Balrampur Chini Mills Limited (BALRAMCHIN) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Balrampur Chini Mills Limited Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Karl Kolah from CDR India. Thank you, and over to you, sir.

Thank you, Aman. Good afternoon, everyone, and thank you for joining us on Balrampur Chini Mills Q4 and FY '20 Results Conference Call. Today, we have with us Mr. Vivek Saraogi, Managing Director of Balrampur Chini Mills; 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 discussions. 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 earlier. I would now like to invite Mr. Saraogi to make his opening remarks. Over to you, Vivek.

Thank you, Karl, and good afternoon, everyone, and thank you for joining us on Balrampur Chini's Q4 and FY '20 Earnings Conference Call. I hope you, your family and your colleagues are all well and staying safe. I will give you a brief backdrop on the macro and the financials. As per latest estimate, India is expected to produce 27 million tonnes for the current season. Overall production is still expected to be lower by 6 million from the 33 million in the previous season. In UP, mills have produced 12.6 million as on 31st May, which is 0.8 million more than last year. In Maharashtra, the season concluded in April, and the production was 6.1 million as compared to 10.7 million in the previous season. This was an account of the drought. Even in Karnataka, crushing operations concluded by 30th April, and production was 3.4 million. Coming to the demand scenario. Consumption for sugar is expected to be 25 million this year, despite the impact of COVID. That is our feeling. On the other hand, total exports contracted were 5.1 million and roughly 4.7 million has already been dispatched or are at the port and loading. Overall, we expect, Pramod, 5.2 million? Would go higher also, no?

5.2 million.

Okay. Overall, for this year, up to October, we expect a dispatch of 5.2 million in the export front. Overall, therefore, we expect the closing stock to be 11.5 million. Globally, the sugar production is lower by 7 million at 175.1 million during the current year. It is projected to increase by 10 million to 185 million for 2021. Pramod, that is the next year?

Right.

And this is all expected to come in from Brazil mostly and some from India, and that is going to larger diversion to sugar from the ethanol front. Coming to our business overviews, we have delivered excellent financial and operational performance during period under review, despite the challenging environment prevailing in the sector. Sugar segment delivered a healthy performance on account of higher volumes and steady realizations. And the Distillery segment delivered strong results on the back of higher volume and better realization. I'm happy to share that we've also commenced our 160 KLPD Distillery at Gularia in January. And this unit is expected to further drive the segment's performance during the coming years. The Cogen segment continued to report subdued numbers due to the downward revision of power tariffs. And as you are aware, we are in court and contesting that. In the closing, I'd like to state that amidst the pandemic situation and the external pressures on the industry, BCML has delivered an excellent performance during the year. Going forward, our healthy balance sheet, prudent capital allocation and strong cash flows would enable us to create value for all the stakeholders. And I'm happy to share that in line with our long-term philosophy of distributing profits on the back of a strong performance, Board of Directors recommended a buyback of 1 crore shares at INR 180 per share. And I'd now like to hand over the floor to Pramod.

