Balrampur Chini Mills Limited (BALRAMCHIN) Earnings Call Transcript

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, ma'am.

Good afternoon, everyone, and thank you for joining us on Balrampur Chini Mills Q1 FY '26 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 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 earlier. I would now like to invite Mr. Saraogi to make his opening remarks. Over to you, sir.

Thank you, everyone, and good afternoon. And thank you once again for joining us on our Balrampur Chini Mills Q1 FY '26 Earnings Call. I trust all of you have had the opportunity to go through our results presentation. I will initiate the call giving a brief update on the current developments in the sector. According to ISMA, sugar production for the upcoming season that is '25-'26 is expected to be around 350 lakh tonnes, pre-diversion, up about 18% from 29.6 million tonnes in the previous year. These are early estimates and are based on satellite imagery, rainfall data, field reports across 3 key cane-growing states. While the overall sugarcane area has increased only marginally, favorable monsoon conditions and improved crop health are expected to drive higher productivity. State-wise Maharashtra is expected to see a 42% increase in sugar production. And these all pre-diversion figures expected to touch about 13.2 million. Karnataka, early estimates, may register a jump of 23%, touching 6.6 million, while UP may be remaining stable at 10.2 million. In UP, there is a decline in cane area, but we are hoping for a much better yield based on improved crop resilience and better disease management. This anticipated surplus presents both opportunities and challenges for the sector to maintain the market stability and avoid pricing pressure on sugar, a diversion of 4.5 million tonnes into ethanol and around 2 million tonnes of exports will be the key decisions. This will help balance inventory while supporting India's clean energy objectives. However, with the ethanol prices under Juice and B-heavy routes unchanged for 2 years, the industry continues to now eagerly await the timely policy support, including revisions in ethanol price and minimum sale price of sugar, MSP, as popularly called. Such measures will be critical to sustaining sector profitability and ensuring timely payments to farmers in a surplus. Coming to our Balrampur's business performance, company began the fiscal on a steady note with revenues rising in both Sugar and Distillery segment on back of higher volumes and realizations. Sugarcane crushing during the quarter declined by approximately 66%, resulting in a 65% drop in sugar production and leading to an under-absorption of fixed overheads due to the short season. Our focus remains on strengthening cane availability through developmental initiatives and varietal rebalancing in future seasons, and I would request Avantika to elaborate more on this when she speaks. At the same time, we are closely tracking policy developments as supportive measures, particularly in ethanol pricing and MSP would be instrumental as previously stated. Our PLA, polylactic, initiative remains a key pillar for our future growth strategy. In recent years, we have progressed from concept to detail engineering, secured strategic technological partnerships and aligned with the project with evolving regulatory and market trends that favor green alternatives to petrochemical plastics. With construction activity now underway, we are building a domestic market by trading imported PLA to seek demand, increase awareness amongst manufacturers and converters and encourage local production of PLA-based end products. This phased market development approach is helping us establish strong early customer relationships and ensure market readiness for a smooth transition to in-house production targeted for commissioning in Q3 FY '27, which is October 2026. Till July end, we have spent about INR 927 crores, comprising INR 460 crores through debt, balance from internal accruals towards gross CapEx, which is around INR 2,850 crores. Our long-term strategy is centered on sustainable growth, innovation and disciplined capital allocation. The Sugar and Distillery business has evolved into stable contributors over the past few years. This year, we await the government policy, delivering steady cash flows in challenging operating environments. Looking ahead, we see the pioneering PLA project as a structural pivot that will diversify our portfolio into bioplastics and position Balrampur at the forefront of green transformation. By maximizing value from every stick of cane and leveraging our integrated model, we aim to contribute meaningfully towards transition to a circular economy and a more self-reliant sustainable future. I'd now request Avantika to give you an update on cane and maybe a little bit on PLA and thereafter, Pramod.

