PGDM (e-Business)

Semester- II
Batch 2018-2020

Agricultural Industry
Group No.- 3

Submitted to Professor : Chirag Sheth

Presented By Roll Number

Nirmit Patel 07

Tanisha Sharma 46

Hinal Shah 55

Sayli Joshi 65

Dhruvi Shah 92

Divya Poojary 117

 Agriculture Industry
India has the 10th-largest arable land resources in the world. With 20 agri-climatic regions, all 15
major climates in the world exist in India. The country also possesses 46 of the 60 soil types in the
world. India is the largest producer of spices, pulses, milk, tea, cashew and jute; and the second
largest producer of wheat, rice, fruits and vegetables, sugarcane, cotton and oilseeds. Further, India
is second in global production of fruits and vegetables, and is the largest producer of mango and
banana. During 2017-18 crop year, food grain production is estimated at record 284.83 million
tonnes. In 2018-19, Government of India is targeting foodgrain production of 285.2 million tonnes.
Production of horticulture crops is estimated at 306.82million tonnes (mt) in 2017-18 as per third
advance estimates. India is among the 15 leading exporters of agricultural products in the world.
Agricultural exports from India reached US$ 38.21 billion in FY18 and US$ 21.61 billion between
Apr-Oct 2018. Exports of ready to eat items from India reached US$ 689.80 million in FY18 and
have reached US$ 419.04 million in FY19 (up to October 2018). The Agriculture Export Policy,
2018 was approved by Government of India in December 2018. The new policy aims to increase
India’s agricultural exports to US$ 60 billion by 2022. India was the ninth largest exporter of
agricultural products in 2017.

Summary of Agricultural Industry in India

Agriculture is the primary source of livelihood for about 58 per cent of India’s population. Gross
Value Added by agriculture, forestry and fishing is estimated at Rs 17.67 trillion (US$ 274.23
billion) in FY18.
The Indian food industry is poised for huge growth, increasing its contribution to world food trade
every year due to its immense potential for value addition, particularly within the food processing
industry. The Indian food and grocery market is the world’s sixth largest, with retail contributing
70 per cent of the sales. The Indian food processing industry accounts for 32 per cent of the
country’s total food market, one of the largest industries in India and is ranked fifth in terms of
production, consumption, export and expected growth. It contributes around 8.80 and 8.39 per cent
of Gross Value Added (GVA) in Manufacturing and Agriculture respectively, 13 per cent of
India’s exports and six per cent of total industrial investment.

Market Size
During 2017-18 crop year, food grain production is estimated at record 284.83 million tonnes. In
2018-19, Government of India is targeting foodgrain production of 285.2 million tonnes. Milk
production was estimated at 165.4 million tonnes during FY17, while meat production was 7.4
million tonnes. As of September 2018, total area sown with kharif crops in India reached 105.78
million hectares.
India is the second largest fruit producer in the world. Production of horticulture crops is estimated
at record 306.82 million tonnes (mt) in 2017-18 as per third advance estimates.
Total agricultural exports from India grew at a CAGR of 16.45 per cent over FY10-18 to reach
US$ 38.21 billion in FY18. Between Apr-Oct 2018 agriculture exports were US$ 21.61 billion.
India is also the largest producer, consumer and exporter of spices and spice products. Spice
exports from India reached US$ 3.1 billion in 2017-18. Tea exports from India reached a 36 year
high of 240.68 million kgs in CY 2017 while coffee exports reached record 395,000 tonnes in
2017-18. Food & Grocery retail market in India was worth US$ 380 billion in 2017.

Investment Scenario
According to the Department of Industrial Policy and Promotion (DIPP), the Indian food
processing industry has cumulatively attracted Foreign Direct Investment (FDI) equity inflow of
about US$ 8.57 billion between April 2000 and June 2018.
Some major investments and developments in agriculture are as follows:

● By early 2019, India will start exporting sugar to China.

● The first mega food park in Rajasthan was inaugurated in March 2018.
● Agri food start- ups in India received funding of US$ 1,66 billion between 2013-17 in 558
deals.
● In 2017, agriculture sector in India witnessed 18 M&A deals worth US$ 251 million.

Government Initiatives
Some of the recent major government initiatives in the sector are as follows:

● The Agriculture Export Policy, 2018 was approved by Government of India in December
2018. The new policy aims to increase India’s agricultural exports to US$ 60 billion by
2022 and US$ 100 billion in the next few years with a stable trade policy regime.
 ● In September 2018, the Government of India announced Rs 15,053 crore (US$ 2.25 billion)
procurement policy named ‘Pradhan Mantri Annadata Aay SanraksHan Abhiyan' (PM-
AASHA), under which states can decide the compensation scheme and can also partner
with private agencies to ensure fair prices for farmers in the country.

