BALRAMCHINNSEQ1 FY2311 August 2022

Balrampur Chini Mills Limited

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11analyst exchanges

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Management on call

Saraogi to make his opening remark. Vivek Saraogi

Good afternoon everyone and thank you for joining us on our earnings conference

Key numbers — 40 extracted

35.9 million

the period under review. India's net production in the sugar season 2021 – 2022 is expected to be 35.9 million tonnes. This is after considering a diversion to Ethanol of 3.4 million tonnes. As per the early e

3.4 million

– 2022 is expected to be 35.9 million tonnes. This is after considering a diversion to Ethanol of 3.4 million tonnes. As per the early estimates for next year, sugar production is anticipated to be lower at

35.5 million

tonnes. As per the early estimates for next year, sugar production is anticipated to be lower at 35.5 million tonnes on account of higher diversion of around 4.5 million tonnes. UP is expected to witness an i

4.5 million

duction is anticipated to be lower at 35.5 million tonnes on account of higher diversion of around 4.5 million tonnes. UP is expected to witness an improvement in production even after diversion, to 10.9 mill

10.9 million

5 million tonnes. UP is expected to witness an improvement in production even after diversion, to 10.9 million tonnes in the coming season against 10.2 million tonnes in the previous season. In the other key s

10.2 million

mprovement in production even after diversion, to 10.9 million tonnes in the coming season against 10.2 million tonnes in the previous season. In the other key states, like Maharashtra, Karnataka even after div

13 million

r key states, like Maharashtra, Karnataka even after diversion production is expected to remain at 13 million tonnes and 5.8 million tonnes, respectively. So, all I would like to say that these are very early

5.8 million

arashtra, Karnataka even after diversion production is expected to remain at 13 million tonnes and 5.8 million tonnes, respectively. So, all I would like to say that these are very early estimates. These are

446 crore

be available in probably October, November, post the monsoons. On the ethanol front, a total of 446 crore liters of ethanol was contacted during the year out of which 363 crore liters was from the sugar i

363 crore

e ethanol front, a total of 446 crore liters of ethanol was contacted during the year out of which 363 crore liters was from the sugar industry. This has been a phenomenal game changing journey for the indus

1.5%

the sugar industry. This has been a phenomenal game changing journey for the industry, moving from 1.5% petrol blending or 38 crore liters in 2013-14 to achieving 10.16% blending eq

38 crore

l game changing journey for the industry, moving from 1.5% petrol blending or 38 crore liters in 2013-14 to achieving 10.16% blending equivalent to 446 crore liters as mentioned above.

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Guidance — 20 items

Vivek Saraogi

opening

“As per the early estimates for next year, sugar production is anticipated to be lower at 35.5 million tonnes on account of higher diversion of around 4.5 million tonnes.”

Vivek Saraogi

opening

“So if there is a spillage of crushing into this quarter, which we will brief you later on for the next year, the overhead gets absorbed by that crushing.”

Vivek Saraogi

opening

“Furthermore, we have done a lot of cane development work at the farmer end, and we are hoping to report an improvement in both cane availability and recovery for the next year.”

Vivek Saraogi

opening

“I am glad to report that we are on track to complete the state-of-the-art distillery facility at the Maizapur unit, which would operate on sugarcane juice and grain.”

Lokesh Maru

“Like what's our strategy there, how do we plan to come back, recoup the loss that we have had in Q1?”

Vivek Saraogi

“On production next year, this is again, a very personal view, we've given you some estimates, normally when plants come late like Maharashtra, the ratoon yield is never good, because if ratoon is harvested in the month of May end, that yield is not good.”

Vivek Saraogi

“So, in order to fetch sugar from India, which will be the requirement, global prices has to move up.”

Vivek Saraogi

“The day it starts moving up, there will be a little pressure on the domestic market.”

Vivek Saraogi

“So even if you get to next year and let's say one is able to export 7 million tonnes only, you're back to 6 million closing stock.”

