Balrampur Chini Mills Limited (BALRAMCHIN) Q3 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Balrampur Chini Mills Limited's Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Jenny Rose from CDR India. Thank you, and over to you, ma'am.

Good afternoon, everyone, and thank you for joining us on Balrampur Chini Mills Q3 and 9M FY '26 Results Conference Call. We have with us today Mr. Vivek Saraogi, Chairman and Managing Director of Balrampur Chini Mills; Ms. Avantika Saraogi, Executive Director; and Mr. Pramod Patwari, Chief Financial Officer of the company. We would like to begin the call with brief opening remarks from the management, following which we will have the forum open for the question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the results presentation shared with you earlier. I would now like to invite Mr. Saraogi to make his opening remarks. Over to you, Mr. Saraogi.

Thank you, and good afternoon, everyone, and thank you for joining us on our Q3 9-month FY '26 earnings call. I trust all of you have had the opportunity to go through the detailed presentation put out by the team, which gives our operational and financial performance. I will initiate the call with an update on the current developments in the sugar sector, followed by our company's key highlights for the period under review. India's net sugar production. So I will just put this very simply. Our estimate is that Balrampur Chini Mills internal personnel estimate, the company's estimate, is 325 lakh tonnes, diversion 35 lakh tonnes, net production of 290 lakh tonnes, 4 lakhs has been contracted for exports, leaving a net balance of 286. Consumption is estimated -- some people say 288, some say 290. So net-net, if we do not go down to nitty gritties around 1 lakh or 2 lakh tonnes, the assumption is that there would be no addition to inventory. There will be a minor depletion to inventory. The opening inventory is at bone-thin levels, which is at 5 million tonnes. And this, in effect, will lead to a very strong demand situation with no inventory overhang. So therefore, the pricing seems to be moving -- therefore, it's bullish for the prices -- and the prices in the month of February for UP mills for our factories is between 41 and 41.5, which we feel can inch upwards as the season progresses -- as the year progresses. On the policy front, cane prices have been increased by several key producing states, adding to cost pressures for the mill. In UP, we have had a INR 30 increase in cane price. In this scenario, a revision in MSP aligned with cost -- current cost structures becomes critical for timely payment to farmers and to maintain market stability without any fiscal burden on the government. So again, I'll give a little perspective to this. MSP might not be relevant at this point of time with the current prices of UP. However, this is a bottoming kind of a signal from the government, which will be sort of -- which comes in hand when you begin the season in December, et cetera, and it is a signal which is much needed and much overdue. However, if, let's say, MSP came today, it would not change the pricing trajectory. Now the real concern is about the ethanol pricing. I'll come to later. So one concern about the potential ethanol imports from U.S. and maize, et cetera, have been eased following the recent trade agreement. However, uncertainty continues around long-term revision of domestic ethanol price. Despite an increase of 16.4% in the FRP and operating costs, ethanol prices under B-heavy and juice route have not been revised from [indiscernible] third year. Now this is extremely disappointing. And we are extremely surprised since this revision, which was sought, would have marginally or absolutely submarginally impacted either the OMCs or if they decided to pass on to the consumer, it would be in the tune of INR 0.10 to INR 0.20 per liter on a price of -- what's the petrol price? INR 100? Yes. So it's around -- if the pump price for the consumer is INR 100, this was INR 0.10, INR 0.20 impact. So this kind of amazes us as to why this has not been done for the third year post FRP revision of 16.4%. Without this, in future, millers will have to rethink about large-scale diversion. And the E20 program, I'm not sure, but it needs more attention. It began with a lot of commitment. That commitment has been sort of reneged upon by the government midway. Against this backdrop, the company delivered a healthy operational and financial performance. Sugar segment performed well, supported by improved realization. Distillery segment delivered stable performance on back of higher volumes. However, margins remained under pressure in the absence of ethanol price revision. Sugarcane crushing for the company under -- for the period under review increased by 8.4% to 387.6 lakh quintals, supported by early commencement of operation and improved capacity utilization. Despite a decline in overall sugarcane acreage, company expects higher crushing levels for itself during the season under review aided by additional area allotted by the government and better yield owing to our working with the farmers closely. Our PLA project continues as planned. Construction activities are in full swing with more than 3,000 workers being deployed at site. Approximately 90% of the imported equipment has arrived and the balance is on schedule and in transit. Market development efforts have commenced through trading of imported PLA. As of 31st January, cumulative project expenditures stand at INR 1,421 crores, funded through a combination of INR 790 crores via debt and balance through internal accruals. We remain committed to sustainable value creation by optimizing operations, maximizing value extraction from each unit of sugarcane. Our diversified product portfolio, including PLA's initiative is closely aligned with emerging global sustainability trends and strengthens the long-term resilience of our business. So we continue to focus on debottlenecking, enhancing efficiencies, strengthening stakeholder relationships, and we continue to be very careful and prudently look forward to deploying our capital. This brings me to the end of our discussion. I now hand over the floor to Avantika for giving an update on cane and PLA. Thereafter, Pramod can take you through the financials. Thereafter, we'll do the Q&A session.