Good afternoon, everyone. So just to begin with cane. So as already stated, UP has seen a slight decline. Ours is also, I think, flattish to maybe a slight decline. We'll be able to give better figures in the next quarter because the display and corrections are still on, but we don't see a very big challenge there. But having said that, the yields are definitely looking better. This is owing to the distribution of the rain. So I just want to compare it to last year. Last year, we had good rain as well if you quantify it in inch terms, but the distribution was a bit leaving us to ask for. In fact, in 3 of our factories, we had very big floods during the maturity period, and this resulted in a lower crushing and recovery than expected, more effect on recovery than crushing, I would say, even over there. And this year, the distribution up till now has been actually very, very favorable. This also indicates that there might be a couple of winter showers, which as we have been stating for the past 1 year, increases the yield and recovery in plant cane a lot, so we are quite hopeful for the weather conditions this year. And I just want to also highlight that last year, even though we had about a 10% lower cane area, our crushing only dropped by 1.75% -- 1.5%, 1.75%. And this just shows the on-ground activities and work for yield and disease management, which have resulted in our positive even in a bad year. So where everybody is declining, we are able to sort of get something better out of it. And in favorable weather conditions, I think we should keep the outperformance up. Our pest and disease control is very, very tight. We have negligible, I would say, pest and disease encroachment of any kind. Our ratoon management has actually been a big kicker, which we saw a bit of last year, and we should see even better in the upcoming season. So now even in Eastern UP, we have managed to do a paradigm shift where now the farmers have started to come out and do ratoon management without us having to tell them. So this actually accounts for 50% of our crushing, and this is where we have gotten the bump up. This will result in yields, of course. And this will help keep our crushing stable. Also, I want to mention that the crushing will start early this year since the festivals are also earlier and the weather conditions are up till now touchwood looking good. So we see a positive year for cane upcoming. Then if we move on to PLA, I just want to talk a little bit about the market in India about PLA because I think that that's a point, which comes up in every conversation. So just to begin with, we will begin our commissioning in October. And in our first year, we will probably have about 50% capacity utilization with quality in the first year. So we are already on our way to importing and selling under our brand name. We have touched it also there in the presentation, so this doesn't need to be written down. We have touched more than 175 customers directly already. We are catering to 50-plus. We have 30-plus trials going on with different companies of good caliber, and we are creating a lot of awareness with our Bioyug on wheels. This is giving us a lot of tailwind when it comes to showing people the possibilities, whether it is at the government places, whether it is at big brands and things like that. The other thing is that we expect that by the time our plant is at full capacity, our plant should be sold out within the country. Having said that, we will, of course, sort of take the best price that we can get, whether it is inside of the country or outside, and we don't see at all a lot of challenge there. I just want to also mention that Karnataka and Kerala state governments are giving a lot of push for circularity, compostability. And even in the north, Rajasthan, Gujarat government, all the CPCBs are taking it very positively. And even at the central government level, we are getting a lot of positive response from all the departments. So we are very confident and we are very excited to go forward with this. Thank you.

Pramod.

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

[Operator Instructions] First question is from the line of Sanjay Manyal from DAM Capital.

I have one question on the ethanol. Since now we have reached almost average 19% kind of ethanol blending, what is your view from the demand conditions, say, next few years? What is your discussions with the government about increasing the blending from 20% to 25%? And how the demand probably will be pan out over the next few years? And what probably also will be the contribution of sugarcane-based feedstock and grain-based feedstock. So what exactly are your discussions with the government on this?

Sanjay, thank you. So I'll answer what Sanjay has asked in a little more. So if you saw, there were some articles recently published by SIAM, which was talking about the issues in engines beyond '20. Government of India has come out with a very clear clarification, yesterday, Pramod? Where they have not only spoken about this misnomer being a misnomer, they've also very clearly given and detailed the benefits in terms of ForEx, et cetera, and they've gone on to say how they back the ethanol program per se. So even BIS standards are being fixed, probably they would move from '26 onwards. They have detailed a road map or they are in the process of putting up a road map from '20 to '22, then '25 to '27. So demand conditions don't worry me. Government's commitment to the program doesn't worry me, especially after what we have read yesterday, it is a very detailed paper. You could share with some of the investors. It's in public domain. Lastly, what we are dealing with right now is the ethanol pricing. I am very hopeful, especially since government has said it's such a beneficial program, why not do what they have not done for 2 years. We are in active persuasion with all government sources for Juice, B, both prices. And this year being a surplus year -- so let me put my thinking on the table a bit. Last 2 years, the environment was not that of surplus. Next year is the first year we are entering surplus production. So the government's attitude when there is a surplus and when there is not a surplus is very different. So if you saw in the yester years, they have given about INR 10 a kg. I'm talking of real-time bank, Pramod, maybe 10, 12, 15 years back, I don't remember. INR 10 a kg, which is 1/3 of the export price subsidy just to handle the surplus and the arrears. So I think next year, we are very positive. And I personally feel that the ethanol price would increase because this is the only thing, which will kickstart the diversion and maybe take it to even beyond 4.5 million. It's the need of the hour, beneficial for the country. And owing to the surplus, I guess there is not much of an option. And I'll also tackle the MSP question, minimum sugar price. We are again actively lobbying for both MSP and exports. But I guess exports will happen when the production figures get much clearer. If you do recall, last year in January, even with a wafer thin surplus of 1 million, the government did allow 1 million to go out. So the given the prospect of the surplus being larger, I personally feel that should also happen in -- around the same time. I mean, one can't commit. It's maybe as soon as government gets confidence, Pramod, that the production is what it is being envisaged. So these are the comments on ethanol demand, ethanol pricing, MSP and export. I thought let me brief the house once for all. Thank you.