Vivek Saraogi

“If let's say, just India, next year, production collapses and India doesn't export world market work would go up to 25 cents, straight because if they need Indian sugar, there is a deficit in the globe.”

Risks & concerns — 9 flagged

Given the significant increase in capacity expected over the next few years, we believe the industry should be able to meet this challenge of supplying the above quantity.

— Vivek Saraogi

So I have one question regarding the same episode, which is what is the spillover impact of the current bad crop on the upcoming sugar season?

— Lokesh Maru

And if it rains in this period, it becomes difficult for us to carry out activities, which we have gotten a chance to do all of it this year.

— Vivek Saraogi

The day it starts moving up, there will be a little pressure on the domestic market.

— Vivek Saraogi

Possibly it can go up or down, recovery is far more difficult to predict than availability of cane, but we are hoping that it should be that.

— Vivek Saraogi

It is very difficult that one will be good and one will be bad.

— Vivek Saraogi

So we can have any sustainable margins out there or the trajectory for molasses prices, because earlier there has been a sharp increase in the molasses prices and possibly that could be the precise reason for decline in distillery margins on a yearly basis.

— Pramod Patwari

And as I had requested earlier, it is going to be difficult for me or for anyone to say anything until the exploration is complete, it goes to the Board first and then it can only be told to anyone.

— Tejas Sonawane

If we continue to see this kind of sugar, which in our mind is very difficult, that continue to have 40 million tonnes of sugar on a sustainable basis, there is a possibility that we may see further increase in the distillation capacity.

— Pramod Patwari

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Q&A — 11 exchanges

The first question is on the line of Lokesh Maru from Nippon India Mutual Fund. I wanted to, first of all, after going through the annual report, wanted to appreciate the effort that the company had put into deliver what we have even after two of our units, which was Balrampur and Tulsipur went under water and challenges faces at Gularia unit command area. So I have one question regarding the same episode, which is what is the spillover impact of the current bad crop on the upcoming sugar season? Like for example, 40% usually is ratoon, so would it be fair to assume that recovery may not reall

Vivek Saraogi

So Avantika, please answer the question relating to cane and why don't you give a brief overview of the activities and therefore what is expected, over to you? Thank you. To give you a brief overview of the current estimate of what we are thinking for the season ahead. Firstly, as said by my father, the weather pattern is completely different this year than it has been in the last two years. The cane seems much better this year than we have seen it in a while. It is giving us the feeling of season 2019-2020, but we don't want to jump the gun on that. Having said that we have also got de-riskin

Just one question on the sugar production considering the fact that the gross level we have reached around 40 million tonnes. So if we really need to reduce our dependency on the export in a longer run, is it possible that the 10 million tonnes can be diverted to ethanol, considering the fact that 5 million tonnes probably can be diverted through juice route and the rest through B-heavy route and probably we

Vivek Saraogi

can reduce the 10 million tonnes through ethanol only and probably dependence on the export also comes down. Again, it is misnomer to assume, a personal view, but with more than three decades of business experience, if one is expecting 400 lakhs tonnes to be produced infinitum, I don't agree with that prognosis. So, with this negative dipole, if one year rain fails in Maharashtra, you will see crashing down. This is not such a big fear for lifetime, two yes, everybody's expecting ethanol to be diverted. We've given you the trajectory, 10 million tonnes does not seem possible right now, as we g

First of all I would like to know about the guidance of ethanol volumes for this year and next year I think last time we had spoken about 22 odd crore litre for FY23, so are we sticking to that guidance or there is some download revision to that and for FY24 as well.

