Negligible debt and scale make Balrampur Chini most profitable

It is unusual for a sugar company. But the Kolkata-headquartered Balrampur Chini made history by earning a profit of Rs 592 crore in FY17, a manifold increase over the Rs 100 crore it earned in FY16, helped by a surge in realisations. The Saraogi family-promoted company, however, is not the largest domestic producer of the sweetener. That position is held by Bajaj Hindusthan.

Against Balrampur's production of 0.9 million tonnes (mt) in 16/17 sugar year (October-September), Bajaj made 1.34 mt. But debt-ridden Bajaj posted an annual loss of Rs 92 crore in FY17 (on revenues of Rs 4,633 crore) even though it earned a Rs 259-crore profit in the fourth quarter.

Balrampur is not even the biggest in terms of revenue. The biggest by revenue is Renuka Sugars, which also has operations in Brazil. The company clocked a revenue of Rs 11,944 crore in FY17 but reported a loss of Rs 1,039 crore. Renuka also produces more sugar than Bajaj if we include its Brazilian operations. Owing to higher debt, Bajaj incurred a finance cost of Rs 802 crore in FY17 while Renuka spent Rs 931 crore. Balrampur spent just Rs 55 crore last year, against Rs 66 crore in FY16.

Investment advisor S P Tulisan said scale and negligible debt are the biggest strengths of Balrampur. "Their focus has always been sugar, and there is no diversion of resources. A strong management and corporate governance has also helped the business grow." Investor interest in the company is also visible. Foreign institutional and portfolio investors together own 19 per cent stake in the company, while fund houses, insurance companies and banks hold another 17 per cent (as of June 30, 2017), against 14.27 per cent and 15.15 per cent, respectively, in June 2016.

The company owns and operates 10 mills with a total capacity to process 76,500 tonnes of sugarcane every day, the second biggest in the country. Besides sugar, it produces power (from crushed sugarcane) and had a surplus of 163 Mw after meeting its captive needs. It also manufactures ethanol and industrial alcohol. Sugar, however, is the key revenue generator, bringing in 81 per cent of the Rs 3,641-crore revenue in FY17.

Rising profits has helped the company trim its debt substantially in FY17. Balrampur repaid Rs 472 crore to lenders last year and brought its debt down to Rs 205 crore as of March 2017. The peak debt of Rs 1,021 crore (in FY08) is a history. The company also spent Rs 175 crore to buy back 10 million shares last year. "Fortunes (of the industry) have changed now. But we have managed to be in the green most of the years. Farmers are getting paid on time, strengthening their cash flows; manufacturers are enjoying superior viability after years of losses. We remain conservative and run the business with lot of discipline," said managing director Vivek Saraogi.

Balrampur, which has all its mills in Uttar Pradesh, could also stand to gain from the sugarcane price rationalisation, in the country's biggest sugar producing state. For years, the state has followed an independent sugarcane pricing (different from the centre's price) with no linkage to the price of the finished product, sugar. That will help the company tide over situations where prices go down with a change in demand-supply scenario.

Increased efforts to drive farmers to opt for high yielding varieties of sugarcane will also bring the company gains in form of higher recovery (sugar produced from sugarcane). A number of these factors like firm sugar prices, improved recovery and prospects of a rational cane price are common to other players in UP, but Balrampur stands to gain more with its scale.