Good afternoon, everyone. Thank you for having me. So just a very quick update on both, first cane and then PLA. So I just want to highlight that we are -- I mean, as already highlighted within the opening remarks, but we have -- we expect a 5% to 6% increase in the crushing this year vis-a-vis last year. And I also want to share some encouraging news for the upcoming year. We expect an increase in area of about 5% to 7% in the upcoming season as well, not only since cane prices have been increased, but we have also been allotted some new geographies. Other than this, our development activities in cane, I want to highlight one in particular. So in our insect test disease management program, we have now focused, since the last 2 years, very, very heavily on mechanical control, by allocating labor budgets rather than chemical budgets since -- actively since the last 3 years, we have ramped this up. And this has encouraged -- this has not only increased the fertility of the soil but increased the actual sort of resilience of the crop against these kind of insect-based diseases, whether it's top borer or whether it is red rot. We have relied less and less on chemicals and more and more on mechanical and bio controls, reducing the carbon footprint of sugarcane cultivation. Secondly, now I would like to move on to PLA. I want to highlight another figure, which might not be so visible to investors that the trade of PLA since the time that we have announced the project has nearly doubled if we are to take the annual import of PLA and its product. So it used to stand between 4,000 to 5,000 tonnes before we announced the project as [indiscernible] PLA. And we expect that at least a four to five fold at a conservative level in compounds and finished goods was coming in. But now we see it at around 10,000 tonnes annually in the year of 2025. And again, we see a consequent four to five fold in compounds of PLA coming in. So while our trade and our sales figure might not exactly reflect the exact PLA market in India. I just wanted to highlight this to show that we have been working relentlessly and with a lot of compounders and converters and achieving not only sort of goodwill, but real technical success, which has never been seen before in India. As highlighted, last time, we had worked on over 50 projects, out of which 20 have been closed successfully and 30 are ongoing, and we see success in them all. So the technical success is actually what I would like to highlight in the downstream technology. So that's it for me.

Thank you. Good afternoon, everyone. I would not like to repeat the financial numbers, which we had already shared in the detailed presentation. I would now request the moderator to open the forum. Thank you.

[Operator Instructions] The first question is from Prashant Biyani from Elara Capital.

Sir, regarding this ethanol pricing, if we have to look the other way, what is the incentive for the government to increase the ethanol price right now? Blending targets have been achieved, and we have ample capacities also. So till the time there is sugar glut or even stand-alone ethanol companies are on the verge of bankruptcy, government may not increase the price at all -- from here. Your view on it?

So we are talking as if government is running a business. So government is supposed to be running a system, which is for the well-being of the country, and that's where this policy began. So just because you get capacity up to what you need, you don't stop increasing the price and the commitment which was made, which was followed up to '22, '23, which was if 5% was the rise in FRP, 5% was the rise in ethanol price. So if we talk like -- and if I may speak a little informally, government is not a baniya. Government is supposed to -- this is climate-friendly, farmer-friendly. So owing to this, exports were not needed -- export subsidies were not needed; owing to this, farmers were paid on time. You suddenly for -- don't backtrack midway.

And just on the price front, they would just increase prices based on the consequent increase of sugarcane prices. They need not increased quantity of ethanol in that. So it actually has more relevance to sugar per se.

I agree with all that. But I mean, because now government is acting like a baniya only, so then...

