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

Thank you, Didas. Good afternoon, everyone, and thank you for joining us on Balrampur Chini Mills Q2 and H1 FY '22 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 a 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, Vivek.

Good afternoon, and thank you, everyone, for joining us on Balrampur's Q2 and H1 '22 Financial Earnings. I hope 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 sector, followed by our company's key business highlights for the period under review. According to recent ISMA estimates, sugar production for '21/'22, the season, which is to begin now, is expected to be around 30.5 million tonnes post an expected diversion of about 3.4 million tonnes for ethanol. In the current season, the country is likely to continue its exports of about 5.5 million in terms of [indiscernible] sugar on the back of remunerated prices in the international markets. This will help bring down the country's opening inventory of 8.2 million by 2 million tonnes, ending at hopefully 6.2 million tonnes. Given this demand/supply scenario and an increase in consumption -- local consumption, we are witnessing from sugar realizations. Moving to the ethanol segment, we are confident that with the appropriate government policy and timely investments by the industry, we are on track to significantly increase 7.8%, which was currently blended in the year to about 20% in 2025. To achieve 20%, 15 billion liter of capacities will be required. Against that, we anticipate that 8.5 billion liter capacity via sugar -- which would get fulfilled by 8.5 billion capacity -- 8.5 billion from sugar and 6.5 billion from grain. Overall, it is estimated that the diversion of cane use and the B-heavy molasses towards ethanol that now will reduce sugar production by 5 million to 6 million tonnes every year once full capacities are in place. On the business front, the company reported a steady performance during the period under review, driven by healthy contribution from the distillery segment. The distillery division delivered a healthy top line and operating performance with enhanced volumes and improved realizations. For FY '22, we are targeting a sale of INR 16.5 crore liters from distillery. As you are aware, our capacity will be augmented 2,050 KLPD by November '22. This will more than double our volumes to around salable INR 35 crore liters of ethanol. Once established, the distillery segment will become the company's growth engine and should make us one of the leading energy players in India. In the Sugar segment, our production vis-a-vis last season was lower due to this pest impact and the weather impact. We hope to improve in the current year and we are very proactively addressing this issue, and we hope that when our enhanced capacities come in, we should have a significantly higher crushing with better recoveries. Greenfield and brownfield expansion for distillery at Maizapur, Balrampur are on track. Gularia is expected to commence production with the expanded capacity of 200 KL from December 21. And both the others, that is Balrampur and Maizapur, from November '22. Similarly, the progress for the modernization and upgradation of sugar factories, which was unveiled in the last Board meeting, is we expect it to come on stream again in November '22. I'm pleased to conclude -- share that we concluded our fifth consecutive buyback on 19th October. We bought 59.6 lakh shares from the open market at an average of INR 361, entailing a total capital outlay of INR 215 crores approx, and the promoters did not participate in this. To conclude, Balrampur has always aspired for optimal investment in its operations as well as creating shareholder value. We remain dedicated to our [ inflow ] strategy, and we are confident of our ability to create value all across our costs. I would now request Pramod to take you through the financial highlights.

Good afternoon, everyone. As you know, a detailed presentation has already been uploaded on the stock exchanges as well as the company's website and shared with you wherein all financial performance, including the quantitative data has been given. So for the benefit of having a larger portion of time at our disposal for Q&A session, we can straight away go ahead with the Q&A session. I will now request some moderator to take it for the record. Thank you.

[Operator Instructions] The first question is from the line of [ Pratik from Systematix ].

Congrats on good set of numbers. Sir, if you could just, firstly, share some more detail on the condition of the crop in your command area, considering that there has been incessant rainfall and flooding in those parts. So if you could just share some more details on how the crop condition is as of now, and what sort of yields can we expect going forward? The crushing starts basically?