Good afternoon, everyone, and thank you for joining us today on Balrampur Chini Mills' earnings conference call. I will be providing you all a brief on the company's operating and financial performance for the period under review. During quarter 4 financial year '20, the company has delivered a robust performance despite the challenging time due to COVID-19. In Q4, revenue from operations stood at INR 1,740 crore, higher by 31% Y-o-Y on account of strong performance reported in the Sugar and Distillery segment. Coming to the sectoral performance during the quarter. Revenues in the Sugar division for the quarter stood at INR 1,772 crores, a growth of 40% Y-o-Y, and the segment PBIT grew by 68% to INR 132 crore. This was on the back of higher volumes and steady realization. The company was also able to reduce its sugar inventory by diverting sugarcane towards the B-heavy route to maximize ethanol production as well as export of sugar to merchant exporter. Sugar sales during quarter 4 were higher at 45.35 lakh quintals as compared to 37.6 lakh quintals in Q4 FY '19. Realizations for Q4 were at INR 32.23 per kg in comparison to INR 31.48 per kg in Q4 last year. As on 31st March, sugar inventory was around 68 lakh quintals and has been valued at an average price of INR 29.49 per kg. In the Distillery segment, revenues grew by 53% to INR 173 crores on account of higher volumes and better blended realization. During Q4, ethanol produced out of B-heavy molasses constituted 73% of the total production. Similarly, the ethanol sold out of B-heavy molasses route constituted 72% of the total alcohol sales. Total alcohol sales during the quarter was INR 3.4 crores, which includes ENA, C-heavy molasses route ethanol as well as B-heavy molasses route ethanol as compared to INR 2.52 crore BL in quarter 4 FY '19. Blended realizations during the quarter was INR 49.97 per BL as compared to INR 43.16 per BL in Q4 FY '19. Stock of molasses as on 31st March '20 stood at 27.51 lakh quintals versus 21.76 lakh quintals during the same period last year. In the Co-generation segment, revenue stood at INR 206 crore and PBIT of INR 34 crore stood in the quarter. Company sold INR 21 crore unit as compared to INR 26 crore unit in Q4 FY '19. Average realizations for the quarter was INR 3.01 as compared to INR 4.91 per unit in Q4 FY '19. As on 31st of March 2020, stock of bagasse stood at 2.45 lakh metric tonne as compared to 3.94 lakh metric tonne in the previous year. Long-term loan as on 31st of March 2020 stood at INR 446 crores, which includes SDF loan of INR 5 crores at 4% and balance term loans availed from state government and central government under the scheme which carries interest subvention or at subsidized rates. Long-term and short-term rating of the company stood at AA and A1+, respectively, and assigned by the ICRA as well as CRISIL. This brings us to an end of our opening remarks. We would now like to address any questions or queries you may have in your mind. Thank you.

[Operator Instructions] The first question is from the line of Sanjay Manyal from ICICIdirect.

Congratulations on a good set of numbers. A few questions, sir, on the sugar sales quota perspective. Your entire domestic quota for the year has been 9.3 lakh tonnes, if I'm not wrong. You can correct me on that number. So is it expected to remain same next year considering the fact that Maharashtra and Karnataka will be coming back to a better production?

Okay. Valid question. So we are expecting the sales in the current year based on the quota to be much higher than 9.3 lakh. We'll just give you the exact data, what was there last year. And it's impossible to give the projection, but one is expecting a definitive jump there.

Okay. Okay. So in a similar way, if it is possible for exports also? Because [ 2.3 lakh tonne ] was the export, if I'm not wrong? And if the continuation of export subsidy happens, will that number remain same? Secondly, will you participate in the third reallocation, which is announced just a few days back?

Sorry, come again. I missed your last part.

Will you be participating into a third reallocation of export quota, which is announced, I think, a few days back?

So all valid questions. So we are not participating because we have already sold a lot in the export front as well as diverted a lot into B-heavy and plus we've got healthy domestic releases. So we are not looking to participate in the third tranche of exports. And export subsidy continues was your other question, is it?

Yes. So if export subsidy continue for the next crushing season also, what could be the quantum of, say, for in FY '21 in terms of export contribution?

