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

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 would now like to hand the conference over to Mr. Karl Kolah from CDR India. Thank you, and over to you, sir.

Thank you, Janice. Good afternoon, everyone, and thank you for joining us on Balrampur Chini Mills Q4 and FY '21 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 discussion. 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, which has been shared with you earlier. I would now like to invite Mr. Saraogi to make his opening remarks. Over to you.

Good afternoon, everyone, and thank you for joining us on Balrampur's Q4 and FY '21 earnings call. I hope in these challenging times all of you and your families are keeping safe and are in good health. I will initiate the call with an update on the current developments in the sugar sector. Post that, we can open the forum for Q&A. I will not go through all the detail numbers, because Pramod has put up a very comprehensive presentation -- investor presentation, and I hope you would have had the time to go through it. As per ISMA's latest reports, sugar mills have produced 30.57 million as on 31st May and another 1.5 to 2 lakh tonnes in the special season could come. So you can take this year's production from [27.5] below 30.8 million as compared to 27 million produced in the same period last year. In UP, mills produced 11 million tonnes against 12.5 million tonnes. In addition, a majority of Gur and Khandsari units had to cease their operation due to lockdown limitation and part of this gain has been diverted to the mills, extending the crushing season in the western UP beyond the expected lines. Till 31st May, Maharashtra produced higher number of 10.6 million against 6.2 million, which was envisaged. During the same period, Karnataka produced, on expected lines again, 4.2 million against 3.4 million. Coming to the global scenario, led by a lower output in Brazil -- the global scenario is as follows, lower output in Brazil and Thailand would result in a global deficit. This has led to firm international prices, enabling India to export excess inventory. According to the estimates, India has exported 5.7 million tonnes in the current season -- contracted. And Pramod, how much would have gone out?

Maybe around 4.5 million by May.

4.5 million would typically leave India by May and thereafter, subsequently. So just to complete this, we expect 5.7 million, 5.8 million to go out of the 6 million. In the current year, beginning October to December that is the sugar year, some 4.5 lakh tonnes was spending on last year if it has gone out, and we are expecting some quantity to go out in the OGL format that is without the subsidy. So India could actually evacuate this year, 6.7 million to 6.8 million tonnes of sugar from its figure of opening stock. With India's production expected to reach around 3.8 post diversion of about 2 million tonnes into ethanol by B-heavy in juice route and consumption of nearly 26 million and export, as I said, of about 6.8 million that we have explained just now, we expect a closing inventory of about 8.8 million. And here also actual inventory could be a little lower in our personal view, that is our company data. The data with ISMA and the government would be around [indiscernible]. Average sugar realizations have been around 33.5 from April onwards. The industry has urged the government to hike the MSP in order to help millers clearing the farmer dues. The request is still pending for final approval. Also keeping in view the firm global prices, the government has reduced financial assistance on exports that is in a prospective manner by INR 2,000. That is INR 6 per kg has gone to INR 4. For the date -- the applicable date for this is post contracts executed after 20th May. As a significant portion of allotted quota has already been contracted, we don't foresee any problem in evacuating the quantity. And obviously, we don't see a problem because we see additional quantity going out via the OGL format. Here, I'd like to add that reduction in financial export -- the assistant export is not applicable to the company and our entire quantity was done way earlier. So we are eligible and others also who have done their contract before 20th May are eligible for the entire INR 6 subsidy on the amounts contracted. On the ethanol front, OMC have contracted out 321 crore liter of ethanol from mills across the country. This is a 70% increase over previous year of 178 crores liter. Overall, 2 million tonnes of sugar production is expected to be diverted to ethanol via cane juice and B-heavy, as I mentioned earlier. Out of our total contracted quantity of ethanol, 225 crore liter is from cane juice and B-heavy route, which is the sugar sacrifice route, nearly representing 70% of the total contracted quantity. So out of the total contracted quantity, 70% is going via sugar sacrifice route. On an average, the country has lended around 7.56%, with 11 states achieving up to 10%. We are on course to meet our target of 10% blending countrywide by 2022 against the current year's blending, which could hopefully be in the region of 8.5%. It might be a little lower also. Okay. Now I hand over the floor to Pramod.

