Balrampur Chini Mills Limited (BALRAMCHIN) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Balrampur Chini Mills Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Ms. Jenny Rose from CDR India. Thank you, and over to you.

Good afternoon, everyone, and thank you for joining us on Balrampur Chini Q1 FY '27 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 have the forum open for 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 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. Over to you, sir.

Thank you, Jenny, and good afternoon, everyone, and thank you for joining us on our Q1 '27 earnings con call. I trust all of you have had the opportunity to go through our results, providing details of our operational and financial performance. So I will just go through the highlights. The season '25 -- '26 has turned out to be tighter than anticipated with lower-than-expected production, healthy domestic consumption and diversion towards ethanol resulting in a drawdown to inventory. This tighter demand balance -- demand supply balance has led to firming up of domestic prices, providing relief to millers and help offsetting higher cane costs and other costs and margin pressures in terms of distillery especially. Looking ahead to the '26, '27 season, it's too early to take a definitive view on production progress on monsoon, crop development and yields across the producing states over the -- and we will get clarity over the next few months. I mean, first clarity one can get sometime September end. September. In this environment, maintaining the right balance between sugar availability ethanol diversion will be important for stable prices and healthy industry is economics. Turning to our performance. Balrampur has commenced FY '27 on a stable note with the revenues improving across sugar and distillery segment, supported by higher sugar realizations and distillery volumes. Sugarcane production -- crushing and production increased on improved cane availability, while cane development and varietal balancing remains our key focus area. Higher sugar realizations also provided support against increased cain costs during the quarter. As most of you are aware, the first quarter is an off-season. Profitability during the quarter is therefore influenced by carrying cost and realization of sugar inventory from previous season with absence of production largely. There may be some production in April. Pramod will give the figures. This impacts the quarterly performance, and this is going to be relevant every quarter. So as we know sugar has a quarter-wise dynamics to it. First quarter being the second quarter is absolutely without production. Third quarter production is there partial, fourth quarter is entire production. As on June 30, company was carrying 45.67 lakh tonnes at an average carrying cost of INR 37.19. With sugar prices remaining firm, this inventory provides a favorable base of profitability in upcoming quarters. Our strategic initiatives, the 80,000 PLA plant continues to progress well. and remains on track. We will talk about the commissioning date. Construction activities are in full flow with civil equipment, arrivals, erections, all going on. We have spent about INR 2,180 crores till end of July, right Pramod. Alongside project execution, we have made encouraging progress on product development, customer trials and market engagement. To conclude, our integrated business model has helped us navigate changing industry dynamics while continuing to focus on maximizing value from every stick of cane. As we have strengthened our core operations and progress with the PLAdllllllBLA project, we are building a more diversified, sustainable growth platform aligned with environmental priorities backed by our strong financial position and focus on efficient capital deployment, we continue to strengthen our operation, enhance efficiencies and create sustainable long-term value. Right. Now I hand over the floor to Pramod.

Thank you, and good afternoon, everyone. I hope all of you have had the opportunity to go through the results presentation that has been shared with you. So I would now request the moderator to open the forum for Q&A session. Thank you.

[Operator Instructions] Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Sanjay Manyal from DAM Capital Advisors.

Sir, just a few questions on the current situation where the sugar prices have moved up to INR 48, INR 49. Now given the fact that government might come with some measures and if suppose if it is a restriction on B-heavy and Juice the way they did 2 years back. Is it -- I mean what kind of a quantity of volumes you still -- distillery volumes still you can do next season. Now is it fair to assume that INR 10 crores is possible from C-heavy and maybe another INR 9 crore, INR 10 crores is possible from grains, maize or broken rice. So that's my first question.

So taking a queue from Sanjay, I will try and attempt to answer the entire dynamics, which is prevailing. So yes, the inventory is tight, market has assumed the inventory to be tighter and the numbers to be way lower than reality. That is my -- our view company's view. Having said that, the current price correction, if I may say so, or rise, whatever, is reflecting that scenario. So we see with all commodities probably we've seen with onions and we've seen in the past, there can be spikes, which is not in people's control. So getting back to numbers on and Sanjay's question now the inventory position is extremely tight. Hence, going into next year, though nothing has been done, it is reasonable to assume that there will be no diversion allowed towards the end Juice. So that is a reasonable assumption today is our personal view, again, company's view. Keeping that in mind, yes, only C-heavy will be allowed. So we are equipped to do that in all our units. Crushing might reduce a bit in some units. But overall, we keep our targets in that we are reworking our numbers. And on Sanjay's question, we'll get back to you once we rework our numbers. But yes, your C-heavy assumption is not too much of the mark.

