BALRAMPUR CHINI POSTS DISMAL RESULT

News: Balrampur Chini reported dismal results with 66.9% de-growth in operating profit. Consolidated revenue witnessed a dip of 5.3% to Rs1080.1 crore mainly on account of 3.1%  decline in sugar sales & merely 11.6% growth in distillery sales. The dip in sugar sales is mainly on account of 10.3% lower sugar sales volumes. Sugar realisation was up  by 7.1% to Rs35.6 /kg. Distillery sales growth was aided by 7.7% growth in distillery volumes (B-heavy ethanol, C-heavy ethanol, ENA) whereas distillery realisation was flat at Rs54.2 crore. Operating profit witnessed a de-growth of 66.9% to Rs 44.4 crore mainly on account of substantial increase in cost of production due to increase in sugarcane prices in 2021-22 sugar season. However, the impact for Balrampur Chini was more prominent due to lower sugarcane availability in its catchment area & lower recovery rate due to extreme weather conditions in UP. The company is holding sugar inventory of 3.6 lakh tonnes valued at Rs34.12/kg. Net profit declined by 83.8% to Rs12.4 crore mainly on account of dip in operating profit, higher tax provisioning & lower profits from associates during the quarter.

View: The last two sugar seasons were challenging for Balrampur Chini due to lower availability of sugarcane in its catchment area adversely impacted by red rott disease in eastern UP. Moreover, extreme weather conditions (first unseasonal rains in October 2021 & then extreme heat in April 2022) resulted in lower sugar recovery in 2021-22 sugar season. This along with the sugarcane price hike resulted in higher cost of production for Balrampur Chini specifically. However, currently when sugar millers in UP are preparing to start new crushing season, it is important to know sugarcane crushing numbers for 2022-23 sugar season. We believe the company has been able to replace 20-25% of its existing Co-0238 sugarcane variety with newer varieties. We believe the company would be able to increase its sugarcane crushing by ~20% in next season, which would help it regain profitability in sugar segment. On the ethanol front, the company would be commissioning its new distillery by December 2022, which would help it increase ethanol production to 35 crore litres by FY24E. However we remain positive on the prospects of sugar industry in general & Balrampur Chini in particular for the long term perspective.

Impact: Negative.