Balrampur Chini Mills Limited ($BALRAMCHIN)

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 Ms. Jenny Rose from CDR India. Thank you, and over to you.

Thank you. Good afternoon, everyone, and thank you for joining us on Balrampur Chini Mills Limited Q4 and FY '26 Results Conference Call. We have with us today Mr. Vivek Saraogi, Chairman and Managing Director of Balrampur Chini Mills; 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 the question-and-answer session. Before we start, I would like to point out that some 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. I would now like to turn back to Mr. Saraogi to make the opening remarks. Over to you, sir.

Good afternoon, everyone, and thank you for joining us on Balrampur's Q4 and FY '26 Earnings Call. I trust all of you had the opportunity to go through our results presentation, providing details of operational and financial performance. I will begin the 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. The sugar season '25, '26, gross sugar production is projected to be around 31 million tonnes. After accounting for 3 million tonnes of diversion, net production is expected to be up around 28 million tonnes. Export was announced by the government in November based on the prevailing estimates. However, season progressed in certain key states, Maharashtra, UP, Karnataka were all impacted by lower than anticipated yields and weather resulting in of the overall production, which resulted in the prohibiting exports. So just to let you know, 7 lakhs has gone up from around 7 lakh -- and this is not a cause of worry as explained. Nevertheless, the inventory remains broadly balanced with an opening inventory of around 5 million tonnes, domestic consumption expected to match consumption that is at 28 million tonnes. [indiscernible] 0.7 million would reduce the stock from 50 lakhs or 5 million to 43 lakhs or 4.6 million. Just to point out, probably this is the lowest stock level, which I remember seeing in my recent giving memory. It is the lowest -- on the pricing front, domestic prices remain supportive, aided by a balanced supply position and the inventory overhang. In UP prices have broadly remained in the range of 41 to 42. We believe pricing would remain steady and gradually probably inch up based on the data points given to you on the closing inventory. And also to let everyone know that there is no alarm at the stock level. It is possible to manage it. But however, the demand supply remains in favor of -- coming to ethanol blending program continues to remain a key priority. the problem is absence of revision of ethanol prices under the for the last 3 years despite higher costs and expenses. Against this backdrop, Balrampur concluded FY '26 on a stable note with sugar segment delivering resilient performance despite increase of INR 30 in sugarcane price of INR 370 to INR 40 Higher cane costs were partly offset through improved operational efficiency, higher quantity of crushing, higher sugar sales volume and stable realization. The company crushed 1,043 lakh printers of cane, which is up 5.2%, while the gross recovery remained broadly around the same range, marginally lower at 11.24% vis-a-vis 11.28%. And just to let everyone know, UP crushed 7% lower cane than last year and we have crushed 5.2% higher can business reported stable supported by higher volumes, although margins remained under pressure due to [indiscernible] of ethanol prices as pointed earlier. As discussed in our recent call, we had an investor call on the PLA project post our fund raise [indiscernible] we had an investor call on the PLA project post our fund raise which was going to CapEx at INR to further strength the integrated Boroumiufactum using ecofriendly byproduct from PA process. Recently, as informed to you earlier, Board has approved raising of INR 450 crores through issue of preferential shares to fund the CapEx as well as general corporate purposes. There is no dilution in promoter that participated to the extent of INR 193 crores, which is approximately the current [indiscernible]. Over the year, Balrampur's integrated model [indiscernible] to successfully add size all in that full potency dynamics. Moving forward, the company remains committed to maximizing value extraction, enhancing operational efficiences, investing prudently and avid long-term I look for all the stakeholders. Thank you. Pramod, over to you.

Thank you, and good afternoon, everyone. I'd not like to go through the repetition and what we have stated in the presentation [indiscernible]

[Operator Instructions] The first question is from the line of Vishal Prasad from VP Capital.

