Balrampur Chini Mills Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Policy shock absorbed, surplus sugar the new burden: The government’s mid-season cap on ethanol diversion forced a swing to sugar production, lifting closing inventory to ~0.87-0.88 crore tonnes and nearly doubling full-year interest costs.
• Recovery delta is the operational bright spot: A superior varietal mix and healthy ratoon crop have driven better recovery year-on-year, with management expecting Balrampur’s improvement to be the best among peers.
• Ethanol program conviction is unshaken: Management calls the diversion cap a “one-year blip” and insists the ethanol blending program is “etched in stone” at the highest levels of government, setting up a potential full-flow resumption next year.
• Distillery revenue mix target is on ice: The earlier ambition of distillery reaching one-third of total revenue has been suspended, with no guidance given for capacity increase while policy remains uncertain.
• What to watch next quarter: Whether the government signals any additional diversion this season, the trajectory of sugar prices from what management sees as a near-bottom, and any Board-level decision on the “future opportunities” currently under deliberation.

The Ethanol Policy Blip

• The shock: The Central Government temporarily limited ethanol diversion from sugar to 0.17 crore tonnes, compelling a mid-season strategy shift toward sugar production. This reduced the availability of syrup and B-heavy molasses for ethanol, forcing sugar to be held longer on the balance sheet.
• The working capital consequence: Holding sugar instead of converting it to cash flow through ethanol sales adds working capital costs. Full-year interest cost is expected to rise to ~₹85 crore from ~₹48 crore last year, nearly doubling.
• The supply backlog: Of the 19 crore liter ethanol contract, only 4.29 crore liters have been supplied so far because the government restricted B-heavy and juice routes. C-heavy and grain-based ethanol have not yet been supplied but will be bid for in upcoming cycles.
• The policy rationale: Management attributes the restriction to an inflation scare driven by elections, and does not believe the government will allow any additional diversion this season.
• The C-heavy ceiling: The company is already producing the maximum C-heavy possible under current circumstances and does not want to produce more than allowed, as it creates a burden of keeping sugar.

Vivek Saraogi: "This is a one-year blip. So, that blip lasts it gives you feedstock build up so that you will continue permanently and lot of incentivization as we go ahead."

Sugar: Inventory Build & Price Outlook

• Production estimate: Gross sugar production is estimated at ~3.32-3.33 crore tonnes, with net production at ~3.15-3.17 crore tonnes after the 0.17 crore tonne diversion. Closing inventory is projected at ~0.87-0.88 crore tonnes, factoring in opening stock of ~0.56 crore tonnes and domestic consumption of ~2.85 crore tonnes.
• Price trajectory dampened: The enthusiasm for higher sugar prices felt before the diversion limit was imposed is “definitely tampered.” Management believes current levels look close to a bottom, but the path forward depends on election outcomes and government decisions on exports.
• Next season’s production: Gross production is expected to decline to ~3.05 crore tonnes, factoring in a worst-case monsoon scenario. The ~0.3 crore tonne drop is penciled in entirely for Karnataka and Maharashtra; UP production is expected not to decline and may only go up.
• Surplus as a policy lever: Management is liaising with the government to review the policy limiting diversion, arguing that the surplus sugar will need to be diverted to ethanol to alleviate the overhang.

Cane & Recovery: The Operational Edge

• Recovery improvement: Up until now, mostly ratoon cane has been crushed, resulting in better recovery than last year at this point. The plant cane varietal mix is even better than ratoon cane, so the jump in recovery is expected to be higher as the season progresses.
• Varietal mix advantage: The company’s varietal mix is described as “probably one of the best in the country at this moment,” with minimum infestation of the 0238 variety that caused red rot issues elsewhere. The company has also been able to tackle top borer, red rot, and weather phenomena like El Niño and La Niña.
• Early start capability: Variety 15023 allows the company to begin the season early next year without hampering recovery, using the same asset for 15 days more and giving a ~10% jump on production.
• Cane crush target: The company is hoping for a 10% increase in crushing, with current capacity able to handle up to ~12.5 crore quintals of cane. Dedicated engagement with the farming community over the past two seasons has strengthened the partnership, resulting in improvement in both quantity and expected higher recovery.

Avantika Saraogi: "I would say our varietal mix is probably one of the best in the country at this moment."

Ethanol Capacity & The Policy Bet

• The capacity that sits ready: If there is no restriction, the company can produce 33-35 crore liters annually including ENA. Ethanol capacity already can use more cane than is currently being crushed.
• The FY25 volume range: If the current restricted program is repeated, minimum ethanol volume would be ~26-27 crore liters. If restrictions are lifted, the company has the ability to go up to ~33-34 crore liters of ethanol and ENA volume in FY25.
• The multi-feed decision: Management is not in favor of converting existing distilleries to multi-feed, despite the ~₹50 crore cost and 6-9 month timeline, signaling confidence that the sugar-based ethanol route will be restored.
• The government’s posture: Management describes the government as “open and keen and anxious” to buy C-heavy or grain ethanol without sacrificing sugar. Tenders for C-heavy are open, and even without a tender, companies can supply C-heavy ethanol if they convert from B-heavy or juice contracts.
• Grain distillery contribution: The Maizapur grain distillery is currently producing ~4 crore liters of grain-based ethanol from a combination of broken rice and maize.

Vivek Saraogi: "The program is etched in stone, to the best of my ability is all I can say. The program is absolutely on the top of the minds of our Hon'ble Prime Minister, this one can say from his dialogue which one sees, and you see he lives up to his word. So, I do not see any, any debate in that area."

Costs, Margins & The Working Capital Drag

• Interest cost doubling: Full-year interest cost is expected to rise to ~₹85 crore from ~₹48 crore last year, driven by higher working capital requirements from increased sugar production and the need to hold inventory longer.
• Cane price pressure: The UP Government raised the State Advised Price (SAP) from Rs. 350 to Rs. 370 per quintal, a Rs. 20 increase that adds cost pressure alongside the lower diversion mandated by the Central Government.
• Operational offsets: Healthy operational and financial performance was supported by improved volumes and higher realizations across all segments, with enhancements in operational efficiency driven by higher sugar production.
• Merchant power upside: Two units are now selling power outside of their PPAs, the first in UP to do this, and the exercise is proving cash positive.

Guidance & Commitments

Key Metrics