BALRAMCHIN - Balrampur Chini Mills Ltd. Share Price

Management Outlook:
Balrampur Chini Mills anticipates robust sugar prices (above Rs.41/kg) amid reduced production (15% YoY decline) but sufficient domestic supply. Ethanol pricing remains a concern due to stagnant government rates, potentially jeopardizing India's ethanol program. Recovery rates, though down 48 bps in Q3, are improving, with FY25 sugar production projected at ~9.5 lakh tonnes. The PLA bioplastics project (commissioning by Oct 2026) is pivotal, targeting Rs.2,000 crore revenue at 35%+ EBITDA margins.

Key Points:

1. Sugar Sector:

   • Domestic sugar availability stable (closing stock: ~62 lakh tonnes).
   • UP, Maharashtra, Karnataka face yield declines; UP recovery impacted by red-rot.
   • Exports (10 lakh tonnes approved) to support domestic prices.

2. Ethanol Challenges:

   • Margins pressured by unchanged ethanol prices despite rising sugarcane costs.
   • Shift from B-heavy to C-heavy ethanol production to optimize sugar realizations.

3. Operational Highlights:

   • Crushing volume up 10.4% YoY in Q3; full-season crushing expected to drop only ~3%.
   • Distillery EBITDA muted due to low feedstock availability in Q3.

4. PLA Project Expansion:

   • Capex revised to Rs.2,850 crore (Rs.1,750 crore net after subsidies) for 80,000-ton capacity.
   • Funding: Rs.1,650 crore debt + Rs.1,200 crore internal accruals.
   • Subsidies include 50% capital subsidy, 5% interest subvention, and SGST refunds.

5. Strategic Focus:

   • Strengthening farm relationships, operational efficiency, and bioplastics expansion.
   • PLA market development underway (imports for prototyping, downstream partnerships).

6. Financials:

   • Sugar inventory valued at Rs.38.26/kg (current sales at Rs.41.25/kg).
   • Net debt (post-PLA funding) projected at Rs.1,200"“1,300 crore.

Challenges: Ethanol pricing policy risks, recovery volatility, and PLA execution timelines.

Question 1:
"One thing about the PLA project, so you mentioned that the capex cost is now Rs. 2,850 crore, which is almost 40% higher, and the capacity increase is from 75,000 tonnes to 80,000 tonnes. Could you please elaborate on why the increase in capex is so significant, around 35% to 40%?"
Answer:
The capex revision arose from detailed engineering studies and local adjustments, transitioning from a preliminary (±50% variability) to a refined Class-2 estimate (±10%). Enhancements like stringent supplier penalties, equipment optimizations, and process reconfigurations improved operational efficiency and lowered future conversion costs. Capacity increased modestly (10%), but the higher investment ensures competitive opex and globally benchmarked low capex/ton.

Question 2:
"And from the subsidy point of view, other than the capital subsidy, do we have anything on the operational side?"
Answer:
Beyond the 50% capital subsidy on eligible investments, operational support includes 5% interest subvention (reducing net borrowing costs) and a 10-year SGST reimbursement (9% state GST refunded for intra-UP sales). These subsidies enhance project viability but were not fully factored into the 35% EBITDA margin target, which primarily reflects operational efficiency.

Question 3:
"What is export quota allocation we have got? And if you can share what are the export prices of some of the deals that are negotiated in the industry?"
Answer:
Balrampur's export quota is 31,000 tonnes, traded domestically for Rs.9 crore. Domestic sugar prices (Rs.41/kg) exceed export realizations, prompting the shift. Industry export prices remain undisclosed, but the government's 10 lakh tonne export approval has stabilized domestic prices, with UP mills realizing over Rs.41/kg.

Question 4:
"Could we elaborate on why PLA project's capex increased to Rs.2,850 crore despite only a 10% capacity hike?"
Answer:
The capex surge reflects detailed engineering, equipment upgrades for lower opex (energy/chemical savings), and capacity expansion. Penalty clauses with suppliers ensured quality adherence. The reconfiguration optimizes feedstock use (bagasse) and targets globally competitive conversion costs, justifying the higher investment.

Question 5:
"What are the end-use applications for PLA, and how cost-competitive is it versus conventional plastics?"
Answer:
PLA targets SUP-ban replacements (e.g., biodegradable cutlery, coatings) and niche applications where minor cost premiums (≈2× conventional plastic) are absorbable. Balrampur is prototyping with converters/brand owners. Competitiveness stems from integrated feedstock (bagasse), lower energy costs, and policy incentives, positioning PLA favorably against alternatives like paper/metal.

Question 6:
"Will ethanol volume decline due to shifting focus from B-heavy to C-heavy production?"
Answer:
FY25 ethanol volumes are guided at 21.5"“22.5 crore liters (vs. 28 crore previously), with B-heavy output reduced post-government price stagnation. Two units shifted to C-heavy, prioritizing sugar production (9.4"“9.5 lakh tonnes). Grain-based ethanol (4 crore liters) and ENA (3 crore liters) supplement volumes, but margins remain pressured by cane cost inflation.

Question 7:
"How does the 35% EBITDA margin target for PLA account for subsidies?"
Answer:
The 35% EBITDA margin includes capital subsidy and interest subvention but excludes SGST reimbursement. Post-subsidy, net debt costs (3% post-subvention) and depreciation are factored into PBT, not EBITDA. Margins rely on optimized opex (lowest globally), integrated feedstock, and premium pricing in targeted applications.

Question 8:
"What caused the recovery decline, and when will varietal replacement improve yields?"
Answer:
Recovery dropped 48 bps YoY (11.35% vs. 11.83%) due to weather, not varietal issues. Balrampur's 238-variety cane reduced to 10"“15% of crush. Recovery is rebounding in some units, and agro-climate normalization (not varietal shifts) will drive FY26 improvements. State-wide declines (UP: 93L tonnes vs. 104L) underscore Balrampur's relative resilience.

Question 9:
"How will PLA commissioning (Oct 2026) align with regulatory approvals and certifications?"
Answer:
Certifications for domestic/global markets are integrated into the timeline. Pre-launch activities (importing PLA for prototyping, downstream partnerships) ensure market readiness. Policy support (UP bioplastics policy, GST rebates) and feedstock flexibility (future rice/corn use) further de-risk commercialization.

Question 10:
"What is the sugar inventory valuation impact on Q3 margins?"
Answer:
Q3 sugar inventory (31.6L quintals) was valued at Rs.38.26/kg against a production cost of Rs.41.21/kg, creating a paper loss. However, current realizations (~Rs.41.25/kg) will offset this in subsequent quarters as inventory is sold, with FY25 closing stock projected at 62L tonnes nationally.