So -- yes. See, again, these are forward-looking questions. But if the past is any evidence, first, the subsidy would be continued. Second, quantity of exports cannot -- would be higher than 6. It should not be lower. And third, quantum of subsidy is unknown at this point of time, but the range is clearly defined. If again, you look into the past, you'll get all your evidence. So this brings us to the next question, which I think a lot of participants would have, Pramod, so I'll address it upfront. So let's understand what is the policy which is continuing and how does one look for continuance and what are the parameters of continuance. So I go to the Central Government. One is buffer stock. The logic is when there is an excess production, excess stock, buffer stock continues. Based on that and based on the next year's projection of production, it is very easy to assume it should continue. Second comes export subsidy and export quantum. I've already spoken about that. Third comes the B-heavy policy. And fourth comes the MSP, the minimum selling price. And fifth comes the FRP. I think these are all the related questions from a Brexit. So yes, just to get back, the last year's domestic sales based on quota was 9.45. Okay. So as you are aware, the government is actively considering the increase in MSP. As and when MSP increases, that is equal to your sugar -- assumption of your sugar cost, the moment that happens that extrapolates into B-heavy pricing increase. Obviously, that would happen from next year. So it is basically B-heavy priced at the sacrifice of sugar done into the ethanol. If the sacrifice price is higher, assume it moves from 31 to whatever, so consequent change in B-heavy price is a formula-driven approach. The next is, if let's assume there is a rise in MSP now, which we are hoping for, and FRP goes up in October, that FRP is accompanied by second round of MSP increase is the evidence from the past. Any cane price increase leads to MSP increase. So I have been able to clarify the position?

Yes. Just one thing, if suppose MSP hike comes now and FRP happens in October, then there will be one more round of MSP increase, that's what you're trying to say?

Yes. There will be one more rise of MSP increase. That -- see, these are evidences from the past. Because right now, there is no crushing which is going on. They are going to recognize the true cost probably. And if there is a further cost escalation based on raw material price escalation, that will be accompanied by another MSP rise and another B-heavy rise. So that B-heavy, if 31 moves to, let us say, 32, 33, 34, 35, whatever is that delta in increase in the sugar price, it will be accompanied by consequent B-heavy division. And B-heavy tenders come out, as we are aware, in September, October. So I guess the policy will be dealt in a composite manner because, one, input has many outputs.

Right. Right. Sir, secondly, probably on the Distillery front. So though your capacity is somewhere around 18 crore liters, so will it be like fully utilized in FY '21? Secondly, what is the best possible diversion towards B-heavy, in the sense, if you can say best case scenario for the Sugar segment side because how much sacrifice you do to B-heavy as low as the inventory would be there, so what is the best case in that sense?

So we are now definitely, next year, looking at 100% capacity utilization, that is 18 crores, definitely. And whatever is the UP government's requirement, we have to give ENA. The rest, whatever is the balance figure, we hope to produce at least 80% B-heavy next year.

Thank you, Mr. Manyal. May we request you to please join the queue for any follow-up?

Sanjay, when we say next year, it means sugar season or the ethanol season, not the financial year.

Right, right. I always -- sugar season, that's the extrapolation.

The next question is from the line of Pratik Tholiya from Elara.

Sir, just one clarification. You said you would not be participating in the third tranche for exports. Is it because the prices are too low? Or like you mentioned, you've already diverted enough towards B-heavy? So what would be the reason for that?

Why aren't you participating in the third tranche? So basically, you see today's prices, it's not that they are not okay. So as we said, we have diverted enough. And probably, we are looking -- if you want to maintain buffer, et cetera, these are some internal calculations based on what the company's best case scenarios, and that's the decision.

Understood. Sir, but just what would be your estimate for next year in terms of exports from India? You expect we'll go back to that 6 million tonnes, which we are initially thinking about this year, but have fallen short by 1 million tonnes. If prices remain at the $0.12, $0.13, will the industry be comfortable at exporting 5 -- more than 5 million tonnes in the next season?

I don't want to answer that. What is his question?

See, this year, as against a mandated quota of 6 million tonnes, as we told in the earlier part of our conversation, we are expecting industry to export to the extent of 5.2 million tonnes. Now going forward, there is no reason to believe that the industry will not come forward and export because we are currently operating in an environment where the domestic sales are regulated. So unless and until industry comes back to export, what we will do with that higher inventory? We will have to continue to sit with the higher inventory. So that's the only solution apart from sugar sacrifice in the form of B-heavy.