I have 3 questions. So in the case of Gurka, it is extremely important to get the packaging right. And in one of the calls, Avantika did mention that we have got the barrier packaging right for Gua application. Other problem with Gua is that the packet remains in the supply chain for more than a year. So given the requirement of long duration, what shelf life has been validated in the degradation testing Yes. So other 2 are unrelated. Do you want me to go through the other 2 questions?

Yes.

Okay. So the second one is we have talked about 2-way approach where we work with the customers directly and the second is government mandate. So could you give a rough idea on the kind of mandate we are expecting and the expected time line when we expect the government to come back and have a detailed mandate. And the last one is -- I mean the CapEx that we have done, we announced it probably from start.

Sorry to interrupt, I request you to please hold up. We have management line has disconnected. Just give me a moment while we reconnect. Ladies and gentlemen, thank you for patiently holding, we have management reconnected. Mr. Vishal Prasad, you may please continue with your questions.

So sir, I'll repeat the second question and then go to the third question. So we have talked about twoway approach where we work with the customers vessels.

Yes. So on the mandate, you are aware of the central government mandate. Some problem with the phone.

[indiscernible]

Yes. So the other part is the mandate -- there's mandate also we worked upon by the UP government. The holders already formed a committee, et cetera, to take forward a -- so as to say, nonplastic mandate there also. So we're working just to summarize 3 fronts: central government mandates, UP government mandate and customers. So it's a three-pronged approach and that's good so far so good.

Okay. And the third question is in the first iteration of the CapEx, it probably took 2 years and 9 months to complete the project. We have gone to completely in the month of October. So if we need to expand again, the time line will remain the same or probably we can expect the expansion whenever we decide to be done in the next 12 to 18 months.

So your last assumption is correct, 15-odd months possible months is very possible. And we look to commission in the third quarter of this year.

Okay. So sir, on the coming back of the first question, if you [indiscernible]

Yes, I told you that we worked out the barrier properties free and the duration, food safety contract, everything is through.

The next question is from the line of Shailesh Kanani from Asian Market Securities.

Sir, a few questions from my side. First, continuing with the PLA question. Could you provide some color on the current global versus domestic PLA realizations and price trends? And also, if you can kind of highlight because the environment is a little bit conducive, are there any talks in terms of any announcement in terms of volume because the commercial production is kind of nearby -- so anything on that front you can share?

No, I didn't get your question. What I've understood is owing to the current crude price rise, the PLA prices have moved and that is good for us.

Yes. So in that, have we kind of any inquiry pipeline or any offtake agreements, anything it's only 6-odd months.

So just to -- able to answer your question, and this goes out to all our investors. The fossil-based plastic has gone up drastically, which is very helpful. Secondly, the mandates, the agreements, the customers, et cetera, are all progressing well. It is not proper to announce each and every agreement, et cetera. It is all going very well. And I think the first question was very detailed, and it gave a lot of insight into our -- and my answer, I hope gives a lot of insight. Each agreement, each customer, each dialogue, each mandate is being worked upon thoroughly with all testing being the first of its kind in the country. The progress made by us till now deeply satisfies me of the potential ahead. Giving more details is not proper right now. is nearing finalization and to give you. We are very near to everything.

That's helpful Sir, my second question with respect to the imports what we are doing under that. So any kind of technical or market-facing learnings if you would like to share? And also I was just observing the revenue numbers, those seems to be remarkably small, right? So is there any underlying factor we should read into it?

So imports are happening. Whatever little learning is needed for our end product tweaking we are doing the imports and the seeding of the market is going on. We are happy and satisfied on all fronts at this point. However, if you're saying the current sale of PLA in this environment and the numbers, et cetera, this is a tough one to answer...

Just to add on this, we thought that we would be replacing the entire requirement of the existing customers. But what we learned is that they are okay with our quality and they are waiting for the production to hit the market. only replace the existing ones. They're not ready to replace their current supplier base with us as of now.

Because they're saying you need to come in with production, commit to me your volume, then you give much. So this has to be left to the management, right? We are working on it, a lot of success. And just to let you know, the existing machines of the converters, everybody is all in sync. They need to make no changes for our...