Then you're right. So that's why they've not yet increased it. So these are not moves with any kind of long-term thinking, suddenly, something has gone up. And like government has been pragmatic for years. And I'm very hopeful that they would again see pragmatism down the line.

Sure. Sir, on PLA, while we would be supplying to converters, but have we got any formal or informal assurance from any of the potential clients for offtake or either from railways or defense or temples, where we are also targeting them as a potential client for the end product?

So I mean, I'm not at liberty to tell you as of today, but the fact that we have put the names in our investor presentation and how sort of prudent our conduct has been, its indication enough. I think that these are just some institutions and then there are lots of private and everything. There's really very, very encouraging market coming for PLA. I highlighted it in the import figures for this very reason.

So if you see insight, and I think this may be of interest to all investors and Avantika knows better. So the PMO initiative and those things play out. I mean, capacity...

Let me talk...

Why not. Just in short give the perspective.

Let me talk about the entire program of this Gutkha pan masala packaging. So there was an article and the press release from the government, which included our name and our PLA, and basically for the application of Gutkha and pan masala packaging. So this is one of the most visible liters causing 22% filtering in cane systems in urban India. So the PMO is really taking up this in a very fast-track manner. And we have been able to get technical success, which has only, before this, happened in China in terms of being able to convert the product with quality and on the existing legacy machines that exist in the country. That was the only roadblock. We have already achieved technical success. We have done prototypes and it has already gone for user and degradation testing and SOP and all of that is being done. So the government is working really, really fast and really, really cohesive on that. So if we look at sachet usage in India, you guys will probably be better at estimating the exact figures, but it's something like in hundreds of thousands of tonnes. And why I'm harping on the technical efficiency is that it's extremely difficult to get the oxygen and water vapor barrier, right, with the -- with bioplastics and biodegradable materials, which we've been able to do. This is a great thing and the cost is also decent.

So there's a lot of promise. There is a lot of interaction and it's not upping the air anymore.

Sure. And while we are not really impacted by it, but on the other side, is the government also trying to separately pick up the waste product or the packing material, which is made out of PLA at the garbage picking front?

Do you mean waste segregation?

Right, right, waste segregation.

I mean the less we comment on waste segregation in India, the better. I don't know what to tell you more than this. It's not where it should be. And if it does happen like that, it's rather simple to separate PLA. There are n number of technologies and even mechanical properties, which can be taught to the rag pickers just as they do for other products, they can easily separate PLA.

The next question is from Vikram Suryavanshi from PhillipCapital.

Hope, I'm audible.

All good.

Okay. So first of all, I want to acknowledge you for giving more realistic production estimates in presentation compared to what we used to get from different sources. For initial -- if you look at our initial estimate as a country and now significant downward revision, which was expected, how much coming from UP and Maharashtra, if you can give some broad sense?

Pramod.

UP production, we are looking at maximum of 10 million tonnes at a gross level; and Maharashtra, Karnataka, maybe 17.5 million to 18 million.

Maharashtra, Karnataka [indiscernible] and rest of India, 47 -- [indiscernible] people. That's the breakup.

And second, you highlighted about increased cane allocation by 5% to 7%. So does that additional land what you have got already has a significant amount of cane or there is a further scope to improve further cane development going forward there so we can see -- apart from the area, cane availability can also improve significantly?

Good question, actually. I just want to clarify, it's not 5% to 7% increase in allotment. It's 5% to 7% increase in crushing -- 5% to 6% increase in crushing that we expect. This is not only through external areas, but internal development and yields and everything. Now moving to the second part of the question, yes, definitely, the new areas which we have got already have cane, but they have a large opportunity to increase cane as well. And these are farmers who have not been paid properly. So they are very, very happy and very, very excited to actually see the color of money and work with us and increase cane area. We're very, very hopeful.

Increased cane area, improved variety, everything.

Got it. And in terms of yield improvement, we have seen improvement, but probably I was expecting significant improvement further from here. So was that improvement mainly because of weather-related and recovery from the DCs? Or we lose -- can expect some structural yield improvement with varietal difference going forward also in terms of recovery as well as yield, if you can comment?

