Balrampur Chini Mills Limited (BALRAMCHIN) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the Balrampur Chini conference call to discuss the implications of COVID-19 virus outbreak hosted by Elara Securities Private Limited. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Mr. Pratik Tholiya. Thank you, and over to you, sir.

Yes, thanks, Lizanne. Good morning, everyone. On behalf of Elara Securities, I would like to welcome all the participants who have logged in to this conference call of Balrampur Chini to understand the business implications of COVID-19. From the Balrampur management, we have Mr. Pramod Patwari, the CFO; and Mr. Vivek Saraogi, the Managing Director of the company. At the outset, I would like to thank the management for giving us this opportunity and taking out time from their busy schedule as the situations are so dynamic and changing every minute. Thank you, sir, for allowing us to host this conference call and also talking to the investors and briefing them on what's happening. So without much ado, I would hand over the call to Vivek, sir, to just give us opening remarks and walk us through what's happening in the industry right now. Thank you, and over to you, sir.

Thank you. So hello, everybody. So let me put it product by product. As far as the crushing operations and distillery operations go, the government mandate in writing both from the state and the center is very clear, that it is falling under the ambit of that essential commodity, hence, there is, from their end, no stopping crushing. In cane crushing, the problem we are facing is transportation of lime, stopped production of lime in Rajasthan. That is because their kilns are being shut down, and that is causing a problem. So if we don't get lime, probably, as of now, probably 7 to 8 days, maximum 10 is what we have stocked for. 10 -- let's put it exactly 10 days. In distillery, there is no stopping because here with all your raw material finished or not, everything you can do. The lifting from the OMCs have declined, understandably so because there is no buyer in front, which means the cars, et cetera, are not running, so the offtake of petrol is low. So in sugar, now we come to sugar dispatches. Sugar dispatches is happening. There are some, obviously, on-the-road problems, but as far as pricing goes from the last 3, 4 days, there has been an uptick only, INR 0.30 to INR 0.40 because the market is starved of sugar technically. Having said that, whatever can get transported is being transported, we are selling maybe a little less, but we are selling, probably whatever will -- now probably whatever will be our quota, will be lifted. It's not might, it will be lifted. And power generation remains normal because there's no physical delivery of anything required. Having said that, times are testing, and we are maintaining extreme security and hygiene at our end. We're also manufacturing hand sanitizers for -- based on government orders. We want to help out. So this is where we stand. So crushing is on, dispatch of sugar is on. Dispatch of ethanol is on, though a little slow. Production in sugar will last for another 10 days, if Rajasthan lime does not begin to come in. Thereafter, probably if you close down, and then you can restart when you start getting lime. Should you start getting lime in the interim, there's no close down required. So this is the exact data. So to give you an overall business perspective, our business does not stand disturbed, disturbed. It -- the problems are in front of you. Our export dispatches, Pramod will brief you. And that's the opening remark from my side. Now Pramod, I hand over to mic to you.

Thank you, sir. Export front, out of the additional quota of 85,000, which we contracted from the day of announcement itself, we have made a significant dispatch from our side. So I would say, out of 85,000, 40,000 has already been dispatched from our side. And most of the goods are lying at the port area in the storing. Some cargo is in the transit. So maybe over a period of 3, 4 days, that same will get delivered at the warehousing. Efforts are being made at that end also by the local authorities to ensure that no cargo in the transit gets detained or there is no problem as far as the unloading of the cargo at the warehousing is concerned. This is the latest update on the export front.

Just to add that any dispatches, Pramod, we are making on the export side or on the domestic sales side, nothing is going without payment.

Yes.

So we are ensuring if 1,000 bags less go on a particular day, we are fine with it. We are -- as a company, there is no payment risk we're taking on the export or the domestic sale. 0.

And -- yes. And as you all know, that we have communicated this in the past also, it's say, additional export quota was contracted at an average net expected realization of 23,000 per metric. So if there's subsidy component to it, it will be nearly 34,000.

For INR 34.

INR 34 per kg.

So that's it from our side. We're open to questions.

[Operator Instructions] The first question is from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund.