Just moving on to the Sugar division. Sir, we have been working on [indiscernible] kind of replace any pipeline already time line where it became again on that kind of recovery, which can match [indiscernible] recovery level.

So 2, 3 to let the priority in recovery and looks tough. However, the variety we are working on has shown a lot of promise. The fruits will be felt as we go. But 2, 3 , I mean, that banner as of now look tough. But having said that, [indiscernible].

Sorry, can I squeeze in one more question?

Yes, why not -- all yours.

Sir, this is a repeat, right? There has been more than 3 years no revision on the ethanol prices. Is there any kind of feedback or input from your side to the government and the government has kind of positively on the revision of ethanol prices because we would have pressure on our margin hence at least in the first half, right, given the increase in the SAP what we have seen in the last year, so steep. So any kind of positive conversation, if you can share some light on that?

So definitely positive conversation has begun, especially crude at 111, currency at 96. We know the cost. So definitely, both on the quantum and on the price, I think there will be serious we feed that effect if you ask me today, I think it will get done.

Sir, any color in terms of per liter increase in terms of our expectations?

Let things happen too many years have gone by. Fingers crossed. All I can tell you that this environment, which is nasty for everyone is not so nasty for us. So if you see the heat, it will have consumption. If you see our area, we have enough water. So Maharashtra, Karnataka, I don't know, which is again positive of not having too much of a surplus, therefore, sugar price positive. PLA, we've told you fossil-based plastic going up is very good for us. So government will get duty bound even commercially, if not morally to increase the price they have not done over 3 years, pure and simple numbers. So I feel that this -- we are in absolutely good area.

The next question is from the line of Rishikesh Pat from Kotak Mutual Fund.

So I understand that company is well placed from the point of water availability. Any perspective you can give on potential cropping impact because of the fertilizer availability...

So that's a good question. We continue to track it. The yield, however, will not be known even if there is a naked yield to be seen, nothing before September, October. the crop is gating and beginning to take shape. If you want an honest answer to this question, don't ask anybody before September. But yes, if there is a negative tenure to the crop yield, probably some rainfall quantum, et cetera, best assess till August, mid-August.

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

Why are we choosing to the we were hoping that it would get revised didn't rev. However, we have not Hardly anything that require more ethanol ethanol only juice will give you enough quantity we were hoping that ethanol...

We have to fill our tenders in November. -- so this year will be a lot more cautious and we'll take our internal...

Sir, just a small follow-up. Do you think that the decision can be frozen considering that the elections might be announced by the end of -- after November or something if they are not cause a further delay in the announcement, right, because they cannot announce these things the elections?

No, no. It all unrelated stuff. UP elections should be in January, February. And the ethanol pricing, UP election, I don't see any coming...

Sir, one more question I had. We have it on the present in it. Can you please tell us where can I see the actual impact of this...

So in case you have any specific questions we can offline...

The next question is from the line of Arav...

Both my questions are on the PLA side. My first question is about do we have different grades in PLA like different grade for packaging and different grade for 3D printing with different margin profiles and are targeting the different grades -- just wanted to understand.

Yes, there are different grades, different...

It will depend upon the area.

I'm sorry, can you say that again?

Yes, we will have different grades depending upon the area of application.

Okay. And are we targeting the different grades maybe with higher margin profile going to start...

So yes, while the question is absolutely in order, as I said, we have a team which is dealing with the [indiscernible] to be able to understand which will fit in...

The other question, sir, was a little more on the margin side. Now if you look at Talnerbney in this space, they started with 35% margins and now they are down to 12% and now they have put the asset up for sale as well on the PLA asset. And similarly, if you look at the Chinese Zejang, they are also making around 15% EBITDA margins from this business. So I'm sure the management would have studied these case studies. So how do we see our ability to make 35% margins

Answer the second part first. We have a unique advantage of of sugar as well as the key ingredient for fuel at the state, which will save us a lot of logistics cost. This is one part. To the best of our understanding, total Corp is not capturing the entire value addition in the manufacture of PA. Up to lactic acid, they are taking it in a different company from lactic acid to PLA, it is going in another company.