Good afternoon, everyone. As we mentioned that results and detailed presentations are already shared with you, and we hope that you had an opportunity to glance through the same. We would request the moderator to open the forum for questions or suggestions that you may have. Thank you.

[Operator Instructions] The first question is from the line of Prateek Agrawal from ASK Investment.

I was interested to understand the ethanol business. Now it seems to be significantly more profitable than sugar at current prices. Does it mean that if you do not have capacity constraints, then you would first do as much ethanol -- practically all the cane would be used for ethanol? And on the sugar price to settle at a higher level, which makes sugar as profitable as ethanol, will you do sugar? And then associated question then is, why should you not expand ethanol capacity as much as possible?

Okay. Right. We'll attempt to answer that. So let me explain to you our Maizapur distillery is an effort in that direction to maximize ethanol production. And we are also continuously now working on our ability to enhance ethanol further. So there are internal studies, et cetera, going on. And once we get clarity, we will be approaching the Board. So yes, one, to answer your question specifically, there is a limited ability to put up distillation capacity. There are a lot of issues on pollution sizes, et cetera. We would put our best foot forward and maximize ethanol production in the coming years.

Understood. Just an add-on to this. As I understand today, there is a command area from which sugar mill can source sugarcane. Now there may be a possible scenario wherein you have both capacities, and on a marginal basis, it may be profitable to do both sugar and ethanol. And then can you go outside of your command area to get sugarcane? Because that's going to be a concern at some point in time, hypothetically speaking.

Okay. So let me answer what we are looking at in the coming years. So last year, we were hit by a very bad weather condition and our crushing dropped about 16% -- 17% almost. We are hoping a lot of it could be recovered back. It means -- let me not put figures, but one is hopeful of quite a big recovery in the quantity. We are working very, very, very hard on answering and sort of building our checks and balances, whatever we can. See, extreme weather nobody can beat it. Outside of that, we are going ahead varieties based on plots-wise varieties, which are more prone to, let's say, disease or more prone to floods. We're getting resistant varieties. So we are hoping to increase gains substantially in our command area with a lot of micro activities and with the farmer directly. So we are reaching down to the farmers. And we are hoping that in the next 2 to 3 years, we will see a substantial growth in cane availability with improved -- further improvement in variety. And therefore, we look to get back and get to a very decent quantity in crushing with a very decent recovery. Both would be definitely higher than our current levels. So we will -- can work and we'll get more cane that we can share very confidently as we have done very detailed research studies on this. Secondly, our ability to do the flexi business, as you are indicating, will also improve the moment we are able to share our road map after we internally study and get back to everyone via the Board.

The next question is from the line of Sanjay Manyal from ICICIdirect.

I have a few questions. Specifically, what would be now our dependency on the variety Co 0238? And is it like excessive use of the variety across state where this red rod issue has occurred? Or is it because of this specific variety? Or -- so what would be the dependence on this? And how you would be -- in terms of proportion, how you will change it in the future?

Very good question. Co 0238 has become prone to red rod, yes, in certain areas, again, yes. So we are shifting our dependence to other high sucrose varieties, like 118. And we are in the stage of developing some very high-yielding varieties where hopefully we might get prime mover's advantage -- first mover. I won't name the variety, but we are working on a commercial launch of that variety by '22, '23 in our factories. And our dependence on 0238 will keep declining. So 118 has already picked up in a big way. The other variety would pick up by '22, '23. Having said that, since you're going to do sort of detailed questions, I will answer. We are taking plot-wise detail of how to not let red rod impact us. So the plot in which 238 was sown, that plot is very largely being abandoned by the farmer. He is going to an alternate plot of his and putting up a different variety in that plot. So that will again very substantially answer our thoughts and create our safety. Plus we are going ahead with -- if some farmer does not listen to any one of us, which might be a small percentage, we are working with him very hard on all the factors and all these sort of agri inputs, which can be used to ensure that the disease impact is very miniscule.

