Balrampur Chini Mills Share Price Target Post Cabinet’s Sugar Industry Package

Today Cabinet has approved the package of more than Rs.7000 crore to deal with the current crisis in the sugar industry. However, some sugar stocks plunged in the market. Balrampur Chini Mills Ltd fell about 7.76% in today’s trade.

The Government may have taken this step as a result of BJP’s recent loss in Lok Sabha by-poll in Kairana, Uttar Pradesh, which is in the heart of north India’s sugar belt. The package will help mills clear payment of arrears to sugarcane farmers.

Current Crisis in the Sugar Industry

The market price of the sugar has fallen due to the excess production during the current Sugar Season and also due to an indication of higher production in the ensuing Sugar Season. As a result, the liquidity positions of the sugar mills are adversely affected.

The arrears to sugarcane farmers have crossed Rs 22,000 crore, more than half of which is for farmers from Uttar Pradesh. The package include the creation of buffer stock of 3 million tonnes for which the money will be transferred directly to accounts of farmers.

Steps taken by the Government in last four months

• To check any import to the country, the government has increased the custom duty on import of sugar from 50% to 100%.
• To stabilize the domestic sugar price, the government had imposed stock holding limits on producers of sugar for the months of February and March, 2018.
• The government has withdrawn the custom duty on export of sugar to boost sugar industry to start exploring possibility of export of sugar.
• The government has allocated mill-wise Minimum Indicative Export Quotas (MIEQ) of 20 LMT of sugar for export during Sugar Season 2017-18.
• The government has also re-introduced Duty Free Import Authorization (DFIA) Scheme in respect of sugar to facilitate and incentivize export of surplus sugar by sugar mills.
• The government has extended the financial assistance to sugar mills @ Rs.5.50/qtl of cane crushed during 2017-18 Sugar Season to offset the cost of cane.

Balrampur Chini Mills Share Price Target Review

Balrampur Chini Mills stock had already moved up around 6% yesterday in anticipation of the package, but fell about 7.76% in today’s trade. The company is one of the largest integrated sugar company in India, with ten sugar factories in Uttar Pradesh. In the fourth quarter of FY 18, the company’s revenue grew by 15.53% to INR 1,02,552 lacs. However, the total comprehensive income fell by 63.21% to INR (4,647) lacs. The company in Q4 2018 posted the diluted EPS of INR (1.82). The 1 year target price on the stock is INR 80.

BJP is leaving no stone un-turned to regain the confidence of sugarcane farmers before 2019 Lok Sabha elections as Uttar Pradesh has always been a key decision maker in general elections. Investors shall also consider such political moves as an opportunity to invest.