And sir, what is your view on the proportion? Because last few years, the maize ethanol production has gone -- I mean, maize ethanol diversion has been a lot higher than the molasses. So do you think that government this year will balance this out?

Yes, yes. So 2 parts to this. The demand could not have been fulfilled by the sugar industry owing to lack of raw material, fully. And the year previous to that, they just put a grinding all suddenly on diversion. So the demand needed to be fulfilled, maize came and did the gap filling. But current year, if you see, there have been some unintended consequences of maize area increasing. So I think if -- Sanjay, I get your question correctly, what if there is an oversupply, we will get our share is the answer. Maybe maize gets curtailed for all you know. We'll get our share because again, we go back to the basics. Basics is there is surplus. Surplus needs to be diverted. If not diverted, sugar price will suffer. That is the reason why this will happen that is diversion. Your ability, if it's 45 million, government will take that. And exports also should happen should the production figure come to what we are thinking it would go to.

Right. Sir, one question I have on the sugar recovery side. Last year, we -- across UP, we have seen a significant decline in the recovery. Given the fact that, as you have mentioned, the rainfall has been well spread. And so is it possible that we can go back from again, 11.3% to 11.7% or these varieties have been hampering that?

So I think definitely, there is a chance, I mean, I think up to now a good chance for that to happen. Our varietal balance is on a really good front, I would say. The red rot [ latest 38 ] is only about 7%, which is super healthy. So that will also give us maximum of what it gives. And the rest of our varieties are also, I would say, best in the state, best in the country. But we are very, very hopeful.

So Sanjay, basically, if -- and to hazard a guess, 11 point -- Pramod, we went to -- dropped by 0.4% last year approx?

0.45%.

So if we went to 11.3 -- 11.28% from 11.72% something like that. So I would definitely feel very positively inclined towards recovery, but maybe not 11.72% in 1 year, maybe 2 years. But yes, a definite uptick from 11.28%, halfway maybe. It's too tough to say now.

No one can say.

Yes, but positively inclined towards increase in crushing from last year's figure and positively inclined towards recovery.

So as we speak today, the weather is conducive for us.

100%, but let 2 months pass.

Yes.

Right, sir. And sir, my last question is on the PLA. So as you have mentioned that you have been importing PLA to sort of develop the market. So at what price or what would be the landed cost of PLA? And will, in future, that imported price will define your realization for the product?

So actually, we are not at liberty to disclose the figures like this due to NDAs and things that we have. But obviously, we are -- since we are importing ourselves and we are doing everything, we are very cognizant of everything as we go. Sorry, I can't give you too much of the...

So I'll just try and put the basics on the table again. So the demand generation and the price would go hand in hand. We are hoping for a lot of mandates from the government, which is in their sort of own thinking and within their own mindset. Maybe it's from some departments, which will eat up more than we can make. And therefore, it should be positively inclined towards the price. So we are hopeful on both sides. Our ability to produce and our ability to sell. And the price structure, let's say, yesterday, the price was lower than what we thought; tomorrow, it might not be. Maybe there are some -- government puts in some restrictions to sort of beef up the Indian industry, so there are lots of things we are working on.

Next question is from the line of Prashant Biyani from Elara Capital.

Mr. Saraogi, what would be your view on any changes in SAP that may happen this year?

Yes. So SAP is in all likelihood go up -- would go up, sorry. We are thinking that let's be -- I'll be brutally honest. SAP might go up for 2 years, and that may not be all that bad if supported by the measures, which we have spoken about, which I briefed on Sanjay Manyal's questions. Because, a, it will help our crushing to go up; b, that may be the need of the hour for the upcoming UP election. And it would also -- what you say? Yes, so it will give us a lot of raw material for our ethanol. And we are hoping -- see, in a period of 10 years, you do go through a couple of years of glitches, so I'm hoping it's a glitch. My evidence would be this year's ethanol pricing. If it happens, I will be delighted. And we hope that our recovery in 2 years will make up for cost increases.