I fully agree with that. I think even 5.2 million from India is a very good figure. And it may climb up to 5.3 million or 5.4 million. So it could be between 5.2 million to 5.5 million also. And this is the range, basically. So if you want personal views and it's forward looking, it could be between 5 million to 6 million next year also.

All right. So that's a little encouraging, actually.

And diversion towards B-heavy next year.

Sure. Sure. And sir, lastly, there was a third tender of -- from OMC is expected in this month, has it been rolled out? And are we participating in that?

Yes. Very good question. There is a third tender. And just to let everyone know because we repeatedly keep receiving questions. So third tender, obviously, the price is decided at the beginning of the year. The method of deciding the price of ethanol B-heavy has got nothing to do with crude, it's sugar price. So crude could be 20 and B-heavy could move up next year or crude could be 100 and B-heavy could only move to the extent of sugar price, MSP increase. We are participating in the third tender in a small quantity. So we are participating because the reason being we produce more than expected and hence, more molasses are available to participate.

Sure. Sir, what is the total quantum in that third tender, if you could -- if you have the number handy?

Let the tender be finalized.

Okay. Okay. Fair point. And then lastly, this buyback, firstly, it's a very good timing from the management. So -- but is the promoter is also going to tender in this buyback?

So as we said in the beginning, this is distribution of profits to shareholders in form of -- we do 2 forms: one is interim form of dividend and one is this. So everybody participates. And this should be in the past records for 4 years. This is the fourth year, no, Pramod?

Fourth year.

Our contract is transparent. We put up on the site, average percentage of distribution. Everybody participates. Okay. Another question which people might come up with. Production next year -- again, too early to say, but production initial estimates are at 3.1 million. Consumption might be at, let's say, 26, 5 million excess. We are hoping of 5-plus diversion from exports and maybe the production estimate might have B-heavy or not. So all in all, inventory reduction from 11.5% is our personnel expectation. But too early, too early.

[Operator Instructions] The next question is from the line of Madhav Marda from Fidelity Investments.

I just wanted to understand, sir, that the…

Mr. Madhav, can you be a bit loud, please? The audio is not very audible.

Yes. Is it better now?

Yes.

Yes. Sir, I just wanted to understand the MSP increase which is being considered actively by the government, what's the rationale on the government side for increasing the MSP? Is it likely increase in FRP? Or is it to clear cane arrears? I mean what's the thought process there basically to implement higher MSP?

See, what we had represented is this 31 is of cash cost coverage. It does not include the interest component. And at -- during COVID times, et cetera, there was a lot of dialogue and a lot of cane went up in the UP, et cetera. So the basic understanding of cost of production better acknowledgment of the truth. As I said, this round of MSP increase is acknowledging the truth, which is cash cost to actually total cost. Any rise in FRP should be accompanied by another rise. I'm saying this based on the evidence we have from the past.

Okay. Okay. And also, the -- could you like just help us -- remind us, the B-heavy diversion which we are doing, what is the sugar that gets sort of sacrificed in that process? And maybe on a net EBITDA basis, is it like accretive to make B-heavy versus selling sugar? How does that work? Or the price takes care of that difference?

See, understand, the moment you sacrifice B-heavy, you save heavy interest. So if you are to evacuate sugar from your factory, you have 2 formats. Either you export and wait for the export substitute to come, which takes time, but it comes. So like this year, we've already received some tranche of the export subsidy. And hopefully, things come by August, let's say. B-heavy, the moment you sacrifice, your ethanol gets lifted on a monthly basis. The conversion ratio, Pramod, is 1.6?

1.65.

1.65 is the conversion ratio, which means if you are getting INR 30 for -- let's say, you're getting INR 30 for sugar -- INR 30 into 1.65, Pramod?

It's 51.

30 is equal to 51 kind of thing. So if that goes, let's say, 54, so accordingly. If it goes higher, accordingly.