Sir, my question is on the international sugar prices. From what we read is that the sugar prices are down anywhere between 20-odd percent to 22%. I mean -- and at this price, number one, how is the sugar export viable? And number two, globally, the sugar prices comes down because of the crude. I mean, would there be a risk of Brazil looking at more sugar production compared to your ethanol production? These are the 2 questions from my side.

Okay. Specifically, Pramod, if you go to export today with the rupee-dollar today an $0.115, what would be the realization?

I think, ex factory, it could be around INR 18 per kg, INR 18 or INR 18.5 max.

Should be INR 18.5, Pramod.

INR 18.5.

Yes. Okay. So today's realization is INR 18.5, which means if somebody contracts fresh exports today, he'll get INR 29, which is not so bad. Okay. Therefore, what can happen is if one was estimating that against an MAEQ announcement of 6 million by government of India. Pramod, we were anticipating earlier that 5 million might go?

Yes.

So now we tamper that down probably.

Yes, we'll have to tamper it down.

Yes. So we don't know what. But one can safely assume that a minimum of 4 million will definitely go.

That's right.

So if prices move up and things normalize, I don't think there is a problem, even at INR 29, INR 30, you will get sellers because you save interest, et cetera. We have been lucky, we have been proactive not only selling our original quota but our additional also. So I think minimum 4 million should be exported. I've just got a message that 4.3 million is the figure. Okay. So let's keep it at that. Global prices have come down, crude is the major reason. So if crude does not recover from here and real does not recover -- so there are 2 governing factors driving the international price. Let's understand Brazil is the only seller, and it's a huge seller. So Brazil selling is based on 2 factors. One is like rupee-dollar, if the rupee weakens, your export becomes more competitive. So if real is to dollar, Pramod, what is it now, 5.1?

5.1.

So if this weakens, the price -- it's a negative for prices. But if real strengthens, it's a positive for prices. Crude, if it strengthens from here, again, it's positive for prices. Having said that, this is probably the lowest levels of prices because cost of productions level are already at bone-thin margins. That's my view, it is personal views. So for global prices to recover because there is a need for sugar globally which under severe drought. At lower prices, India's exports tune off so the supplier is Brazil. And if Brazil goes up because of real and because of crude, these are the 2 variables everybody should track.

We'll move on to the next question that is from the line of Vijay Sarda from Crescita Investment.

Sir, just my question is just repetition of the same on the export side. So initially, we were allotted the quantity. And beyond that, we were expecting some quantity. So secondary tranche that you sold, you said that 85,000. You contracted 40,000, so that is at what rate? INR 28 or it is at higher exit?

23 point -- what Pramod, 2?

INR 23.5 per kg, ex factory. So if you add...

INR 10.

It will come to INR 34. If you want to take the subsidy, which is the logical thing, it's INR 34.

Okay. So that 85,000 is contracted at INR 34. So out of this 40,000, we already dispatched and the rest needs to be dispatched?

Yes. Yes, right.

Okay. And sir, secondly, as you said, the sugar season will come to halt in next 15 days or so. So what is the kind of now production overall we estimate on the ground from UP as well as for the entire India, will it cross INR 27 or will it be around INR 26.5?

No. So I don't think it should be beyond INR 27, first thing, and this crushing halt might be temporary. So nobody is going to lose cane, it's going to be standing. You probably might lose a little recovery if you crush late. If the sugar factory shut down, and it's not linked to the India shutdown -- so if the sugar factory shut down, if it lasts 10 days, let's say, your season goes ahead for 10 days. So I don't see a significant loss in UP. Having said that, there might be diversion to gur and khandsari during this period.

Okay, sir. And sir, in domestic, the prices are still at INR 32.5 or INR 33 for ex factory?

No, it's not INR 32.5, it's INR 31.5 to INR 32.

INR 31.5 to INR 32. Okay. And sir, that is again, there is no -- because essential goods are moving. So the government is checking the supplies, does it still -- there is a problem there?

So technically, there's 0 embargo, there is a clear-cut exemption. If you see the circular of the government of India on the day of disclosure, it's point 5. It's point #5 in that circular. So essential, the problem is a little harassment for the truck drivers.

