Ladies and gentlemen, good day and welcome to Balrampur Chini Mills Limited's Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. 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, Jenny.
Good afternoon, everyone, and thank you for joining us on Balrampur Chini Mills Q2 and H1 FY25 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 now like to begin the call with brief opening remarks from the management, following which we will open up 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, sir.
Thank you, and good afternoon, for joining us. Good afternoon, and thank you for joining us on our quarterly conference call, earnings conference call. I trust all of you have had the opportunity to go through the results presentation, providing details of operational and financial performance. I will initiate the call with an update on the current development in the Sugar sector, followed by company highlights for the period under review. Gross production forecasted for the upcoming season is in the range of 32 million in our mind. ISMA views 33 million. After accounting for diversion of 37 lakhs per month, the net sugar production is expected to be 283 lakhs tons or 28.3 million tons, as compared to 32 last year. Regionally, UP is expected to remain stable at a production of about 10.8 million tons, similar to last year's level.
Maharashtra and Karnataka, however, may see a bit of a dip. As of 30 September 2024, India's sugar inventory stands at around 8.5 million. Combined with the production of 28.3, that is the net post-diversion production, this supply is expected to adequately meet the domestic need of 29 million, that is the forecasted consumption for next year. There's an ample stock, however. The opening stock, which is at a record high, at the recent record high, which led to a pressure in sugar prices, prompting the industry to request for an increase in MSP, which is long overdue, to help ensure fair returns for producers, and also, we have asked for exports based on the above balance sheet of sugar, that is the inventory position given to you. Turning to the Ethanol sector, ethanol production from cane has played a pivotal role in supporting the government's blending target.
This diversion remains essential as India has reached 15% in 2024 and is on track to meet 20% by 2025. Right now, the bid is for 18%. Following a brief policy shift in the previous year, that was the election year, the government has lifted all restrictions on sugar diversion for ethanol production. The industry is also awaiting the announcement of the revision of ethanol prices expected in the coming days, so just to take you a little bit into the balance sheet, so if we produce 28.3 net this year and consumption is 29, that's minus 7 lakhs for this year. If I deduct 7 lakhs from 85 lakhs, we get an inventory of 78 lakhs, so even if government is looking at a 60 lakh inventory, there is scope for almost 2 million exports, which can be announced.
We believe that once the government gets a little more certain about the production, there could be some movement on that front. On the business front, the company has faced a challenging quarter with profitability impacted due to high sugar volumes and improved realizations. Despite higher volumes and slightly improved realizations, lower crushing last year, which was almost similar to the year before, 2% down, prevented us from absorbing the full fixed cost, and the Distillery division was impacted by, A, lower availability, and B, the government's order of December 23, restricting diversion of sugarcane juice and B-heavy molasses for ethanol production. Both these factors have affected our performance since all the expenses have been accounted for in this quarter without commensurate production. Looking ahead, we are confident that our intensified on-ground cane development initiatives, particularly our shift from disease-affected varieties, will help mitigate the challenges going ahead.
These efforts are aimed at maintaining healthy cane availability with good recovery and also optimizing capacity utilization. The company's integrated operations have been a cornerstone of our ability to adapt to industry dynamics, and we have remained resilient in the wake of challenges. We believe the PLA project, which I will be asking Avantika to brief on after I finish. We believe that the PLA project is a transformative step for Balrampur, perfectly aligning our philosophy of maximizing value for every stick of cane. This initiative not only strengthens our relationship with the farmer community, and since it uses sugar as basic raw material, it advances our sustainability goals and marks a significant evolution of our business model. We are confident to create long-term value while contributing to a greener and more sustainable future.
In conclusion, the company remains committed to delivering shareholder value, and we are pleased to announce that the Board of Directors has announced an interim dividend of INR 3 per share. I would now request Avantika to update on the PLA project. Avantika.