All right. And this trend is changing across state? All the farmers -- across the state, farmers want to like reduce the dependency on this or all the millers I would say?

See, I won't be able to answer all over. But yes, definitely people who are seeing this problem would be attending to it. We won't have a very detailed rundown on this for the entire state.

Right, sir. Sir, just one more thing on the global perspective. So what I understand if prices reach $0.18, $0.19, I'll be the -- the first beneficiary obviously would be the government because they will be sort of reducing the subsidy part. But what -- at what price you think that UP millers specifically would be exporting under OGL without subsidy?

Well, Pramod will take the question.

We have indicated this point in our presentation as well. At current raw sugar prices are around $0.17, I think for UP-based millers, raw sugar net price -- net sugar realization is around INR 26.5...

Sir, I'm so sorry to interrupt, but may I please request you speak a bit louder. Your audio is not really audible.

Yes. So at current international prices of around $0.17. For UP-based mill, raw sugar prices realization, ex factory, will come at around INR 26.5. So if you are asking for that what prices UP sugar mills will be in a position to export without any subsidy element, I would put that figure anything between $0.19 to $0.20.

Right, sir. Right, sir. And just one operational question. I think what you got the quota for the quarter, I mean the domestic quota for the quarter was 2.1, if I'm not wrong. Can you please correct me if I'm wrong? But I think you sold less than that. So is there any specific reason for that?

Yes, there was some problem in the month of January and Feb -- January, particularly January and maybe a bit of December also. So during that period, we could sold only because -- we could sold lower than our quota.

And this was a conscious decision, which is sort of -- because we didn't want to break the price beyond a certain level. And typically, this happens in December, January, February part when people -- all the millers were selling beyond their quota, et cetera, flood the market. So when we refused to sell the price of INR 31.5. Having borrowed at 4%, below 4% for our entire cash credit in the CP format, we are going to get, hopefully, about INR 33.5 for that sugar not sold.

[Operator Instructions] The next question is from the line of Pratik Tholiya from Elara Capital.

Yes. Sir, just one clarification. Your voice was a little distorted at that time, I could not get the export number that you gave for the industry for this year. Did you say total exports will be around 6.8 million tonnes?

Yes, yes. I'm talking of 1st October 2020 to 30th September 2021, 6.8 million, yes.

Sir, any reason for such a lower export considering that you also spoke about Brazil being lower. So at least 3 million to 4 million tonnes additional opportunity is available for the Indian miller. So is it only at the pricing trend, which Pramod sir, just alluded to that at $0.19, $0.20, maybe we can go for the OGL? Otherwise, the exports will be muted at around only 0.8 million tonnes additional over and above the 6 million tonnes?

This is the largest ever export happened, 6.8 million, 68 lakh tonnes, India has never done close to this.

But the opportunity was also never available of 3 million, 4 million tonnes lower production from Brazil has opened up a big window for us to liquidate the 9 million tonnes of excess inventory which you are sitting on.

There is a limit to physical availability of both physical export. Raw sugar production during season, prices have moved up now. I think you should see last 20 years data and price to tell you how good the export has been.

No, sir, I agree on that. True, true. And sir, secondly, I think 2 days back, government has given approval for stand-alone distillery -- setting up stand-alone distilleries without having any need to put -- have a sugar-crushing plant. So does this benefit us also for this new plant that we are coming up? Or is it only for the new entrants?

We already have all our permission. We are not stand-alone. So this is something for someone else.

Okay. Okay. So sir, will this therefore mean that the first time players can also now enter into the ethanol business?

Yes. But it's going to be tough. I cannot imagine how they would. But yes, if somebody wants to enter, yes, he can.

Correct, because my question was basically that if person -- players enter and there may be then higher competition for sourcing of sugarcane. So a company whose...

I don't think very relevant prices will come in.

Okay. Okay. And just lastly, sir, to Pramod sir. Sir, what was the transfer price for B-heavy and C-heavy for us in FY '21? And what is expected for FY '22?

