Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA+/Stable’ rating on the long-term bank facilities of Balrampur Chini Mills Limited (BCML). Also, Crisil Ratings has reaffirmed its ‘Crisil A1+’ rating on the commercial paper programme.

 

The ratings continue to reflect the company’s dominant market position in the sugar and allied sectors in north India, which has added diversity to its revenue profile; established relationships with farmers; superior operating efficiency and strong financial risk profile. These strengths are partially offset by susceptibility to cyclicality in the sugar business and regulatory changes, including movement in the state advised price (SAP) for cane in Uttar Pradesh and minimum selling price (MSP) for sugar or regulations around distillery operations. The ratings also consider risks associated with the ongoing polylactic acid (PLA) project, which will require sizeable investment and is in early stages.

 

The business risk profile of BCML continues to be strong driven by diversity in revenue profile and integrated operations. Revenue grew at a strong 20% in fiscal 2024 driven by improved cane crushing, which was aided by healthy recovery rates. Distillery revenue grew by ~35% driven by healthy growth in sales volumes. In fiscal 2024, revenue benefitted from higher sugar and ethanol realisations. The operating margin improved to 14.5% in fiscal 2024 from 11.4% in fiscal 2023.

 

However, revenue declined by 5.9% on-year during the nine months of fiscal 2025 owing to reduced cane crushing and government restriction on diversion towards ethanol for sugar season (SS) 2024, which impacted distillery sales. With decline in revenue of the ethanol business (which also offers better margin compared with sugar), the operating margin moderated to 8.7% in the nine months of fiscal 2025 from 10.6% in the corresponding period of the previous fiscal. Moreover, lower recovery owing to varietal change and weather conditions also impacted operating profitability. Assuming better profitability in the fourth quarter of fiscal 2025 due to higher cane crushing and sale of ethanol following removal of the government ban on use of sugar for manufacture of ethanol, the operating margin is expected at 13.5-14.0% in fiscal 2025 (14.5% in fiscal 2024).

 

Crisil Ratings takes note of the increase in the outlay of the PLA project to Rs 2,850 crore from Rs 2,000 crore, which was initially envisaged, on account of modifications in equipment design to optimise operating expenses and enhance capacity by 5,000 MTPA to 80,000 MTPA, against earlier envisaged capacity of 75,000 MTPA. The project is now expected to be funded through long-term debt of Rs 1,650 crore (Rs 1,200 crore earlier) and the balance from internal accrual. The Company has already tied up Term Loan of Rs 1500 crores and the project is expected to commercialise from October 2026. The Uttar Pradesh government, in October 2024, announced the Bio Plastic Industrial Policy, 2024, for promoting bioplastic manufacturing. The policy intends to provide various incentives, including capital subsidy, interest subsidy and SGST reimbursement. The revised project cost after considering capital subsidy stands at Rs 1,750 crore. That said, given the large size of the project, its completion without any cost and time overruns, ramp-up of utilisation post commencement and timely receipt of incentives will remain key monitorables.

 

The financial risk profile remains comfortable supported by steady cash generation and controlled debt levels. Sizeable adjusted networth of Rs 3,104 crore (reported networth was Rs 3,279 crore as on March 31, 2024), limited debt and cane dues enabled strong capital leverage, with the total outside liabilities to tangible networth (TOLTNW) ratio at 0.85 time as on March 31, 2024. Debt majorly pertains to working capital debt and the existing term debt is expected to be repaid by fiscal 2028, before commencement of repayment of the PLA project debt. As on December 31, 2024, the company had undertaken capital expenditure (capex) of ~Rs 685 crore for the PLA project and drawn long-term debt of Rs 325 crore, taking term debt outstanding to Rs 534 crore. The debt level is expected to peak in fiscal 2027. Despite the expected increase in debt, debt protection metrics will likely remain comfortable, with the TOLTNW ratio expected below 1.2 times and interest coverage ratio over 5 times over the medium term. The debt will carry a moratorium of 4.5 years and repayment tenure of five years commencing from fiscal 2029.

 

Liquidity was comfortable with healthy annual cash accrual over Rs 500 crore, which adequately covers debt obligation and capex. Fund-based bank limit was utilised 56% on average during the 12 months through January 2025.

