Balrampur Chini Mills Ltd
NSE:BALRAMCHIN
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Balrampur Chini Mills Ltd
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Ladies and gentlemen, good day, and welcome to Balrampur Chini Mills Limited earnings conference call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on Balrampur Chini Mills Q1 FY '23 Results Conference Call. We have with us today Mr. Vivek Saraogi, Chairman and Managing Director; and Mr. Pramod Patwari, Chief Financial Officer of the company. We would like to begin the call with brief opening remarks from the management, following which we'll have the forum open for a question-and-answer session.
Before we begin, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the results presentation shared with you earlier.
I would now like to invite Mr. Saraogi to make his opening remarks.
Yes. Thank you, and good afternoon, everyone, and thank you for joining us on our earnings conference call. I hope you and your families are all keeping safe and in good health. I trust all of you have had the opportunity to go through the results presentation, providing the details of our operational and financial performance. So I will begin the call with an update on the current developments in the sugar industry, followed by our company highlights for the period under review.
India's net production in '21-'22 -- sugar season '21-'22, is expected to be 35.9 million, and this is after considering an ethanol diversion of 3.4 million. As per the early estimates for next year, sugar production is anticipated to be 35.5 million tonnes on account of higher diversion of 4.5 million. So this 35.5 million will be after diversion of 4.5 million. UP is expected to witness an improvement in production even after COVID diversion to 10.9 million in the coming season against 10.2 million in the previous year. In the other key states, Maharashtra, Karnataka, even after post-COVID diversion, production is expected to remain at 13 million and 5.8 million, respectively.
So all I'd like to say is that these are very early estimates. These are the figures, and we estimate them in ISMA. Any meaningful estimate on the countrywide level or a more accurate assessment would be available in probably October, November, post the monsoons.
On the ethanol front, a total of 446 crore liters of ethanol was contracted during the year, out of which 363 crores came from the sugar industry. This has been a phenomenal game-changing journey for the industry, moving from 1.5% petrol blending or 38 crore liters in 2013-'14 to achieving 10.16% blending, equivalent to 446 crore liters, as mentioned above. In '22-'23, 12% blending is expected to be achieved, accounting for about 545 crore liters of ethanol. The government has been proactively promoting the production of ethanol through its policies and targets to increase blending rate to 20% by 2025. Pramod, when 20% happens in 2025, what is the diversion expected, 6.5 million, 7 million?
7 million, as per [indiscernible].
So just to -- as we extrapolated figures of percentage and diversion, so 20% diversion could mean about 7 million tonnes of sugar sacrifice. Given the significant increase in capacity expected over the next few years, we believe industry should be able to meet this challenge of supplying this above quantity.
Given the surplus sugar situation over the last few years, along with ethanol diversion, the industry has also been proactively exporting. In the current season, government is considering to notify another 1.2 million tonnes, which will enable the country's export to go up to 11.2 million tonnes. This is by far the highest by a mile. Like Pramod, would it be 50% higher than what was ever achieved? [ 70 ] was the highest, correct?
Yes. Last year, it was.
So [ 70 and 35 ] more than 50% higher. This will help moderate the closing stock to 5.8 million, which seems -- which is very comfortable. And if you've seen yesterday, the government has given a statement in parliament saying that their end objective -- or their objective is to keep sugar inventory at the end of the year at 6 million. So this tells you of the trajectory and the mindset of the government, which people were doubting when there was an export restriction that came up a few months back.
Moving to the company's performance. Balrampur has reported a muted quarter as lower sugarcane yields and recovery in the previous season impacted the Sugar division, which resulted in raising the cost of production of the sugar carryforward, which was carried forward on 1st of April. Right, Pramod? Furthermore, fixed overheads could not be absorbed in this quarter due to lower crushing. So if there is a spillage of crushing into this quarter, which we will brief you later on for the next year, the overhead gets absorbed by that crushing.
After 2 consecutive years of errant weather in our area, for the -- after 2 years, we are seeing a very decent stroke -- a healthy pattern of rainfall, which we hope should be very positive for our coming season. Furthermore, we have done a lot of cane development work at the farmer [ rent ], and we are hoping to report an improved -- improvement in both availability and recovery for the next year.
I'm glad to report that we are on track to complete the state-of-the-art distillery facility at Maizapur, which would operate on sugarcane use to ethanol with grain. This, combined with our expansion in Balrampur, again, where we are going to do both B-heavy and juice, would take our resulting distillation capacity to 1,050 KLPD, which will enable us to supply 35 crore liters of ethanol with big [ impression ] we have or which we are targeting.
All in all, we're committed to delivering value to our wide range of stakeholders through our integrated model, which is deleveraged as well, and which has enabled us to sustain a solid balance sheet and achieve positive cash flows. We continue to invest prudently and return excess cash to the shareholders from time to time.
