WHAT OUR
SEEKS TO COMMUNICATE
The Chairman and Managing Director's overview
Overview
As the head of an agro-based company confronting a period of climate change, there is a
premium on sustainability.
At our company, it is imperative to not just do well; it is imperatively to keep
improving and doing sustainability better.
The word 'sustainability' puts a pressure on us, considering that most factors
influencing our business are outside our control.
In such a scenario, the principal attribute of our business is vigilance, economy and
responsiveness. We do not only need to be among the lowest cost producers within our
sector; we also need to be the quickest when we see the ground shifting.
Directional call
Before I communicate where we are headed, it would be necessary to explain where we
are.
Balrampur is engaged principally in two businesses - sugar and ethanol manufacture; the
business of power co-generation plays the role of a back-end support provider in terms of
a captive power source and a cash flow generator that has been largely predictable and
consistent in the last few years.
In the sugar business, we are presently among the largest private sector manufacturers
in the country. This segment accounted for 77.16% of our revenues during the last
financial year; the business is driven by efficiency; there is a need to be among the
lowest cost producers for the Company to generate a profit in good markets or bad.
At Balrampur, we see our sugar business as a variable provider of revenues and profits;
the cash flows of this business are dependent on a range of variables - timely rains,
disease incidence, cane variant robustness, inter-crop returns, farmer mindsets and
government policies - and it provides sustenance across ten manufacturing facilities. The
gains derived from this business are hard-won; over the years, we have made the
old-fashioned grind a virtue in this business. We bat within
the 'V', we emphasise operating discipline, we pursue marginal gains; we aggregate
these marginal gains into a competitive advantage. The result of this singleminded
approach - boring discipline over inspirational flamboyance - is that we are considered as
among the most competitive manufacturers of sugar within the regions of our presence.
While the few basis points of recovery that we generate higher than the prevailing
regional average might not appear exciting to most industry observers, the reality is that
when we match this slender lead with considerably larger volumes of sugar manufactured, we
are able to derive an attractive surplus increment. This slender lead keeps us grounded;
we recognise that we are in the game not because we are the smartest (we are not) but
because we could well be the most persistent.
Balrampur turned to an existing business for broadbasing its personality. The Company
had been engaged in the distillery business for around three decades; this business had
not been scaled in the absence of any demand or remuneration outlook. However, when the
National Biofuels Policy was introduced in 2018 and our Hon'ble Prime Minister indicated
that the country would need to blend its automotive fuel with an agro-based resource
(ethanol), Balrampur invested decisively (~H700 crores aggregate investment) and
disproportionately (making the Company one of the largest ethanol manufacturers in Uttar
Pradesh).
I am pleased to communicate that this synergic diversification has translated into
revenue broadbasing. Around 2018, Balrampur was largely a sugar-driven company; the
Company generated ~90% of its revenues and ~73% of its segment PBIT from this business in
FY 18-19; in FY 24-25, the revenue contribution from sugar had declined to 77.16% and
segment PBIT contribution to 70.34%. The Company had broadbased its portfolio from an
excessive dependence on sweeteners to one where the Company would now be driven
increasingly by ethanol over sugar.
This explanation was necessary.
Three aspects of our business strategy stood out: one, the Company's commitment to
enhance stakeholder value by spreading its portfolio risk across more products; two, the
ability of the Company to wait prudently for policy clarity to emerge and then lean in
with decisive investment leading to competitive scale and economies; three, to invest
decisively in businesses with long-term relevance.
As I appraise the Company's portfolio today, this is what I see: moderate growth in our
sugar business that is Likely to be driven by a sustained increase in the country's
popuLation, gLobaL warming enhancing the demand for carbonated beverages (of which sugar
remains integral), packaged processed foods where sugar is used as a preservative and
celebrations remaining intrinsic to the Indian way of life. On the negative side, I see
health-conscious individuals moderating the; consumption of sugar. On the net side, we see
an annual incremental growth for this business where only the most competitive will be
able to report year-on-year profits.
