Renuka

EID Parry

Total debt

876.19

1,095.96

707.41

Total liabilities

2,463.34

3,159.46

2,345.54

Total Assets

2,463.32

3,159.47

2,345.54

Profit and loss (March 2018)

Balrampur Chini Mills ltd

Industry Market cap P/E Dividend Yield Debt Equity Net sales Net profit

Sugar Rs 2,532 Cr (Small Cap) 13.82 (Industry P/E -4.05) 2.26% 0.03 -17.94% 10.35% growth

Sales growth (5yrs) EBIT growth (5yrs) ROCE (avg) ROE (avg)

6.56% 18.12% 14.99% 18.58%

Balrampur chini is the second largest sugar manufacturing company. India is the second largest sugar producer and the largest sugar consuming country in the world; Balrampur Chini Mills Limited is one of India’s largest integrated sugar manufacturing companies. The business portfolio consists of manufacturing and marketing of sugar, ethyl alcohol, ethanol, generation and selling of power and also manufacturing and marketing of organic manure. The Company possesses a cane crushing capacity of 76,500 tonnes per day, distillery capacity of 360 KL per day and saleable co-generation capacity of 163.20 megawatts. Company has nine sugar factories located in Eastern U.P.During FY18, it earned revenues worth Rs.4400.72 crore (up by 20.87 % from FY17), reported PBIT of Rs.384.21 crore (compared to Rs.789.57 crore in FY17). Revenues and PBIT from the distillery and co-generation vertical stood at B643.50 crores and B280.27 crores during FY18 respectively (compared to B602.29 crore and B275.61 crore during FY17, respectively). The result was that the non-sugar proportion of profitability for the Company increased from 32.92% to 66.88%. Even after factoring a 3% consumption increase over the previous year’s level of ~25 million tonnes, the country is expected to close the 2018-19 sugar season with a projected surplus of ~15 million tonnes, equivalent to seven months of sugar inventory – the highest ever.It is Supported by very strong farmer relationships. Cyclicality of sugar industry: The sugar sector is impacted by induced cyclicality, since high sugar and sugarcane prices lead to increase in production at the cost of other crops. The resulting

low prices for sugar impact the ability of mills to pay the farmers, thus leading to creation of arrears

Scenarios for Balrampur Chini Political: New Delhi, Sep 26 () The government Wednesday approved a Rs 4,500 crore package for the sugar industry that includes over two-fold jump in production assistance to cane growers and transport subsidy to mills for export up to 5 million tonnes in the marketing year 2018-19 The Cabinet Committee on Economic Affairs (CCEA)help mills in clearing huge cane arrears of around Rs 13,000 crore These steps will enable mills to boost sugar exports and clear cane arrears, which currently stand at Rs 13,567 crore. Mills in Uttar Pradesh owe the maximum at Rs 9,817 crore to cane farmers. Economic: The industry is facing a glut-like situation because of record production of 32 million tonnes (MT) in the 2017-18 marketing year (October-September), resulting in a closing stock of 10 MT at the end of this month. With low global prices, the ministry has suggested helping mills to export 5 million tonnes of sugar under the Minimum Indicative Export Quota (MIEQ) during 2018-19 by compensating expenses towards internal transport, freight, handling and other charges Social: Though consumption of sugar in India has been growing at a steady rate of 3%, and is currently at 23.1 million tones, per capita consumption at 18 Kg (lower than world average of 22 Kg) indicates potential upside from a demand standpoint.

FINANCIAL HIGHLIGHTS Income statement

Balance sheet

Cash flow

Y/E March

2014

2015

2016

2017

2018

EPS

0.15

-2.36

4.09

25.20

9.68

Current Ratio

1.63

2.14

2.28

3.37

1.77

Dividend per share

0.00

0.00

0.00

2.5

3.5

Book Value per share

49.76

46.12

50.28

65.58

69.48

ROCE

5.27

0.93

12.73

24.18

15.51

1.11

1.43

1.22

1.09

0.54

Debt equity ratio

SWOT- BCML

This Small Cap stock with Good quality and Attractive valuation looks Positive for Long Term ● Outperformed Sector By 10.96% and Underperformed Sensex By -19.19% ● Both Earnings (-68.30%) and Price (-15.51%) have fallen over the last year, but the fall in Earnings has been higher ● At the current stock price and financial performance the stock has Attractive valuation

What’s working Highest operating cash flow(annually) at 1179.84 cr This implies that company has generated higher revenue from operations Debtors t/o ratio (hy) highest at 28.30 Company has been able to settle its debtors on time C&CE highest(hy) at 316.51 cr Short term liquidity is improving Dividend payout ratio(y) highest at 25.83% Company is distributing higher propotions of profit as dividend Earnings per share highest at 3.98 Increase in profitability has created higher earnings for shareholders

What’s not working Net sales has fallen at 17.94%(Q) Near term sales trend is negative ROCE lowest at 14.57% (hy) Profit generated on overall deteriorating

capital

is

Why the stock price of Balrampur Chini could double? Globally energy security and environmental concerns are driving the adoption of fuel ethanol across countries. Leading countries including Brazil, U.S., Europe, Australia, Canada and Japan have established fuel ethanol programmes. In the future, global fuel ethanol demand is likely to grow exponentially. Global ethanol exports, currently at 6.5 billion litres are expected to increase to 50 to 200 billion litres by 2020 The government, earlier in September 2018, increased the prices of ethanol by 25 per cent. Only a few players will benefit from this ethanol blending because only 25% of the sugar mills in India have the distillery capacities and fewer have environmental clearance as well and Balrampur is one of them. Considering the company has the ability to sell more than 10 crore litre of ethanol/alcohol and 5560 crore units of power, we believe it would be able to generate more than 700 crore of revenues from by-products. Additionally, it is also increasing its ethanol capacity to 18 crore litre.