Balrampur Chini Mills Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Late start reshapes the year: Untimely rains and machinery delays pushed crushing and distillery operations back ~20 days, lowering FY23 distillery volume guidance to 20.5–21 crore liters and shifting both sugar and ethanol output into the next financial year.
• Recovery and yield running ahead: Despite the late start, cane yield is marginally better than expected and recovery has already crossed last year's level, with C-heavy recovery expected to improve further.
• Cane supply story intact: Management claims a 15% cane increase this year, driven by a centralized cane team and tissue culture lab, and targets 11.5 crore quintals of crushing next year on 10%+ enhancement.
• Ethanol pricing durability is the core bet: Management insists the current formula "is here to live" and that government must incentivize juice pricing to hit 20% blending, while flagging diesel blending as a demand source so large that even 2% would exceed industry capacity.
• What to watch next quarter: Whether the promised cost-of-production decline materializes as volume picks up, the UP SAP decision due in February, and any signal on juice ethanol pricing for next season.

Operations & the Late-Start Impact

• Crushing delayed across units: Balrampur sugar operations began after 7th December, Balrampur distillery after 15th December, and Maizapur around 4th–5th December, roughly 20 days late versus a normal late-November start. The delay was caused by untimely rains in east UP and late machinery supply for new projects.
• Volume guidance cut: FY23 distillery volume revised down to 20.5–21 crore liters from ~22 crore liters, with the shortfall shifting into next year. Crushing volume for the season is now expected at 9.25–9.5 crore quintals, lower because fewer crushing days fall in the November–March window.
• Spillover into FY24: Crushing is expected to extend into April and May, meaning a much larger portion of this season's output will land on the FY24 balance sheet than FY23.
• Cost absorption temporarily weak: Current cost of production is elevated at ~4,100 per quintal because low early volume hurts fixed-cost absorption. Management expects this to decline as volume picks up, citing last year's pattern where the 9-month cost of 4,100 fell to 3,400 by year-end.
• Maizapur running on 100% syrup diversion: Not a single bag of sugar has been produced at Maizapur this year; the unit is fully dedicated to ethanol via syrup. Balrampur unit is operating on a two-thirds sugar, one-third juice formula.
• Bagasse sold at much higher prices than last year, providing a non-sugar revenue tailwind.

Vivek Saraogi: "So, these 2 figures remain sacrosanct. Balance what doesn't happen in March will happen in April."

Cane Supply & Varietal Strategy

• 15% cane increase claimed this year, attributed to a centralized cane development team, a tissue culture lab now running at full capacity, and focused attention across all 10 factories. A healthy and pure seed distribution program has begun from the lab.
• Next-year crushing target of 11.5 crore quintals, built on 10%+ cane enhancement, with Avantika expected to deliver 5% to 15% enhancement. Crop yield is expected to increase another 3% to 5% in the next sugar season.
• Varietal dependence reduced: Co 0238 is a waning variety and the company now has 4–5 good varieties in the pipeline. Management's ideal ceiling is no single variety above 30%, with a target range of 20–30% depending on factory conditions, and the ability to switch within a year if needed.
• Newer varieties carry a trade-off: slightly better recovery but potentially slightly lower yield. The offset is better ratoon management and higher area under cane. Last year's ratoon practices have already improved both yield and acreage of ratoon this season.
• Capacity expansion on track: Gularia expansion was commissioned last year; Kumbhi expansion will be ready and operational next season, November 2023.

Avantika Saraogi: "So, anytime we see anything happening, we are free to switch within a year itself."

Ethanol: Pricing, Demand & Capacity

• Pricing formula seen as durable: Management stated explicitly that the current ethanol pricing formula "is here to live," pushing back on the idea that it is temporary. Juice ethanol fetches Rs 65.61 per liter, B-heavy Rs 60.73, and management argued there is no need to ask any company about realizations because these are government-fixed and uniform.
• Juice pricing incentive needed: If the government is serious about achieving 20% blending, management believes it will have to incentivize juice ethanol pricing from next year onwards.
• Diesel blending as the demand backstop: Management is not worried about ethanol consumption because multiple new use cases are emerging, including cooking gas, diesel blending, and DG sets. Even 2% blending in diesel would require more capacity than the industry has, making demand risk a non-issue in management's view.
• 20% blending is 3–4 years away and "very tough" to achieve and sustain, requiring significantly more capacity than exists today.
• Capacity expansion on hold: The company will "wait and watch" before committing to further ethanol capacity expansion, stating that economics is the reason to do business. A greenfield juice project is possible depending on next year's cane availability.
• Season ethanol target: ~30 crore liters including ENA for the sugar season, with 30–31 crore liters for the full season; volumes not produced in March will be produced in April. Next year's target rises to ~35 crore liters with cane enhancement.

Vivek Saraogi: "Diesel is huge. So, I'm saying even if there is 2% in diesel, you don't have the capacity. So, I therefore don't worry on the consumption point."

Distillery Margins & the Surprise Promise

• Margins are structurally lower than historical peaks because molasses was previously carried at zero value, a condition that no longer holds. Current margins are a function of government-fixed realizations.
• Management promised a "pleasant surprise" by the end of the season relative to current expectations, though it declined to state definitively that juice margins will be lower than B-heavy or that grain margins will be lower.
• The late start compressed distillery output, but the volumes are only shifted, not lost: what does not get produced in March will happen in April.

Vivek Saraogi: "I'm pretty certain that at the end of the season, the distilleries will throw up a pleasant surprise to what we thought."

Capital Allocation & Policy Watchpoints

• Interim dividend of Rs 2.5 per share declared by the Board.
• Sixth consecutive buyback commenced 16th November; as of 10th February, 4,55,723 equity shares had been bought back.
• UP SAP decision due in February: Management's personal view is that the State Advised Price should not increase, but the decision rests with the government.
• E20 rollout begins April 2023 for all 4-wheelers, though not yet for 2-wheelers.
• CBG not a priority: Management does not see a great opportunity in compressed biogas and is not looking at that side much.
• Diesel-ethanol blending via binder technology: Praj and others are "maybe very close to completion," per management, though no timeline was committed.

Guidance & Commitments

Key Metrics