Balrampur Chini May Hike Capex As India Advances Ethanol Blending Target

India advanced its target to reach 20% ethanol blending with petrol second time in a year in a boost to sugar mills. India now plans to reach the target two years earlier by 2023, after having advanced it by five years in January to 2025.

The move may prompt multiple players in the industry to revisit their capex plans for the distillery segment upwards, Pramod Patwari, chief financial officer at Balrampur Chini Ltd., said in an interview to BloombergQuint. That comes when the company has already announced a 320-kilo-litre-per-day distillery expansion plan.

There’s the possibility of going back to the drawing table and enhancing the capex plan, Patwari said, without disclosing if this will be greenfield or brownfield.

India’s current ethanol capacity is 4.25 billion litres a day, likely to increase to 5.25 billion litres in 2022. That would achieve 10% blending in 2022. But there are concerns that it would be difficult to double that by 2023.

Patwari said a combination of faster clearances, and fresh greenfield and brownfield expansion by companies may help them meet the target. The company’s own greenfield expansion is slated to come onstream by December this year, augmenting its capacity to 520 kilo litres a day. Once the distillery capacity moves up, the operating margin and return ratios and revenues would rise, he said.

According to an ICICI Direct note, Balrampur is the most efficient sugar company with sustainable earnings and strong cash flow generation. The company would increase shareholder payout, including buybacks and dividend, to about 60% from current 40%, the brokerage said.

ICICI Direct said given the big opportunity in the ethanol blending programme, the stock is poised to command better valuation multiples. The brokerage, maintaining its ‘buy’ recommendation, values the stock at 10 times its estimated earnings for FY23E. It increased the target price of Rs 385, implying an upside of 23%.

Watch the full interview here: