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 Ms. Jenny Rose from CDR India. Thank you, and over to you, Jenny.
Good afternoon, everyone, and thank you for joining us on Balrampur's Chini Mills Q2 and H1 FY '25 Results Conference Call. We have with us today Mr. Vivek Saraogi, Chairman and Managing Director of Balrampur Chini Mills; Ms. Avantika Saraogi, Executive Director; and Mr. Pramod Patwari, Chief Financial Officer of the company.
We would now like to begin the call with brief opening remarks from the management, following which, we will open the question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and the 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. Over to you, sir.
Thank you, and good afternoon for joining us. Good afternoon, and thank you for joining us on our quarterly conference call, earnings conference call. I trust all of you have had the opportunity to go through the results presentation providing details of operational and financial performance. I'll initiate the call with an update on the current development in the sugar sector, followed by company highlights for the period under review.
Gross production forecasted for the upcoming season is in the range of 32 million in our mine. ISMA has given 33 million. After accounting for diversion of 37 lakhs. The net sugar production is expected to be 283 lakh tonnes, 28.3 million tonnes as compared to 32 million last year. Regionally, UP is expected to remain stable at a production of about 10.8 million tonnes, similar to last year's level. Maharashtra and Karnataka are on -- may see a bit of a dip.
As on 30th September 24, India sugar inventory stands at around 8.5 million. Combined with the production of 28.3 million, that is the net post-diversion production. This supply is expected to adequately meet the domestic need of 29 million, that is the forecasted consumption for next year. There is an ample stock. However, the opening stock, which is at a record high, the recent record high, which led to a pressure in sugar prices, prompting the industry to request for an increase in MSP, which is long overdue, to help in short fair returns for producers. And also, we have asked for these based on the above balance sheet of sugar, that is the inventory position given to you.
Turning to the ethanol sector. Ethanol production from cane has played a pivotal role in supporting the government's blending target. This diversion remains essential as India reached 15% in 2024 and is on track to meet 20% by '25. Right now, the bidding is for 18%, 18%. Following a brief policy shift in the previous year, that was the election year, the government has lifted all restrictions on sugar diversion for ethanol production. The industry is also awaiting the announcement of the revision of it's ethanol price is expected in the coming days.
So just to take you a little bit into the balance sheet. So if we produce 28.3 net this year and consumption is 29, that's a minus 7 lakhs for this year. If I deduct 7 lakhs from 85 lakhs, we get an inventory of 78 lakhs. So even if government is looking at a 60 lakh inventory, there is go for almost 2 million exports which can be announced. We believe that once the government is a little more certain about the production, there could be some movement on that front.
On the business front, the company has faced a challenging quarter with profitability impacted due to high sugar volumes and improved realizations, but despite higher volumes and slightly improved realization. Lower crushing last year, which was almost similar to the year before, 2% down, prevented us from absorbing the full fixed cost and the distillery division was impacted by, a, lower availability; and b, the government's order of December '23, restricting diversion of sugarcane juice and B-heavy molassses for ethanol production. Both these factors have affected our performance since all the expenses have been accounted for -- in this quarter with outcome in sugar production.
Looking ahead, we are confident that our intensified on-ground cane development initiatives, particularly our shift from disease-affected varieties, may help mitigate the challenge going ahead. These efforts are aimed at maintaining the B-heavy cane availability with good return and also optimizing capacity utilization. The company's integrated operations have been a cornerstone of our ability to adapt to industry dynamics, and we have remained resilient in the wake of challenges.
We believe the PLA project, which I will be asking Avantika to brief on after I finish, we believe that the PLA project is a transformative step for Balrampur, perfectly aligning our philosophy of maximizing value for every state of India. This initiative not only strengthens our relationship with the pharma community, and since it uses sugar as basic raw material, it advances our sustainability goals and marks a significant evolution of our business model. We are confident to create long-term value while contributing to a greener and more sustainable future.
In conclusion, the company remains committed to delivering shareholder value, and we are pleased to announce that the Board of Directors has announced an interim dividend of INR 3 per share.
I will now request Avantika to update on the PLA project. Avantika?
Good afternoon, everyone. Thank you for having me. So first, a brief update on the PLA project. So everything is going as per schedule. We are on time line. We are in the detailed engineering phase, which is almost to conclude soon. And then we would have some IRR figures for the market. But apart from that, in the quarter gone by, there has been 2 major developments which has happened.
The first is the UP government has announced a policy for bioplastics for this project, which is a 50% CapEx subsidy over 7 years, a 5% interest subvention and then SGST net reimbursement. Along with this, there are other smaller benefits as well, such as SAM duty reimbursement, electrical duty waivers, et cetera, which are also part of the scheme. So this is a commendable step by the UP government, and we applaud them for this measure. It makes us come to the project with double the rigor and really kind of make it happen well.
The second thing is that in August of '24, Central Government cabinet approved a policy called the BioE3 Policy. The policy is meant to give impetus to biomanufacturing, including biopolymers in which our project also falls. We are yet to see the exact particulars and schemes, which would be eligible to us from this policy. But the fact that it is about moving over from a fossil-based to a bio-based economy is the real push that we did want for the country as well as for the state. So we are very, very grateful and we are very happy for both announcements.
As I mentioned in the beginning, we will have some more financials, but we need a little bit more time for that. Other than this, about sugarcane production this year, we will -- at the moment, I would like to say that we will be similar to last year, like it seems flat for UP and we are in the same boat. But there are some factors that could affect some headwinds, some tailwinds.
So the first, I would address the headwind. Due to some late planting in 2, 3 factories, we might have slightly lower cane availability due to yields having a month less to grow. But having said that, there is a tailwind on the fact that the diversion should be much lower than last year. Other than this, there are obviously things which hang in the balance such as winter rain [which] we get a winter rain then, then you can jump. So again, this is hard to predict, but we've given it our best shot.
That's it for me. Thank you very much.
Pramod, please.
Thank you, and good afternoon, everyone. I hope all of you had the opportunity to go through the results presentation that has been shared with you. So I will request to moderator to open the forum for questions. Thank you.
[Operator Instructions] The first question is from the line of Sanjay Manyal from DAM Capital.
Just have a few questions on the sugarcane crushing part. I think last season, you mentioned that there's almost 8% increase in the area under sugarcane -- in your catchment area, but production was more or less flat. How is the situation now? If you just can define in terms of what is the increase in the area under sugarcane and what could be the availability means, whether it will be -- so just leaving apart the weather factor, if everything remains normal, what could be the crushing number?
So I think I'll take that. Basically, I think the area is similar to last year. There is not much change. And on the weather front, as we said, outside of the fact that India was sort of hit by El Nino last year and we are entering the La Lina waves, we've seen winter rains happening every year. So if you see in the entire UP estimate last year, it just eroded by 5% without anybody's understanding, all units across UP, for example, Birla Bajaj, Balrampur, everybody. So we hope that the winter rain would come in, that's our only positive. And we are saying that if the winter rain comes in, we should improve our last year. And as Avantika mentioned, lower diversion.
Right. Also, I just want to understand from the yield perspective, I mean, the sugarcane yield per hectare. So is it safe to say that despite increase in the area last year, the -- probably the production was a bit lower? So is it safe to say that non-Co 0238 variety, you have a lower yield per hectare compared to the newer ones?
So I'll take that. So definitely, 238 had a yield which was loved by farmers and millers alike. But having said that, even when 238 has come in the beginning, it takes 2 or 3 years for a clean variety to really acclimatize itself to its new surroundings, where it can really then come and give you yield. So last year, if you realize, I think the market is well aware, but we have a huge shift in variety. And the varieties were mostly new.
So it could not give the vigor that it should give as what we had estimated as well, or maybe it was due to diversion, maybe it was due to the non-winter rain. But still, net-net, it did not give us a result that we thought it would. Now this year is 1 more year, which means it's had a longer time to acclimatize. I would say that till now, we cannot give you an exact figure that if the yields are lower. According to me, personally, if you ask me the yields of the new varieties are not at all lower. I think the acclimatization process benefit is done, which is more or less getting there, then this question should kind of go out. But we might see another -- maybe it might need another 2 months to really give you a yes or no on that.
So there are 2 kinds of yield assessment, if one is to be brutally honest. One is called the retune yield, one is for the plant yield. The retune yield, since we've begun 4 of our factories right now, the retune yield, the first indication comes after 15, 20 days. And just to give you other 6 factories begin between about 16, 17 to 22, 23, with one exception going to the 1st December. So the entire proper yield assessment for retune can be done by about 10 to 15 December. That's for stage.
And the plant yield assessment is done around 20th -- the third week of February. So these are 2 milestones. And as Avantika said, I'm just adding a point b availability of 238 for crushing last year was very low, and it would be a little lower this year. So from last year to this year, there is no shift between meaningful from 238 to a downward variety. Third, these varieties are disease-free almost. And you've seen they have given us a much better recovery. So these varieties going ahead will perform, and the recoveries have already been higher.
Okay. Perfect, sir. I believe we'll get the sense on recovery as well after some time only.
Yes. It's begun well. But yes, let's just wait a bit.
Right. Yes. My last question on the ethanol part. Given the fact that restrictions are being lifted, what is your sense that this season will be able to -- I mean, what kind of volume will be able to? And probably if you can just give a broad assessment which is what could be the B-heavy, what could be the juice and what would be the grain part?
So for the ethanol year, which has [indiscernible] begun from 1st of November and it will go up to 31st October, we are expecting -- on the basis of current cane availability estimate, around INR 25-odd crores, including the age, which will be UP in a portion to this. In addition to this, around INR 3 crores later on account of grain. So within this INR 25 crores, maybe around INR 9 crores on account of juices and around INR 10 crores to INR 11 crores on [indiscernible]. INR 1 crore, maybe 1.5 for [indiscernible], and the rest is B-heavy].
Okay. Okay. Right. And sir, in the current allocation, what is the allocation we have received?
For the first quarter or the total?
Yes, sir.
I think totally...
We have received [indiscernible] and that juice we have received.
And B-heavy, we've sort of received 5 [indiscernible] government [indiscernible], almost INR 6-odd crores.
We'll take the next question from the line of Shailesh Kanani from Centrum Broking.
Sir, on the sugar prices front, sir, since last year, the sugar price have been holding up well in spite of market knowledge and divergence towards -- it's not going to be lower since last year. Now obviously, the cap has been removed. So to your mind, what factors are helping sugar prices to remain upwards of 38, 38.50, and how sustainable they are?
So first of all, 38.50 is not a price after INR 20 increase in share price. The pricing should be a little higher to our mind. So yes, if we see the situation of last year and if you're talking about the inventory of 80-odd lakhs plus and the price being at 38.5, that is a good sign However, the -- our open thinking is that the prices should improve from here. It needs a little bit of help from the government. We mentioned -- okay, let's put it in short.
There are 3 demands of the industry which need to be met, which are very rational. 2 are coming out of a declared policy some years back, which unfortunately has not been followed up. One is declaration of MSP. It was done for the first 2 years after the policy came in, minimum selling price. It hasn't been followed up thereafter. So that is one thing which can help. Two is the ethanol prices, which is overdue to our mind, but we hope should come in -- I probably would guess maybe Maharashtra's election has something to do with it for the timing portion.
And 3 is the export. So even there was a declared statement by the government, that keeping the closing stock of about maybe 5.5 million, 6 million, the rest will be automatically allowed for exports. So again, our demand there is about 2 million. If the 2 million in MSP is done by the government, we feel the price should be headed upwards from here, which is needed by the industry.
Fair enough, sir. So is it fair to assume that there is better discipline in terms of pricing from the players in the industry?
It's a quota system, that's why the discipline I guess.