Good afternoon, everyone. Thank you for having me. So first, a brief update on the PLA project. So everything is going as per schedule. We are on timeline. We are in the detailed engineering phase, which is almost to conclude soon, and then we would have some IRR figures for the market. But apart from that, in the quarter gone by, there have been two major developments which have happened. The first is the UP government has announced a policy for bioplastics for this project, which is a 50% CapEx subsidy over seven years, a 5% interest subvention, and then SGST net reimbursement. Along with this, there are other smaller benefits as well, such as stamp duty reimbursement, electricity duty waivers, etc., which are also part of the scheme. So this is a commendable step by the UP government, and we applaud them for this measure.
It makes us come to the project with double the vigor and really kind of make it happen well. The second thing is that in August of 2024, central government cabinet approved a policy called the BioE3 Policy. The policy is meant to give impetus to biomanufacturing, including biopolymers, in which our project also falls. We are yet to see the exact particulars and schemes which would be eligible to us from this policy, but the fact that it is about moving over from a fossil-based to a bio-based economy is the real push that we did want for the country as well as for the state. So we are very, very grateful, and we are very happy for both the announcements. As I mentioned in the beginning, we will have some more financials, but we need a little bit more time for that.
Other than this, about sugarcane production this year, we will, at the moment, I would like to say that we will be similar to last year. It seems flat for UP, and we are in the same boat. But there are some factors that could affect, some headwinds, some tailwinds. So the first, I would address the headwind. Due to some late planting in two, three factories, we might have slightly lower cane availability due to yields having a month less to grow. But having said that, there is a tailwind on the fact that the diversion should be much lower than last year. Other than this, there are obviously things which hang in the balance, such as winter rain. If we get a winter rain, then yield can jump. So again, this is hard to predict, but we've given it our best shot. That's it from me.
Thank you very much.
Pramod.
Thank you, and good afternoon, everyone. I hope all of you had the opportunity to go through the results presentation that has been shared with you. So I would request the moderator to open the forum for questions. Thank you.
Thank you very much, sir. We will now begin with the question-and-answer session. Anyone who wishes to ask questions may press star and one on the touch-tone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only the handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. You may please press star and one to ask questions. The first question is from the line of Sanjay Manyal from DAM Capital. Please go ahead.
Hi, everyone. Just have a few questions on the sugarcane crushing part. I think last season, you mentioned that there's almost 8% increase in the area under sugarcane in your catchment area, but production was more or less flat. How is the situation now? If you just can define in terms of what is the increase in the area under sugarcane, and what could be the availability means, whether it will be a—so just leaving apart the weather factor, if everything remains normal, what could be the crushing number?
So, Avantika, I'll take that. Basically, I think the area is similar to last year. There is not much change. And on the weather front, as we said, outside of the fact that India was sort of hit by El Niño last year, and we are entering the La Niña phase, we've seen winter rains happening every year. So if you see the entire UP's estimate last year, it just eroded by 5% without anybody's understanding. All units across UP, Balrampur, everybody. So we hope that the winter rain would come. That's our only positive. We are saying that if the winter rain comes in, we should improve over last year. And as Avantika mentioned, lower diversion.
Right. Also, just want to understand from the yield perspective, the sugarcane yield per hectare, is it safe to say that despite increase in the area last year, probably the production was a bit lower? So is it safe to say that non-Co 0238 variety, you have a lower yield per hectare compared to the newer ones?
So I'll take that. So definitely, 238 had a yield which was loved by farmers and millers alike. But having said that, even when 238 had come in the beginning, it takes two or three years for a cane variety to really acclimatize itself to its new surroundings where it can really then come and give you yield. So last year, if you realize, I think the market is well aware, but we had a huge shift in variety, and the varieties were mostly new. So it could not give the vigor that it should give as what we had estimated as well. Maybe it was due to diversion. Maybe it was due to the non-winter rain, but still, net net, it did not give us the result that we thought it would. Now, this year is one more year, which means it had a longer time to acclimatize.
I would say that till now, we cannot give you an exact figure that if the yields are lower. According to me personally, if you ask me the yields of the new varieties are not at all lower, I think the acclimatization process, once it is done, which is more or less getting there, then this question should kind of go out. But we might see another, maybe it might need another few months to really give you a yes or a no on that.
