Balrampur Chini Mills Limited ($BALRAMCHIN)

Ladies and gentlemen, good day, and welcome to Balrampur Chini Mills Limited 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 today on this call to discuss Balrampur Chini Mills update on the PLA project and the capital raising initiatives. 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 will 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 proceed, I would like to remind everyone that certain statements made today may be forward-looking in nature. Accordingly, please note that the company is currently in a silent period. We request that you refrain from asking questions related to the quarterly business performance and limit your questions to the current development. With that, I would now like to invite Mr. Saraogi to deliver his opening remarks. Thank you, and over to you, sir.

Good afternoon, everyone, and thank you for joining us on this call today. We thought in our genre transparency to connect with all of you post the Board meeting held on the 23rd to share an update on the PLA project, the investment around it and the associated financing initiatives approved at the meeting. At a broader level, we reflect our decisions we the balancing in which we are taking the business and the way we are positioning ourselves for the next phase. PLA project is a key strategic initiative for us and an important part of our efforts to build a more growth-oriented business with attractive opportunities emerging around the value chain. As the project has progressed through implementation and detailed review, we have stock of the updated capital requirement and adjacent opportunities around it. Let me first cover the PLA project itself. As disclosed has been a cost overrun of INR 230 crores, taking the project cost to INR 3,080 from INR 2,850 crores. The revision primarily is on account of key construction material, global supply chain disruptions, ForEx movement and certain refinements in engineering and design, which is the final 90% engineering and review modeling. Alongside the PLA project, we have -- and together with this, people take advantage of the situation and the supplier also in the of giving material on time, say there's an overrun and a little more cost gets into that. Alongside the PLA project, we have identified an attractive opportunity to create value chain around its byproduct. As part of approach part of this approach, Board has approved the lactogyypsum processing plant at Kumndi. This facility will convert lactogypsum, which is a synthetic and eco-friendly byproduct generated during the PLA manufacturing process into gypsum boards, a scalable and commercially attractive production segment. The proposed plant has an investment out of INR 160 crores and is expected to have a capacity of 6 lakh boards per annum with commercial production starting in 18 months. We see this as a highly compelling initiative with multiple benefits. It enables us to monetize our byproduct, enhance overall efficiency and create an incremental revenue stream. At the same time, it reinforces our sustainability agenda by embedding circular economic principles into our operation. And this synergizes with our initiatives of converting our kind of waste into value-added products. To support these initiatives, the Board has approved a preferential allotment of equity shares worth approximately INR 450 crores at the price of INR 483, which was the price of [indiscernible] In addition, the Board has approved an enabling resolution raising debentures of INR 20 crores. This is just part of the financing because if you're going into a big project, you need to do something through debentures. This will provide us the financial flexibility required to execute our expansion while maintaining our balance sheet discipline. We'd like to highlight that continued participation from the promoters in the fundraise will keep our stake, the family stake at the 43%. So if you see we are putting 43% of INR 450 crores, which is about INR 193 crores, which is exactly synergetic with our existing stake. We believe this reflects the promoters' continued confidence in the company's growth strategy and long-term value potential of these projects. So what I'd like to also add is nondisposal of gypsum can also lead to a bit of a pollution issue. So our ability to dispose gypsum with our interaction with cement plant showed limited interest, very poor pricing and limited offtake. So not getting into a position where earlier in the '90s, we got into with bag where we had to sell bag because there was no disposal. And we were India's first sugar factory to get into the cogeneration project, which yielded us rich dividends down the line and stopped us from getting black mail. This initiative also has that embedded. So now I request the moderator and be very happy to answer your questions.

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

Sir, what the rationale for this equity capital raise so closer to the commercial time line of the project? You would have already tied up with finances and leverage is also not that heavy on the balance sheet?

Yes, so I believe this question exists in the mind of many of our equity investors. So I'll just let me give you some first a 5% dilution, we are participating. So it's not that there is a thought of lowering the promoter stable; three, the ability to run business to maintain ratings to maintain the -- we are getting our finance today at 6.75% and to ensure no ratios are disrupted. The idea was to raise this capital because there is a INR 390 crores out here, as you can see, INR 230 plus INR 160, plus here, the sugar season coming up and we see our ability to purchase more in, et cetera, beyond time. So I have to ensure liquidity to ensure rating to ensure no banker says that you bet some ratios, et cetera. We thought that this would be a very prudent measure.

Okay. And sir, can you give some cost dynamics for the lactogyypsum plant in how much is the output of lactogyypsum when you make 1 unit of PLA and this plant which will make gypsum board, how much could be the revenue potential as well as margins if you would have budgeted the same...

Yes, Pramod.

So Prashant, 80,000 tonnes of PLA, we are expecting [indiscernible] 1.6 lakh tonnes to 1 lakh -- and this has a revenue -- annual revenue potential of around INR 150-odd crores.