For the ethanol side of our business, the raw material is derived from within our
business; the sale of ethanol generates near-immediate revenues that moderates the working
capital requirements that would otherwise have to be sustained in growing our sugar
business (alternative business); the demand appetite for ethanol is virtually unlimited,
backed by a validated experience in some countries where almost 50% of automotive fuel is
blended with ethanol. The business of ethanol manufacture was seeded through concessional
debt provided by the government. Manufacturers possess fungible capacities that can
empower them to move from the manufacture of ethanol to sugar and vice versa should market
conditions warrant. It needs to be emphasised that prices of cane juice based &
B-heavy molasses ethanol was not increased by the Government for the last two years
despite an increase in FRP of sugarcane by H35/ quintal i.e. ~11.5% increase. We are
urging the Government to revert to the erstwhile pricing mechanism for the benefit of all
stakeholders.
As things stand today, our objective will be to maximise capacity utilisation of our
ethanol manufacturing capacity, enhance manufacturing efficiency and generate a larger
proportion of our revenues from ethanol (assuming that market conditions remain
favourable). We do not seek to increase manufacturing capacity; any decision in this
regard can only be taken when we are assured of a larger cane access or if realisations
are increased by the government.
PLA, the game-changer
The Company's recent capital allocation towards PLA manufacture is the largest capital
allocations announced for a single project since our existence. The Company does not plan
to make any near investments in sugar or ethanol manufacture, apart from recurring
maintenance or and debottlenecking capital expenditure, which could lead to a better
sweating of assets. This leaves only one opportunity to build growth into the Company - a
new cane-dependent business. In the last year, the Company identified poly lactic acid
(PLA) that promises to be the next growth platform for the Company.
The manufacture of poly lactic acid by Balrampur represents the most daring investment
in its existence. The Company will be the first large manufacturer of this product in
India. The Company intends to invest H2,850 crores in this venture across the next two
years. This will not just be the largest quantum invested by the Company in any project or
product; it will be ~6x the largest outlay by the Company in any single venture in its
existence. This single spending will be almost equal to the Company's net block as on 31st
March, 2025.
A number of industry observers asked why such a disproportionate investment was at all
necessary. The Company could have, according to them, made a moderate investment,
stabilised the technology and made a follow-up investment. One can understand their
perspective: the biopolymer is untested in India and needs to pass the filter of market
acceptance, customer engagement and viability. Most companies in our position would have
preferred to play safe instead of committing their largest investment in a relatively
untried product.
If Balrampur - generally a safety- driven company - ventured to make a disproportionate
investment, it was on account of emerging realities. The global biopolymer market is
growing larger with time; the biopolymer is seen as a timely answer to a world awash with
plastic. To address such a market with a tentative investment would have been akin to
misreading the market opportunity. Besides, a country like India needs not just one but a
number of poly lactic acid manufacturers; the replacement of only plastic caps in PET
bottles with biopolymers could create a sizable market almost overnight. The only way one
would have done justice to this opportunity would be through a sizable capacity, which is
what Balrampur is doing. Besides, Balrampur will invest adequately in the first round of
asset creation; once the plant stabilises, the Company will be comfortably placed to
increase its manufacturing capacity at a relatively low incremental investment.
The two messages that I wish to send to Balrampur's stakeholders is that this
polylactic acid plant will be a global showpiece from the time it goes into business. The
plant will be the 'greenest' of its kind anywhere; its resource base will be completely
agricultural (hence environment friendly); the fact that the raw material and the fuel
requirement for the PLA plant will be available in-house (from existing business) means
that the carbon footprint will be among the lowest within that business anywhere. The
scale of Balrampur's poly lactic acid plant will be among the largest among single
location poly lactic acid plants anywhere. The combination of these realities - in
addition to the Company's competitive energy and sugar costs - promises to make the
Company's diversification possibly the most competitive the world over. Besides, the
incentives provided by the Uttar Pradesh government will deepen competitiveness from day
one.
The Company's poly lactic acid manufacturing facility is likely to be commissioned in
late 2026. At peak capacity utilisation, the quantum of revenues from this business would
represent a sizable addition to the Company's topline; the margins would be attractive
enough to enhance the value of the overall business. However, the value of this business
will extend beyond its financials. We believe that the business will enhance respect of
the Company for its 'greenness', reinvent its personality and enhance value in the hands
of all stakeholders.