I'll also just add, again, our sugar transportation will not cost a penny. Our bag transport will not cost a penny. And baas-based power versus energy-based power, which others are paying is massively different. And it's going to get so much more different, which makes me far more bullish on our margins. answer which is very valid.

To summarize, we'll have our own feedstock for energy. Even though we are not the lowest cost producer, India is not the lowest cost producer of sugar, as you had mentioned in one of our previous calls. But will it be fair to say that on PLF, we will be one of the lowest cost producers in the world.

Yes. So let us begin. So where our disadvantage is only in sugar price, the rest will be hugely positive. And I'm sure with scale, our chemical cost, et cetera, for which also we are doing lots of laboratory work will enable us to become the lowest cost producer without expansion, clearly, we remain...

Sir, just one last on the margin side. You had earlier mentioned that 35% margin is our target. Now does this include the incentives all incentives starting from the INR 1,100 crores CapEx plus the electricity and all are factored in this calculation that will be over and beyond it? Maybe you answered this in previous call, but it was not clear to me. So if you can...

Earlier stated that we are aspiring to make 35% of EBITDA margin. The incentives are largely in the form of capital subsidy and interest subvention. So both these items are below EBITDA. One will get captured either in the form of lower depreciation and the other net of interest. So EBITDA margin will not get impacted because of this. We haven't considered the benefit of incentive while guiding 35% EBITDA margin.

And just before I move back to the queue, sir, you mentioned that will be or will we be involved in compounding the product? And do our customers need to -- I think you mentioned that our product will work with their machinery as...

Yes.

So even if it is injection molding...

Yes, yes. That has been a big including the barrier property establishing all technical every...

The next question is from the line of Vishal Prasad from VP Capital.

So, in the case of PLA, itself might not be conducive and converters will add other materials. So in the form of laminate structure or some coating on PLA. So from the perspective of biodegrad, the other materials would be biodegradable or we are going to add something which may be a derivative of crude?

Again, good question, very detailed. But see, if you're going to go into a mandate and Government will probably give you all biodegradable stuff and we tried all that also the printing, the glue, everything has been tried. -- let's say, customers and other mandates, probably the mandate will decide a certain percentage of a or something else which is biodegradable can be mixed. -- customers, it's what they want. Let's say, for whatever, it's what each person wants. But yes, if you have to qualify for something, you have to make that...

I'm not sure I don't have the answer I'm going to ask you. So let's say, assuming a hypothetical scenario that 50% is PLA and 50% crude derivative. And then it goes to landfill. Will be able to separate out the crude PLA

I will not be able to answer that. If it is PLA landfill will kill within very short time. Indian temperature, in season.

Sorry, government will come out with a mandate...

Exactly. We have to follow the mandate...

Do we expect them to come back within this year or I mean when we start or it will probably be sometime in 2027?

We are hoping that it will be sooner than later. No, no. I'm not looking at 6 months from now.

Okay. Okay. And sir, second question is, let's say, there is another company in India who wants to do this PFA and they are not -- I mean, they don't use sugarcane. So they will really find it difficult to get the margins that we are expecting because of the advantages that you have mentioned?

I think you answered your question. Yes...

Okay. So it has to be -- if your peer from the same industry, if they decide maybe they'll be able to...

Yes, they'll have that same sugar available and same bag available. But yes, ours is a group. So we have more advantages than anyone. Also we are located close to each other in 2 plants. But yes, definitely, a sugar factory owner with a large size wants to do it, he would have the same basic advantages except what is 2 years of research, which has gone into our business.

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

Thank you, everyone. And today was a very detailed interaction on PLA, which made me happy. So rest assured, we are doing our very best and all points mentioned by and concerns mentioned by our dear investors have our attention and a lot more other issues are being addressed. So this is the first time such a plant has been set up. It comes with excitement as well as its challenges. We are ready for both. So thank you, everyone.

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