Okay, that's understood. Correct. Correct.

So to that extent, everything is slow but it's not 0. We are lifting sugar even today, even yesterday.

Okay. So net-net, sir, if I can understand, there may be slight impact but its effect is on a very minimal side compared to the rest of the world? So essentially for us at least...

Absolutely. Absolutely. My point is that we are, by God's grace, affected minimum.

The next question is from the line of Kush Gangar from Care PMS.

My question was on ethanol. So considering the current crude prices, do you see this program slowing down, ethanol blending program slowing down? Or any issues with respect to delivery pickup by OMCs, considering the crude prices?

So let me be clear. And as we see it, Pramod, can we send that press release?

Yes.

Can we post it on the website or whatever, however you deem appropriate?

Yes, we can do that.

So understand one thing. There is enough evidence over the last 3 years that, a, ethanol price is fixed annually. Are we clear about that? It's fixed once a year. It is not changing with the market price of crude or anything. It is fixed once a year. So much so that in February, there was a second tender when crude was below $40, not this $28 and all. Down from $60, but obviously, the tender was repeated at the same level. So crude price is fixed by GOI, that's government of India, via a cabinet meeting once a year. Now it is part of the sugar policy by the central government where they do the following. They fix the export quota, they fix the export subsidy, they decide on buffer sale quality. These all supports we are getting continuously. They fix the MSP, there's the minimum selling price of sugar. They continue the quota regime. And as I said, ethanol price is part of this play, part of this succession protocol. Now ethanol price is fixed on something which they feel -- and there is enough evidence from the press release that it's linked to cane price. So if cane price comes down tomorrow, ethanol will come off. But if cane price doesn't come off, which it won't, you will see that even crude stays at $100 or at $20. I repeat, even if it's $100 and rupee-dollar is INR 80, we will get a fixed price kind of thing. And crude is $25 and rupee-dollar is INR 75, still they will fix their price, with this sugar industry based ethanol price. It's got nothing to do with crude.

Sure, sir. Thank you for the clarity.

Another thing, understand how government of India finances are impacted. OMCs pick this up. They take taxes from public at 100%. If you buy 1 liter of petrol, suppose it is INR 75, Pramod, what is it, INR 75?

As of now, it's lower than INR 75, maybe INR 72.

Whatever. Suppose it's, let's say, INR 70. Out of INR 70, I think at least half is government taxation. Right? So even in my 5%, they are taking INR 35 from the public. This is going to their pocket. So we -- as far as we are concerned, the pricing is out of this crude. We've got nothing to do with anything. So even if crude goes to $100, one should not feel excited that ethanol is going to go up. Yes. And crude goes to $25, which is -- or $30, one should not feel bearish. It is not a factor which is linked at all, 0 linkage.

Okay. And my next question was on international production. So considering the crude prices at this level, do you see the possibility of lower diversion done by Brazil, which should increase the overall production -- sugar cane or sugar production globally for next season?

Yes, see, it's obvious. Assuming corona or sharona, I don't know what's the impact of that on Brazil, but very clearly, Brazil is going to be the supplier to the world as I said in the beginning. Secondly, if rupee -- one very important factor is real, and the second factor is crude. If both of them stay like this, and that's how it continues, maybe with little bit improvement, normalcy, let's say, it goes back to $0.12. But if they worsen from here, let's say, it can go back to $0.11. But if both improve in tandem, it can go back to $0.13. So that's how you should track it.

Sure, sure. Okay, okay. And any news with respect to the power thing?

So how can the petition -- the date was on 18th of March. But obviously, no courts will function till things get normal.

The next question is from the line of Jayant M from Care Capital.

If I said that the oil marketing companies have slowed down their lifting of ethanol, so have we adjusted our production to that extent? Or we are -- our production is own and that deficit will be recouped subsequently by the oil marketing companies?

So just to be clear, they have stopped lifting or still yesterday, it was lifted, by the way. Maybe some lifting still continues, but they are not lifting because there is no storage space at the depot, right? So the contract remains valid for the year. There is no change in that. Our distillery, we can only produce till we can store. So we will produce up to our storage capacity.

