BALRAMPUR CHINI REPORTS DISMAL SET OF NUMBERS

News:

 Balrampur Chini reported dismal set of results with revenue de-growth of 8.3% to Rs 1113.1 crore on account of low domestic sugar sales quota as well as dip in distillery volumes. Sugar sales de-grew by 1% to Rs 936.2 crore & distillery sales declined by 14% to Rs229.9 crore. Given, the company crushed significantly lower sugarcane in 2021-22 season, the availability of molasses was low & the company would have exhausted molasses by August-2022 (our estimate). This led to 10.7% dip in distillery volumes to 4.1 crore litres during the quarter. Further higher levy molasses obligation also would have resulted in lower availability of molasses for ethanol production. Gross margins declined by 9% point mainly on account of higher cost of production given sugarcane prices were increased in 2021-22 season. Moreover, sugar recovery was also lower during the season. Most of the sugar companies saw higher employee spends during the quarter due to one-time spend towards wage arrears of last three years. We believe Balrampur would have also adversely impacted by wage arrears. The company posted operating loss of Rs15.9 crore in Q2FY23. It posted a net loss of Rs28.9 crore during the quarter

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 Increase in sugarcane prices, subdued sugar prices along with lower recovery rate resulted in higher cost of production for UP based sugar companies in 2021-22 season. Further, one time wage arrears payment and increase in levy molasses obligation aggravated the performance of sugar companies in Q2FY23. The adverse impact for Balrampur Chini was much more given lower sugarcane crushing during the season (its crushing was lower by 18% compared to its capacity). However, we believe higher sugarcane availability in its catchment area, expected improvement in sugar recovery, increase in blended realisation due to refined sugar exports & commissioning of large distillery capacity would improve profitability in 2022-23 season. We believe company would witness significant improvement in profitability in Q4FY23 & FY24.

Impact:

Negative