I'd now request Pramod to take the call here.
Good afternoon, everyone. I hope all of you had the opportunity to go through our results presentation that has been uploaded on the stock exchanges as well as the company's website and shared with you, wherein all the financial and operating performance data have been given. So for the benefit of having a larger portion of time at our disposal for the Q&A session, I will request the moderator to operate -- to open the forum. Thank you.
[Operator Instructions] The first question is from the line of Lokesh Maru from Nippon India Mutual Fund.
Am I audible?
Yes, please.
Sure. Sure. I wanted to -- first of all, after going through the annual report, I wanted to appreciate the efforts that the company had put in to deliver what we have even after 2 of our units, which is Balrampur and [indiscernible] over and challenges starting with the areas in its command area. So I have one question regarding the same episode, which is, what is the impact, spillover impact of the current bad crop on the upcoming sugar season? Like, for example, 40% usually is ratoon rate. So would it be fair to assume that recovery may not really recover to the extent that we have seen last year, on last sugar season last year?
Okay. Yes. We -- I'll answer that. Anything else?
Yes. Again, given our inventory position as of 30th June, is it fair to assume that we'll start crushing this time by end of October? It's very -- like what's our strategy there, too? How do we plan to come back to recoup the loss that we have had in Q1?
So -- okay. Pramod, so...
You can answer the second question first.
Both are related to cane.
Yes. So let Avantika answer both the questions so that...
So Avantika, please answer the question relating to cane. And why don't you give a brief overview of the activities and, therefore, what is expected? Over to you.
Thank you, and good afternoon, everybody. Thank you for joining the call. I want to give a brief overview of the current estimate of what we are thinking for the season ahead. Firstly, as opened -- as said by my father, the weather pattern is completely different this year than it has been in the last 2 years. The cane seems much, much better this year than we have seen it in a while. It is giving us the feeling of '19-'20, but we don't want to jump the gun on that.
Having said that, we have also got derisking methods and ways. We have had a historic level planting this year, and we are reporting an area of 3 lakh 24,000 hectares of area under cane for the first time since we've been established. And this is an 8% increase from the last year itself. So even if we are to be at the yield of last year, it would be -- we would have an 8% increase in cane, for sure.
But having said that, if under this area of cane, we are to see '19-'20 yields, we can be 11 crores plus. So our internal targets are around 10.5 crores, but we can say more after the monsoons are over, of course.
Secondly, this time, since the monsoon pattern has been good, May, June, it did not rain at all as it had been in the last couple of years, our ratoon activities have had a really, really good start. We're expecting ratoon yields to increase healthily. Apart from this, we also got the opportunity to do intercultural operations in the existing plant crop and also the ratoon, from which we never got a chance to do in the last couple of years, along with insect, pest and disease control.
So this is a period when work can be done. And if it rains in this period, we become -- it becomes difficult for us to carry out activities, which we have gotten the chance to do all of it this year. Other than this, the cane has had a chance to increase tillery, which is number of millable canes increase in each clump. So this also impacts yield in a positive manner. So it's looking like a decent sort of season upcoming.
Also, I want to report that our 238 variety, we have reduced due to red rot infestation by a good margin. We are down by 20% this year. And we have increased other high-yielding sugar varieties like 118 in our area, which is of a higher recovery. It's not -- it's definitely of a higher recovery than 238. So we are expecting a good year ahead, and that's all I want to say.
So if I may add, if one is to observe the weather pattern of this year, the weather pattern would remind us of '19, '20. And the problem we faced was threefold last year. One, as Avantika mentioned, in -- there was constant rainfall in May -- April, May and June and at regular intervals, which inhibited the agricultural activities, which led to a much lower ratoon yield also. So ratoon will improve because until now, we've got all the ratoon activity which were to be done with suitably enhanced measures like urea application, et cetera. So that part has already been completed. So that goodness or that positivity of tillering is already entered in the cane.
Now in June and July and August, we've had very scattered rainfall with sunlight. So till now, ideal conditions. And as Avantika briefed you on the disease and varieties, et cetera, we feel rather confident of giving a good performance and getting back to our old levels, at '19-'20, 10.5. So our '19, '20, we have already crushed 10.5. And we are, as you are aware, expanding Balrampur, and we have done debottlenecking in other units.
There's another question on date of start. Yes, we would like to begin a little early from last year, definitely. And therefore, the crushing even in the current balance sheet would be reflective of that as well as the next balance sheet because the spillover would be much greater, right? So I think we've covered the spectrum, our broad spectrum of how the cane looks like in our area.