Pramod Patwari

Yes, considering the cane, what we are expecting at this point in time, our ethanol volume to be the reason of 24-25 crore litre for FY23 and around 35 crore litre in FY24. So, if we are sticking to the guidance given earlier. Yes. Okay. So that would entail basically four quarter huge bump up in the ethanol volumes if I'm not wrong. Absolutely. You are perfectly right. Okay. So just a bookkeeping question. Can you just give a breakup of ethanol stock of 0.54 crore litre mentioned in the PPT between B and C.? C is hardly there, 95% of that would be B. So, I was asking on the refined sugar fron

My question is on the export front. So you mentioned about the realization Rs. 38 per kg. So where do you see, are we on the lower trajectory of the price at this level? Or are we at the peak level on this Rs. 38 per kg?

Vivek Saraogi

No, I didn't get your question. I mean, this pricing for the balance would happen based London prices, which have come off from when we priced our sugar. So it all depends on how London behaves. So, when we say that we have increased our new varieties also we have adopted and the weather pattern also looking stable where do we see the recovery? Are we going to see a recovery like a 2019–2020 sort of recovery year or because in this quarter, which is periodically a generally a high recovery quarter, we have seen about 135, 140 basis points of lower recovery. I’ll explain. So last year the recov

Just two questions from a within distillery segment, do you think, you know, transfer price is going to sort of go up further next year, that initial comment will be helpful. And second, just in continuation with the previous participant question on linkage to – sorry hike in ethanol prices linkage to FRP, typically this happens just before the season begins, is that understanding correct?

Pramod Patwari

So as far as the transfer pricing goes, currently, it is at INR 10,300 a tonne for B- heavy molasses. We review before the start of the season, there is a possibility that it may go up also. And could you also comment on the ENA prices now how much is increased over the last you know, three months? ENA prices remains fixed. We have a contract in place and it is fixed. So that is the tax you have to pay the Government for that country liquor business. And every miller in UP has to pay, so it is okay. What was the second question? Second question that the hike in ethanol prices typically happens

My first question would be for export, for basically its reading that we are in a surplus environment for export when it is concerned. So what are your thoughts? Why do you think that prices would shoot up in the export market? So basically in the export market, we are seen globally, there is a surplus of sugar with, you know, Brazil also coming back with its reading, and there is almost balanced amount of production everywhere else. So what makes you believe that the prices of export would increase, the global prices?

Pramod Patwari

See the international prices depends upon many factors, taxes and duties on ethanol, Brazilian currency value, overall availability of sugar in different part of the year. So there is a gap in terms of availability of Brazilian sugar for certain period of time. India has to fill up that gap. Could you let me know more about the Brazilian crop. Our view is that it should be between 32-33 million tonnes. That is more than what we had expected. Right? Like we were expecting a deficit in Brazil but they did more than estimation. 1 million tonnes here and there doesn't matter. A year back, Brazil p

Two questions from my side. First on the distillery segment, sir, while I understand that the industry should be looked at on a yearly basis. But for past some years, we have been witnessing that the margins in the distillery segment have been coming down. And just from the picking from the comment from previous participants on transfer pricing of molasses is expected to increase further, can we expect, what kind of a sustainable margin is expected in the distillery segment on a year basis.

Pramod Patwari

So if you see Slide 28 of our presentation, which will reveal the transfer pricing as well as the profitability margin. So if the transfer price of molasses goes up or goes down, it directly impacts the profitability in the distillery division. So we can have any sustainable margins out there or the trajectory for molasses prices, because earlier there has been a sharp increase in the molasses prices and possibly that could be the precise reason for decline in distillery margins on a yearly basis. So is there a possibility to see any kind of a sustainable margins because that is the key growth

Firstly, on the annual report, you mentioned that company could explore profitable options within the chemical universe, which could see a bigger sacrifice of sugar, could you throw us some light about what kind of opportunities are we talking about here?

