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Sugar profitability and PLA business to act as positive catalysts

Balrampur Chini’s (BRCM) 4QFY25 reported EBITDA was 6% above our estimates on account of improved sugar realisations and jump in distillery volumes. Sugar prices are likely to remain firm, going ahead, on account of lower closing inventory in SS25. Further, we expect sugar and ethanol volumes to pick up pace from here on. Moreover, PLA business will start contributing handsomely from FY27 as it remains on track to be commissioned by 3QFY27. For the PLA business, we see strong off-take visibility owing to support from the UP government for bio-plastics and possible replacement of straws and other disposable tableware in the Indian market as we have highlighted in our deep dive report (click here). Hence, we remain constructive on the name on account of i) firm sugar prices, ii) uptick in sugar and ethanol volumes, going ahead, and iii) company’s transition towards high-value bio-plastics business. Further, we expect bio-plastics EBITDA contribution to increase to ~26% by FY30E from ~13% in FY27E. Factoring in 4QFY25 results and management commentary, we have raised our FY26/27 EBITDA estimates by ~6%/7% and EPS estimates by ~2%/6%. We maintain BUY with a revised SoTP based Mar’26 TP of INR 635 (from INR 575 earlier).

* 4QFY25 EBITDA above our expectation: Balrampur Chini’s 4QFY25 gross profit came in 1% above JMFe at ~INR 6.4bn (up 3%/85% YoY/QoQ) as revenue came in 2% above JMFe at ~INR 15bn (up 5%/26% YoY/QoQ) while gross margin came in slightly lower at 42.2% (vs. JMFe of 42.5% and 43.1% in 4QFY24). Other expenses were lower at ~INR 1.6bn (vs. JMFe of ~INR 1.7bn and ~INR 1.7bn in 4QFY24). As a result, EBITDA came in 6% above JMFe while 2% below consensus and stood at ~INR 3.7bn (up 6%/195% YoY/QoQ). EBITDA margin came in higher at 24.3% (vs. JMFe of 23.5% and 24% in 4QFY24). Further, PAT stood of INR 2.2bn (up 12%/251% YoY/QoQ) which was 7%/5% above JMFe/consensus.

* Sugar sales 10% above our estimates: Sugar sales of ~INR 14.5bn (up 10%/14% YoY/ QoQ) was 10% above JMFe as sugar volume came in at 199.5KT (vs. JMFe of ~232.8KT, down 11% YoY) while sugar realisation stood at INR 40.5kg (vs. JMFe of INR 40/kg and INR 38.2/kg in 4QFY24). Sugar EBIT margin came in slightly higher at 18.7% (vs. JMFe: 18.5% and 17.8% in 4QFY24). As a result, sugar EBIT stood at INR 2.7bn in 4QFY25 (vs. INR 2.3bn in 4QFY24). Sugar prices saw improvement on account of the tight inventory situation and government allowing 1MMT of exports in SS25. Sugar volumes saw a decline due to lower sugar recovery as recovery was impacted by unfavourable weather conditions and red rot infestation in key regions.

* Distillery sales 15% above our estimates: Distillery sales came in 15% above JMFe and stood at ~INR 5.3bn (up 28%/151% YoY/QoQ) as distillery volume jumped 28% YoY to 85.2KL while realisation improved by 4% YoY to INR 60.2/litre (vs. JMFe of INR 57.7/litre and INR 57.7 in 4QFY24). Distillery EBIT margin came in at 16.4% (vs. JMFe of 15% and 23.5% in 4QFY24). Despite the government’s permission for the use of juice and BH molasses for ethanol, the lack of price increase in ethanol vis-à-vis increase in FRP for sugarcane continues to be a negative for distillery performance.

* PLA capacity on-track to be commissioned by 3QFY27: The management highlighted that the PLA project remains on track to be commissioned by 3QFY27. The company has already spent INR 8bn of the planned capex, as of Mar’25, on the project. The company aims to generate INR 20bn in annual sales from its PLA capacity and EBITDA margin of 35% with an approximate realisation of at least USD 2.5/kg. Company intends to focus on the domestic market with 10 PLA product applications planned.

* Expect 43%EPS CAGR over FY25-28E; maintain BUY: We build in higher contribution from PLA project from FY27E on account of higher realisations. Additionally, we expect sugar prices to remain firm. As a result, we have revised our FY26E/27E EBITDA estimates by ~6%/7% and EPS estimates by ~2%/6%. We now expect 11%/29%/43% sales/EBITDA/EPS CAGR over FY25-28E. We maintain BUY with a revised SoTP based Mar'26 TP of INR 635/share (from INR 575 earlier). 

4QFY25 Result Review

* Balrampur’s 4QFY25 sugar realization at INR 40.5/kg, likely to sustain at this level – The company’s sugar realization stood at INR 40.5/kg in 4QFY25. Sugar prices for the company and the industry are likely to sustain at current levels (or improve marginally in the coming months) on account of tight sugar inventory position, enabling timely payments to farmers and ensuring liquidity, with no revision in prices for juice and Bheavy ethanol. Additionally, Government's 1MMT export quota also contributed to strengthening of sugar prices.

* FY25 closing sugar inventory at 7.1LMT – Management informed that the company held 7.1LMT of sugar as of Mar’25. With the addition of production volumes in Apr’25, the company has nearly 7.5LMT of sugar in its inventory. Company is confident that this entire inventory can be liquidated by Nov’25 given the company has sold around 9.4LMT of sugar per year in the last two years. This could go to 10LMT in FY26 with the right conditions.

* Company to be above industry benchmarks in terms of cane availability and recovery - Balrampur’s cane availability declined by 1.74% in 4QFY25 against 2.5-3% for the UP region on account of measures like varietal balance, insect and pest containment, disease treatment etc. Balrampur’s sugar recovery was better than the UP region despite red rot infestation and unfavorable weather conditions. Management is hoping to see enhancement in yield in the future, assuming normal weather conditions. Going ahead, in terms of cane availability and sugar recovery, management expects the company to be ahead of the industry benchmarks. Also, management expects the quantum of cane crushing in FY26 to be at least marginally better compared to the previous year.

* Lower ethanol volumes in FY25 due to restriction – Company informed that the distillery segment sales volume in FY25 was lower YoY due to restriction on ethanol production out of juice and B-heavy routes by the Government. This resulted in underutilized capacities in FY25. Company said that the government had lifted the restriction on the quantum of sugar cane juice diversion for ethanol but there was no price increase. This was a shift from Government’s prior practice of aligning ethanol prices with FRP and it makes sugar diversion for ethanol unattractive for the industry players. This affected the distillery segment performance

* 80,000MT PLA capacity on-track to be commissioned by 3QFY27 – Management has informed that the 80,000MT PLA plant capacity is on track to be commissioned by 3QFY27. Total capex stands at INR 28.5bn. Accounting for the government subsidy, the figure comes down to INR 17.5bn for the company. The company aims to generate INR 20bn in annual sales, EBITDA margin of 35% and approximate realisation of at least USD 2.5/kg. Company intends to focus on the domestic market with healthy demand expected by the company indicated by consumption of ~100,000MT of resins for straws alone and PLA straws have already been approved by BIS. Company is working on 10 applications for PLA including bottles, bottle caps, textiles, tableware, fibers etc.

* 1.25LMT additional sugar diversion expected for PLA – Management has indicated that its PLA capacity would require sugar volume 1.7 times the total capacity of 80,000MT. The company expects around 1.25LMT sugar to be diverted for PLA once the capacity is in full use. This is in addition to sugar diversion for ethanol.

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