C-heavy was INR 3,500 a tonne, and B-heavy, INR 7,000 a tonne.

INR 7,000 and INR 3,500? Okay. And sir, any guidance on tax rate because of Q4 taxes was very high. So what could we expect for FY '22?

Last year, there was a write-back on account of deferred taxation provision, which was created in previous years. So this being a normal year in terms of current tax charge as well as -- you should take guidance from this year's number for the going forward.

Okay. So around 20% to 23% should be the number you came up with?

Yes, yes.

The next question is from the line of Achal Lohade from JM Financial.

Sir, my first question is, if I look at the crushing update, what you have reported last month, it appears that the first quarter, there will be a significant drop in the crushing volume. Is it fair to assume that there could be a possibility of slight early start of the crushing season in the coming season? And the fourth quarter will be peak at 100%. Yet, our cane crushing for FY '22 could be down by 10%, 12%? Would that be a fair assumption, sir?

Yes, Pramod?

Achal, you have picked up a very relevant point. In last year, that is -- sorry, in FY 2021, first quarter, we crushed almost 2 crores quintal of cane as against that we would be crushing only 40 lakh tonnes of cane in first quarter of '21/'22. Now if you take the full year number of crushing, which was a 132 lakhs quintal for the FY '21, and with the expectation of early beginning, I think we should be down by 7%, 8% from 132.

It means 950 could be the crushing against 1,032.

Yes. 950 should be a reasonable estimate at this point in time.

Okay. 950, you said, right, sir?

Yes.

Yes.

Understood. That's very helpful, sir. And with respect to the recovery rate, I understand it was impacted because of the bad weather and the disease. Is it fair to then assume that we go back to the normal recovery rate closer to 12% in the coming season on a normalized basis?

Yes.

Yes.

Yes. As explained by Mr. Saraogi, initially also, we are working very hard on the cane development front. And if you see last year's number for the season, it was 11.89%, and in spite of the impact of red rod business, we were able to close this sugar season with 11.79% recovery. So there was a loss of only 10 basis points.

0.1, yes.

Internally, we are working with a target of around 12% for the next sugar season.

So internal target is 12% plus, but we'll tell you 12%.

Great. Great. And just a sense on this varietal mix for us, you said that we've already started the 118. So what is the mix in terms of the early varieties, 238, 118 and the others for FY '21? And how does it look for, say, FY '22 or '23?

So all the data comes in the month of September when detailed variety-wise survey is done. So it's too early to say. Now but we are aware of the road map, and we will indicate it to you. The rest are, let's say, operational proprietary data, but we will keep briefing you on the macro.

Understood. And just last question, if I may, sir. With respect to export, out of the current 5.7 million tonnes contracted, how much is raw? How much is white? Would you have the break up, sir, for a broad sense?

Achal, I'm sorry, that breakup is right now not available in front of me, but we'll definitely share it with you.

That we will get from ISMA.

Yes, that we will get.

Yes.

Got it. Got it. And sorry, I'm kind of asking one more. In terms of the sugar price, how is the current realization? What is the expectation we have? And I know it's hard to comment on the MSP, but how do we look at the sugar price or realization from here on?

So the current level are INR 33.5 around. And even in this whole pandemic, it actually had gone to INR 34.5, which came down to INR 33.5, INR 33.25 at times. So we are hoping that it should be north of INR 33 up for the 6 months before season. It's a forward-looking answer, so upward of INR 33 up.

The next question is from the line of Rajesh Majumdar from B&K Securities.

So I -- some of my questions have already been answered, but I just have a couple maybe. My first question was regarding our cane arrears. Since our payables have come off substantially in the March end quarter, I assume that a large part of the cane arrears have already been paid. So what is your response to that in terms of the cane arrears?

[Technical Difficulty] our outstanding is lesser than that. So actually, money will come from the government and go to the farmer.

Sure. I mean in terms of scale of arrears, which you would like to share or...

Yes. It's about 6% to 7%.