Sure, sir. Sir, last question on realizations. Given the macro economy and [ our goal in India is ] -- into 40 million tonnes this year, do you see like earlier expectation due to diversion, due to bad crop from the mill, which was building us for really optimistic and really higher realizations of the order of INR 38, INR 40, et cetera, playing out for cane and sugar. But after a good crop and earlier estimates of good growth, I would say, [indiscernible]. So are you looking at realizations for -- going forward for this sugar season?
So basically, the realization looks very positive. So see what the government is doing. Let's understand very clearly. They are saying keep your inventory at 6 million. So that's just a way of saying that just have enough stocks. When the -- all the mills begin for -- up to December, thereby indirectly saying, I am in sync or I am wanting the price levels to be decent.
So until you want the price to be positive, you don't do this. You don't come up with additional 12 lakh, which was even beyond my recognition because people were getting so headachy, you will only stop at 100 lakhs or even 112 lakhs. So the idea and the thinking of the government is very clear. So therefore, our realizations as we get into August are closer to INR 36, INR 35.80, INR 36, in that region. We are hoping that these realizations continue to be firm for the next couple of months, next 3, 4 months, definitely. And then there is a marginal dip. That's seasonal factor.
On production next year, this is again a very personal view. We've given you my estimates. Normally when plants run too late, like Maharashtra, during the ratoon, yield was never good because if ratoon is harvested in the month of May end, that yield is not good. But today, one is reeling from an estimation which went early last year because one was not able to predict how much more Maharashtra can do. So I don't think INR 35.5 can be crossed. If at all, it may come down, but that's a very personal thing.
Thirdly, the excess sugar, Brazil, et cetera, they do need sugar. Pramod, you will take the international scenario?
Yes. Global market needs sugar at this point in time, and India is not a supplier at this level. So in order to fetch the sugar from India, which is -- will be the requirement, global prices has to move up. The day it starts moving up, there will be a little pressure on the domestic market. Domestic market will also start importing.
And it's already good. So even if you get to next year, and let's say, one is able to export 7 million only, you're back to 6 million closing stock, which is perfect, which is just perfect. So even, for example, we in Balrampur, we have converted one of our refineries into being able to sell into London. So we would also be physically exporting refined sugar. The realization of this is absolutely wonderful.
So I think we'll come to figure work a little later. Maybe we'll be able to tell you next time. So we are going to export white sugar from our factory of the London 5 variety at very good prices. So that, again, will lower the -- that -- just to give evidence that even during season, prices might not come up a lot. So price trajectory, positive. Stock trajectory explained it. Demand trajectory, same, about 5 -- 6 lakhs to 7 lakhs higher from last year and continuing that sort of 2.5%, 3% growth of demand.
We'll move on to the next question. That is from the line of Sanjay Manyal from ICICIdirect.
Just have one question on the sugar production. Considering the fact that at the gross level, we have reached around 40 million tonnes. So if we really need to reduce our dependence on the export in the longer run, is it possible that the 10 million tonne can be diverted to ethanol, considering the fact that 5 million tonne probably can be directed through juice route and the rest through B-heavy route? And probably we can reduce the 10 million tonne through ethanol only and probably dependency on the export also comes down.
So -- okay. It's, again, a mix, no more to assume. And that's again a personal view but backed with more than 3 decades of business experience. This -- if one is expecting 400 lakhs to be produced ad infinitum, I don't agree with that prognosis. So with this negative [ die ] fall is that if 1 year rain failed in Maharashtra, you'll see it crashing down. So a, this is not such a big fear for a lifetime. Two, yes, everybody is expecting ethanol to be diverted. We've given you the trajectory. 10 million does not seem possible right now.
As we go ahead, let's see. If you do 4.5 million this year, then you do about 6 million, then you do about 7 million, meanwhile, consumption would gradually grow. And at some point, production would correct. And even in global markets, there has been very dry weather in the entire Europe. Pramod, is that right? Brazil is suffering. So the global market today wants 6 million to 7 million desperately. If -- let's say if India next year production collapses and India does not export, world market move to $0.25 straight. They need Indian sugar. There is a deficit in the globe.
So having said that, your answer, 10 million doesn't look possible right now. But yes, gradually, we hope you can go to 7 million definitely. If grain underperform, sugar, it can go up to 8 million. We can maybe even cross that.
Right, sir. Right, sir. And another thing would be on the grain ethanol front, what -- how the margin really will differ from the grain if small, considering the fact that the recently -- probably the broken rice and all those grain prices have gone up? So has the margins -- although, I don't -- your operations have not started yet. But maybe from the industry perspective, if you can give an answer on that.
Too early. We are -- and anyway, out of Balrampur's 35 crores, maximum 5 crores is grain. So a, I won't be worried. B, our -- fuel is ours. They are suffering because of lack of fuel. And C, our area is a belt of broken rice, maize, everything. And our distilleries, such a state of the art, we can digest anything. You give it broken rice, give it maize, give it anything, B-heavy, C-heavy, [indiscernible]. So this is a multi-feed distillery.