And sir, how many tonnes -- how many units of lactogyypsum unit of gypsum board or I mean, equivalent input output ratio?

So this 1.6 lakh tonnes of gypsum will result into around 63 lakh pieces 3 lakh pieces...

How much would be the margins for this business?

We expect a payback period of around 5 years.

Yes. So with the current disruption, I believe since we started looking at this project, the board prices are we affected in and moved up 25% higher already because of this West Asia crisis. But that's just the current development. Raw materials, don't need to rely [indiscernible]

Sir, we have investment in NBFC also, would we be willing to offload some more full part of it, which we own eventually to delever our balance sheet?

Definitely, Eventually, yes, 100%.

Any time line and tentative valuation would you be looking at? Why we have a history of past transaction at which the stake transfer happened.

Meaning the solar plant isn't it? No, the history you're talking about is -- so there are 2 parts to [ Ouxilo's ] dilution. One is a dilution done to run the business. That is the capital requirement of the business itself. Two and the last dilution was done at about INR 3,200 crores -- around INR 3,000-odd crores market cap of Ouxilo. So that was the last valuation available. Currently, yes, as I told you, I've answered your question, the timing and et cetera, are not fair to answer now. Yes, we are positively inclined towards answering your question in the affirmative.

The next question is from the line of Shailesh Kanani from [indiscernible]

Sir, I had a few questions. First one is on the PLA project. Now the cost has escalated by INR 230 crores and you have given the reason that the engineering changes and supply chain issues. So are the modification fundamentally altering any yield or efficiency of the plan?

So minor tweaking always will lead to it. Yes, you're right. But it's impossible to be able to quantify all that today. Everything is being done, some parties towards improving the engineering, a lot of it is foreign exchange also. So one could not have booked the machinery, which is to come in, you don't move from 95 to 110 from a 90 to 110. So that's not in my hand. I could not have booked the machinery, which used to come as far as I'm [indiscernible] told. So that is one major part do this shipping cost, this crude, these ships not coming around bonus and case or cake local transportation, even now the biggest consignment, just to give you a figure, it's costing me INR 9 crores to transport a column or a part of the machinery. One there are 2 such consignment, it takes so months. So people at this point of time have to complete the project, and there are some costs which are probably a little higher than what it should be -- some are genuine, 90% again, 10% is a bit of black male. One has to succumb that in order to complete the plant with precision. -- shipping costs, inland transport cost, currency fluctuation, the revision of prices of some existing contracts. We have put in fixed price contracts and that we try to keep to a minimum. And lastly, some minor engineering and et cetera for with the 90% modeling, we just close up some new maybe various pipeline kind of things. Combination of all.

Fair enough. So this project being so close in terms of competition and operational, the next 9 months. So can we expect the primary kind of revision in project cost and there is further in cost is macro environment?

Yes, because the our machine is largely coming. Yes, that should be it.

Sir, my second question was to UP bioplastic policy, when they are giving testing capital subsidy. So even if this upward revision, that would be kind of eligible for the , right?

A very good question, pertinent question. the document, the policy document does not curtail your investment. And yes, therefore, what you said is absolutely correct.

So my third question was with respect to the gypsum board what we are planning to do. So I was reading that requires and reinforcements. So are we planning to utilize the [indiscernible] for production of this? And do we have that excess?

No, that does not -- it's not required at all. It requires paper and gypsum, that's it.

Okay. So there will not be any further utilization from the byproduct from the sugar mill as such?

No, only the utilities like steam and power will go.

Which will be accounted for in the project revenue -- I'm sorry, in the expense. Just to answer a question how we work in [indiscernible] I guess in any prudent company is if you see our 3 divisions, sugar, ethanol and power, there is a transfer pricing for everything. And then you get your segment to revenue and segmental profitability. So when Pramod has spoken to you about a 5-year payback and which make substantially decrease with the current rate in the board prices. each utility used here, whether it is tea, anything, is accounted as an expense here and a revenue in the PLA plant.

Sir, just last question from my side continuing in this point. So we'll be making would be positioning themselves as a commodity alternative or some kind of -- we have a leverage with respect to bio-based or some recycled content in it so we can kind of target the premium ESG or green building, something like that? Is it possible?

This is not envisage at this point of time. It is definitely replacing material. So in that case, it is, of course, a very, very much more eco-friendly way. But to attribute value based on that, I don't know if we will get more value, but definitely ecofriendly [indiscernible] is there. And there's more mining involved...

That's a good point. But that's a good sort -- we get the most numbers [indiscernible] to later in this 18 months ago.

The next question is from the line of Nishita from Crown Capital.