Let me show that -- cane price due as on to date is around INR 180 crores, and receivable from UPPCL on account of our dues is around INR 80 crores. And from government of India on account of export subsidies INR 150 crores.

Right. So INR 330 crores is due -- INR 230 crores is due from government and we have to pay INR 180 crores.

Right.

My second question was relating to quota. So essentially, we are carrying a lot of inventory into this financial year. And -- because last year, our focus has been high till 2Q, at least, and during that the quotas will be lower till 2Q. So once we get into crushing again for FY '21, '22, we will be having a large opening inventory as of September. So when do we expect the quotas for us to normalize again since the crushing as well as excess inventory will start playing up around the second half?

As of 31st March '20, we were having 6.7 lakh tonnes of sugar as against that this year, we are carrying 6.4 lakh tonnes of sugar. In the last year first quarter, we crushed 2 crores quintal of cane as against that, in the current quarter, we crushed only 40 lakh quintal of cane. So sugar inventory is on a downward trajectory. We don't expect a larger sugar inventory as of 30th of September 2021.

And to add to that, the quota is already getting normalized. Government has released 22 for the month of June. And you will see our quotas by June end when we report next quarter. So we already got it enough. So your question will be well answered once you see the next quarter's numbers, and you can be reasonably sure of what Pramod has told you.

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

I should compliment for a very, very detailed presentation regarding the global and the domestic sugar industry. It helps a lot. So my question -- 2, 3 questions on ethanol plant only. So when OMC gives tenders, which is, say, 346 crore liters, does the tender mentions a quote from B-heavy, C-heavy, syrup or it's the individual sugar mills when they quote in the tenders, they have to mention where they would supply because the pricing is completely different here?

Yes. Obviously, Bhavin, they -- you have to use tender separately.

Okay. So when the OMC standard, they mentioned they require this much of B-heavy, this much of C-heavy, this much of syrup, and is the industry able to meet that?

No, the reverse is true. There is a tender and there are prices. You can fill up whichever portion you want to tender. So if you want to do full juice, you have the option. You want to do full B-heavy, there is an option. So there is no saying specific demand of government. It is open-ended.

Okay. It's an open-ended. Upon the industry, how much they can do in which segment, basically.

Right.

Okay. Second question is on -- by 2025, everyone is talking about this 1,000 crores needed if you want to achieve 20% blending. How much is the industry readiness for the same according to you? What's in the order pipeline? How much can come? Because obviously, the demand is there. It's a supply issue and CapEx issue and environmental issue. So suppliers to catch up with the demand. So what's your take on that?

So good question. This will help me classify the road map. In last 2 years, unfortunately, there has been a Corona pain. So there were times when the lifting of the OMC for reasons beyond the control went down. So now what the government has done, it has very clearly moved forward and it is going to augment demand and augment it gradually, so that assume my capacity is coming up next year, and I have to give a much larger quantity. So they will be building up capacities for storage. They're going to start mandating interim steps of E12, E15. I am sure, governed by those very positive steps, people will double speed up their investment. And as we indicated earlier, seeing the government's response, we are also trying to see what else can be done further. So both sides will catch up. There is grain catch-up to be done. There are grain capacities underway. Government is ready to buy grain, government is ready to buy B, C, anything you give. So this further impetus from the government giving sort of small, small improvements over the next few years will ensure that -- I give you an example. Suppose, Pramod has said 11 states did 10%. Maybe 11 states do 12% and the others also pick up. So your blending overall will go to 10%. So that means about a 25% high, which means if we take 350 crore liters and there's a 100 crores hike, it could be 450. Sacrifice would go from 2 million to 3.5 million, then to 4 million, then to 5 million. This, coupled with the exports, I think should normalize inventory over the next 3 years very beautifully. Over 2 years, I think inventory should really be in the range of what one will have as needed. That is another tailwind for sugar price and stability to the sector.

Sure. And the current ethanol capacity would be near 450 crores, 460 crore liters?

425.

425?

100 crores is getting added this year.

100 crores getting added this year. So it will be above 500 crores.