No, my actually, concern was more about, I think, from the grain because of availability of grain in your catchment area because what I understand your Maizapur plant is equipped to do approximately 10...

So Sanjay, all your assumptions are correct. Now grain has 2 parts to it. One is rice -- brokered rice and one is maize. So from September, October, we would see, I think the government very clearly giving the price and creating availability for the broken rice also. . From broken rice will take it from the open market. So but they will give the availability by not using it food package. So we are told like probably 25% is being mixed right now in the rice we all eat that will be reduced to 10%. And hence, that 15% will be available in the market, maize, again, market-driven. So we do assume that all your numbers are largely in order.

Right. And Maizapur can make sugar in the sense last time, if I can recall.

It's ready, it's ready. We had planned for this any day.

Great, sir. I know, my second question on the prices only. I know it is difficult to sort of figure out the usual, what could be the average, say, price for the next 1 year or so, given the fact that there's so much of volatility in the production. But is it also sort of fair to assume the crushing will start much, much earlier than what we used to do? And if that happens, then can there be a recovery loss or and that probably might impact the full year production for the industry as a whole?

Okay. So if we see the entire program and the entire scenario, assume you start early, you will be able to sell at a much higher price than you would be able to sell probably later on, let's say. So the price trajectory has moved upwards because of that tight cash flow. The pain, the loss or whatever perceived loss from the distillery section, which will come to every company will be answered by an increase in sugar price. There may be cane price increase, yes. So you're seeing some positives, some negatives. So there will be some cost pressure, there will be some realization gain. It is impossible to quantify that today. Having said that, the sugar price is the biggest delta in a company like ours or in any company. So if there is a delta upward on the sugar price, which I'm sure it is -- so the average has moved up. As you've seen now the base has moved up and firmly sustainably so. So we know that sugar price base has moved up. All our assumptions, I said when we know. We know cane price might go up. We know distillery may be banned from making B-heavy or Juice. Keeping all these variables together on a single page and trying to work out numbers. I'm not thinking that we will end up very negative in this calculation.

Yes. So basically, what I could understand the benefit of higher sugar price will be much more than all the negatives, which probably will come there.

Much more to [indiscernible] more [indiscernible] share.

Okay, sir. Sir, my last -- maybe if you allow me, then question on PLA status of PLA project. And in first year, what kind of utilization we are expecting? Probably now we are very closer to the project commissioning. I'm sure we would have some bit of a target or some bit of an idea about what kind of utilization in the first year itself can happen?

So Sanjay, as far as commissioning goes, it looks -- lactic, we should be able to commission in October and PLA in December. And how the production quality, timing, quantity plays out, we are very clear it will play out. We don't know -- as I said, it's a new business, one doesn't know anything.

We take the next question from the line of [ Pankaj Tibrewal ] from [ Ikigai Asset Manager ].

Just a quick one that recently we saw there was some news on gutkha guys being banned on using plastics, I believe it's a very big thing for us from a P&L perspective. If you can just kind of throw some light how big that opportunity could be? And what is the current regime? And how is the discussion with those guys going on? It will be quite helpful. I'll follow up with the second question.

You were saying something else?

No, I'll follow up with the second question. Just this kind -- what kind of opportunity?

You have said hello to me and Pramod, and Avantika has to answer the question. Avantika answer.

Thank you for the question. So yes, there is definitely movement happening in more sustainable packaging for pan masala, gutkha and we are pretty much in the thick of it. This is still a dynamic agenda while we have had very good successful technical trials. We are -- I think we will see the results unfold in the next 2, 3 months. This is the best I can tell you today.

We are moving -- sorry.

Can this kind of a change if it moves in the right direction, can absorb your entire capacity? Is that the large opportunity could be?

Largely, it could.

So [ Pankaj ], I think we are being defensive. And let me just put it in my way. The mandate is in a good advance stage. There have been trials which have been positive at the end of the sort of consumers also, the opportunity is large. It will all scale up become larger. Why won't it spread to other snacks, I don't know. So the opportunity is very large. It has to play out the beginning and the first round should define and give us a better idea of the terrain when we enter.

Fantastic, fantastic. And just a medium-term question just to everybody is focused on next 3 months, 6 months commissioning capacity utilization. But if we take a slightly medium-term outlook for the company as a whole, can you give us that this INR 3,000 crores, INR 3,200 crores CapEx can it create a parallel Balrampur, which we are seeing today? Is that the right thought on right direction provided if certain things started stitching together in terms of product lines on PLA, a parallel Balrampur can be created?