Yes. So I actually just had a follow-up question on the previous participant's question. So I just wanted to understand that our PLA capacity, so you mentioned that the 80,000 tonnes of PLA capacity we can expect around 1.6 lakh tonnes of [indiscernible] right?

Yes.

And from the 1 lakh of gypsum, we can have around 6 lakh pieces of gypsum board...

Yes.

So the revenue potential that you mentioned of INR 150 crores, that is from the INR 63 lakh pieces of gypsum board per annum. Is that understanding correct?

Yes.

Okay. Got it. So I just wanted to understand what is the revenue potential from our PLA project?

Nothing has changed.

Nothing has changed. The PLA project, everything remains the same. This is a value addition to a byproduct, which is like, if not [indiscernible]

The next question is from the line of Riya Baja from CNBC TV18

Sir, I just wanted to understand the breakdown of the preferential issue of INR 450 crores, where exactly will this be used because I believe INR 160 crores will be for the Slacks plant and INR 230 crores for the PLA plant, right?

Balance will be on account of corporate general.

Okay. Understood. And the PLA plant commissioning does that remain on track for quarter 3?

Yes, absolutely.

But we are leaving no stone unturned. And as things go, it looks absolutely visible.

And just wanted to understand what led to this increase in the cost for the PLA plant, this INR 230 crores. Was it largely because of the West Asia prices?

I think if you have joined the call, I have had laid down all the points.

The next question is from the line of Vikram Suryavanshi from PhilipCapital India Private Limited.

Just on [indiscernible] how the sales will be done? Will it require distribution channel? Or is it like a commodity where we can focus on sales will be sold to the dealers directly to get some sense on the [indiscernible]

So we are working on the sales strategy -- and in time to come, we will we laid out there, but is the beginning. We are evaluating a few.

So 18 months down the line. Yes. We are confident we've taken a broad stroke understanding. We get to it. And you're already tracking the prices, as you can see

The next question is from Bhath Sheth from Quest Investment Advisors Private Limited.

Sir, pardon my ignorance, if you can run through the whole, I mean, with this PLA plant and this is plant -- how -- I mean, 1 different plant where there a lot of, I mean, output of PLA will be used as a raw material and cost. So is there any change in the payback time or it still remains 5 years?

It remains the same.

No change at all. So let me explain to everyone the way [indiscernible] comes out when you run a sugar factory that [indiscernible] is either seed to the boiler for cogeneration, which you sell power or you can sell bag to paper manufacturers. So this is the way gypsum will come out, either you dispose, throw to cement, dirt cheap rates with a huge volume staying at your head or we have taken this call to convert.

Correct. And sir, you also said some of the sugar plant, I mean, output will be used in PLA. So -- and which will be the cost for PLA plant -- so how that can really will benefit to sugar plant existing sugar with that?

There is no sugar plant I said. I said out of the PLA plant, the capacity of the boiler, let's say, 100 tonnes and 2 tonnes is needed in this process, that 2 tonne steam used to make board will be the cost of the board factory, let's say, and 2 tonnes, there will be revenue of the PLA effect.

I understand, sir. But when we are going ahead with converting ethanol into PLA. So that economics, if you can explain, sir, I'll be grateful.

There is no ethanol converted into PLA.

So converting into sugar...

Sugar is converted into PLA story over for sugar factory.

Yes. So if you can give some economics on that part, broader economic

So actually, we can take this question off-line because for the rest of the audience, we have explained the question.

The next question is from the line of Prashant Biyani from Elara Capital.

Sir, for marketing of the gypsum board, would you rather be like an outsourced manufacturer for already existing branded company like Zero or anyone or you would want to take it with your own brand?

Actually, this is what we also tried to answer before we're evaluating.

Give us some time, Prashant.

We go for the best one that comes to us slightly closer to the date.

So once we set up the plant like 3, 6 months into the game plan, we'll start searching and we're already contacting people -- we will do what is best for the company, Prashant, sort of get into some brief time branding expense and all. But yes, we'll do what is best for the company.

Yes. And actually, those companies have a portfolio to offer to the dealers, which we would not have.

I get your stance, I'm aligned but too early now, Prashant, too early.

Right. And just one last thing on this. Would the UP market be enough for this or we would have to go pan-India?

I think pan-India. North would be enough. Yes. So we will get to the marketing, let's say, 9 months -- 6, 6 months, 9 months what we give some idea.

Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments. Thank you, and over to you, sir.

Thank you, and all the best. Any other questions off-line can be answered. So I hope you have been able to answer everything and you can call us for anything you so need again. So basically, it is to give you the idea of today's call is to give you a broad construct and understanding so that every -- all the investors are on the same page as far as the knowledge sharing goes. And people don't need to get into any kind of speculation and/or understanding. And nobody has a preference will understanding. That is the reason for our taking this time out and giving this brief to all of you. Thank you, and thank you to all the shareholders for being with us as always.

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