VCK

S&P CNX Nifty 50 : 1020.15
BUY : Rs. 102.05 (NSE); Rs. 102.15 (BSE)
November 22, 2002

Rationale for Purchase:

 n       Sugar Cycle attractively poised: Sugar like any other commodity is cyclical in nature. The stock prices of sugar companies increase at the beginning of the sugar cycle. The beginning of sugar cycle is marked by a dip in production after two to three years of continuous increased production. We expect production for the sugar year 2002-2003 (Oct’2002 to Sep’2003) to fall by 7.85% to 170 lakh tones after four years of continuous increased production, which would mark the beginning of a new sugar cycle.

n       De-control of Sugar Industry: Sugar Industry had been under Government control for years. With one of the most regulated industry being progressively de-regulated, it is likely to result in increased opportunities for growth than the industry has witnessed over last several decades.

n       Integrated Business Model: BCML has fully integrated business model. Giving it the ability to make a variety of sugar-derived products, enabling the company to cushion flat sugar realizations with surpluses from its ancillary business.  BCML utilizes all it’s by-products like molasses, bagasse and waste mud for alcohol (potable and industrial), power and organic manure respectively.

n       Largest and Fastest Growing fully Integrated Sugar Company: BCML is one of the largest and fastest growing domestic sugar company with an operational capacity of 25,000 tcd spread over three units in East U.P (further 4,000 tcd capacity at Barabanki to come up by Dec’2003).

n       Ethanol: Government has amended the control order regulating the supply and distribution of petrol to enable doping of 5% ethanol in petrol. In fact, five percent ethanol doped petrol has been made mandatory in nine sugar cane producing states and four Union territories from Jan 1, 2003.

n       Introduction of futures and forwards: The Government has allowed forwards and futures trading in sugar, which is likely to provide a price discovery mechanism in the decontrolled scenario.

n       Probable Buffer Stock Creation: The Centre is considering the sugar industry’s demand for creation of a buffer stock, by utilizing the Sugar Development Fund (SDF). Sugar Industry has been demanding for a creation of 2 mt of buffer stock to allow the industry to tide over the high inventory problem. This would help the sugar industry to cope with the high inventory levels.

We rate BCML a ‘BUY’ with an 18-month price target of Rs.165, an appreciation of 61.69% from the current levels of Rs.102.05 (NSE).

VCK Research
41, Shakespeare Sarani
Kolkata - 700 017
Ph. (033) 287 2387
Analyst: Siddharth Bothra (siddharth@vckgroup.org)