So we work with our area. We should be able to deliver good margin, but let's wait it out. We're just 1 quarter away from giving you a decent idea. There's a lot of fixed costs will get covered there. So we -- it's a first experience for us also, so 1 quarter more.
The next question is from the line of Shailesh Kanani from Centrum Broking.
Sir, first of all, I would like to know about the guidance of ethanol volumes for this year and next year. I think last time, we had spoken about 22-odd crores for FY '23. So what is the -- are we sticking to that guidance? Or there is some downward revision to that and for FY '24 as well?
Yes. So considering the cane, what we are expecting at this point in time, we are expecting our ethanol volume to be in the region of 24 crores to 25 crores for FY '23 and 35 crores in FY '24.
So we are sticking to the guidance given earlier?
Yes. Yes.
Yes.
Okay. So that would end at basically fourth quarter a huge bump up in the ethanol volumes, if I'm not wrong.
Absolutely. You're perfectly right.
Right.
Okay. So just a bookkeeping question. Can you just give me a breakup of ethanol stock of 0.54 crores mentioned in the inventory between B and C?
C is hardly there. It would be -- 95% of that would be B.
Okay. Okay. One question...
Sorry to interrupt, sir. Your voice is breaking.
[Foreign Language]
Yes. Sorry. Is it audible? It's better?
Yes, now.
Yes. Sorry for that. So I was asking on the refined sugar front. When these facilities do come up and they're operational for a full season per se, what quantum and what percentage of that would be to our overall facility? Like if we are producing 1 million tonne of sugar, what percentage can that contribute to the supply, sir, of that, I mean, refined sugar?
Refined sugar would be in the region of around 45% to 50%.
No. I think he's asking, Pramod, the -- are you asking exportable or domestic?
No. No, exportable, exportable, white sugar, what we had mentioned about white sugar.
Around 10%, 10% to 12%.
10%.
10% to 12%. Okay. And sir, one question on the acreage front. It was just mentioned that we have around 3 lakh 27,000 hectares under our area, and that is an 80% jump. Is it, sir? Is my number correct?
Yes. Correct. 3 lakh 24,000.
3 lakh 24,000. Okay .So -- and the total area in UP would be something in the range of 27 million, something in that range?
It could be 26 million. I don't have the exact what it is right now, but it is in that range only.
Okay. So our share roughly would be, say, roughly 12-odd-percent. And if we are assuming or we are estimating around 10.9 million tonnes of sugar production, so we should be easily doing 1 million tonnes, maybe even I'm, sir, considering higher diversion. Is that calculation fair enough to assume?
Absolutely right. You are bang on target.
You don't need us. You've done all the calculation rather correctly. Good work. Solid.
Sir, just last question. On the growth front, if I can squeeze in one more question. Sir, FY '24 onwards, are we -- we were talking about expanding on ethanol side or [indiscernible] also highlighted in our annual report. Sir, any -- you can throw more light, anything on that post FY '24?
So Pramod, actually -- see, everything is -- we are still sort of evaluating ideas. Anything, as and when it comes up, would go to the Board and then to the shareholders. You would appreciate that in the interim, there's not much update which we can furnish.
Shailesh, while on the subject of this export, our idea this year is to export around 10% of our production. And as of now, we have priced in around 30% of that.
And that would be refined, 30% of the total exports, right, that will be refined.
Refined. And suggestion is around INR 38 per kg expected.
Yes. I think the cost also is...
It's INR 38 ex-factory. It's export.
Yes. And the extra cost for the refining is around 2, 2.5, if I'm not wrong, that is the cost, extra cost?
There is not one penny's cost, except the CapEx which has already gone in. It's a CapEx item. There is no revenue income there.
The next question is from the line of Anupam Goswami from B&K Securities.
Sir, my question is on the export front. So you mentioned about the realization INR 38 per kg. So where do you see -- are we in the lower trajectory of the price at this level? Or do we -- are we at the peak level on this INR 38?
No. I didn't get your question. I mean, this pricing for the balance would happen based on London prices, which have come off from when we priced our sugar. So it all depends on how London behaves.
Okay. Okay, sir. And sir, when we say that we have increased our cane, new varieties also we have adopted and the weather pattern also looking stable, when do we see the recovery? Are we going to see a recovery like a '19-'20 sort of a recovery year? Or -- because in this quarter, which is periodically generally a high recovery quarter, we have seen about 135 or 140 basis points of lower recovery. How much -- yes.
I'll explain. So last year, recovery on C basis was 11.47%, right? So we are definitely looking for a 30 bps improvement there. Possibly, it can go up. Recovery is far more difficult to predict than availability of cane, but we are hoping that it should all [ persist ].