So I just want to highlight that we've been working very hard on variety since red rot hit. So while the red rot variety is reduced to low single digits, we see an increase like 14201 is an established variety now. This year, we are already going to crush around 16% of it, and we see a significant increase in the coming year. Similar to this, we have 2 more varieties in the pipeline, which have good potential for yield as well as recovery. So this is something that we are working on, plus we have a 4- to 5-year plan and 4 other pipeline varieties, which will then come in. So this is a very strong program with the tissue culture and everything that we have established. So we always strive for structural change so that we do not need to rely as much on outside factors.

Got it. And last question, I think, sir also talked about on ethanol views and all that. But just for clarity, if you look at situation remain and with sugar prices currently what we have, can we go for maximize sugar and then use the distillery capacity more for grain-based ethanol as a structural change going forward? Or we still hope that government will consider the revision in ethanol prices, so we can stick with the existing model?

So what we have done pursuant to the fact that government did not increase price, we have already diverted many of our units to C-heavy. Grain is not possible in these units because grain is a separate line of machinery, which is only available in Maizapur. So we have taken those decisions internally to maximize sugar production.

Okay. Got it. So I was just saying to can we also go for multi [indiscernible] in other places also?

No, no. That's not what we are planning.

The next question is from Sanjay Manyal from DAM Capital. .

Yes. I think my questions are pretty similar to what the previous participant has mentioned. So it is about the recovery specifically. I think initially, we were thinking -- we were talking about 50, 60 probably basis point recovery improvement in Western UP and probably 20 to 30 basis point recovery improvement in Eastern UP. But I think it's fizzled out. Is it because of the ratoon crop or we may think we may get better in plant? Or you think that recoveries will probably will be flattish kind of for the season?

Good question, Sanjay. So you're right, West, I don't know even that's not as immediately as [indiscernible] saying, a lot of West is higher. by half and a lot of west is lower than last year. So West is also divided into parts. Having said that, we began with an improvement of 0.3 kind of expectation. For 1.5 months, we got no sunlight. So beginning as of yesterday, bright sunshine has started again. So maybe we have lost some time, which we did not anticipate. So 0.2, 0.3 may not be possible, 0.1, 0.15 may be possible.

Okay. And second, about the fungibility part only. It seems that Maizapur, I think initially when we did the CapEx for Maizapur for 320 KLPD, it was assumed that in a certain situation like today, when the maize or the grain ethanol prices are higher, probably we'll utilize this Maizapur facility for a higher grain ethanol. But it seems that it will be less than INR 5 crores only. It seems to be that way only. What's your view on that? And why we have not been able to scale that up to 8 crore, 10 crore liters probably?

So Sanjay, please understand. We have a capacity of 5.5 crores -- 5 crore liters of maize for the balance amount of season after sugar season shuts down, right, balance period. Yes. Let me get it very clear. Government has accepted only 60% of the tenders put out for maize. And you cannot put out a tender than what you have -- than your capacity. So we tendered for 5 crores. We got 3.12 -- 315 crores.

Also, [indiscernible] the ratio.

[Foreign Language] so government is not inherently very much in favor of that segment. So if you wanted to increase maize, you'd put in a CapEx, let's say, for another distillery of 10 crores, you would only be able to sell 6 crores. Balance that distillery would be idle. Am I clear, Right?

My question over here is that why we couldn't bid more than INR 5 crores? Because if I'm not wrong, the entire Maizapur facility is fungible towards grain. So maybe I can do a C-heavy, I mean, ethanol or B-heavy.

Right, right. So that was possible. But at that point of time, one did not know that they are not going to increase the price. Having begun and tendered, it's not possible to roll back. And in the overall scheme, until you reduce sugar, you don't get a good price for sugar. Yes, I mean, if I knew on day 1 that they are not going to increase any price, maybe we would have done lesser juice.

Right, right. Understood. Understood. .

But capacity would have been idle. We see you would have done, but the grain would have gone unutilized or 60% utilized. But yes, your question is valid. If we knew this on day 1, we would have not done full use.

Right, right. Understood. Understood. And sir, lastly, on PLA front, I think you have mentioned that you already started trading PLA. And so is it that to build the market as of now, we have to significantly reduce the price or sort of come up with the lower price to the clients?