Tejas Sonawane

So basically see one is exploring things. So there are many things which one is exploring. And as I had requested earlier, it is going to be difficult for me or for anyone to say anything until the exploration is complete, it goes to the Board first and then it can only be told to anyone. But we do continue to explore. Okay. Secondly sir, with India achieving a 10% blending rate and now moving forward to a 12% target in next sugar season how do you see that timeline in terms of the OEMs rolling out E20 or E15 compatible cars? Because as I believe that right now the cars, current cars which are

So I had a couple of questions. One is that NITI Aayog has given us a 50-50 kind ratio of ethanol from molasses versus grain and out of the 700 crore liters allotted to molasses you already get 550 or something by the end of this fiscal or this sugar season. So is this ratio something which is going to change, especially given the facts that the pricing on juice can change the recent FRP and what is the tipping point of that pricing by which then we see greater diversion into juice. That was my first question. So Rajesh, when NITI Aayog came out with their roadmap two years back, thought at th

Rajesh Mujumdar

This is based on 50-50 ratio. It is more than 50-50. So, two third – one third kind. So, on this basis, out of 20% blending, maybe 11% will come from molasses route and 9% from grain, if at all grain capacity supplies fully. Otherwise sugar could add to that. Right. And what is the tipping point for juice price by which say, distillery like yours, one coming up will not be using grains, but rather be using a mixture of B-heavy and juice, which is the best combination for you? So, to get, B-heavy and to get Juice, you have to get cane, so whoever gets cane, will first do their job with cane. No

Very disappointing first quarter results. But on the flip side, we are very, actually happy to hear the management's efforts and focus on cane management. And hopefully we will have much more availability and more stable supplier of cane in the current season and in the seasons to come. Two questions, one is on bagasse is extremely profitable right now. Is it because of the lower cane production in UP, or is there a structural change in the demand for bagasse, which is why we are seeing good pricing? And does it mean that in the coming year with the bouncing cane in up bagasse prices will come

Nimis Sheth

So does this mean that when you start in October, the plant will be ready in by September, so that you can start in October? Is that fair? Is there any other way for plant is not ready to start the plant? No, that's what I'm saying. Correct. Okay. Once we are supplying juice means everything is ready. If you're making sugar, can a factory not be ready. No, no. That's what, so that means in the September quarter, when the plant will be commissioned. No, it is commissioning happens only when you supply in the balance sheet. Not when you physically make it, you have to physically take goods out.

Thank you very much. Pramod if you’d like to say anything.

Pramod Patwari

It has been a pleasure doing this call with all of you today. I hope we have been able to answer all your questions and if you have any further questions, we would be happy to be of assistance. We hope to have your valuable support on a continuous basis. As we move ahead. On behalf of the management, I will say thank you for taking the time to join us on this call. Thank you. This is a transcription and may contain transcription errors. The transcript has been edited for clarity. The Company takes no responsibility of such errors, although an effort has been made to ensure high level of accura

Speaking time

Vivek Saraogi

Pramod Patwari

Moderator

Shailesh Kanani

Riya Mehta

Anupam Goswami

Rajesh Mujumdar

Trilok Agarwal

Nimis Sheth

Nishant Sharma

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Opening remarks

Anoop Poojari

Thank You. Good afternoon everyone and thank you for joining us on Balrampur Chini Mills’ Q1 FY23 results conference call. We have with us Mr. Vivek Saraogi, Chairman and Managing Director of Balrampur Chini Mills, 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 have the forum open for a question-and- answer session. Before we begin, 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 remark.

Vivek Saraogi

Good afternoon everyone and thank you for joining us on our earnings conference call. I hope you and your families are all keeping safe and in good health. I trust all of you have had the opportunity to go through the results presentation, providing the details of our operation and the financial performance. So, I will begin the call with an update on the current developments in the sugar industry, followed by our Company’s key highlights for the period under review. India's net production in the sugar season 2021 – 2022 is expected to be 35.9 million tonnes. This is after considering a diversion to Ethanol of 3.4 million tonnes. As per the early estimates for next year, sugar production is anticipated to be lower at 35.5 million tonnes on account of higher diversion of around 4.5 million tonnes. UP is expected to witness an improvement in production even after diversion, to 10.9 million tonnes in the coming season against 10.2 million tonnes in the previous season. In the other key st

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