Right. And sir, a slightly related question. The lower acreage of cane that we are seeing in UP, is it a result of -- because the varietal change has happened from 0238 to others, farmers have seen lower yields on newer varieties and, hence, it is resulting in decline in their income. Is the lower acreage relating to that and any SAP increase can compensate for that?

Yes, Avantika.

So see, it's never just one factor, right, for a whole state. So definitely, this has a part to play. Secondly, people are trying to experiment with a different blend of crops a little bit to see how they can get a better realization. And definitely, the SAP going up will increase the acreage back. I think the acreage has bottomed out for UP to be very honest. There does need to be a healthy balance of crops to see price of each and every crop. Otherwise, oversupply of any crop is not good.

So I'll just complete my thought on this. The idea is a variety also finds its home. It finds its yield, it finds the correct soil, the correct time to be planted. So how much ever we say until the farmer faces the brunt of negativity and some see the fruits of positivity. That I think is now, let's say, 14201, it's a beautiful variety. It must be planted at the correct time. So those who plant at the correct time, last year, saw fantastic yields. So I'm saying all these small experiments with SAP will definitely take our area up and our payment. And I'll leave it there.

Sure. And sir, one unrelated question, mainly relating on the government side. Sir, any government-to-government exports, which happen time and again, we hear exporting to South Asian countries and a few other geographies. How does the sale happens actually? And at what price does it happen? Is it through companies through government's buffer stock or through trader stock?

It won't impact any sugar company, so you can let this question go.

Next question is from the line of Nikhil Agrawal from Kotak nondiscretionary PMS.

Just a quick question on the PLA. We have seen earlier that many companies have used bagasse to make biodegradable paper products. While the products do look quite impressive, but the price point is where the demand gets impacted. My point being, do you actually see customers paying a premium for the product that you are making? Because in this case, in the case of biodegradable products, it did not -- I don't see that working out. I mean, you've given examples of Starbucks, but that's fine. What about other users?

So I just want to remind you of one very simple thing that our production capacity will be 80,000 tonnes and India's consumption of plastic is 15 million tonnes. So first, let's put that into great perspective. Secondly, the short answer to your question is yes. People will pay a premium where they see functionality and opportunity to create a better atmosphere. If they don't do it willingly, I think the government -- and there are many big companies who want to lower their virgin plastic consumption unrelated to any government mandate also. So while I understand what you are saying, it doesn't affect when it is such a -- it's not even a drop in the ocean. So this question is not relevant in my mind, to be very honest.

Okay. Okay. Got it. I'll maybe take this up with you offline. Another question on the cane production. Just wanted some clarity. For FY '26, you said that it was 18% up compared to last year. It's expected to be 18% up on an overall basis.

Yes, we spoke about the country level.

Right. 18%. And what about UP?

UP, we said would be flat.

[Operator Instructions] Next question is from the line of Shailesh Kanani from Centrum Broking.

Congratulations on the performance given that it was a low crushing quarter this time around. So my line got dropped in between. So apologies in case this question has been already answered. One is on our PPT, we have mentioned that the utilization rate of production capacities in bioplastics worldwide is 58%. So that number seems to be a little bit on the lower side. So can you highlight top reasons for the same and how our facility will be a little different?

Sorry, I didn't understand your question. Could you repeat it, please?

Sure, sure. So in our PPT, we have mentioned that globally bioplastics worldwide capacity utilization is somewhere in the range of 58%, right?

Okay.

So that obviously looks on the lower side. So what -- yes, so what are the reasons for that? And how would our facility would be a little bit on the higher side or how we are going to tackle those hurdles?

So definitely, 58% is on the lower side, definitely. But I don't think -- okay, so it is basically coming from China, this thing. If we look country-wise, I don't think this figure is like this at all. China has 1 single facility of 300,000 tonnes, which is not able to ramp up capacity is what I understand, not for want of a market, but for want of their own internal technology or whatever those things. So I don't think that this is the way to sort of look at this question. The market is definitely there globally. We are barely 1% in bioplastics and PLA would be even like half of that. So 0.5% of global consumption. So that's one thing. And we don't see this as a challenge arising. In fact, we get more questions like when will you be able to supply us full so that we can change over full. State government, central government, everyone is looking to this. And like I was mentioning earlier also, so states like Kerala and Karnataka are pioneering their own PLA-based milk packets, water bottles, this and that. This is without anything related to Balrampur's efforts. So things are happening automatically as well. And they are, in that case, much more expensive at the end of the day than what we would end up being when we have the domestic production. So we only -- the only question we get asked when will your domestic production start so that we may actually make a strategic shift. This is where we are coming from.