Yes. So in our units being in Eastern UP, the crushing would begin around the 20 -- between -- around the 25th. In center UP, our -- one plant has started yesterday and the other will start around the 17th. Having said that, the basic assessment of the crop for our company, we hope to crush higher than last year, definitely. That's our take right now despite the weather. And this year also, we are hoping to get some extra cane from other factories. So all in all, we are hoping for a better crushing than last year. It's too early, maybe in the next call one can definitely give a figure.

Sir, but do you expect that the overall cane availability may drop this year from those areas?

No. I just said we are hoping to crush higher cane for our company.

Sure. Sure. And sir, on the yields also, this could be better than last year? Or how would this play out?

It's just too early to comment on recovery.

Okay.

I'm not -- how do you comment on recovery when your factory hasn't started?

Sure, sir. And sir, secondly, any clarity on the ethanol tenders for the upcoming season starting from December? And on the pricing front also, any clarity on that?

So yes. That's a good question. So we are -- the cabinet would very soon take up the ethanol pricing and one is hoping for an increase there.

Okay. But sir, the tenders are not yet out?

No. The tender is out, the pricing is to come. So this is an agri year phenomenon. Nothing to worry. I think it will come within max 2 weeks.

The next question is from the line of Sanjay Manyal from ICICI Securities.

Just have one question regarding the overall yield -- or the recovery rather, not for this season, but specifically, if I can ask, in general, whenever there is a change in the crop pattern, the variety is rather the way we have come up with the Co 0238, say, 5, 6 years back. So whenever there is this shift from one variety to another variety, is it that we are in that kind of a phase where the recovery probably for 1 or 2 years can hit because of the change or it's the industry why I'm trying to ask.

So I don't see a major change at all. And as far as Balrampur is concerned, we are taking a lot of -- we are doing varietal changes for disease protection so that this disease and all does not impact us. We are already today ahead of that curve, and we are hoping that come -- in the years to come, our recovery will improve drastically.

So if I may ask, what proportion of new variety would be there in currently and how it will probably progress in next 1 or 2 years from 0238 to the other new varieties?

There is another very good variety we are adopting, that is 118 and some other varieties also on the [indiscernible]. So about a 40% change would happen this year.

Okay, okay. Right, right, sir. And just one thing about the export front. What do you think about the industry export because prices -- global price has been a bit volatile. And considering the fact that domestic UP price is, say, around 37%, do you think that this 5.5 million is possible given a lot of millers sort of not intend to export when the domestic prices are higher?

So I'll answer this in 2 parts. One, we are seeing improvement in global prices. If India does not participate, the global price -- the global market needs sugar, period. So India does not participate and get -- sells less, the world market moves up. This is our view. And therefore, also based on the fact that the time of prices, usually now the price will start dipping. So come December, January, February price will dip from here and that's a yearly phenomenon up to March and April onward it starts picking up. So that is the period of production. And that is the period of deficit globally, and that would be the period of export.

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

Sir, I have 2 questions. One is already answered before. One is that regarding the -- you mentioned that you have been purchasing cane from other factories. So this means that other factories are going to foresake their cane for some reason because they give to you. Is the cost of that cane going to be incrementally higher than the cane cost that we're building in right now?

Good question. So nearby factory where we are hoping to get some more allotment from in the current year, this is basically based on election. It is going to be a phenomena where people who have [ use ] will lose cane.

Okay. So that incremental trade is what we'll [ see later ].

It won't be very different because it would come from -- through those areas, neighboring factories.

Okay. But we are pretty confident that, that will come through?

Hopefully.

Okay. And secondly -- my second question is, why is the ethanol sales volume, of course, it is more fee heavy, so the margins have not been hit. Why is the total ethanol sales volume down on a Y-o-Y basis?

Pramod will answer.

You are aware that the cane availability in the season combi was lower by 15% to 16%. That resulted in lower availability of molasses. So that is the reason.

Right. So we still maintain our target for the year for the ethanol sales?

Yes.

Yes. We have given a guidance of around INR 16.5 crore for FY '22.