Analytical Approach

Crisil Ratings has followed the capital allocation approach and arrived at the adjusted networth of BCML by knocking off the investment in Auxilo Finserve Pvt Ltd (Auxilo; ‘Crisil A+/Stable’), wherein BCML holds 30.48% stake. As on December 31, 2024, the investment stood at Rs 175 crore.

Key Rating Drivers & Detailed Description

Strengths:

Established market position and diversified revenue profile 

BCML is one of the largest sugar producers in India with crushing capacity of 80,000 tonne per day (TPD) of sugarcane, exportable (surplus) power capacity of 175.7 megawatt (MW) and distillery capacity of 1,050 kilo litre per day (KLPD). The company has 10 sugar factories: eight in eastern Uttar Pradesh and two in central Uttar Pradesh, thus having access to a large market in north India. A 320 KLPD distillery was commissioned in SS2023, and this distillery can operate on dual feed, sugarcane syrup during the crushing season and B-heavy / C-heavy molasses and grains during the off-season, ensuring full utilisation of the capacity and aiding profitability.

 

Fully integrated operations enable all supplementary businesses associated with sugar, such as distillery and power, to be major contributors to profitability and de-risk the sugar business. The distillery business offers higher and stable profit and returns, compared with the sugar business, and thus helps moderate the impact of cyclicality inherent in the sugar business. Government initiatives pertaining to ethanol blending have also moderated the cyclicality to a large extent. Ethanol prices are a function of sugarcane prices and cost of sugar production; thus, there is little chance of the ethanol prices being lowered. With the entry in the PLA business, the diversity of the revenue profile will further increase.

 

Crisil Ratings believes the company will continue to benefit from its dominant market position in the sugar industry and fully integrated operations. The diversified revenue streams will continue to offset the cyclicality in the sugar business.

 

Superior operating efficiency 

The operating efficiency is supported by fully integrated operations, sizeable contribution to profitability from higher margin distillery segment, healthy sugar recovery rates and high capacity utilisation leading to better absorption of fixed cost. The company’s distillery capacity is adequate to utilise the molasses produced through crushing operations and the cogeneration segment can cater to the entire power requirement during the crushing season from the bagasse produced, resulting in fully integrated facilities.

 

The company has been continuously engaging with farmers to produce an early variety of cane along with implementing varietal change, which has more sucrose content, and also ensuring they are less prone to disease and can acclimatize quickly.

 

Overall operating profitability over the medium term will remain stable and will be supported by both sugar as well as distillery segments. While operating margins are expected to moderate to 13.5-14% in fiscal 2025 from 14.5% in fiscal 2024 owing to restriction on ethanol diversion until November 2024, adverse weather condition and varietal change, the same is expected to improve from next fiscal with full benefit of distillery sales  and gradual acclimatization of new variety leading to improved recovery.

 

Healthy financial risk profile; some moderation expected in debt metrics 

The financial risk profile continues to be healthy supported by comfortable capital structure and adequate debt protection metrics. The short-term debt is usually high at the year-end (march month) owing to the seasonal nature of business. However, the working capital debt becomes negligible during September every financial year, just before commencement of the next sugar season. Between April-December 2024, the company retired debt of ~Rs.253 crores, including prepayment of Rs.140 crores of non-convertible debentures (NCDs). Long term debt stood at ~Rs. 534 crores at December 31, 2024, including Rs.325 crores availed for the PLA project. Due to sizeable term debt of over Rs 1,650 crore to be added for the PLA capacity, overall debt levels will rise gradually from fiscal 2025, with long term debt peaking at ~Rs. 1650 crore in fiscal 2027. While the gearing too will see some moderation increasing to ~0.8-0.9 times at March 31, 2027; other debt metrics such as interest cover and total outside liabilities to adjusted net worth (TOL/ANW) will remain at adequate levels of more than 5 times and around 1-1.1 times over the medium term. The company has been buying back its shares at regular intervals though amounts have not been material. However, with the large capex in the near to medium term, the payout to the shareholders might remain limited.

