Ramping up its ethanol production, Balrampur Chini Mills Ltd expects close to 30 per cent of its revenues to come from the distillery business over the next three years.

Currently, distillery business accounts for some 14 per cent of the company’s total turnover, which was ₹4,812 crore in 2020-21.

The company invested close to ₹200 crore in January last year to scale up its distillery business. It is set to invest another ₹400 crore during the current fiscal to enhance its distillery capacity from 520 KLPD (kilo litre per day) to 840 KLPD by adding another 320 KLPD at Maizapur in Uttar Pradesh. This should become operational in the 2022-23 (December-November) ethanol season.

Funding process

The investment would be partly funded through low cost debt and partly through internal accruals.

The move would help moderate its revenue mix away from sugar and de-risk the company. Besides, the investment made (in enhancing ethanol production) would generate “handsome returns with an attractive payback”, Vivek Saraogi, MD, Balrampur Chini, said in the company’s latest annual report (2021).

The company would look to bring down its sugar production by around 20 per cent in exchange for increased ethanol output.

“The company has resolved to build a resilient business model independent of subsidies and prepare for a scenario post-2023 when there will be no export assistance from Government of India.

“As a first step towards that reality, the company intends to sacrifice around 20 per cent of its sugar production in exchange for increased ethanol output. We believe that the moderation of our sugar output will make the company less dependent on the need to export or seek related government subsidy support,” Saraogi said in the report. The company’s expansion of 320 KLPD at Maizapur would help transform its economies of scale and flexibility once commissioned. The unit would be so designed to accommodate diverse feedstock, enhancing capacity utilisation.

Better profitability

While on the one hand, it would consume surplus grain of diverse kinds, available in proximity in abundance, enhancing capacity utilisation; on the other, it would strategically restructure operations at the unit by consciously “sacrificing” the entire sugar production in favour of ethanol (from sugarcane juice).

“The combination of these two initiatives is expected to enhance capacity utilisation on the one hand and strengthen the amortisation of fixed costs on the other,” the report said.

By the virtue of an investment in incinerator boilers and zero liquid discharge systems, the greenfield plant would be statutorily permitted to operate for 350 days and should be able to produce close to 11 crore litres of ethanol in a normal year’s operations.

Following the commissioning of the unit, the capital cost per litre for the consolidated 840 KLPD post expansion blended capacity is expected to decline from Rs 1.2 crore per KLPD to less than Rs one crore per KLPD at a time when the prevailing cost of greenfield capacity creation is around Rs 1.35-1.40 crore per KLPD. This cost-effective capacity accretion is likely to make the expansion profitable from the first year of its commissioning, shrinking payback, it said.

The company’s revenues from distillery operations, which stood at around ₹549 crore in 2019-20 increased to ₹826 crore in FY21. Profit from distillery operations increased by nearly 31 per cent from ₹261 crore in FY20 to ₹341 crore in FY21.

At 20 per cent blending of ethanol, the national ethanol demand is likely to be 1,000 crore litres against a prevailing national distillery capacity of 426 crore litres in FY21. At a 10 per cent blending rate, the ethanol demand is estimated at about 457 crore litres per annum. “We believe that by enhancing our ethanol capacity, we are not just building a larger company but also a more profitable one. This enhanced profitability will manifest in higher revenues, optimum cost absorption and a leaner balance sheet,” the report said.

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