Yes, yes, yes. Okay, correct. Sir, you said that we have started producing hand sanitizers. So what will be the scale of that business?

No, we just started it. We are right now -- Pramod, I think we are looking to do it right now only for the social cause?

Absolutely, right.

And we now will see an opportunity, let's see if this translates into a permanent business opportunity. That we will start exploring. We already started. But [Foreign Language], today, [Foreign Language], we are doing only for the social cause.

The next question is from the line of Dhruv Agarwal from Birla Sun Life Asset Management.

Sir, it is Trilok from Birla Sun Life. Just want to check, you said in the initial remarks that there is some Rajasthan lime issues. What is that? I'm unable to understand that point.

So there is lime [Foreign Language], lime?

[Foreign Language].

[Foreign Language] sugar production [Foreign Language].

[Foreign Language]?

[Foreign Language] Rajasthan [Foreign Language], 90%. So Rajasthan [Foreign Language], if he shut down his kiln, where do I get lime from?

Okay. So that is the only constraint, otherwise...

Only. The rest we can navigate.

Correct. And on particular -- on just -- just to read, obviously, you have already spoken enough on the ethanol part. When is the next pricing due and next action of pricing?

Sorry, come again?

When is the next -- what is the annual -- when does the annual ethanol prices get fixed?

Okay. So let's -- you're talking of annual sugar policy?

Yes, well...

This usually government does in August.

Okay. So any price -- any revision in prices will be on -- in the August itself? Will be announced in August?

Yes. August, September or whenever they do. So let's understand a few things. What is announced is in play will remain in play, have government done anything with quota. No. They've extended the last month's quota. They will give a lower April quota. So are they sensitive to what is happening? Answer is, yes. Are prices maintained? Yes. Is ethanol being lifted? Yes. Reason, storage is different. Are you getting your payment 30 days? I'm getting in 28 days. B-heavy? Yes, C-heavy? Yes. Are we getting buffer subsidy reimbursement? Answer is, yes. So the government policy need not be doubted. Now if they change policy, which I think is highly unlikely, this protocol has been lasting from 2015.

Understood. Yes, yes, sir, that we have. Yes, and I mean...

Absolutely, ramrod clear. See until they change policy, midway, one should not lose heart or start second guessing. See this is the point I want to make, midway don't lose heart. Don't second guess. If somebody is very, very scared, wait for the next policy to either scare you or reinforce your confidence. Don't get jittery in the middle. Pramod, am I right?

Absolutely, right. And sir, just to add one...

Yes, [Foreign Language], Pramod.

Just to add one more point, that we are -- we have requested the government to increase the blending ratio in these times. So the existing engine configurations can take more than 10% ratio of ethanol, that part also we have requested the government.

So I don't know whether that will happen at this time. But one must be clear as to when the -- when your roof is falling on your head and when you feel it's falling on your head.

Understood, sir, understood. I just wanted to just reconfirm the timing of this new -- of the annual announcement. That's it.

Yes. So it's -- see, you can't hold the government at times it happens in August. At times, September. At times, October. Before crushing begins, which is October 15, usually.

The next question is from the line of Samir Rachh from Nippon India.

So from the comments you made so far, what I've understood is there is hardly any change in domestic fundamentals in last 3 months? Am I correct?

Correct.

And the only thing which is changed for next year is perhaps a fall in international sugar prices. And to the extent whatever we lose, that INR 3 on our export sales next year, provided everything remains same.

Yes, because of export price coming off.

That's right. So these are the -- this is -- that is the only change in terms of fundamentals, which has happened in the sugar.

Yes, yes, yes. And little bit your recovery could be lower because if you're made to shop in line, I'm not saying -- we are trying our very best. So maybe little bit of the recovery.

Right, so...

Mr. Samir, I would like to add something here. As far as the next year's export prices are concerned, that will be announced as a part of sugar policy maybe in August/September.

Right. So first of all, there are chances that government -- yes...

If literally decline is over INR 3 is only for those people who have not been able to contract their additional quota or the initial quota.

