Why Balrampur Chini Share Price is Falling

Last week, sugar stocks paused their sweet rally following a mandate from the government.

The fall was not just limited to one stock. The entire clan of sugar stocks fell like a pack of cards... be it Balrampur Chini, Dhampur Sugar Mills, Shree Renuka Sugars, Dwarikesh Sugar...most of the sugar stocks corrected to a great extent.

The fall seen in share price of Balrampur Chini was more compared to its peers. In just a week, the stock has dipped over 16%.

So, what is the reason behind this fall?

Let's find out.

#1 Expectation of Fall in Sugar Production

We know that low rainfall is bad news for top sugar companies as it hampers sugar production.

Considering the same, the Indian Sugar Mills Association (ISMA) issued a report on Friday, 1 December 2023, stating that its sugar production estimates for the marketing year 2023-2024 has dipped by 8% at around 33.7 million tons which was 36.6 million tonnes for the marketing year 2022-23.

This decline is attributed to the inadequate rainfall in sugarcane-producing states, posing a threat to sugarcane yields.

Furthermore, sugar serves a crucial role in ethanol production, consumption, and export. Hence, the projected reduction in sugar production is expected to adversely hamper all three segments.

#2 Government's Norms for Ethanol a Dampener for Balrampur Chini

Balrampur Chini got a double blow on Thursday, 7 December 2023, after the central government implemented a ban on the use of sugarcane juice and sugar syrup for ethanol production during the marketing year 2023-2024.

The objective is to ensure an ample supply of sugar for domestic consumption while maintaining stable prices.

However, the ban is limited to the use of sugar juice and syrup only. Companies can still use B-molasses which is a type of syrup obtained from the refining of sugarcane to produce ethanol.

So, leading sugar and ethanol producers can shift its focus more towards sugar production for the time being.

Given that Balrampur Chini generates various products from sugar mill molasses, including ethanol, power from bagasse, and organic manure, the company finds relief in the fact that the use of B-molasses remains unaffected by the ban.

That being said, the impact of these regulatory changes, restricting sugar inputs for ethanol production, is a key factor contributing to the decline in sugar stocks in the past couple of days.

What's Next?

Fluctuations in sugar production directly impacts the profitability of sugar stocks.

Moreover, as sugar is a staple for many, the government often steps in to ensure ample domestic supply which results in measures like export limitations or, as we saw recently, the ban on ethanol production for sugar usage.

So, these short term trends often impact the share price of sugar companies.

One thing to note here is that being a leading sugar producer, Balrampur Chini has diversified its product portfolio to a great extent and has tapped on to future growth opportunities like ethanol and biofuels.

In the recent September 2023 quarter results, the company reported robust numbers with revenue growing 38% to Rs 15.4 billion (bn) as compared to the same period last year. This was driven by increased volumes in both sugar and distillery segment along with improved realisations.

The profit before tax (PBT) saw a turnaround from negative Rs 373 million (m) to positive Rs 2.2 bn on a year on year (YoY) basis, due to higher revenues.

The earnings before interest, tax, depreciation and amortisation (EBITDA) stood at Rs 1.6 bn from a negative Rs 160 m in the same period last year.

The company generated 66.3% of its revenue from sugar and 33.4% from distillery.

Furthermore, the government has come up with several policies which will help sugar players like Balrampur Chini in the long run as they also focus on ethanol production.

These measures include a reduced goods and services tax on ethanol and the provision of soft loans from banks to encourage the development of new distillery capacities. All of this will increase ethanol production in the long term.

Also, these benefits are not limited to ethanol production. The government has also come up with policies for the sugar segment which will help the company.

These developments include a revised fair price for sugarcane to Rs 315 per quintal from Rs 305 per quintal in the previous season.

Similarly, the minimum selling price (MSP) for sugar has been raised to Rs 31 per kg from Rs 28 per kg. However, the current market price of sugar is much above the said MSP.

Along with this, the company is also very optimistic for their sugar segment as they are expecting higher cane availability in this current season. The company is also expanding its cane crushing capacity by 2,000 tons of cane per day which is under implementation.

But, amid these positives, investors must weigh the risks and rewards and do their own research before considering an investment in stocks.

How Balrampur Chini Share Price has Performed Recently

Balrampur Chini share price fell over 16% in the last five days and has given a marginal 1% return in 2023 so far.

The company touched its 52-week high of Rs 485.8 on 30 November 2023 and its 52-week low of Rs 349.5 on 27 February 2023.

About Balrampur Chini

Balrampur Chini is a leading sugar manufacturing company in India. The company has a sugar production capacity of 80,000 tons of cane per day and it operates from 10 mills throughout India.

The company has also diversified into ethanol, power from bagasse, and organic manure from sugar mill molasses.

For more details about the company, you can have a look at the Balrampur Chini fact sheet and quarterly results on our website.

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