New Expansions
- Polylactic Acid (PLA) Project:
- The company is investing in a bioplastics (PLA) manufacturing plant in Uttar Pradesh.
- Capex increased from ₹2,000 crore to ₹2,850 crore to accommodate enhanced capacity (from 75,000 to 80,000 tonnes).
- Funding: ₹1,650 crore through long-term debt, ₹1,200 crore from internal accruals.
- Projected Revenue: ~₹2,000 crore at full capacity.
- Expected EBITDA Margins: 35%+.
- Commissioning Timeline: October 2026.
- Competitive Edge: The plant will be one of the lowest-cost producers globally, benefiting from in-house energy sources like bagasse.
- Government Incentives:
- ₹1,100 crore capital subsidy.
- 5% interest subvention on loans.
- SGST reimbursement for 10 years.
- Sugar Segment Expansion:
- Increase in cane crushing capacity by 10.4% despite a slight reduction in recovery rates.
- The company has converted two of its units from B-heavy ethanol production to C-heavy ethanol production to improve sugar yields.
- Ethanol Segment Adjustments:
- Shift towards more C-heavy ethanol production due to stagnation in ethanol prices and rising sugar profitability.
- Use of maize-based ethanol production for flexibility.
- Targeted ethanol production of ~25 crore liters for FY25.
Future Outlook
- Strong Sugar Market Prospects:
- Sugar prices are stable at ₹41/kg, ensuring a healthy margin.
- Government approval of 10 lakh tonnes of sugar exports has provided some relief.
- Lower sugar output across India (down 15%) but stable stock levels will keep prices firm.
- Bioplastics (PLA) Market Growth:
- Driven by single-use plastic (SUP) bans and sustainability trends.
- The company has started importing PLA for market development and testing applications in India.
- PLA products are being introduced to compounders and converters to establish a customer base before production begins.
- Operational Efficiencies:
- Improved energy optimization and cost-saving measures in PLA and sugar segments.
- Cane development initiatives ensuring long-term raw material security.
- Government Engagement on Ethanol Pricing:
- The company is actively lobbying for a price hike on ethanol to maintain profitability in ethanol production.
Growth Outlook
- Diversification Strategy: Moving from a pure-play sugar and ethanol company to bioplastics manufacturing.
- Robust Financial Planning:
- Efficiently structured long-term debt and subsidies for PLA expansion.
- Strong cash flow management with internal accruals funding a significant part of capex.
- Scalability of PLA Business:
- Potential to expand feedstock sources beyond sugarcane to rice and corn stalks.
- Addressing a large market (~14-15 million tonnes of plastic usage in India).
Challenges Faced
- Ethanol Pricing Pressure:
- Government’s decision to not increase ethanol prices despite rising sugarcane costs and lower recovery rates has impacted margins.
- Company shifted focus towards more C-heavy ethanol and sugar production as a response.
- Sugar Recovery Rate Decline:
- Recovery dropped by 48 bps due to adverse weather conditions.
- Despite the drop, Balrampur Chini still has one of the best recoveries in the state.
- Increased Project Costs:
- PLA project cost increased by ~40% due to additional optimization investments.
- However, these investments will reduce operating costs in the long run.
- Regulatory and Market Risks in PLA:
- Need for market acceptance of PLA and successful consumer adoption.
- Government policies on bioplastics and subsidies will play a role in its success.
- Rising Input Costs:
- Higher sugarcane prices affecting overall margins.
- Inflationary pressures on ethanol production costs.
Conclusion
Balrampur Chini Mills is undergoing a major transformation with its PLA expansion, positioning itself as a leader in bioplastics while continuing its sugar and ethanol operations. While ethanol pricing pressure and sugar recovery challenges persist, the company’s diversification strategy and operational efficiencies are expected to drive long-term growth and resilience.