Sure. So our next year's business plan remain as usual. There's no change in it?

Yes, yes.

Right. Right.

Right. And sir, since stock price has fallen so much, any thoughts on buybacks like -- because we have been aggressive in the past in terms of buyback and the current market price really provides a very attractive opportunity.

Pramod, will answer. Pramod, we have restrictions up to when?

Sir, there is a restriction as per the company's act that gap between 2 buybacks has to be minimum of 1 year. So that's the...

So the problem is as per law, you cannot do 2 buybacks within 1 year.

So that thing like that rule like comes -- so from April next year, next financial year, we can do that again?

No, our period is somewhere in June.

June. Great.

Also, if you've noticed, Pramod, in the past, the export subsidy announcement is linked to the New York price.

Absolutely, right.

So assume next year, the price is lower by INR 2, you could see the subsidy going up by INR 2.

That was the point I was referring to Samir's question.

Right, right.

Okay, okay.

So that is yet to be seen. So worse come, worse like the price remains same. And if government responds, I think things will become better?

Yes, obviously. See, you will get all your lifetime evidence against next year. But don't again please question it in March/April. It's on a lighter tone. And assume, and New York goes to, Pramod, $0.20, so then your support will come down also.

Yes.

So are you seeing a similarity between this conduct and the ethanol pricing conduct? Government is mapping your financials. Sugar industry. [Foreign Language] export, so 10 units, let me price it correctly for the cost of production level. If I have taken certain realization from byproducts, which again will give me my -- see, let's say, my cost is 100. Let me explain this in very simple terms, let's say, industry average cost is INR 100, we sell 3 products; sugar, ethanol and power, maybe they don't acknowledge their state's rate, they take some bogus rate. So they see INR 80 you're getting from sugar. Then INR 15, you make so much more let's say is convert into so much ethanol, I price the ethanol at INR 54 B-heavy, your net realization to your port is INR 17. Power is giving you INR 4. So this is how they divide the INR 100 for you. That is how they fix the MSP, that's how they derive the ethanol price, that's how they derive New York, per se the support required price. So it's a very wonderfully done calculation based on your cost of production. If they increase the cane price, they'll look to increase everything. As your cane price increase, first increase you will see in MSP, minimum selling price. Second, you will see in ethanol.

Right. So it's amazing policy, I think in that sense.

Yes. Absolutely. Absolutely. We -- Pramod, how much cane price does UP pay?

Cane price, SAP is INR 3.25 for the early variety.

No, I'm saying maybe INR 40,000 crores or INR 50,000.

There will be 40% of India, so 90,000 -- INR 40,000 crores.

INR 40,000 crores. INR 40,000 crores is UP's cane price payment to the farmer.

Sir, one more point just I wanted to clarify, since government finances will be under pressure because of all this shutdowns and all that, would you expect any delays in getting any payment from anywhere like -- I know you sell for cash, you explained it pretty well, but just trying to like make sure that we see any misconduct?

All I can say, there is no bad debt.

Okay. So money comes.

Can you expect to fine-tune that 1 month payment and extrapolate it to some meaningful cost?

Yes, yes, yes. That's a -- it's a marginal thing. It's fine I think.

That's [Foreign Language]. So let it remain marginal.

And as...

Even on that -- Pramod?

As far as the export subsidies are concerned, we have received in entirety our claim for the last year's export.

Exactly.

And for current year, policies were so easy or so friendly that any exporter can apply moment they do 50% of their export. So we have already logged claim and the files are under advanced stage of processing. In my grid, 1 or 2 claim in next 15 days -- 10 days.

So comparatively, pretty good. And even on the power front, we are fighting tooth and nail. Let the courts open. We have a solid case. How today's court will behave, I can't say. But legally, the case is cast in stone according to me. But I'm not the judge.

Right, right. Sir, let that be icing on the cake. I think market in any case not even pricing sugar story. So let that be icing on the cake, I guess.

But we are going to fight. Nobody is going to give up that fight.

Yes. Great, sir. You really explained it well.

We move onto the next question that is from the line of Richard D'souza from SBI Mutual Funds.