Okay. Sir, my second question is with respect to certain media reports where government is contemplating of increasing the blending say 22, 24 months along towards in '25. To your mind, sir, how practical is that? Is it possible? Do we have the feed stocks? And does Balrampur is planning to capitalize on this opportunity or anything on that sense, sir?
Pramod?
Shailesh, the target for this year is around 18% of blending. And for the next year, it is 20%. Government is also in the process of studying beyond 20%, what is needed to be done to achieve a blending of beyond 20%. Of course, feedstock availability will be very impacted. Apart from that, infrastructure and bottlenecks, like creation of storage facilities, outlets, dispensation, government is considering all these factors. There will be some lesser efficiency, if we go for higher blending, that needs to be adequately addressed in lowering of GST on flex-fuel vehicles as well as the hybrid markets. So government is in the process of evaluating everything.
Yes. And on how Balrampur looks to capitalize on this, we have adequate distillation capacity. So we are working very hard to increase cane production, which will subsequently lead to enhanced ethanol production.
[Operator Instructions] The next question is from the line of Nitin Awasthi from InCred Equities.
I had a question regarding the Sugar Control Act. There's a draft given by the government. And I believe it's under discussion with the industry and the participants within the whole industry. How will that change affect us, one? And your thoughts whether the policy is getting more stringent and it will also now advance to you and get the PLA under its own control in some way or the other, which previously were not there under the older order? Any inn these fronts or if you could throw some bit.
So first of all, the government always has all powers under the act regarding essential commodities. So there is just zero impact of that in my mind, double zero, on anything at all. Why this came up probably because when the government put up just a sudden halt to the ethanol production last year, some people went to court. So based on that, they have taken the power to moderate ethanol production. They did it last year in fact. So in our view, there is zero -- zero zero impact of that. Absolutely.
[Operator Instructions] We'll take the next question from the line of Omkar Chitnesh from Trade Brains.
Sir, I have a question on it on ethanol production capacity.
I'm sorry to interfere, your audio is not clear. May I request you use your handset, please?
Okay, sure. Sir, I have a question on ethanol production capacity. One of our listed competitor in the end market, they have 40,000 less than [pieces] of crushing capacity. But they are one of the largest ethanol producer of -- 150 KLPD of ethanol production. And being -- Balrampur having 80,000 crushing capacity, why we are not the largest ethanol production -- producer? What are the challenges you are facing in that?
We deliver our ethanol -- I think if we promote we have adequate availability. Pramod?
Yes, you are right that our crushing capacity is 80,000 tonnes. So we are shifting from variety to 38 new varieties. Our existing distillation capacity can handle cane of around 11.5 crores to 12 crores quintals of cane. Currently, we are in the region of around 10 crores quintals of cane. So we are waiting for the cane to be there before we take any proper action.
I will attempt to answer your question. I think I've understood it. We build our capacity on 320 days capacity utilization. Hence, that is the ratio for 320. So if you build for a -- you want to sweat your assets less, that is your option. So 1 can very safely say for our level of crushing, which I think would be better than the persons you are maybe saying, I don't know the name. So from Bajaj, whose the only one who has higher crushing capacity or higher grains-based, because of 16 units. Otherwise, based on the numbers we have given you and based on the fact that you want to sweat your assets, this is the proper capacity to be installed for the crushing given.
Okay. Understood. And my second question is, as of Q2 revenue breakup, how much revenue is from raw sugar and white sugar? And who are the customers of raw sugar, sir?
We have not produced any raw sugar.
And by the way, raw sugar cannot be sold to the customer.
For B2B, right sir?
No. Not allowed.
Okay. Sir, as of now, we have [indiscernible] center capacity of 175 megawatt. Is there any expansion plan in that? And what is the per unit you are getting from electricity grid?
What are current rates?
So we have no further CapEx expansion program in this segment. Power, which we are exporting through grid -- Uttar Pradesh Grid, we are getting realization in the region of around [indiscernible]. Plus open access, so average realization should be on a national basis [indiscernible] and more.
Grid [indiscernible].
5 plus. For the quarter, that was around 6-plus.
Yes, that is because of the extra in terms of the open access. It would be closer to 5 net.