Understand one thing. In a year where cane is deluged with water or infested with disease, both these go -- will go down together, right, quantity and recovery. The moment there is a virtuous cycle which is hit and the mother food is strong, the millable cane is good, you will get both yield and recovery together. It is very difficult that one will be good, one will be bad. You understand this for every effect in India. This is a basic thumb rule law.
Right, sir. Right. And sir, now that we are also looking to export our refined sugar, do we overall increase our production, what used to be an earlier run rate for a year?
So we have expanded Balrampur, and our crushing per day will improve.
So basically, going forward, we'll look at more than 1 million tonnes of annual production, right?
Definitely. Definitely. We don't tell you what we are targeting. I mean, the next year's cane, we are hoping it goes to minimum 10% more. That's when our full asset across the board gets utilized wonderfully. Our -- all our distillery plants B-heavy conversions, Balrampur's crushing, Balrampur juice, Maizapur juice, when you go to 12 crores, then it will be asset utilized to the core. And we are hoping that 10.5% and 11% this year also, there will be a wonderful asset utilization.
Okay, sir. Sir, my last question, if I can. Your FRP was -- in the FRP, there was a hike recently. Do we see a possibility in ethanol prices hike and especially in the cane juice? Because that would really give an impetus to reduce the sugar stock and go for more diversion. Do we see that happening?
So first of all, this FRP rise is -- and this is a personal view right now, is better for UP, is good for UP because as you correctly said, both the juice and B-heavy price would go up, which is linked to this FRP. And we are hoping, as Pramod said in the beginning, that there would be no SAP rise.
Sir, about the juice, do we see government giving more impetus for the juice because that was where...
Maybe in a year from now, maybe. But this year will be a -- it will be a little better, but it's too early. The price rise would come back, Pramod, September beginning?
September, mid-September.
The inclination of the government is extremely positive. Their disposition is matching their pocket and their thinking. So it is merging with the clean, clean climate. It is merging with Prime Minister [indiscernible] network concept. It is helping millers pick cane price. It is reducing sugar stock. Export of agri commodity, again, we are exporting a lot of sugar. So this is rural energy cum export play. So you are helping the rupee-dollar for the country. You're improving the climate. You are getting more and more energy, if I may say, security, and you are helping the agri sector. So it seems very good.
So there was a question on the total cane area in UP. We have checked, and it is around 28.5 lakh hectares.
The next question is from the line of Trilok from Dymon Asia.
Just 2 questions. From a transfer pricing within the distillery segment, do you think that is going to sort of go up further next year? That initial comments will be helpful.
And second, just in continuation with the previous participant question on linkage to -- sorry, hike in ethanol prices linkage to FRP, typically, this is -- this happens just before the season -- showers begin. Is that understanding correct?
So as far as the transfer pricing goes, currently, it is at INR 10,300 a tonne for B-heavy molasses. We would review before the start of the season. There is a possibility that it may go up also.
And could you also just share-- sorry, comment on the ENA prices now and how much is the increase over the last 3 months?
ENA prices remains fixed. We have a contract in place, and it is fixed.
So that is the tax you have to pay the government for that country liquor business.
Sure. Sure, sir. Because most of -- yes, fair enough, yes.
Every miller in UP has to pay. So it's okay, I guess.
What was the second question?
Second question is that the hike in ethanol prices typically happens in the month of September, October. That's the usual annual affair, right? You don't sort of...
Yes. This one, maybe we'll get it in September.
Sure. And -- but we are -- I mean, so far, there is no obviously linkage to prices or in terms of cost production. But it's just an understanding, right, from the industry as well as what the historical pattern has been.
But if you read the notification, in the preamble part, it is very clearly mentioned that what are the factors which determines the ethanol prices.
The next question is from the line of Riya from Aequitas Investments.
My first question would be for exports. So basically, it's reading that we are in a hopeless environment for exports when it is concerned. So what are your thoughts like why do you see that prices will shoot up in the exports market?
Sorry, come again. What you see at the end?
Sir, basically, in the export market, we are seeing globally, there is a softness of sugar with Brazil also coming back, which is [indiscernible]. And there is almost balanced amount of production everywhere else. And there is [indiscernible] security for Indian sugar. So what makes you believe that the prices of export would increase the global prices?
International prices depends upon many factors, taxes and duties on ethanol, Brazilian currency value, overall availability of sugar in different part of -- in different part of the year. So there is a gap in terms of availability of ragi in sugar for a certain period of time. India has to pull up that gap.
Okay. Could you let me know more about the Brazilian crop?
Our view is that it should be between 32 million to 33 million tonne.
That is more than what we had expected, right? Like we were expecting a deficit of inverted more than estimated.
1 million tonne here and there doesn't matter. In a year back, Brazil produce around 38.5 million tonnes.