Yes, if I have to answer it very bratently, definitely yes. I think we could -- we also -- I mean, I just want to address a little bit what we expect in -- within this financial year. So we expect that from Jan to March, we will have quality production, which will be sold. The quantification of it would be a little bit difficult to give today, but the safe expectation maybe around 40% on average capacity utilization, we should be able to achieve. It should be better than that. But this is assuming that things go as per plan. And I think that we are -- that's our target. Actually, target is higher, but that should be easily achievable. That guidance is something that I'm giving.

So [ Pankaj ], again, trying to answer it very clearly. If things go right, definitely. And I have no reason to believe or we have no reason to believe with the evidence gathered in the journey till date that this cannot be a reality. This is, however, our first attempt. So as you said, some patience and some tolerance which you have outlined in your question itself.

Yes. So that's quite good. And wish you all the best. I think we are embarking on a very different journey of creating what's the next growth lever for Balrampur would be. Wish you all the best.

Something great for the country maybe.

We take the next question from the line of Prashant Biyani from Elara Capital.

Sir, given the current scenario of below normal rainfall in many parts of India, how would be the cane crop quality in your command area in comparison to generally how the quality has been in [ yester ] year?

So for Balrampur, our rainfall witnessed till date, which is till we talked, has been absolutely ideal for cane. And there is no El Nino in our area because a little less rainfall in East UP, improve the recovery only. So we are positively inclined for our crop till now. If I may add, please. This El Nino is a bigger paper scare, at least for the cane crop than reality. Even Maharashtra, dams, reservoirs, maybe some parts of Karnataka little parts, but the rest is much better than media is making it out to be, personal view all to be vetted in September.

Sure. Sir, on PLA, we have told historically that we would be targeting areas where the cost of PLA would be least in terms of total product cost. So sir, on the business development slide, we have mentioned about garbage packages or bags or lunch boxes and others. But how is the business development going on in the product segments where PLA cost would be least in terms of total product cost?

So I mean, I think that -- see, first of all, the items you're mentioning are banned in plastic. So that's definitely why PLA and compounds of PLA work. And this has been happening even since before we announced any capacity. So straws largely of all organized players are made out of PLA. Garbage bags have a percentage of PLA compound. There are many [indiscernible] bags, et cetera, also. So in that place, we are quite successful. Other than that, this flexible packaging, it's a fraction of the cost of the finished product, especially, as mentioned also in the [ Panachala ] with other market prices like aluminum, et cetera, going up a lot. PLA actually becomes very viable. We are -- in cost-wise, we are actually competitive now. So we don't see now the cost being that much of a barrier. And definitely [ banned ] goods and their cost is not that much of a barrier, we are progressing very well.

We take the next question from the line of Shailesh Kanani from Asian Market Securities.

So I had a few queries. So first, with respect to the recent FSSAI recent notification. So you have answered a partial manner, but I wanted to know, are there any other primary material alternatives to the [ pharma ] industry apart from PLA to your mind because even the opportunity can be very big. So if you can kind of throw some light on that?

Yes. So no, good question. Definitely, PLA is one of the -- without PLA, it is without PLA some percentage, it is difficult. So an alternate primary would definitely be paper, and that would exist probably along with PLA, but it cannot exist alone. That is the same. So it's either PLA in whole or Plan in percentage, but PLA would be required considering the requirement of the packaging.

So that's very encouraging for us considering the tonnage. So if you can just give some numbers here, what can be the tonnage consumption? And what could be the potential addressable here?

Actually to find a reliable organized data is -- unfortunately, we are failing to find verified data on this, but we see it to be a very large market. I cannot throw a number in this because it's not verifiable. If you have verified numbers, I would actually like to get from you.

Yes, because I also have tried to search it because there are multiple organized and organized players well over here. So that is the reason I thought maybe you have some more color on that.

Be able to say with precision, I cannot throw a number, it will be responsible, but it's large, let's put it...

Yes, yes, yes. It is quite large. It's quite large. My second question was with respect to our [indiscernible] segment. So this quarter, the margins have been quite resilient, right, especially when what key factors has helped that because there has been a sharp rising transfer pricing, right, considering that more than 80% of sales have come through sugarcane as a feedstock. So what are the reasons? What worked in terms of margins? And are these margins sustainable?

So margin will vary on a quarter-to-quarter basis, depending upon the what feedstock we are using for distillation. In the quarter gone by, it was largely B-heavy and the bench-based ethanol. There was no -- there was hardly any sales on account of Juices-based ethanol. So that is the reason margins are at a good...

Sir, what I was trying to understand is that the transfer pricing has gone up on a year-on-year basis, right? There is a good 20% jump in terms of transfer pricing. And more than 80% has come through the sugarcane route. So I was wondering if something has happened. So I just wanted to understand the margin perspective over here.