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

My first question is on the ethanol pricing. You've mentioned that in the past as well as in the presentation that ethanol prices are dependent on the sugar price as well as the cane price. Just wanted to get some more color. When you say sugar price, is that only the MSP or the current prevailing sugar prices as well?

No. So let's put it that cane price determines MSP and that determines the sugar price. All in all, one should expect that is the [ prospect ]. That is what I think you should be concerned with is end of the day, there is an expected rise in the price of ethanol, which is to be announced very soon. That is our understanding.

Understood. The second question I had, with respect to the new variety, 118, which you were talking about, can we get some more color in terms of -- you did say that it helps improve in terms of the disease protection part. Is there any material improvement in terms of the yield and the recovery rate?

Okay. So I will just introduce my daughter. She is looking after cane now in a big way. So Avantika, why don't you come and answer that question?

This is Avantika Saraogi. I'd just like to talk about 118 variety that is being mentioned. So that variety actually was released by the same research center, along with 238. But somehow 238 became more popular with the growers. But 118 is as high sugar variety, if not more, as 238 and it's really sitting very well with the growers now, especially with the disease, which has come in and it's very, very disease resistant. That's really good thing about it. And it is a very strong and hard cane also. So it's high sugar as well as hardy. So now the growers are really liking it and they are accepting it as a substitute for 238.

Thank you.

But is it materially different from 238 in terms of the yield and the recovery rate?

So recovery is at par, if not higher for 118.

Okay. And what about the yield, sir?

The yield is similar. It's maybe just a touch lesser, but otherwise very similar to 238.

Understood. And you mentioned that it's about 40% of our cane crushed in this year will be from 118, is that -- I understood right?

No, no. 40% will not be crushed this year, but I'm saying 40% is in play now. So we are going to have a varietal balance. 238 is not out. It's not gone sort of bad at all fully. So there is a rejuvenation required. We are working with that very closely. 238 for crushing, I think at 20%, 25% this year. Because 118, how much this year?

We should crush around 15% to 20%.

20% this year and going to 40% next year. Yes. So the balance in the final balance, we would want about a 40% 118, which would play out in '22.

Season 22.

Yes.

Understood. And in terms of the exports, you did answer that partly, I wanted to check this 5.5 million tonnes, you see a risk to that upward or downward?

See, last year, Pramod, why don't you answer? 7 million plus last year.

So Achal, first of all, this 5.5 million is our internal assessment. Government has not come out with any export policy as they did last year. Last year, the policy was announced on 31st of December. In spite of that, industry was able to export more than 7 million tonnes. And you will recall that 1 million tonne went without any subsidy. So there is a reason to believe that this time also exports will happen. And domestic and exports market are different. If we don't do export, then there is no solution for evacuating the surplus sugar, which will be in the country. And Brazilian production expectation for upcoming sugar season is also on our side. So we are hopeful that at these prices or maybe slightly better prices, even the UP-based sugar mills will also come forward and export. If required at the relevant point in time, government might also...

Exactly. So basically, government would, in our view, see the market up to December. And if need be, some small subsidiary might also come. But all in all, we are hopeful that this much of sugar should go. Let's understand the basic economics playing out. So if you see consumption, that has really gone up strongly this year. It's gone up in my -- I haven't seen it go -- sugar product consumption move at 1.2 million [indiscernible] consumption product, one. Two, global consumption is also reviving post-corona. Three, Brazil will not be able to feed the world. Four, India's ability to continuously feed the world is translating on a daily basis -- on a yearly basis with more and more diversion to ethanol. Five, any year there should be a bad monsoon in Maharashtra, I don't know what can happen to the price globally. The global market, therefore, in my mind and in our minds, should get to a new level of a new -- we should call it a new normal. A new normal in the global market could be above 20 for times to come. That is how we see it. So India's ability to feed the world will go down as we proceed. Brazil's ability to continuously feed the world with these oil prices is also receding. There is a mix also where it won't be max sugar. It might be max ethanol. So keeping all this in mind with variable in consumption, one is not seeing any variousness on the global front. There might be a price level, which is here to last, I don't know what that can be. Our view in the 20s -- mid-20s is quite possible. But all this story is not playing out tomorrow morning. So this is a story, which will play out and hold. It will -- it's here to stay in the view.