So just to put what Pramod is also saying, I'll just add my comment. Even if we see the European Union, their pricing, it's -- I mean their production is terrible. The dryness and the yield, et cetera, of the cane should be very bad. So yes, you are right, there would be...
Yes, continue.
Yes. So we don't see if the world wants Indian sugar, which it does, it's not coming at this price. So because nobody is going to export at this price. So as you would have seen last year, the worst parts of up and down, that will continue. However, are transacting and our view is it should remain positive. And even the current rupee-dollar equation is helping exports.
What kind of deficit do we see in international market?
It's very tough to predict, it's like an apple-to-apple basis.
Okay. Okay. Fair enough...
We have a basic feeling in a basic sense.
Okay. And a second question would relate to the cost of production. I understand that because this quarter, we had lesser production, so apportionment of fixed costs would be higher. But on an annual basis, what kind of cost of production are we looking at?
So again, addition to the cost of production will be a function of cane availability, recovery, transfer pricing, but whatever assumptions we have at this point in time on the basis of prevalent condition. We expect cost of production to be in the region of around INR 33.
It should come down Pramod. I mean that's all we can say today. It can come down definitely over last year, recently, yes.
Okay. And what about the monsoons currently? Like A few days back, there was a deficit of monsoons in the UP area. So does that affect our crop or recovery to any extent?
No. Rather, we are happy with what has happened. So east UP always gets more rain, so we have got rain, and we are getting sort of 2 inches, 1-inch per day types, very evenly spread out with bouts of sunshine. So that's extremely good for photosynthesis and growth.
Okay. And just my last question would be, we are looking at 8% acreage for Balrampur, right?
The group?
Yes. Right. In acreage tonne 8% and production, could you give any guidance, cane production?
So we just said, our hope is that -- our internal target, not hope, is 10.5, Pramod, we were 8.88 last year?
8.88, yes.
So 112 and 162.
15%.
Between 15% and 17%, around.
This is a production increase we are expecting?
The cane production increase. So recovery is separate.
Right. This is basically on account of all the debottlenecking activities we are doing, right?
Yes. This -- because of the cane development efforts, with the tool management, the weather conditions, overall, which we just -- which Avantika explained in the beginning.
The next question is from the line of Nishant Sharma from Edelweiss Wealth Management.
Sir, 2 questions from my side. First, on the distillery segment. Sir, while I was understanding that the industry is more -- like should we look at on a yearly basis. But for the past some years, we have been witnessing that the margins in the distillery segment have been coming down. And just from the -- speaking from those comments, some previous participants on the transfer pricing of molasses is expected to increase further. Can we expect what kind of a sustainable margin is expected in the distillery segment on a yearly basis?
So if you see Slide 28 of our presentation, which remains the transfer pricing as well as the profitability margin. So if the prices of molasses, transfer price of molasses goes up or goes down, it directly impacts the profitability in the distillery division.
Right. So we can't have any sustainable margins out there or the trajectory for molasses prices because earlier, we -- there has been a sharp increase in the molasses prices and possibly that could be the precise reason for a decline in distillery margins on a Y-on-Y basis or on a yearly basis. So is there a possibility to see any kind of a sustainable margin because that is the key growth driver for profitability going forward?
If you see, transfer prices are maintained at this level, which is INR 10,300 per tonne. The kind of margins we are having at this point in time can be predictable. Having said, the reason for wearing the transfer pricing is, it depends upon the quantum of sugar, which we sacrifice under B-heavy. If we sacrifice more sugar there needs to be corresponding credit given to the sugar division in the form of higher transfer price of molasses. So that is the rationale for annual review or revisit of the transfer price for molasses.
Okay, sir. Then in that case, as we progress and as we see more share of revenue coming from ethanol, we have to divert more sugar towards ethanol business. So this current margin of around 30% to 35% would be coming down also on a year-on-year basis?
But how does it matter? If we are giving a high value assignment in the distillery segment for the molasses prices, there is a corresponding credit in the sugar division. So at a company level, it will really not matter.
Okay. So the company level EBITDA margin, which is around 14% to 14% on a yearly basis, unlikely to see a jump towards, say, 17% or 18% over the next 3 years as we see more revenue coming from ethanol. Is that a fair assumption that -- then what could be the blended level margins at a company level, if I have to ask you differently?
So normally, we don't give this kind of forward-looking statements. In spite of that, we have given enough food of thought for you by giving the cost -- estimated cost of production for sugar for the FY '23. We have given a guidance on the cane availability as well as the recovery also.
And the pricing.
Sugar price trajectory as well. Ethanol prices, you can see an upward revision in the month of September as because we have seen the increase in the FRP.