So there are two kinds of yield assessment. One is to be brutally honest. One is called the ratoon yield. One is called the plant yield. The ratoon yield, since we've begun four of our factories right now, the ratoon yield, the first indication comes after 15, 20 days. And just to give you, other six factories begin between about 16th, 17th to 22nd, 23rd, with one exception going into the 1st of December. So the entire proper yield assessment for ratoon can be done by about 10 to 15 December. That's first stage. And the plant yield assessment is done around 20th of the third week of February. So these are two milestones. And as Avantika said, I'm just adding a point. The availability of 238 for crushing last year was very low, and it will be a little lower this year.
So from last year to this year, there is no shift which is meaningful from 238 to a downward variety. Third, these varieties are disease-free almost, and you've seen they have given us a much better recovery. So these varieties going ahead will perform, and the recoveries have already been higher.
Okay. Perfect. I believe we'll get the sense on recovery as well after some time only.
Yeah. Yeah. It began well, but yeah, let's just wait a bit.
Right. Yes. My last question on the ethanol part, given the fact that restrictions are being lifted, what is your sense that this season we'll be able to, what kind of volume we'll be able to do? And probably if you can just give a broad assessment, what could be the B-heavy, what could be the juice, and what could be the grain part?
For the ethanol year, which has begun on 1st of November and will run up to 31st of October, we are expecting, on the basis of the current cane availability estimate, around 25-odd crores, including the maize, which will be in a position to do. In addition to this, around 3 crores later on account of B-heavy. So within this 25 crores, maybe around 9 crores on account of juice, and around 10-11 crores on B. One crore, maybe one and a half crores B, and the rest is B.
Right.
Okay. Right. And sir, in the current allocation, what is the allocation we have received?
For the first quarter?
Yes, sir.
For the total allocation?
I think totally both.
We have received 90.
Entire juice?
Entire juice we have received.
B-heavy, we sort of received 5.
5.
5. The government will do almost INR 6 odd crores.
Okay. Okay. Perfect, sir. Fine. That's all from my side. Thank you.
Thank you. We'll take the next question from the line of Shailesh Kanani from Centrum Broking. Please go ahead.
Good afternoon, everyone. Thanks for the opportunity. Sir, on the sugar prices front, sir, since last year, the sugar prices have been holding up well in spite of market knowledge that the diversion towards ethanol would be lower since last year. Now, obviously, the cap has been removed. So to your mind, what factors are helping sugar prices to remain upwards of 38-38.50, and how sustainable they are?
So first of all, 38.50 is not a price after INR 20 increase in cane price. The pricing should be a little higher to our mind. So yes, if we see the situation of last year, and if you're talking about an inventory of 80 odd lakhs plus, and the price being at 38 odd, that is a good sign. However, our open thinking is that the prices should improve from here. It needs a little bit of help from the government. We mentioned, okay, let's put it in short. There are three demands of the industry to be met, which are very rational. Two are coming out of a declared policy some years back, which unfortunately has not been followed up. One is declaration of MSP. It was done for the first two years after the policy came in, minimum selling price. It hasn't been followed up thereafter.
So that is one thing which can help. Two is the ethanol prices, which is overdue to our mind, but we hope should come in. I probably would guess maybe Maharashtra election has something to do with it for the timing portion. And three is the export. So even there was a declared statement by the government that keeping the closing stock of about maybe five and a half, six million, the rest will be automatically allowed for exports. So again, our demand there is about two million. If the two million and MSP is done by the government, we feel the price should be headed upwards from here, which is needed by the industry.
Fair enough. So is it fair to assume that there is better discipline in terms of pricing from the players in the industry?
It's a quota system. That's why the discipline idea.
Okay. Sir, my second question is with respect to certain media reports where government is contemplating of increasing the blending, say, 12 to 24 months along towards E25. To your mind, sir, how practical is that? Is it possible? Do we have the feedstocks? And does Balrampur is planning to capitalize on this opportunity or anything on that front?