Fair point. And this is very helpful, sir. Just one more question. In terms of the strategy, we have -- we are expanding the capacity. What I wanted to check is, is there any thought in terms of forward integration of the -- into the chemical space? What are your thoughts on the same?

At present, we are sort of going to commission all this. We are continuously looking out at things. But at present, this is what it is.

Fair point. And just last question, sir. In terms of the FY '22 and FY '23, you talked about -- if you can give some clarity in terms of the distillery volume and the power volumes. What could be possible numbers?

FY '22 distillery, we are expecting at around INR 16.5 crores liter. And FY '23, we will have 4 months of our expanded capacity available to us. So maybe INR 23 crores, if there is a possibility for next year. As far as power is concerned, FY '21 was around INR 38 crores. With the increase in number of days for distillation, our incinerator boiler should further improve. I think generation as well as exports will be higher than what we did in FY '21.

And we continue to sell the surplus bagasse where we don't need to work out -- where we don't need to run the power plant and bagasse price this year we are hoping will be much, much higher than last year.

And what could be possible reason for that, sir, much higher when you say?

Paper prices -- pulp prices, global commodity cycle, et cetera.

The next question is from the line of Kaustubh Pawaskar from Sharekhan BNP Paribas.

Most of my questions have been answered on ethanol. Sir, just 1 question. You mentioned that the cane prices would determine the MSP for sugar. So in your presentation, you have mentioned that there is a proposal of MSP increase to INR 33 for cane. So where it has got and when can we expect the MSP increase?

So just to brief you, this MSP increase, we have also stopped actively following up because at this point of time it's irrelevant. The sugar price is much, much, much higher than what the MSP could go up. So it's that today -- in today's scenario is really losing relevance.

Okay. Okay. So the realization would -- yes. Sorry.

And our credit for ethanol based on that would come. So it's nothing to worry about.

Okay. Valid point. And considering the fact that you just gave us the brief about the global consumption and domestic consumption pattern and the inventory, the way you are expecting it to reduce for -- through the year. So what kind of realizations you are anticipating?

That's a very tough question today. However, we are expecting a much, much better realization than last year. Let me tell everybody, you can see the proof of the pudding in the cake, which is available in front of you. At this point of time to be selling at this price and if you see last year's price, you still have 8.2 million -- or 8 million stock, still the price is where it is. This is showing a trend, which is strong. This is showing a trend, which is here to last. So I would be more happy if the trend plays out on a long term. And which the reasons why I feel confident, I've given you the reasons.

Right, sir. And sir, one more over on the ethanol expansion, do you expect any further capacity enhancement beyond your current plans?

No. The budgeted and planned for 35 crores liters is a very large capacity. Now let's see how the -- again, I'll give you one more macro view, which will answer sort of and show you why we feel confident and why we're undertaking this program. So the Honorable Prime Minister, he is very clear on something called [indiscernible]. So this plays out in every way. This lowers pollution. This is green fuel. This, in itself, is it will be octane level of the car. This fuel and his program unveiled up to 2025 shows that the program is irreversible. Hence, the pricing also will be in a manner, which incentivizes this mix. To go up to a level of 20% from 8% is not an easy job. It requires a lot of sort of investment and capacities, which follow a healthy pricing of the product. So how do you bring in people into an industry? You put the pricing as attractive. You put the funding as attractive. I think all the measures have been unveiled by the government very clean. So if this move is here to stay, the diversion of ethanol level we've told you, India's ability to export will reduce. So we'll see a farm sugar price, a well-incentivized ethanol price. And therefore, in all your products, we hope to see it a very long-lasting decent trend playing out, including the global tailwind, which I just explained.