[indiscernible] with the cane availability increasing, fixed cost is lower -- with recovery increasing cost of production will go lower. With ethanol pricing increasing, the revenue will go higher. If sugar prices increase remain from the revenue is higher. The net result of all this would result in an EBITDA margin or whatever. You don't need to split it more, it will become very tough.
Okay, sir. Second question on the sugar side, basically -- I mean if I may have to ask, why we have seen a lower yield -- sugarcane yield vis-a-vis the similar players which are present in UP? Sir, they got better recovery -- a better yield in terms of sugarcane and we got lower yield. If you can help me out in understanding this because we are in the same state and still the sugarcane yield is a little bit different for us and for them?
Yes Okay. Very good question. Balrampur, Tulsipur received 90 inches of rainfall in 2 months, which was not present in the other areas. The drainage conditions are different. The amount of rainfall was different. And therefore, the yields were different. The STPs are totally different trajectory in terms of drainage facility, et cetera. The entire 3 zone was infested by redroot at the highest level. There are other units of other mills also. So that's the reason. There was no lack of effort or understanding of business, which led to this. It was a conditions beyond our control which are [indiscernible].
No, no. Sir, basically, I wanted to understand this geographical difference only that this could be the major reason why...
It's a big fallacy to assume UP is 1 state. UP's population is more than Europe's population put together, and UP's conditions are like a country's condition. So East UP, Central, West, they are very different conditions. So never expect UP to be one.
The next question is from the line of Tejas Sonawane from Dolat Capital.
Firstly, on the annual report, you have mentioned that companies could explore profitable options within the chemical universe, which should see a bigger sacrifice of sugar. Could you throw some light on what kind of opportunity are we talking about here?
So basically, see, one is exploring things. So there are many things, which one is exploring. And as I had requested earlier, it is going to be difficult for me or for anyone to say anything until the exploration is complete, it goes to the Board and then it goes to -- after the Board, it can only be told to anyone, right. But we do continue to explore.
Okay. Okay. Secondly, sir, with India achieving a 10% blending rate and now moving forward to a 12% target in next sugar season, how do you see the time line in terms of the OEMs rolling out E20 or E15 compatible cars? Because as I believe that right now, the current cars which are available in the market are E10 compatible. But as we move along with E15, E20 blending rate, how do you see the rollout from the EMs in terms of the time line if you can guide us on that?
Yes. Do you want to say something? Yes.
So there is a very serious exploration also going on about the -- like fuel kit which will enhance the ethanol blending capacity in existing vehicles and this study is coming almost to an end. So hopefully, that is the existing vehicle and the new vehicle, I think...
So let me tell you, firstly, OMCs don't have anything to do with the cars, that's the car manufacturers who have to deal with it. OMC will just blend, correct?
Right. Correct.
Secondly, all the sort of car manufacturers, there are 2 types of sort of what would I say, compatibility. One is material compatibility of the -- carbon is engine compatibility. So all cars, I think, all vehicles would get on to material compatibility by April next year. Everybody, I think.
So there is no problem in accepting 20% from next year onwards also. Meanwhile, everybody is already equipped to take up to 15%, 12% to 15%. So there's going to be no problem. And there's a lot of work going on in hybrid cars, flex-fuel cars. Like in Brazil, U.S., Europe, they make all cars are flex-fuel cars, which means you can take up to E85. So on that trajectory, one may not be worried at all.
Okay. Okay. So my understanding was, since we are seeing an increased focus on electric vehicles by the OEMS. So is it -- could we believe that the success of the E20 blending would depend on the OEMs coming out with the E20 compatible cars sooner? If there is any delay from the side of OEMs, would we see a lower demand from the OMCs, is it a right -- fair assumption?
No. There will be no problem. You're already going to be 1st April onwards, 120% materials compatible engines -- sorry, yes, material compatible. If one would said 2025, you could actually -- if industries going to supply maybe '26, you go up to 25% blending. On your question, there is zero tension in the mind of that agenda. Negative tension, negative.
The next question is from the line of Rajesh Majumdar from B&K Securities.
So I had a couple of questions. One is that [indiscernible] this gives us a 50-50 kind of ratio of ethanol from molasses versus green. And out of the INR 700 crores of litres allotted to molasses, we already get INR 550 crores or something by the end of this fiscal or this sugar season. So is this ratio is something which is going to change, especially given the fact that the pricing on juice can change with the recent announcement on FRP? And what is the tipping point of that pricing by which you see data diversion in produce? That was my first question.
Rajesh, when this -- when [indiscernible] out with their road map 2 years back, at that point in time means both that India's gross level sugar production would be in the region of around 34 million tonnes. So on that basis, there was some expectation how the pipelines of distillation capacity comprising of traditional C, B and juice would be built up, right?