Okay, understood. And my last question is, has government of UP has made electricity for irrigation free in the month of March this year. How much you are been getting benefit from this season? And what you -- how much you're expecting in crushing of sugarcane this season?
So I'll take that. The benefits were very, very -- it was very heartening to see that the farmers were able to irrigate without having to think of cost. Especially our East UP farmers, where we have 8 of our factories, they are very, very sensitive to cost. And this really helps the people who actually had connections. And it is still a work in progress, we are still trying to get everybody connected. But this is a big thing, and it's a very, very commendable effort by the government.
Sir, how much you are expecting sugarcane crushing for this season?
It's very difficult to tell on account of these things, how much the crushing will increase. And we need a little bit more time to do the crushing yields to have better visibility. Maybe in the next investor call, we'll have a better figure for you.
But definitely, next investor call, for sure.
The next question is from the line of Udit Gupta, an individual investor.
My question is, sir, is there any change in the levy policy for the UP government?
No. Kind of same, I think. You mean [indiscernible]?
Yes, sir. Yes, sir?
No, no, nothing to our knowledge, yes. It should be in the same vicinity. Same thing. Repeat?
And sir, other Gur and Khandsari units also are required to give levy molassses now?
No. So just to brief you since you've gone into a good detailed question. So the government of UP has sort of indirectly directly come up with internal notifications asking for crushers, et cetera, that is the Khandsari to maintain some pollution laws, et cetera. They are encouraging -- the effect temporary and they are encouraging more diversion towards the sugar sector. So the government of UP is ingested that sugar industry crushes more cane, and they are working indirectly towards it. On Gur and Khandsari molasses, there is no restriction until now. But there are discussions.
There's discussion. There's a lot of discussion.
Yes, but that hasn't happen.
So our [roll] rate should go up this year, sir?
Hopefully. Hopefully. Give us a chance till next time, because we where -- we are founding correct like all the others in estimating cane last year. So we want to be cautious. We just want you to wait for 1 quarter. Thereby, we also be able to give you indication on the plant deal, also.
Right. And sir, regarding the PLA plant where there's a 50% capital subsidy, so does that mean that it's an intersubsidy? Or like the 2,000 crores that we invest, that will come back to us?
Two separate things.
Yes. So you want -- okay.
Yes, 2 separate things. Whatever the CapEx you put in, 50% of that CapEx will be payable over 7 years. So let us say, 50% of CapEx is 1,000 crores, let us say, so 140-somethingx7 or 143x7 is equal 1,000. So government of UP pays INR 143 crores per year as capital subsidy. Correct, Pramod? Intersubsidy is -- suppose we borrowed at x percentage, let's say, 8% or whatever, 5% out of that, which means the net impact to the company on its borrowing cost will be 3%, 8% minus 5%. GST reimbursement as and when goods are sold, whether they are sold in UP or not, if it's sold in UP, the net SGST that is after the LTC credit will be reimbursed to us.
Get your point, sir. And sir, this plant is on track for commissioning in October 2026?
Yes.
Yes, yes. 2026. October 2026.
We'll take one more last question, which is from the line of Deepak from Sundaram Mutual Fund.
My question revolves around PLA. I want to understand, when we talk about manufacturing of PLA, you are talking about producing pellets, right, which will be sold to the [confirmed] converters?
Yes.
Okay. And regarding this capital subsidy of 50%. So sir, how do we define what are the assets which are eligible for this capital subsidy, meaning will it include land, building, R&D cost or technology transfer cost? Or only is it applicable to PPE, which will be buying...
Very good question.
So the time frame hasn't totally been laid out. But usually, what happens is that other than what is already -- what is on the ground, you are usually able to claim everything, but I think we should wait for the order to come and lead the time frame before we really make a tougher comment on that.
Okay. And let's say, if this subsidy does come in, then it's on a reimbursement model, right? It is not pari-passu? Meaning that when you invest x amount, the government will also invest x amount...
Something like that.
