Balrampur
Chini* |
Bajaj
Hindustan |
Dhampur
Sugar Mills |
KM Sugar
Mills |
Shree
Renuka Sugars |
'Dwarikesh
Sugars |
| Capacity (TCD) | 29000 | 53000 | 20000 | 4500 | 7500 | 6500 |
| Net sales | 813.51 | 541.08 | 520.50 | 81.40 | 420.10 | 118.05 |
| Operating profit | 239.50 | 146.40 | 90.65 | 10.20 | 51.70 | 37.70 |
| Operating margin (%) | 29.40 | 27.10 | 17.40 | 12.50 | 12.30 | 31.90 |
| Net profit | 147.39 | 84.60 | 46.26 | 2.50 | 37.10 | 24.70 |
| Net margin (%) | 18.10 | 15.60 | 8.90 | 3.10 | 8.80 | 20.90 |
| P/E | 13.80 | 22.60 | 11.40 |
4x# |
12.2-14.7x | 9.10 |
| * Figures are year ended March 2005 # annualised |
| |
| The company plans to raise its sugar crushing capacity from 4,500 TCD to 6,500 TCD. The actual project cost is Rs 37.56 crore, of which Rs 33.28 crore will be met by the issue and the rest by internal accruals.
|
| |
| The company also plans to set up a 60 KLPD fuel grade ethanol plant in Ahmednagar, Maharashtra, for Rs 5 crore, a part which was already spent using internal accruals. The company's existing power requirement of about 5.5MW is met by its captive power plant with a capacity of 7MW.
|
| |
| However, the company proposes to add a power capacity of 10MW to meet its increased requirement of total 10.5MW post expansion. The company also has a refining capacity of 200 TPD.
|
| |
| KM plans to use its IPO proceeds to meet working capital funds and repay some short-term loans. According to the company, the proposed expansion will reduce output cost as the existing production lines will be optimally utilised with the increased capacity.
|
| |
| The company is close to cane growing areas. So availability of raw material is ensured while transportation costs are also lesser. The company, however, faces competition from larger players in the region such as Dhampur Sugar Mills and Balrampur Chini Mills for sugarcane procurement.
|
| |
| In fact, Balrampur is likely to come up with a new plant that will only compound KM's problems. All the three units are located at a distance of less than 70 kilometers from KM's factory.
|
| |
| Analysts say that till sugar prices are firm, KM like other smaller peers may be able to sustain its profitability. However, if sugar prices dwindle, the company may find the going tough as competitive pressure from larger players may drive up procurement costs thus impacting profitability. But for now, industry dynamics appear favourable. India's sugar consumption at about 20 milion tonne is expected to exceed production which stands at 18-19 million tonnes.
|
| |
| Also inventory levels have been depleting to abysmally low levels. Thus sugar prices are expected to remain firm over the next few years.
|
| |
| Globally too, the outlook seems bullish thanks to rising consumption from Asian countries, cut in exports of subsidised sugar from the EU, the largest sugar exporter, and diversion of sugarcane to ethanol in Brazil, which is another major producer.
|
| |
Financials
For the nine months ended June 30, 2005, the company reported a net sales of Rs 81.40 crore, more than what it achieved for the full year ended September 2004 (Rs 70.2 crore).
|
| |
However, raw material costs went up from Rs 51.20 crore to Rs 88.90 crore owing to payment of differential of cane price under a previous dispute. Thus, profits were lower. Operating profit stood at Rs 10.2 crore in June 2005 (Rs 10.48 crore in September 2004).
| Financials | | (Rs crore) | Sep-03
18 months | Sep-04
12 months | Jun-05
9 Months | | Net sales | 126.40 | 70.20 | 81.40 | | Operating profit | 12.70 | 10.48 | 10.20 | | Operating margin (%) | 10.10 | 14.50 | 12.90 | | Net profit | -0.90 | 5.10 | 2.50 | | Net margin(%) | -0.70 | 7.30 | 3.10 | | EPS |
- | 16.90 |
13.05* | | * Annualised EPS |
|
| |
| Net profit has declined from Rs 5.1 crore in September 2004 to Rs 2.5 crore in June 2005. Last year's profits were higher on account of significant tax write-backs. Operating margins also seem to have come under pressure - down from 14.90 per cent in September to 12.50.
|
| |
| The company has a negative cash flow of about Rs 1.80 crore for the nine months ended June 30, 2005, including a negative cash from operations of Rs 9.9 crore. This was on account of a sharp increase in inventory levels. KM Sugar's book value has declined from 42.37 on September 2004 to Rs 22.78 for the nine months ended June 2005.
|
| |
Valuations
At Rs 52, the company's valuation stand at 4x annualised nine-month (ending June 2005) earnings per share of Rs 13.05.
|
| |
| Analysts say that though the valuations look cheap, the company will find it difficult to withstand any downturn in sugar cycle owing to competition from large players situated in Uttar Pradesh. But there is still time before the sugar story turns sour. |
| |
