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

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

Thank you. Good afternoon, everyone, and thank you for joining us on the Balrampur Chini Mills' Q1 FY '24 Results Conference Call. We have with us, Mr. Vivek Saraogi, Chairman and Managing Director; Mr. Avantika Saraogi, Business Lead; and Mr. Pramod Patwari, Chief Financial Officer of the company. We will the call with opening remarks from the management, following which we will have a forum open for a question and answer session. Before we begin, I would like to point out that some statements made in today's call may be forward-looking in nature and a disclaimer to this effect has been included in the results presentation shared with you earlier. I would now like to invite Mr. Saraogi to make his opening remarks.

Thank you, and good afternoon, everyone, and thank you for joining us on Balrampur's Q1 '24 earnings conference call. I trust all of you have had the opportunity to go through our results presentation, providing details of our operational and financial performance. I will initiate the call with an update on the current development in the sector, followed by our company's key highlights for the period [ ended in June ]. So India's [ net ] sugar production for '22, '23 season that is the season gone by, is estimated at 32.8 million tons. Recently, [indiscernible] has released its preliminary estimate for next year's production to be 31.7 million tons. However, internally, as Balrampur, we believe that this production should be about 32.5 million tons. This is based on our view and our direct update with Maharashtan [ Nakata and ] rupees. This suggests a second year of declining. Nonetheless, we anticipate that there will be sufficient sugar inventory in the system and sugar prices would remain slightly firm until the onset of next season. So even after this 32.5 million tons is our estimate [ net of that's not diverted ] and 28 million tons being consumption, we believe that there is not only ample sugar available for domestic consumption, but there is an opportunity for export of sugar. So with global prices continuing to remain at elevated level, we expect the government to decide on exports only after suggesting the estimate of this ensuing season, which may be because of the election, the government may take a little more time until it gets sort of the production, the export announcement mainly delayed in this year compared to previous year by a couple of months. So that tells you it should be delayed maybe [indiscernible].

I think last year it was announced in December.

So last year, as Pramod reminds me, it was announced in December, maybe being cautious and conscious of the election, maybe go to January, February, something like that. But yes, if there is a surplus, our belief is timing apart that quantum should be lifted based on the export [indiscernible]. On the [ agro ] front, even though there has been a decline in sugar production because diversion of economy is expected to be 3.9 million this year compared to 3.5 million in the previous year. Additionally, [indiscernible] subsidiaries from SPI, grain-based capacities are patent challenges. We believe that this is a temporary halt and the government should allow [indiscernible] to gain base sooner than later. On the business front, our company commenced the fiscal on a strong note with higher volume and realization resulting in healthy contribution from both sugar and distillery. As we've discussed in the past, and have begun, we share the update on cane development. [indiscernible] we are putting immense work, collaborating closely with the farmers, which has been instrumental in enhancing the quality of cane and acreage in our various areas. This effort has led to a 16% increase during the crushing season '22-'23 as compared to '21 '22 and we are an optimistic of a further 10% increase in the next year contingent, obviously, to the balance period of [indiscernible]. Additionally, brownfield capacity expansion at Kumbhi facility is progressing smoothly. We are scheduled to operate the plant with [indiscernible] net capacity from the beginning of the next year. Regarding our [ distribute ] business, I'm pleased to share that this division has performed well during this quarter [ considering it's a ] newly expanded capacity, which is not fully offset. However, due to an unexpected halt in SPRI, the actual supply might fall short of the quantity contracted from OMC. This is to the extent of the -- the right quantity [indiscernible]. Moreover, the past few months have seen a tough escalation in localized prices with the retool the open market and we shall be currently partly taken care by this incentive, which has been declared [indiscernible] of INR 4.75 per liter, effective from [ sensors ]. So amount of ethanol supplies from the open market price will give us an additional realization of [indiscernible]. And as we said, we are hopeful that the acreage of price having increased and probably also looking at not lowering which the government is anticipating, maybe the FCI rice would be allowed in the -- at some point. In our conclusion, our integrated business model has always focused on maximizing value from each gain, and we are committed to generating value for all stakeholders through prudent investment and capital allocation strategy. Our -- this approach has been instrumented in creating sustainable value for all our stakeholders. I now request Avantika to give you an update on the cane.

Good morning, everyone. Good afternoon, everyone, and thank you for joining our Q1 '24 investor calls. I just want to brief about the cane value of Balrampur. So in the quarter gone by, I think there have been some concerns about [indiscernible]. But I would say that for us, in particular, in all our end mid areas, the real pattern has been extremely conducive to everything that we are trying to do. It has been informative. There has been no debut. This gives us irrigation which is light and not causing any kind of downturn in the team, and it gives the farmer time to do [indiscernible] and all the other fertilizer application, insect and disease control and everything. So we have actually -- in a long time, we have not been able to see this kind of conducive weather conditions, which we have seen this year. So we are very, very hopeful that 10% increase should be easy for the coming season. Of course, in September, October -- August, September, October [ we are taking out ], but it seems very promising as of now. As I mentioned, insect disease is negligible and completely under control this year. My partner also alluded to the target, but I think has been changed and is in a much better position. So this will have an effect on inavailability as well as recoveries, whether it is ethanol or sugar. That would probably have an effect on the profitability of both segments as well. And one more update from the [ physical ] side is that our [ physical side ] is performing at full capacity, and it has really performed beyond our expectations and is yielding very, very good seed material, which you have been able to use to multiply the new [ variteties ] that are required for our area. And just one other highlight which I would like to give is in the initial part of the monsoon, when it was weak around the entire country. Our farmers stepped up, and they have done 4 to 5 irrigations in the crop, which is unheard of in [indiscernible] each especially and even central. So this has really given a boost to our team, and we are very, very hopeful for the coming season. Thank you.

Thanks for -- I'd just like to add that for our area, if there is no rainfall post over time, we tend to benefit. As you would recall in the last few years, we were not only [indiscernible], but erratic rainfall, leading to flooding during the month of September, October, which increased growth and also had a negative impact on recovery. So we are open that maybe El Niño can benefit us but too early to say. We have to watch September, October, Pramod onto you.

Thank you, and good afternoon, everyone. Detailed presentation is already available with you. We can straight away move to the question and answer session. Thank you.

[Operator Instructions] The first question is from the line of [indiscernible] from Elara Securities.

Sir, what is the current scenario with regard to grain base and feedstock, how much stock do we have in-house?

One data is, we were allotted about 87,000 tonnes of rice. We have managed to procure almost 71,500 tonnes. So which is in our good [indiscernible].

And this 71,000 tonnes we can use for a quarter to and beyond that?

Yes.

Okay. How will OMCs decide whether the [ technology ] is made from FCI rice or open market rice?

That's a good question. So you are given -- actually really put in -- just to take you to a little details. When you put in a tender for FCI rice, the moment tender is allotted to use the consequent amount of FCI rice is given to you with [indiscernible] recovery. So if you pick up 100kg of price and your recoveries, let's say 50, you have to give 200 [indiscernible] -- so that is -- so if you picked up 100kg, you have to give 200kg. So that's the way they manage that.

And secondly, sir, what is the -- how is the crop condition in Karnataka, Arata and Tamil Nadu. Going by far numbers, the situation looks quite difficult in South. Is it a crop-specific problem? Or do you expect some improvement in these numbers?

Avantika?

So plant total ratio in the South is actually better -- there is no plant [indiscernible] basically the [indiscernible] was recovered [indiscernible] then at the time [indiscernible] may not be able to get recovered, but then having said that the team has already [indiscernible] are now full and are not looking good, but then [indiscernible] that it should be more than whatever is presented by now. I think we're being quite cautious in this.