I just want to clarify, there's no if, the subsidy has been announced. So [indiscernible] we have. The other thing is that we will come up with the time frame as well when we come up with the other financials for the project soon.
Okay. But your question is valid, let me answer that. So you are saying, and I'm clarifying, that to the best of our understanding of anything which is payable will be payable after commercial production except the land portion of the subsidy. It will accrue. So let's say, you borrowed INR 100 crores. I'll just give you an example. And if the project comes up, there is a subsidy of INR 3 crores to be given. So all that will accrue but payable after commencement of production.
Got it. So that's...
It will accrue and payable because they need to see commercial production, and rightly so.
Got it. Exactly, that was my...
Understood it.
Yes, yes. And one this macro -- because if you look at the PLA prices per kg, I mean, roughly around market data INR 250 per kg. And if you look at single-use plastic, which is PPE or polythene based, they are half the cost of PLA. So I was just thinking, I mean, how will the volume offtake happen? It means without any regulation coming into the picture, wouldn't it be difficult for us to scale up this plant's utilization?
So I will take that. So this -- I think let's -- we must be cognizant of the fact that we announced this project before we knew also that we would get any policy or any hope of any policy even. So your question is absolutely right. For single-use plastic items, 19 items for single-use plastics are already banned. You cannot make it from PP or PE. So therein, the price discussion goes out of the window because then I'm not comparing myself PP or a PE, right? I am competing with the alternative. For example, in stores, people are now using cardboard or paper, right? So I'm competing with that in bags, in carry bags. People are even making very, very thick plastic carry bags, which I can really be much better in terms of cost stack. Or they're making cloth bags. Again, I can compete with that.
For bottles, they are doing I think [indiscernible]. So for [indiscernible] they are using paper or they are using wood. Again, I can compete with that. There are many, many things for which already I'll be able to compete at the existing price level which you mentioned, wherein it's a drop in the ocean our quantity, 75,000 tonnes in a market of plastic in India per year 5 million tonnes. 75,000 tonnes will just go completely unnoticed is what we think. But having said that, we can't -- we should not be so, so bullish. I think we should still focus on more tightening of regulations.
I think the only lacking here is that the single-use plastic ban needs to be enforced properly. Because though the resolution exists, the enforcement is sometimes gray. This is what we want from the government. We don't want more regulation. We want enforcement of existing regulation and which we are happy to do. And in fact, basically, the whole discussion was that there was no raw material. So we were not able to force the regulation as per their liking. So we are in discussions, and we are happy about this opportunity that we will also get to enforce their bank.
Okay. So...
I hope you've understood the question -- Avantika's answer.
Yes, yes. I have understood it, sir. So given this scenario, means do you feel that once our plant is commercialized within 3 years, we can achieve a peak utilization and what could be the peak utilization?
Yes, that is the plan.
Why 3 years, right? We are working from like -- there is a full team working on the marketing already. So we'll not go into more details. So the marketing one would hope to sell the day you produce and stabilize also very quickly.
I think you mean -- do you mean production? Or do you mean sales?
I mean to say once the plant becomes commercial, means within how many years can we achieve at peak utilization level? And what would the number be for?
[indiscernible] See, the idea is it's a new plant, it's a high-end plant. So let's assume it takes 3 to 4 to 5 months at best to stabilize the quality. We feel that the goods will be sold the day we start the production. So capacity utilization sales, our best guess today is 6 months.
And he's asking what that number is. So 75,000 tonnes is the rated per annum, it's the rated capacity. Now peak will be only seen once the plant is installed.
Yes, yes, full.
No. What is -- okay.
Got it, sir.
Yes. And just to clarify, the competition, once this ban gets enforceable as Avantika says, government is continuously saying, you want us to enforce the ban? Sure, as the alternate we need to enforce the ban.
As there are no further questions, I would now like to hand the conference over to the management for closing comments. Over to you sir.
Thank you, everyone, and we will continuously keep updating you on all the business aspects as time goes, and we are always there to answer your queries. Thank you.
Thank you.
Thank you, members of the management. On behalf of Balrampur Chini Mills, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.