 

Weaknesses:

Susceptibility to downturns in the sugar business

Sugar prices are largely market-driven and dependent on production for the sugar season and inventory levels prevailing in the country. Hence, higher production, which increases inventory, may lead to a steep fall in prices and impact profitability severely as the cost of production is relatively sticky in nature. Monsoons too have a bearing on cane production and recovery rates of cane, impacting overall sugar production in the country. Fall in sugar prices is cushioned by the MSP declared by GoI (Rs 31 per kg at present). The government has promoted export to address excess inventory and arrest fall in prices in the past. In the current SS too, ~1 million tonnes of sugar exports have been permitted.

 

BCML may not be materially impacted by sugar down-cycles, given its superior operating efficiency, increasing contribution of the distillery segment and integrated nature of operations. Further its Maizapur distillery will have flexibility to operate around the year, helping buttress impact of volatile sugar availability.

 

Exposure to regulatory risks

While input prices are driven by the government; sugar prices are volatile and based on open market prices (which are dependent on the production levels) leading to volatility in players’ profitability. Besides, the government regulates domestic demand-supply through restrictions on imports and exports, and stock holdings. Regulatory mechanisms and dependence on monsoons have rendered the sugar industry cyclical. Sugarcane pricing is controlled through SAP in Uttar Pradesh. Though a higher SAP increases the cost of production for UP based mills, varietal re-balancing, characterized by better recovery rates, reduces the impact considerably for players such as BCML. The profitability of the company, mainly for its sugar segment, remains vulnerable to material changes in SAP and other regulatory changes in the sugar industry. The central government had increased the FRP for sugarcane by 8% whereas the SAP for UP remains unchanged at Rs 370 per quintal for SS2025.

 

The government of India (GoI) advanced the 20% ethanol blending target (with gasoline) to 2026 from 2030. Additionally, the government has made supplies profitable by raising ethanol prices every fiscal, in addition to differential pricing for B-Heavy and the direct cane juice route and providing interest sops on loans for setting up ethanol-based distilleries. Due to estimated drop in sugar availability for domestic consumers, GoI had restricted exports of sugar and also restricted diversion of sugar for ethanol production for major portion of fiscal 2025. However, from November 2024, the GoI permitted the diversion of sugar for ethanol production from Ethanol year 2025 also permitted export of 1 million tonne of sugar in SS2025. . These initiatives will however, help integrated sugar millers largely in fiscal 2026. Since the sugar industry is highly regulated, any change in the regulatory stance and continuation of government support to sugar sector (including distilleries and ethanol pricing) will remain key monitorables.

 

Strong growth potential from the diversification into new PLA venture albeit certain potential risks associated with the project

PLA is a biopolymer with applications in packaging, printing, textiles, among others. The PLA project being set up in Uttar Pradesh will help BCML diversify the business from the sugar and ethanol segments which are highly regulated. There is no sizeable PLA capacity in India and currently the country relies on imports to meet the overall demand. Sugar will be a key raw material to produce PLA. At full capacity, BCML would need around 1.3 lac tons of sugar which is expected to be met captively.

 

The overall project cost for the PLA venture is estimated at Rs. 2850 crore (revised from Rs.2000 crore due to change in scope) that will be funded through Rs.1650 crore of debt and balance through internal accruals. As of December 31, 2024, the company had incurred ~Rs.685 crore on the project. The PLA project is expected to be completed by October 2026. Further the company has indicated that at full utilisation level, the annual revenue and operating profit margin potential from PLA would be ~Rs.2,000 crore and 35% respectively.

 

However, given the large size of the project, timely completion of the same without any further material cost and time-overrun, ramp up of its utilization levels post commencement with gradual pick-up in the offtake as envisaged will remain a key monitorable.

 

In addition to the same, the Uttar Pradesh government in October 2024, announced its Bio Plastic Industrial Policy 2024, for promoting bioplastic manufacturing. The policy intends to provides various incentives for eligible companies including capital subsidy, interest subsidy, SGST reimbursement, etc. As indicated by the company, the revised project cost after considering the capital subsidy stands at Rs 1,750 Crore.

 

However, adequate government intervention to ensure enforcement of ban of single use plastics and timely receipt of incentives would remain critical.

