You are using an older browser version. Please use a supported version for the best MSN experience.

Balrampur Chini: by-products hold the fort

LiveMint logoLiveMint 12-05-2014 Ravi Ananthanarayanan

The March quarter earnings of Balrampur Chini Mills Ltd illustrate the tight corner sugar mills find themselves in, especially those in Uttar Pradesh. On the face of it, the results are not bad. Net sales declined by 6% in the March quarter from the year-ago period, but operating profit jumped by a huge 92.7%.

An increase in closing stock played a significant role in this improvement, with the increase in stock at `1,318.5 crore during the quarter, compared with `1,185 crore in the year-earlier period. Mills produce sugar during the crushing season (crushing in Uttar Pradesh was drawing to a close in April) and the inventory is stocked and sold through the rest of the year.

Inventory has played a major part in shoring up the company’s results during the quarter. One figure illustrates why sugar mills are in trouble. Balrampur Chini’s sugar inventory on 31 March stood at 577,000 tonnes and is valued at `31.96 per kg, which is the cost of production. But the average price it earned during the March quarter was `28.90 per kg. Thus, the sugar division on its own is not in a position to make money unless prices move up.

But an integrated sugar mill such as Balrampur Chini also makes money by selling alcohol and power produced by using by-products. Therefore, the combined profits of these three divisions need to be considered. Here, the good news is that the distillery division’s realizations are up by 20.4% during the quarter, though volume sales have declined. Higher ethanol production was a highlight of the quarter. In the power generation unit, a delayed start to crushing saw output decline, but realizations have improved.

By-products will continue to shore up margins for sugar mills. Mills are also getting some support from the government in the form of soft loans. But the real heavy lifting needs to be done by an increase in sugar prices. Both global and domestic sugar prices have seen softer trends. Domestic prices have surged in May by about 6% since their end-April level, though the reasons for this increase or whether it is sustainable are not clear.

Output in the current sugar season is likely to be at expected or even slightly higher levels. The change in government at the Centre may raise expectations of some favourable measures for the industry, but that is mere speculation at the moment.

Balrampur Chini’s stock rose by 1.2% on Monday, compared with the broad market’s gain of 2.4%, with the stock coming off its highs after the results were announced.

More From LiveMint

image beaconimage beaconimage beacon