So, Shailesh, the target for this year is around 18% of blending, and for the next year, it is 20%. Government is also in the process of studying beyond 20%. What is needed to be done to achieve a blending of beyond 20%? Of course, feedstock availability will be a very key factor. Apart from that, infrastructural bottlenecks like creation of storage facilities, outlets, dispensation, government is considering all these factors. There will be some lesser efficiency if we go for higher blending. That needs to be adequately addressed through lowering of GST on flex fuel vehicles as well as the hybrid models. So government is in the process of evaluating everything.
Yeah. And on how Balrampur looks to capitalize on this, we have adequate distillation capacity. So we were working very hard to increase cane production, which will subsequently lead to enhanced ethanol production.
Okay. Okay, sir. That's very helpful. Thanks and best of luck, sir.
Thank you.
Thank you. You may please press star and one to ask questions. The next question is from the line of Nithin Awasthi from InCred Equities. Please go ahead.
Hello, sir. I had a question regarding the Sugar Control Act. There's a draft given by the government, and I believe it's under discussion with the industry and the participants within the whole industry. How will that change affect us? One, and your thoughts whether the policy is getting more stringent, and it will also now enhance to get the PLA under its own control in some way or the other, which previously was not there under the older order. And in these terms, sir, if you could throw some light.
So first of all, the government always has all powers under the act regarding essential commodities. So there was just zero impact of that in my mind, double zero on anything at all. Why this came up? Probably because when the government put just a sudden halt to the ethanol production last year, some people went to court. So based on that, they have taken the power to moderate ethanol production. They did it last year in fact. So in our view, there is zero impact of that. Absolutely.
Understood, sir. Thank you.
Thank you. Participants who wish to ask questions may please press star and one on their touchtone phone. We'll take the next question from the line of Omkar Chitnis from Trade Brains. Please go ahead.
Good afternoon. Thank you for the opportunity, sir.
Good afternoon.
Sir, I have a question. Sir, I have a question on ethanol production capacity. One of our.
Hi, I'm sorry to interrupt. Your audio is not clear. May I request you to use your handset, please?
Okay, sure. Sir, I have a question on ethanol production capacity. One of our listed competitors in the market, they have less than 40,000 TCD of crushing capacity, but they are one of the largest ethanol producers of 1,250 KLPD of ethanol production. As being Balrampur having 80,000 crushing capacity, why we are not the largest ethanol producer? What are the challenges you are facing in that?
We deliver our ethanol. I think if we promote half a half bulk, adequately available.
Yeah, you are right that our crushing capacity is 80,000 tons. We are shifting from variety 238 to new varieties. Our existing distillation capacity can handle cane of around 11 and a half crores to 12 crores quintal of cane. Currently, we are in the region of around 10 crores quintal of cane. We are waiting for the cane to be there before we take any further action.
And I will attempt to answer your question. I think I've understood it. We built our capacity on 320 days capacity utilization. Hence, that is the ratio for 320. So if you build for a you want to sweat your assets less, that is your option. So one can very safely say for our level of crushing, which I think would be better than the person you are maybe saying. I don't know the name. So from Bajaj, the only one was a higher crushing capacity or higher cane because 16 units. Otherwise, based on the numbers we've given you and based on the fact that you want to sweat your assets, this is the proper capacity to be installed for the crushing given.
Okay, sir. Understood. And my second question is, as of Q2 revenue breakup, how much revenue is from raw sugar and white sugar? And who are the customers of raw sugar, sir?
We have not produced any raw sugar.
By the way, raw sugar cannot be sold to the customers.
For B2B, right, sir?
No. Not allowed.
Okay. Sir, as of now, we have cogeneration capacity of 175 MW. Is there any expansion plan in that? And what is the per unit you are getting from electricity grid?
What are current rates?
We have no further CAPEX expansion program in this segment. Power which we are exporting to grid, Uttar Pradesh grid, we are getting realization in the region of around.
Plus open access, so average realization should be on an annual basis 5 plus.
Grid cut down 5.
5 plus. For the quarter, it was around 6 plus.
Yeah. That is because of the extra neutral alcohol.
Should be closer to five, I think, net.