Liquidity: Strong

Fund-based working capital line of ~Rs 2,400 crore was utilised 56% on average for the 12 months through January 2025. The company has repaid debt of ~Rs. 253 crore between April-December 2024, including pre-paying Rs.140 crore of NCDs, and has moderate repayment obligations of ~Rs.22.25 crore in the last quarter of fiscal 2025, which can easily be serviced from annual cash accruals. Expected cash accrual of Rs 500-550 crore per annum from the existing business will sufficiently cover yearly debt obligation pertaining to existing debt of Rs 89-90 crore each in fiscals 2026 and 2027, and fund the annual maintenance capex of ~Rs 100 crore. Further, the repayments pertaining to the project related debt will commence from the second half of fiscal 2029 providing sufficient cushion between the commercialization of the new project and meeting the underlying repayments.

ESG profile

Crisil Ratings believes the environment, social and governance (ESG) profile of BCML supports its already strong credit risk profile.

 

The sugar industry has moderate impact on the environment owing to moderate emissions, water consumption and waste generation. The sector’s social impact is also moderate considering the impact of operational activities on employees. The company is focusing on mitigating environmental and social risk.

 

Key ESG highlights:

• Energy consumption and greenhouse gas (GHG) emission intensity as percentage of revenue marginally increased in fiscal 2024 as against the previous fiscal. However, the company is taking several steps for reduction in GHG emissions and energy conservation such as investing in lower steam consumption through installation of SRTC (short retention time clarifier) units and optimizing imbibition of water quantity for increasing crushing rate for maximum efficiency of equipment at full crush rate.
• Gender diversity improved in fiscal 2024 but remained lower than the sector average. The company regularly engages in conducting workplace inspections and analysing incident reports and utilizes job safety analysis techniques to identify work-related hazards and assess risk.
• Attrition rate increased in fiscal 2024 but was lower than the sector average.
• The governance profile as on 31st December 2024 is characterized by ~57.14% of its board comprising independent directors (and women representing 42.86% of the Board, underscoring the Company’s commitment to gender diversity) and presence of robust internal control systems and processes. The company has extensive disclosures.

 

Its commitment to ESG and integrating sustainability principles throughout its organisation and value chain will play a key role in enhancing stakeholder confidence and access to capital markets.

Outlook: Stable

Crisil Ratings believes BCML will continue to benefit from its established market position, superior operating efficiency of the sugar business, sustained contribution from the more stable distillery business as well as high growth potential for the diversification into the new PLA business. Moreover, the financial risk profile should remain comfortable, with healthy debt metrics.

Rating Sensitivity Factors

Upward factors

• Substantial increase in cash accrual driven by improvement in business diversity while maintaining market leadership across multiple segments
• Sustenance of strong financial risk profile and further improvement in debt metrics with average TOL/ANW below 0.4-0.5 times on sustained basis
• Healthy build-up of cash surplus

 

Downward factors

• Material decline in sugar realisations, significant drop in cane crushing volume owing to adverse monsoon or pest attack, sustained decline in contribution from the ethanol business or adverse government regulations, impacting profitability and cash generation
• Large debt-funded capex or acquisition or material infusion into the NBFC associate (Auxilo), impacting financial risk profile and debt metrics; average TOL/ANW in excess of 1.5-1.7 times
• Delay in timely completion and ramp-up of the PLA project impacting cash flow from operations, thereby weakening liquidity

About the Company

BCML is one of the largest integrated sugar manufacturers in India. Operations are forward integrated, into manufacturing ethanol, using molasses (a by-product of sugar), and power, using cogeneration from bagasse. It has 10 sugar manufacturing units, 5 distillery plants and 10 cogeneration units spread across eastern and central Uttar Pradesh. It has cane crushing capacity of 80,000 TPD, 1,050 KLPD of distillery and 175.7 MW of saleable cogeneration capacity.

 

As on December 31, 2024, the promoters held 42.87% stake in BCML, domestic mutual funds 24.93%, foreign shareholders 12.50% while the public and others held the balance.

 

As of December 2024, BCML reported profit after tax (PAT) of Rs 124 crore (Rs 236 crore a year earlier) on net revenue of Rs 3,912 crore (Rs. 4,159 crore).

Any other information: Not Applicable