Right. And lastly, sir, from the industry point of view, what are the opportunities available for us to achieve a sizable growth in the next 3 to 5 years? And how can we get the feedstock policy?

You are talking of growth in ethanol business, right?

Subsegment agnostic, be it sugar, ethanol or whichever segment you think that Balrampur or the industry as such has headroom to grow.

Okay. So what we are doing, we can supply more ethanol based on our increased capacity and availability of sales. As Avantika pointed out, we are looking at 10% higher and maybe we can add another 7% after that also. So our cost objectives would be to fulfill this [ subject ]. Second objective is to ensure that cane does not take up, and the growth does not reverse, which means cane get rest of time. Linked with this is to develop the base varietal balance so that not only can we get our required amount of cane, but we can get the best recovery. So this is for the business in our sugar side, we are adding capacity in [indiscernible]. Maybe as time progresses, we could have a couple of other minor 5% to 7% expansion in some other areas. Following which, we could also expand some distillaries. So these [indiscernible] existingly would be more 5% to 7% kind of a yearly debottlenecking. But yes, slowly, the numbers would look to creep up 5%, 7% for years. So that is how things look like for this sugar business of ours. Outside of that, if there is any other good M&A opportunity, which fits us sort of hygiene standards and our numbers, we would definitely look at that. Other opportunities the company continues to explore as and when something is finalized, the Board will sort out and you would hear from us.

The next question is from the line of [indiscernible].

So first question was on margin front. The cane cost for first quarter has seen a substantial dip and result in our cost of portion is also lower. So how do we factor in this margin expansion for the full year? How do we see this?

During this quarter, the recovery from the sugar cane was higher at 11.82%, vis-a-vis 11.44% in the previous quarter last year. So that is the reason that incidence of cane cost you will see on the lower side.

16:59 All right. So last year, [indiscernible]. So what is the of we can expect on the margin from compare for the full year, if you can come in from that.

Partly profitability guidance, we are yet see the [indiscernible] announcement for the current [indiscernible]. So it will be difficult to give any guidance at this point in time when we don't know the cost.

So there would be a substantially higher margin as compared to [indiscernible]

If we can make some inference by going back 2 years back, then we are having a good amount of cane availability.

I will try and be a little more optimistic and clearer than Pramod.[indiscernible] was translated as in the last 2 years. And the recovery, you've seen a decent bump up last year. You will see a further bump up in both numbers, hopefully, the quantums and the recovery. So obviously, that will give you better results as you go ahead.

The next question is respect of inventory holding of alcohol, we have been -- the increase in the quantum of alcohol we are holding even on year-on-year and quarter-on-quarter basis. So can you throw some light on this? And how is the situation and would expect to rate from [indiscernible]

So we are holding inventory of around INR 3.17 crore liter. There is 2 parts to it. Because of the increase in the capacity, the production is on a half, right? So naturally, there will be more inventory if we compare with the previous number. That is one part. And in the period ended up to June, lifting from the oil marketing companies there on a lower side. Having said that, from third reconvert listing has substantially improved. Going forward, you have to assume around 1 month of inventory as a closing stock.