I have no doubt that we are positioned at the cusp of creating a truly unique company
in India's agri-based sector.
Performance reporting
The Company reported revenues of H5,415.38 crores and a total comprehensive income of
H345.87 crores during the year under review. The performance was 3.19% lower in terms of
revenues and 21.63% lower in terms of bottomline over the previous financial year.
At Balrampur, we believe that the relative under-performance was the result of lower
crushing volumes which limited our ability to absorb fixed costs effectively, while
performance in the Distillery segment was dampened by government order of December 2023
restricting diversion of sugarcane juice and BH molasses for ethanol production in the ESY
2023-24, leading to lower feedstock availability for distillery.
During the 24-25 sugar season, there was a decline in the cane crop across India.
Correspondingly, the country's sugar output is expected to decline by ~18% during the
ongoing sugar season that ends in September 2025. The sugar output in Uttar Pradesh is
expected to have declined ~10.4% during the ongoing sugar season.
Balrampur emerged as a contrarian in its sugar production during this period. During
the 24-25 sugar season, Balrampur crushed 99.16 lakhs tonnes of cane when compared with
100.91 lakhs tonnes in the previous season. We believe that while these numbers may
disappoint at first glance, they must be seen in a larger context: this performance
transpired in the face of a sharper decline in sugar output across India.
This decline in the national sugar output strengthened sugar prices during the last
quarter of the year under review. Average sugar realisations strengthened from H39 per kg
to H41 per kg, which is the average cost of production of sugar in the country. This
increase strengthened the viability of our sugar business; it became increasingly
remunerative to manufacture sugar, considering that ethanol prices were not revised by the
Government. The only downside of the sugar business was that the output needed to be
inventorised for a number of months before sale. In turn, this increased the working
capital outlay of the Company with a corresponding increase in the interest outflow.
Strengthening our foundation
At Balrampur, we do not just seek to perform financially better; we seek to build a
stronger organisation.
The three priorities that we seek to address comprise a stronger compliance culture
coupled with the building of leaders from within and growing our cane foundation.
As someone heading the Company, building a holistic safety culture and environment
accounts for half of my managerial time. This is now a Board priority and the one way we
have shifted the needle in the last couple of years is that we invested sizably in
replacing legacy assets, enhancing operational predictability. We have absolutely no doubt
that the most sustainable companies of the future will be ones that are also the safest;
we are also convinced that the most value- accretive organisations will be ones with no
industrial mishaps.
The subjects of environment integrity and leadership are inter-related. Leaders can
'see' pitfalls quicker; leaders can prompt proactive decision making; leaders create an
environment where everyone feels safe to articulate, share and act. At Balrampur, we
initiated a focused leadership programme a few years ago. We resolved to moderate (even
eliminate) recruitments from other companies; we sought to promote from within. This has
created a sense of positivity and conviction that anyone within can grow to any level. The
result is that we are not just creating an empowered organisation; we have created talent
pipelines across competencies, levels and businesses, the basis of business
sustainability.
The last priority is an enduring priority - the need to generate more cane from within
our command areas. A number of industry observers have asked me what scope is left in cane
drawal, considering that we have been doing precisely this for the last five decades. In a
dynamic world where competing crops are becoming increasingly remunerative, there is
always a temptation that farmers may seek to plant less cane and move to alternatives. Our
priority is to make it increasingly remunerative for farmers to stay 'locked into cane'.
This comprises the selection and distribution of disease- resistant cane seeds,
propagation of modern agricultural practices, helping farmers generate a larger return
from their farm lands and remunerating all purchases within 10 days. The objective is to
keep incentivising increased cane planting that, in turn, provides us with a foundation to
crush more and generate enough for our sugar cum ethanol cum co-generation needs of the
day but also for our poly lactic acid appetite of tomorrow.
Conclusion
At Balrampur, we are optimistic of better prospects starting this financial year.
This 2025-26 performance is expected to be derived from our robust crushed output,
higher sugar realisations, sustained ethanol returns and steady co-generation surpluses.
In 2026-27, we believe that a new chapter will commence for the Company, marked by our
entry into a new business with unlimited potential, which should enhance value for all
those associated with our company.