No, no, no. This is not the case. We are wanting to do this so that we can get the technical feedback required for our own production and also start creating a name in the market, meeting the right customers and everything. So customers are largely still importing on their own and just buying a small percentage from us and giving us feedback, which is very valuable for when we start production.

Okay. Okay. So these are only pilot work, which is happening as of now?

No, we are doing commercial sale also, but to a small percentage in order to get feedback on quality.

Next question is from Tanuj Nangalia from SKP Securities.

So sir, I wanted to know whether there is any change in the ethanol mix? As you said, you will be making more of C-heavy. So the previous mix you had said it was 25%, C; 65%, B; and 10%, syrup.

It's a very marginal increase because midway.

so, [indiscernible]

Yes. So just 1 unit midway, we are shifting, which may not -- because we have a 10-unit company, may not look very visible. But yes, whatever we can salvage, we will salvage.

My next question will be, sir, are we on track to close the financial year '26 with ethanol sale of INR 28 crores deal?

Looks like between INR 26 crores to INR 27 crores. .

INR 26 crores to INR 27 crores. Okay. And sir, one last question, what kind of revenue are we expecting in PLA from the Pan Parag in sachets, which you were talking about right now?

This is too early.

Patience. So let's understand what we are wanting to say without over expecting or underdelivering. So today, this is something new for us. We are going in. There are 2 parts to this. One, to make the quality that is the function at the plant level. Two is to sell this. That is what your Pan Parag, et cetera. So we're separately working on these two. And with the interactions we are having around, we feel very, very confident and happy that we should see success on both the fronts. The details of how we are hoping to be successful is all what we have spoken about.

Got it, sir. Just I can squeeze my last question. What is the cost of production of sugar in Q4?

Q3?

[Foreign Language]

So for the full year, we are expecting in the region of around 37.5.

The next question is from Hitesh Sharma from Goldman Sachs.

I just want to check up on this PLA, how much is capacity utilization right now? And what sort of at -- the full capacity will add to the profit?

So we are commissioning in October of 2026. So right now, there is, of course, no capacity utilization.

Plant has not come up.

And then if on full capacity utilization, the revenue potential is INR 2,000 crores at [indiscernible] and we have given guidance before of a 35% EBITDA profit margin.

[Operator Instructions] the next question is from Dhvaneet from Savla Family Office.

I think most of my questions have been answered. Just wanted to know on the ethanol bit. Have we been -- we know what kind of pricing are they going to go on the C-heavy route for this current sugar season? Because in case -- so they have given an increase last year also. So if they give an increase right now, then the price differential between the B-heavy route and the C-heavy route is very minimal. So in that case, it looks ominous that they might actually increase the price hike on the B-heavy route, right, at least or in line with that on the cane juice route. So -- and what -- my second question is what is our current conversation with regards to the government on this particular aspect? Are they still in talks with the government for the price revision? Or have the talks stalled for now?

So I think what you're meaning is whether there will be a revision for C-heavy. So currently, the indications are there is no revision on the [indiscernible]. So we have pitched, pitched and pitched, no reply is the message we have. I mean, I cannot -- again, they are government, which gives a feeling that they might not be looking at it. That is the indication. All products hence, will remain the same; C, B, juice.

So as per November, '24, October, '25 season, right?

That was the last question in queue.

Sorry, sir, can I give some closing remarks? .

Absolutely, yes, sir.

Yes. So our hope -- not more than hope, we are hoping to crush over 10.5 crore quintals this year, which is about 50 -- 10.55 actually, which is about 60 lakh increase over last year. Yes, about 58, 60 lakh quintal increase, which amounts to about almost 6%. Our ability with the CapEx already done is to very easily handle [indiscernible] quintals. And we hope to achieve that very soon is the wish list. And -- but it's not a dream. We are working towards that and feel very positively inclined to achieving that. My hope is maybe part of that vision gets completed next year itself. And in Maharashtra and UP, you would start seeing closures by February end. So that is why the price is where it is. And even the monsoon prediction, which we have read about till now is not great. So one thing is structural kind of a tailwind to sugar prices as we proceed. So yes, one sector ditch ethanol, the other looks good and especially for Balrampur, right? Thank you.

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

Thank you.

Thank you.