So I'd just like to take this question a little further. So yes, I promoted there was a peak about PBS probably when the depo got gap, but we've seen in July and in now in August has been predominant. So let's just get a few markers in place. One, whatever you think that will be listed. 15 days to a month here that in the giant of stepover should not bother anybody because an entire tender will be lifted. Two, if anybody wants to dispose of his ethanol on the same day, where will the OC storage? And how will the supply during the lean period like September, October and hardly any [indiscernible] come to them. So there has to be some storage at the main brand, some storage the OMC rent. Having said that, whatever you tender for [indiscernible]. Two, there will be questions on the grain and no business. Let me just clarify some of them pay [indiscernible] . So what is happening is FCI rice subsidized base. I believe the data by the government is around INR 15 subsidies is there in that right. Now maybe this year, the [indiscernible] may be supplies may be next year, this might not be there or might be[indiscernible] much lesser way. People would have to rely on the open market rice. Having said that, the open market rice would be there or have to be the price has to be increased because there will be pressure on that side and the price [indiscernible] and, therefore, the 4.75 [indiscernible] on 31st October, right, Pramod. We do next year tangent year pricing would come sometime in August September in September. One should see a definitely higher price there. So there would be periods when one can get supply that some people can store that and do their is. We find ourselves equipped to take care of that opportunity, both in terms of cash flow and storage. Next, in order to therefore, ensure that the [indiscernible], there has to be impacters on juice diversion towards is -- so we have represented very strongly that are hopeful that we use based atopic should go up a little more than the FRP price. So this basic revision happens, which is in -- as a result of the FRP increase. So let's say 3% in the FRP increase in live resume 3% is a normal increase on BD and juice. Maybe you see a bit of a higher increase on the juice front to incentivize people to put in more capacity, direct modules and improve the juice margins. So that again are our 2 capacities at Balrampur and [indiscernible]. Sabisu use price a levy an FRP and a consequent increase in ethanol prices of BC and juice and also any product take on anybody has on listing of the entire quantity tendered to the quantity.

Thank useful just last clarification. Our guidance around INR 35 crores for FY '24 of ethanol, including the unit stands, right? There is no revision in that.

So let me give you an update on this. INR 35 crores is our production ability on an annual basis. Now for the FY '24, as of now, we are estimating a production of around INR 30 cores to INR 31 crores liter with reduced availability of rice from FCI and open market as well as the open market. As the production is in that range and the sales would be in the region of around INR 28 crores to INR 29 crores [indiscernible].

So whatever is the shortfall is on account of rice.

So if I recall out of [indiscernible] INR 5.5 crores for from the deal price, if my numbers are right, [indiscernible]. For the financial year, right. So we are -- so we are downgrading the volume sales volume to that extent, the whole [indiscernible]. So would the INR 2 crores, INR 2.5 crores of inventory we have as on FY '23 would be a full year.

FY '23, inventory was 5 lakh. Going forward, we will have to assume in 18 crores to INR 3 crores liter as a closing inventory on the reporting debt.

Inventory should not bother you [indiscernible] accounting entry.

And this will be onetime as far as FY '24 is thereafter, it will become a phenomenal [indiscernible].

The next question is from the line of [indiscernible].

First coagulation on especially the increase in the canned the better efficiency in the crushing. And just one question. This is the large 2 or our future is not called strategy of around INR 2,000 Phish is currently under implementation, right? I just wanted to know, are we still on track of the completion of this? And how much can -- are you expecting this to impact on top line? And if is this implementation is complete, then what will the -- what is our projected state between sugar and distillery revenue going forward or even the start of rating port.

As we said in our opening remarks, the pension is on target. It will begin probably as early as the first week of November. Whatever can press extra, maybe INR 15, INR 20, INR 25 lakh will be -- you can't -- as I said, I can't give an projects till we recost the season, whatever is less extra would it to the top line?

Okay. And going forward, what will be the split of revenue that you do you find be sure about. For example, right now, it is like 70% of our top line comes from were like 30% odd comes from diary. So going forward, will that be more of a 50-50 -- can that be kind of rate also too early to say so.

No, as of now, [indiscernible] is 30%. And going forward, it should be in the region of around 35%. Okay. You...

[Operator Instructions]. The next question is from the line of [indiscernible].

So my question is on the grain base site. So OMCs have increased the small time need for production through mines or other footprint. So in that context, are we considering that as an option to produce ethanol. I don't know whether you have spoken about it a missed that point, but I will -- we're looking at that as an opposite.