Okay. So sir, sugar MSP, say, goes to INR 33, it will be INR 33 to 1.65, that becomes the new ethanol price for the next season, basically, or the next year?

You see, I cannot give you so much detail, but right now, you should understand this is our internal calculation, INR 31 is equal to 54.

INR 31 is equal to 54, okay.

Because MSP is 31, B-heavy 54. So I think one should take that ratio.

All right. And this is just one last question, maybe a very basic one. How much of the cane arrears in the -- with the farmers right now? And at the current level, are we able to clear as an industry?

Pramod?

In UP, cane arrears, as of now, is around INR 15,000 crores. And it is expected that by end of September or October out of this INR 15,000 crores, it could be INR 10,000 to INR 11,000 would be paid off.

Okay. So we still have maybe INR 5,000 crores, which still needs to be paid off, which doesn't get cleared at the current price also. Is that the right understanding?

See, it's impossible to give you industry projection. But just to explain to you, this export subsidiary, which is pending to be received by the millers is actually going to straight go to the farmers' accounts. So this helps in clearing. If MSP is raised, your price realization goes up as well as the drawing power on your balance stock goes up. So these are 2 innings to tell you that what level of arrears we have paid off. How individual people conduct themselves, we don't know. Just to give you an example, in COVID times, our sugar sold at a low of INR 31.30, INR 31.40. And now with consumption back on the rails, the price is also INR 33.50 plus. So we've seen a robustness in demand as well as good price increase based on the -- some speculation definitely creeping in on the MSP being increased.

Okay. Okay. Got it. And sir, last question, if I could just ask one more? On the ethanol capacity expansion, is there something more which can happen in the next, say, 3 years to 4 years for the industry?

See, for the industry, definitely, we are hoping that capacity increase would happen, and therefore, higher diversion could happen.

All right. And as a company also, we might be happy to add more ethanol capacity in a couple of years' time once the current fund gets utilized?

We will be looking at that. At present, we have INR 18 crores. We hope to even try and cross that by a bit. Let us see our crushing balancing, et cetera.

The next question is from the line of Gaurav Jhanwar from Systematix Shares.

Congratulations for the good set of numbers. I just have one question. In this Q1 FY '21, do we see any impact on the demand and as well as on realizations due to the COVID-19 pandemic?

Sorry, come again?

In this current quarter, do we see any kind of impact on demand and realizations due to COVID-19 pandemic since many of the industries, there is a lower demand on sugar?

I think everyone will be very pleasantly surprised with what happened in this quarter, that's all I can say. As we have indicated, that things are looking good on the demand front. I've indicated the price trajectory also. It went to a low of INR 31.20, INR 31.30. It's up to INR 33.50, gradually. So on the demand front, we haven't seen much of a destruction, to be honest.

The next question is from the line of Bhavin Chheda from Enam Holdings.

So just a couple of questions on the Distillery side. I think you guided next season volumes of around 18 crore liters. I understood if you gave the numbers of what would be the breakup between B-heavy and C-heavy?

Okay. So as you are aware, UP Government takes, let's say, 15%-odd. UP government might take 2 crores of ENA, and we might do about 12.5 crores, 13 crores of B-heavy and 2 crores, 3 crores of C-heavy.

Okay. Versus, I think you started C-heavy only this quarter, this year, you have done 2-odd crores of C-heavy, right?

No. No. Much more.

3.4 crores.

At the end of quarter. Yes, 3.4 crores is Pramod is saying.

3.4 crores. So B-heavy volumes will almost move up 4x in the next season?

So we look at the year. I don't know quarter basis. We don't follow it. So in this year, probably B-heavy, Pramod [Foreign Language].

B-heavy sales during this year was around 2.45 crores liter -- sorry, 2.56 crores liter.

Got it.

And production was 3.58 crores.

[Foreign Language]

Season -- for next season, we are expecting B-heavy production to be around 14 crores liter.

[Foreign Language]. We'll get back, Bhavin.