I just had a question on the domestic production for the next sugar season...

Sorry to interrupt, Mr. D'souza, sir, we are not able to hear you clear.

Can you hear me now?

No, sir, you are sounding very soft.

Just a minute.

No, I can hear. I can hear. Go ahead, please.

Okay. So just coming back to the sugar production for the next season, given that the ground was suitable and the reservoir levels are good in -- both in Maharashtra and Karnataka and sugar is one of the most -- sugar cane is one of the most profitable crops. So in the next sugar season, you expect the production to revert back to a sugar equivalent of 33 million to 34 million tonnes? Or do you expect it to remain sub-30 million tonnes for this season?

Too early, just too early, but all I can say is there is going to be a headwind to plantation. See Pramod, I can't be held to this, but this is a very personal view.

Yes.

So the gusto of the farmer to go out and plant cane might be low. But let's -- next year, production estimate -- earliest, earliest for any meaningful data, July/August or rather honestly, August and September, you see plantation, you see the growth, the tillering, the monsoon and then make some view.

Okay, okay, okay. So I mean, just to tell you point further, I mean, given that sugarcane is one of the most profitable crops in India. So it makes more sense for the farmers to go on play and increase the acreage, we don't have in sugarcane where there he is assured of the realizations rather than do any other crop. And...

It is because of that -- it is because of this function, only that sugar production is here.

Yes, exactly.

You see, that's already captured here.

So what I was saying is that from the current 27 million tonnes production estimate for this season, will you expect that to be substantially up next year, next sugar season?

Too early, too early. It may be 3 -- 30 million, that is possible. But Pramod, how do you predict this year?

It's very difficult.

But you see because of the way the government is going, I don't see much addition to inventory even in 30 million. You'll have B-heavy, which is -- will be done at a larger scale. You will have, again, MAEQ product 260 consumption. So inventory even in 30 million might come down. Even 31 million might remain constant.

Okay. Okay. So that's different because I think so not many sugar mills have got permission to expand that or they've got the finances ready to expand their distillation capacity. I think of all the total licenses which were issued or total project expansion in distillery which was announced, I think so only 72 or 74 mills got that permissions.

Pramod, you'd answer that? On what to do.

See, you are right, as far as your observation on the weak financials of the mills are concerned. ISMA has requested the Department of Financial Services as well as the central government to make out sort of policies, which can really help out the bankers in getting some confidence on the modalities of some funding escrow account so that the weaker mills get the funding.

Okay, sir.

So we'll have to wait for some time to see what is the response from the authorities.

Yes, but having said that, Pramod, millers like us will constantly find ways to allocate more molasses towards B-heavy.

Yes, yes, you are one of the better place mills so that is always possible with you, sir.

Yes.

The second question from my side is some of the earlier participant has alluded to that but when you look at Brazil. Brazil can play a big swing factor in the global sugar production because before the coronavirus thing, the -- maybe sugar prices went up was basically because of the deficit expected in India and in Thailand and then because of the drought. But greatly, if the numbers are right, they divert more than 50% to 60% of the sugarcane production to ethanol. But given the current dynamic, is it possible that they will make up more than the deficit which is there worldwide?

So you see, I attempted to answer that question in the beginning.

Yes, sir.

And my answer remains the same.

But would you have any idea on specific numbers, the central south region in Brazil does so many million tonnes and what swing could we -- what swing factor could we...

Pramod, would you answer that, please?

Last year's central south mills produced around [ 26.5 ] million tonnes of sugar.

It is 26.5, okay, sir.

26 million of sugar.

26 million. Okay. Yes, sir.

Right?

Yes, sir. So that is what I am hoping...

So can we give thank you to everybody for joining us, and I hope we've been able to clarify everything. Thank you, everybody, for patiently hearing us. And we just wanted to communicate that in times of crisis, one should look at everything with a sense of rationality. Having said that, this is our views, and this is personal Balrampur views. Pramod, would you like to add anything?

Yes. No, sir. That's it. Thank you, everybody. Thank you so much.

Ladies and gentlemen, on behalf of Elara Securities that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.