So I did attend to clarify earlier, I would take to do it again. the 4.75 rise in price is not adequate. The broken rice, which is an open market wise, our estimate was 20 on the path of price given by the company. As when people also availability has best INR 4 increase in raw material flights requires an INR 8 plus increase in a small price to compensate that increase in raw material price. So it's 1 to 2.2, right? So currently also, this is maybe a step to begin with, but it would not add to profitability. It will lower the loss. There is no sort of tailwind in this announcement until then, there is a revision of mix. We are and you get live actually fortunate the correct time and you are able to buy and store it, which we will be analyzed for next year based on improved prices...

And one more clarification with 10% increase what we are expecting this year in the -- this then, excluding the risk of any extended margin because last 2 years, we have been saying that we want intolerants getting extended over the period of... October are not good for us. It's modulator. So that would be -- that relates right, for that 10% kind of an increase at...

Hardly. For the weather conditions don't have an indicated at rainfall, but now the growth is sort of enough to justify our optimism. However, it is great for a couple of months.

The next question is from Nikhil Gada from Abakkus Asset Management.

Sir, my first question is when you mentioned the INR 3 crores, INR 32 crores of production, would it be possible, sir, to break it down into different routes for us?

Now we had P12 production, each D&A not amateurs. Okay.

Fair enough. On the post... Sure. Sir, and just because the rule to variation is changing in terms of the mix, especially for FY '24. Is it possible to give just a ballpark understanding in terms of what will be the EBIT margin specifically for the distillery business for us?

Because of the intense interest now material transfer price, it changes frequently, it is difficult to get segment-wise guidance. We would always recommend to assess the performance of the company over the tectonic as well as a complete...

So because the audit the conditions of current market prices, et cetera, they change the faster pricing that is a worm. And because if there is a higher chance of pricing, let say, the site profit might sound lower, however, the sugar profit will improve. Money sales in the company.

Sir, the reason for asking this specifically is that I just wanted to pick your range on when do we reach you how much we'll do from us, how much we'll do from heavy or even now with the FCA condition, how much we'll do from right to optimize the profitability. That was the reason I was just trying to understand that a very good bitterly completely -- no worries. So then just a last bit from my end, specifically. In terms of the rise because we have already tendered, it's something which we have to do it all of obligation, right, in the current scenario.

So there is a finance condition of attack. If you do not end up. So we have already restat if government is not given the rise, there should be no penalty applicable. I think that's what you were asking.

Yes, that is a... Yes.

So coming back to your question, you lever to the judgment of the management, depending on the use price, P price to the price, we will deliver our best on what to tender, how to tender...

Got it. And sir, just one last question, if I may. Is it possible in the current situation, the way the pricing -- is it possible to give the EBITDA or late for the different routes.

Again, that will also depend upon the price. The breakup of that INR 31 crores of that is event of production use route will be around INR 11 crores, CAD will be around INR 13 crores. FCI rice will be around 4 crores and the balance will be [ unit ].

The next question is from the line of [indiscernible].

Congrats for a good set of numbers. Just wanted to have an update on do we ensuring also to be formalized of diesel with the government of any hearing from the government that we have...

There is first oil to comment but there is definitely very strong features going on is they do have plans and teams of and. These things are open offer very towers.

Now we first start for enough raw materials to provide 20%.

The next question is from the line of [indiscernible] from Elara Securities.

Yes. So hypothetically, if we have tendered say, for example, ethnocide suit a certain quantity. And next year, if the sugar prices rise, and it is lucrative to manufacture sugar and the heavy ethanol. Can we switch some of the stores from juice to be heavy to...

If you tender, which you do tender in the month of October, you already funded and not you want to pay the any... So you see that judgment, as I said, would be better for us. And we would use that with that experience and deliver the best -- so maybe your question can be answered that is it possible in the distributor which...

That was the last question. I would now like to hand the conference back to the management team for closing comments.

Thank you very much. We hope that we have been able to answer all your questions satisfactorily. Should you need any further slides or would you like to know more about the company, please be free to contact us. I once again thank you for taking the time to join us on this call.

On behalf of Balrampur Chini Mills, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.