Right, sir. So in that context, your margin should consistently improve from the current levels. Is it the right understanding?

Yes, it should happen over a period of time.

Yes. And see, cane question here also. We are investing a lot of effort to enhance our cane availability with the right variety. There are a lot of effort going into this. It's a massive program on building the company to be able to get that level of cane.

The next question is from the line of Karan Agarwal from Tusk Investments.

Most of my questions are answered, I have just one left. If you could tell us how many months of inventory do we have less sugar inventory do we have left at this moment, this year versus last year?

This is with respect to country -- for our company?

Balrampur Chini.

So we are holding 1.9 lakh tonnes of sugar as of 30th September.

And last year?

Last year, it was around 2.4 lakhs.

2.4. So we had been lower in rate.

Yes. That I understood as in how many months will you take to defeat this? For example, you will take 2 months, 1.5 months around that. If you could tell us more.

That will be a function of quota release, but it looks like 2, 2.5 months.

Right.

Will get liquidated.

The next question is from the line of Ankit Gupta from Alchemy Capital.

Yes. Just to understand the quota part, you mentioned the presentation Maharashtra quota was much higher than the UP quota. Just to understood why that's so and do we expect this to change in the second half?

So see, government plays it out sometimes. Overall, it does not lead to suggest bad impact. It's not a really big event you should track.

Okay. Understood, sir. And sir, second, just so that I'm new to sugar. Via the exports volume 0 for this quarter and even 0 for last year also for the Q2?

We opted not to export in physical form.

Yes.

Because of the higher domestic prices, right?

Yes. Yes.

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

Excellent presentation giving global and domestic database. Sir, just I was saying the global slide, the rest of world production is projected to go up from 65 million to 72 million. So can you throw light in any specific country or this is a balancing number? Or again, we can have a negative surprise here and there could be more shortages globally?

Pramod will answer.

This is expected to go up to 3 million tonne minimum.

Okay. 3 million.

So Pramod, this is ex Thailand. I'm seeing your Slide #7, your...

So that's the figures.

Yes. Thailand is expected to go from 8 to 10 and then last is rest of the world. Rest of the world is expected to grow from 65 million to 72 million. So that's a very big rise of 7 million tonnes.

It's a balancing number.

Yes. It's a balancing number.

Yes. Balancing number.

So there can also again be a risk of how the rest of the world performs and global tightness can go up, right?

Yes. That we need to see how the weather played out.

Okay, okay. And second thing, just on this ethanol pricing. So expectation of the industry for ethanol price to go up is purely based on increasing FRP and increase in SMP by UP? Or is there historic formula why ethanol oil prices should keep going up every year?

So it's basically central government price. It's all determined the mother product is FRP.

Okay. Because the FRP has been increased. So logically, it should be higher ethanol.

So if you check trend, you will see a certain relationship in the percentage movement also.

Sure. But this time, what has happened is that now UP SMP is increased more than the FRP. So would industry lobby for slightly higher prices? Or because the sugar prices have gone up, so it's fine?

So if you see last year when FRP was raised, we did not raise cane price at all.

Okay. So despite that ethanol prices had gone up, right?

Exactly. Exactly.

Sure. And what's the update on the power case, which has been going on, power tariff case?

Power tariff case, we continue to mention we've not given -- got a date. So basically, it was corona. Now we are pushing very hard again.

Sir, is it High Court, Supreme Court? Where is it?

High Court. High Court.

Okay, okay. And last one, I missed out on the power merchant sale number, which you are eying in '22 and '23.

So we have not given any guidance.

We have no ability. Yes, post-'23, we will have some PPAs, which lose -- which complete the period. So then we have a choice.

After '23, the PPAs are over, then we have a choice to...

Not all PPAs, not all. Some. At that point of time, we'll take a call.

Okay. And in terms of crushing, you are giving guidance slightly higher than last year?