If we continue to see this kind of sugar, which in our mind, is very difficult that continue to have a 40 million tonne of sugar on a sustainable basis, there is a possibility that we may see further increase in the distillation processes. But as far as the current distilleries are concerned, which are in the pipeline of being constructive, it is expected that 7 million tonnes of sugar will be diverted by 2025, '26.
This is based on 700 crore litres and it's fair to say the same ratio?
Sorry?
This is based on 50-50 ratio, that 7 million tonnes or additional...
It's not 50-50.
It's more than 50-50.
Okay. So 2/3, 1/3 kind of thing?
Yes, most probably 2/3.
So on this basis, out of 20% bill line, maybe 11% will come from molasses route and 9% from grain, if it all grain capacity supplies fully.
Otherwise, sugar could add to that.
Yes.
Right. And what is the tipping point for juice price by which, say, distillery like your new one coming off will not be using grains, but rather using a mixture of B-heavy and juice. This is the best combination for you?
So to get B-heavy and to get juice, you have to get cane, okay? Everybody gets -- whoever gets cane will first do their job with cane. Like somebody wants to go in for juice or not, it will depend on how the pricing trajectory is done and how people have capital to allocate to distillation. Things being attractive there, it would move up. That's our assumption. But just let it play out for a bit.
Okay. And my second question is, sir, on our return of capital policy, which you'll be pursuing over the years in terms of dividend payouts or buybacks or last year, we had buybacks in the market. Will we see a similar kind of payouts in the company going forward post the distillery expansion?
So this are corporate announcement which can be...
Only Board. When Board delivery -- when things play out.
No. I'm just saying as a policy, you roughly returned about 4% yield kind of on a stock value in terms of either dividends or buyback over the years. So roughly, there would be some kind of policy with regards in the payout of capital. So is that historically, Balrampur has been known for this. So I was just wondering if there is a similar policy, which will play out in the years to come?
Rajesh, our stated policy is already available on the website.
The next question is from the line of Nimish Seth from GD Advisory.
Can you hear me?
Yes.
Very disappointing first quarter results. But on the flip side, we are very actually happy to hear the management's efforts and focus on team management. And hopefully, we will have much more availability and more stable supply of cane in the current season and in the seasons to come.
Two questions. One is on bagasse. Bagasse is extremely profitable right now. Is it because of the 2 -- of lower cane production in UP? Or is there a structural change in the demand for bagasse, which is why we are seeing good pricing? And does it mean that in the coming year with the bounce in cane in UP, bagasse prices will come down? That's the first question. Hello?
Yes, I've heard you.
Yes. And the second question is actually on the new swing plant that we will be commissioning. So just a few specific questions. One is when is that going to be completed by the vendor and handed over to Balrampur for commissioning?
And the second question is, this is a swing plant. So you can only use juice or you can only use grain, correct? And can juice be stored beyond the season so that it can be used in the off season? I believe there is a technology to do that.
Okay So -- yes. Right. So bagasse, yes, there is a change in the pricing trajectory. If at all, UP is going to sell, I mean at least we hope to probably get INR 500 a tonne higher than last year. So maybe it's the plastic man, maybe it's so many of these grain distillery is coming up, demanding paper -- upsurge in paper industry. So we are already in process and we like hoping for at least maybe above INR 500 a tonne higher realization on the enhanced cane. That's your first question.
And like one is, has a feeling is going to be a little more structuring. Secondly, understand the distillation plant, grain and sugarcane can't run together, right? As told earlier, we will be commissioning in October sometime where we'll be running on grain or maybe we didn't mention. In October, we should be able to start actually supplying it not from the grain route. And as and when sugar begins in November, we will be supplying as we start crushing cane, juice will go to make if not.
So does this mean that when you start in October, the plant will be ready by September so that you can start in October? Is that fair to assume?
How -- is there any other way if a plant is not ready to start the plant.
No, that's what, that's what I'm saying. Correct. Okay.
Once we are supplying juice, means everything is ready, no? If you're making sugar cane, a factory not be ready.
No, no, that's what. So where that means in the September quarter when your plant will be commissioned. That was my question.
No, commissioning happens only when you supply in the balance sheet, not when you physically make it, you have to physically take goods out.
Okay. Okay. So the increase in depreciation relating to the commissioning of the plant will hit us in Q3, basically onwards.
Yes. That's the correct assumption.
That was actually the angle I was getting at.
That -- okay, right. Yes. So it will come in that quarter, October quarter, including the production.
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments.
Thank you very much. So Pramod, if you would like to say anything.
It has been a pleasure being with all of you today. I hope we have been able to answer all your questions. And if you have any further questions, we would be happy to be of assistance. We hope to have your valuable support on a continuous basis as we move ahead.
On behalf of the management, I will say, thank you for taking the time to join us on this call. Thank you.
Thank you so much.
Thank you. Ladies and gentlemen, on behalf of Balrampur Chini Mills, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.