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Balrampur Chini: Does it get any sweeter - Views on News from Equitymaster

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Balrampur Chini: Does it get any sweeter

Mar 18, 2010

Balrampur Chini Mills Ltd. (BCML) incorporated in 1975 and based in Uttar Pradesh (U.P.) is the second largest sugar company in the country. The company operates 10 sugar mills with a current sugar cane capacity of 76,500 TCD. The company also has an installed power capacity of 179.85 MW and distillery capacity of 320 KLPD. We herein do a SWOT analysis of BCML's business and analyse what potential and risks lie ahead for the company. Strengths

Large sugar manufacturing capacity: BCML is based in U.P. which is the largest sugar cane producing state in the country. The company has mills spread across the state which are able to take advantage of this high production.

Power generation: The company has a power generation capacity of 179.85 MW. The company’s power requirement is of 54.35 MW. The remaining power can be sold to the government or in the open market. Furthermore, the company is expanding capacity to add 34 MW to its power generation. With U.P. facing a power shortage, government announced several incentives for trading power which are expected to benefit BCML.


High leverage: BCML has a high amount of debt on its books with a debt to equity ratio of 0.82 times. In events of a slowdown, the company will face pressure servicing this debt.

Dependence on monsoons: The economy of U.P. is predominantly dependent on agriculture. Due to insufficient development in the state, the crops are heavily dependent on monsoon for water. In case of a failure of monsoon, the crops tend to suffer. This was seen during 2009 when the monsoons were subpar and affected the sugar cane crop in the state. In case of insufficient supply of cane, the company suffers across its segments as all are dependent on cane and the by-products of sugar manufacturing.


Growing domestic demand: Indians with their tradition of sweet consumption consume only 26 kg of sweet per capita. This is less than half of what a country like Brazil consumes. With growing prosperity, the demand for sugar is expected to increase with an incremental demand of 1 m tonnes by FY11.

Ethanol requirement: Indian government approved in July 2008, a National Biofuel Policy which targets a 20% ethanol blending with fuel by 2017. According to estimates, even a 10% of ethanol blending will result in demand increasing by 4 fold to 3.8 bn litres. Other than this, demand for potable alcohol and industrial alcohol demand is growing at 1.48% and 1.74% CAGR. This provides distilleries with a huge opportunity.

Supply demand mismatch: While the demand for sugar domestically is expected to be 23.5 m tonnes, the supply is expected to be 16 m tonnes. This is going to result in a short fall of 7.5 m tonnes. Due to this, high sugar prices are expected to rule going forward.


Political interference: Sugar is an important commodity and hence the sector suffers from political interference. This interference can range from controlling raw material prices to sales timing.

What lies ahead...

The company has done well over the past year. While the sugar prices are expected to rule high, in case of shortfall in sugar cane availability, the company's distillery and power generation business is expected to suffer. Moreover, the political climate of U.P. is a matter of concern.

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Mar 22, 2019 (Close)


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