Yes. Yes. Yes.

The next question is from the line of Anupam Goswami from B&K Securities.

Congratulations on a good set of numbers. So my first question is on the -- now that we are looking at a 20% blending, I am to understand that it is only possible with the cane juice -- aggressive cane use program. And right now, the situation, so it looks like cane, it's a later profitability than the heavy route. So do we expect a higher pricing scenario from the government on a hike of cane use-based ethanol? And how is that likely to happen given that it's already 62 and petrol prices are also at high. So further hike, how much of that is possible?

So it would not be possible to get into that kind of thing right now. But yes, point well taken. But cane use and BL are not very different. So it's not very different.

Okay. Okay.

Yes. But we will continue to put this going forward, which takes relevant price.

All right, sir. And sir, my next question is now that your bulk of the expansion coming at November 2022, that's during the crushing season. And do we see the grain waste, that plant that is coming, do we see that after '23 when the season gets over, that's going to commission from there?

No. Plant gets commissioned together. It gets used after, let's say, in April, May '23.

Okay, okay. And when do we start -- expect to start crushing this -- for this season coming?

I had mentioned in the call, east UP around the 25th. One plant has started just yesterday, one on 17th, 8 around the 25th.

The next question is from the line of Riya from Aequitas.

I just had one question. I understand that since the diversion for ethanol is going high, so our cost of production, the denominator gets reduced. But is there any other reason why our cost of production is so inflated?

Yes. So whatever economies of scale, fixed cost and lower crushing causes that, whatever little escalation has happened. And at the moment, we keep crushing higher and higher, that would get tapered down.

The next question is from the line of [ Saket Kapoor from Kapoor & Company ].

Sir, firstly, when you have put the numbers for ISMA for this year's production for sugar, sir, what has been the contribution from Southern India, sir? And what is the competitive number for last year? I think the crop availability is better than what it was for the last season.

So that breakup we don't have because, at this point in time, we don't know what would be the tender quantity.

Basically, Maharashtra is going up, UP is coming down a little. The basic mathematics for this year is Maharashtra is going to go up very high comparatively. UP will come down a little bit.

And what about Tamil Nadu, the Karnataka region, sir?

Nothing more meaningful.

Nothing meaningful, okay. Because they were guiding for -- the small players were looking for better availability, cane availability, and were guiding for better numbers. So I thought if there's...

Not very much.

Yes. Not a meaningful.

No. Not at all.

Okay. Sir, when we look at this grain-based ethanol, sir, are there stringent norms than what it is from the sugarcane, the starchy root? Are the rules very different? More certifications and things are made tough when it is routed through grain route. Any thought process on that, sir?

I have nothing.

Right, sir. And how is the ESG -- it's a misnomer, sir.

Yes.

And lastly, sir, how the ESG a part is playing out in this entire theme for if not bending, taking into account consumption of water and thereby the environment part.

Pramod, please?

So as far as the sugar industry is concerned, we are in cogeneration. We are using molasses for ethanol, which is a green fuel. And for water requirement, I think the government has reduced the consumption requirement for water, which has been...

Adopted by the government.

Which has been very well adopted by the industry and it is now all over.

Right, sir. Lastly, just to confirm for the grain-based part, sir, do you think the tendering and the availability of the same will be in distant future or it will be upstream? What is the work on the ground level? And are we doing any retrofitting in our distilleries in the off season and routing the same through the grain also?

Just to be clear. Grain, we are only putting up in Maizapur, which will come in play. The distillery will get commissioned in November. The rest, we would have around molasses by '22.

Right. So there is no issue of -- there is no provision for retrofitting it in the lean season.

We don't need. We will have enough cane. We don't need.

I now hand the conference over to the management for closing comments.

Thank you, everybody, for being with us on the call. And should you need any more clarification, Pramod and -- we are always there. Thank you once again.

Thank you.

Thank you very much. On behalf of Balrampur Chini Mills Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.