Cash crop

Over the past four years, the sugar industry has been facing a problem of plenty. There has been surplus production driven by incentives given by the Central as well as state governments to farmers for growing sugarcane. This oversupply has suppressed the price of sugar, and dented profitability of sugar mills. With sugar mills unable to pay farmers, the government jumped in to bail out the politically sensitive sector by hiking the price of ethanol by 25%.

This has played a pivotal role in improving the numbers of listed sugar mills like Balrampur Chini. In the Q4FY19, the company’s sales increased 29.43% (yoy) to Rs.13.27 billion. Riding on the ethanol wave, revenue from distillery business grew by 45% (yoy) to Rs.1.13 billion. Overall, FY19 net sales decreased 2.61% (yoy) to Rs.42.85 billion and net profit increased 157% to Rs.5.69 billion. The sharp increase in profit is attributed to the Rs.3.52 billion drop in expenditure. Ebidta margin, too, increased to 17.08% from 10.89%.

It is not only the recovery from a low of Rs.56 in May 2018 to the current Rs.155 that is shoring up the fortunes of the Saraogi family which controls Balrampur Chini. In the latest Rs.1.48 billion buyback, Vivek Saraogi and others tendered shares worth more Rs.560 million. During the past three buybacks, promoters have tendered stock worth Rs 1.5 billion with the buyback price ranging from Rs.150-175 and the market price moving in the Rs.175 –56 range.

As a result of the buyback, shares outstanding have reduced from 244 million to 220 million. Net debt fell from Rs.17.82 billion in FY17 to Rs.9.90 billion in FY18 but in FY19, long term and short term debt rose by Rs.2.69 billion & Rs.5.29 billion, respectively. Analysts predict that the performance of sugar mills including Balrampur Chini will improve going forward. “We believe that reduction in uncertainty and increase in predictability will lead to structural rerating of the sugar sector. BCML, one of the largest players in the sector, is expected to benefit from the same,” states an Edelweiss Securities report.

While promoter holding has stayed steady at 41%, investors have been fickle. FII holding which was at 20.61% in March 2018 dropped to 13.55% in September 2018 before rebounding to 20.59% in March 2019. Vanguard, Government Pension Fund Global and MIT are among the major holders. As for mutual funds, they have also exhibited a similar trend with their holding yo-yoing from 5.09% in March 2018 to 1.36% in September 2018 to 4.67% in March 2019. Reliance Mutual Fund and Sundaram Mutual Fund continue to have a more than 1% holding.