Okay, sir. Understood. And my last question is, sir, government of UP has made electricity for irrigation free in the month of March this year. How much you are getting benefit from this season? And how much you are expecting in crushing of sugar cane this season?
So I'll take that. The benefits were very, very. It was very heartening to see that the farmers were able to irrigate without having to think of cost, especially our East UP farmers where we have eight of our factories. They are very, very sensitive to cost. And this really helped the people who actually had connections. And it is still a work in progress. We are still trying to get everybody connected, but this is a big thing, and it's a very, very commendable effort by the government.
Ma'am, how much you are expecting sugarcane crushing for this season?
It's very difficult to tell on account of these things how much the crushing will increase, and we need a little bit more time to do the cutting yields to have better visibility. Maybe in the next investor call, we'll have a better figure for that.
Definitely. Next investor call for sure.
Okay, sir. Thank you.
Thank you. The next question is from the line of Udit Gupta, an individual investor. Please go ahead.
Good afternoon, sir. My question is, sir, is there any change in the levy policy for the UP government?
No, kind of same, I think. You mean the country cut down?
Yes, sir. Yes, sir. It's the same.
No, no. Nothing to our knowledge. Yes. It should be in the same vicinity. Same thing. Repeat.
Okay. Sir, are the gur and khansari units also required to give levy molasses now?
No. So just to brief you since you've gone into a good detailed question. So the government of UP has sort of indirectly, directly come up with internal notifications asking for crushers, etc., that is the Khansari, to maintain some pollution laws, etc. They are encouraging the effect temporarily. They are encouraging more diversion towards the sugar sector. So the government of UP is interested that sugar industry crushes more cane. And they are working indirectly towards it. On gur and Khansari molasses, there is no restriction till now. But there are other.
There's discussion. There's a lot of discussion.
Yeah. But it hasn't happened.
So our draw rate should go up this year, sir?
Hopefully. Hopefully. Give us a chance till next time because we were found incorrect like all the others in estimating cane last year. So we want to be cautious. We just want you to wait for one quarter, whereby we'll also be able to give you an indication on the plant yield also.
Right. And sir, regarding the PLA plant where there's a 50% capital subsidy, sir, does that mean that it's an interest subsidy or the INR 2,000 crores that we invest, that will come back to us?
Two separate things.
Yeah. So, you want? Okay. You say.
Yeah. Two separate things. Whatever the CAPEX you put in, 50% of that CAPEX will be payable over seven years. So let us say 50% of CAPEX is INR 1,000 crores. Let us say. So 140 something into 7 or 143 into 7 is equal to 1,000. So government of UP pays INR 143 crores per year as capital subsidy. Correct, ma'am? Interest subsidy is suppose we borrow at X%. Let us say 8% or whatever. 5% out of that, which means the net impact to the company on its borrowing cost will be 3%. 8 minus 5. SGST reimbursement as and when goods are sold, whether they are sold in UP or not. If it's sold in UP, the net SGST, that is after the ITC credit, will be reimbursed to us.
Get your point, sir. And sir, this plant is on track for commissioning in October 2026?
Yes.
Yes, yes. I want to take that. 2026. October 2026 is the target, yeah.
Right. Thank you so much.
Thank you.
Thank you. Ladies and gentlemen, we'll take one more last question, which is from the line of Deepak from Sundaram Mutual Fund. Please go ahead.
Thank you. My question revolves around PLA. I want to understand when we talk about manufacturing of PLA, you are talking about producing pellets, right, which will be sold to the preform converters?
Yes.
Okay. And regarding this capital subsidy of 50%, so sir, how do we define what are the assets which are eligible for this capital subsidy? Meaning, will it include land, building, R&D cost, or technology transfer cost? Or only is it applicable to PPE, which will be buying?
Very good question.
So the fine print hasn't totally been laid out. But usually what happens is that other than what is already on the ground, you are usually able to claim everything. But I think we should wait for the order to come and read the fine print before we really make a proper comment on that.
Okay. And let's say if this subsidy does come in, then it's on reimbursement model, right? It is not pari passu. Meaning that when you invest X amount, the government will also invest X amount.
It's on reimbursement. Yeah.
I just want to clarify. There's no if the subsidy is in an amount. So the if question is asked. The other thing is that we will come up with the fine print as well when we come up with the other financials for the project soon.
Okay.
Okay. But your question is valid. Let me answer that. So you are saying, and I'm clarifying, that to the best of our understanding, anything which is payable will be payable after commercial production, except the land portion of the subsidy. It will accrue. So let's say you borrowed INR 100 crores. I'm just giving an example. And till the project comes up, there is a subsidy of INR 3 crores to be claimed on it. So all that will accrue but payable after commencement of production.
Got it, sir.
Everything will accrue and payable because they need to see commercial production, and rightly so.
Got it, sir. Exactly. That was my question.
Understood.
Yeah, yeah. And this macro, because if you look at the PLA prices per kg, means roughly around market data says INR 250 per kg. And if you look at single-use plastic, which is PP or polyethylene-based, they are half the cost of PLA. So I was just thinking, means how will the volume offtake happen? Means without any regulation coming into the picture, wouldn't it be difficult for us to scale up this plant's utilization?
So I'll take that. So I think we must be cognizant of the fact that we announced this project before we knew also that we would get any policy or any hope of any policy even. So your question is absolutely right. Single-use plastic, 19 items for single-use plastic are already banned. You cannot make it from PP or PE. So therein, the price discussion goes out of the window. Because then I'm not comparing myself to a PP or a PE, right? I am competing with the alternative. For example, in straw, people are now using cardboard or paper, right? So I'm competing with that. In carry bags, people are either making very, very thick plastic carry bags, which I can really be much better in terms of cost at, or they're making cloth bags. Again, I can compete with that.
For bottles, they are doing. I can go on. So for earbuds, they are using paper or they are using wood. Again, I can compete with that. So there are many, many things for which already I'll be able to compete at the existing price level which you mentioned, wherein it's a drop in the ocean, our quantity, 75,000 tonnes in a market of single-use plastic in India per year, 5 million tonnes. 75,000 tonnes will just go completely unnoticed is what we think. But having said that, we should not be so, so bullish. I think we should still focus on more tightening of regulations. I think the only lacuna here is that the single-use plastic ban needs to be enforced properly because though the regulation exists, the enforcement is sometimes gray. This is what we want from the government. We don't want more regulation.
We want enforcement of existing regulation, which they are happy to do, and in fact, basically, the whole discussion was that there was no raw material, so they were not able to force the regulation as per their liking, so we are in discussions, and they are happy about this opportunity that they will also get to enforce their ban.
Okay. So.
Right, sir. I hope you've understood the question. Avantika's answer.
Yes, yes, sir. I have understood it, sir. So given this scenario, means do you feel that once the plant gets commercialized, within three years, we can achieve a peak utilization? And what could be that peak utilization?
Yes, sir. I think that is the plan.
So, why three years? We are working from there. There's a full team working on the marketing already. So, we're not going into more details. So, the marketing, one would hope to sell the day you produce and stabilize also very quickly.
I think you mean production or do you mean sale?
I mean to say once the plant becomes commercial, means within how many years can we achieve a peak utilization level? And what could the number be?
Months. No, no. Yeah. See, the idea is it's a new plant. It's a high-end plant. So let's assume it takes three to four to five months at best to stabilize the quality. We feel that the goods will be sold the day you start your commercial production. So capacity utilization sales are best guess today is six months.
Got it.
He's asking what that number is. 75,000 TCD is the rated capacity per annum. Now, peak will be only seen once the plant is installed.
Yeah, yeah. Full.
No, what is it? Okay.
Got it, sir. Thank you so much.
Yeah, and just to clarify, the competition, once it's banned, gets enforceable as Avantika said. Government is continuously saying, "You want us to enforce the ban? Show us the alternative. We'll enforce the ban.
Okay.
Right?
Thank you.
Thank you.
As there are no further questions, I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you, everyone. And we will continuously keep updating you on all the business aspects as time goes. And we are always there to answer your questions. Thank you.
Thank you, members of the management. On behalf of Balrampur Chini Mills, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.