● In September 2018, the Cabinet Committee on Economic Affairs (CCEA) approved a Rs

5,500 crore (US$ 820.41 million) assistance package for the sugar industry in India.

● The Government of India is going to provide Rs 2,000 crore (US$ 306.29 million) for
computerisation of Primary Agricultural Credit Society (PACS) to ensure cooperatives are
benefitted through digital technology.

● With an aim to boost innovation and entrepreneurship in agriculture, the Government of

India is introducing a new AGRI-UDAAN programme to mentor start-ups and to enable
them to connect with potential investors.

● The Government of India has launched the Pradhan Mantri Krishi Sinchai Yojana
(PMKSY) with an investment of Rs 50,000 crore (US$ 7.7 billion) aimed at development
of irrigation sources for providing a permanent solution from drought.

● The Government of India plans to triple the capacity of food processing sector in India
from the current 10 percent of agriculture produce and has also committed Rs 6,000 crore
(US$ 936.38 billion) as investments for mega food parks in the country, as a part of the
Scheme for Agro-Marine Processing and Development of Agro-Processing Clusters
(SAMPADA).

● The Government of India has allowed 100 percent FDI in marketing of food products and
in food product e-commerce under the automatic route.

Achievements in the sector

● The Electronic National Agriculture Market (eNAM) was launched in April 2016 to create
a unified national market for agricultural commodities by networking existing APMCs. Up
to May 2018, 9.87 million farmers, 109,725 traders were registered on the e-NAM
platform. 585 mandis in India have been linked while 415 additional mandis will be linked
in 2018-19 and 2019-20.

● Agriculture storage capacity in India increased at 4 per cent CAGR between 2014-17 to
reach 131.8 million metric tonnes.
 ● Coffee exports reached record 395,000 tonnes in 2017-18.

● Between 2014-18, 10,000 clusters were approved under the Paramparagat Krishi Vikas
Yojana (PKVY).

● Between 2014-15 and 2017-18 (up to December 2017), capacity of 2.3 million metric
tonnes was added in godowns while steel silos with a capacity of 625,000 were also created
during the same period.

● Around 100 million Soil Health Cards (SHCs) have been distributed in the country during
2015-17 and a soil health mobile app has been launched to help Indian farmers.

Future of agriculture Industry

India is expected to achieve the ambitious goal of doubling farm income by 2022. The agriculture
sector in India is expected to generate better momentum in the next few years due to increased
investments in agricultural infrastructure such as irrigation facilities, warehousing and cold
storage. Furthermore, the growing use of genetically modified crops will likely improve the yield
for Indian farmers. India is expected to be self-sufficient in pulses in the coming few years due to
concerted efforts of scientists to get early-maturing varieties of pulses and the increase in minimum
support price.
The government of India targets to increase the average income of a farmer household at current
prices to Rs 219,724 (US$ 3,420.21) by 2022-23 from Rs 96,703 (US$ 1,505.27) in 2015-16.
Going forward, the adoption of food safety and quality assurance mechanisms such as Total
Quality Management (TQM) including ISO 9000, ISO 22000, Hazard Analysis and Critical
Control Points (HACCP), Good Manufacturing Practices (GMP) and Good Hygienic Practices
(GHP) by the food processing industry will offer several benefits

Fertilizer Industry
Fertilizers are substances that supply one or more of the chemicals required for plant growth.
Fertilizers can be both organic and inorganic. As per industry experts it is said that there are sixteen
elements that are absolutely necessary for plant growth. Out of these sixteen 9 elements are
required in large quantities while the other seven are needed in smaller amounts.
Since agriculture is a very important sector it goes without saying that the fertilizer industry is one
which the Indian economy cannot do without. The fertilizer industry in India is extremely vital as
it manufactures some of the most important raw materials required for crop production. The
primary objective of this industry is to ensure the inflow of both primary and secondary elements
required for crop production in the desirable quantities.
The success of the agricultural sector in India is largely dependent on the fertilizer industry. The
benchmark that the food industry in India has set is mainly due to the many technically competent
fertilizer producing companies in the country.
In the present scenario, there are more than 57 large and 64 medium and small fertilizer production
units under the India fertilizer industry. The main products manufactured by the fertilizer industry
in India are phosphate based fertilizers, nitrogenous fertilizers, and complex fertilizers. The
fertilizer industry in India with its rapid growth is all set to make a long lasting global impression.

Summary of fertilizer industry in India

India is the second biggest consumer of fertilizer in the world next only to China.India has 30
manufacturing units of Urea with an Installed capacity of 21.6 million tonnes till 2013. There are
12 units of DAP producing plants with a combined capacity of 8.3 million tonnes. Complex
fertilizers in the country have installed capacity of 6.4 million tonnes from 19 units. Highest
number of fertilizer units in the country belongs to SSP. India has 85 SSP units with a combined
production capacity of 7.7 million tonnes.
India is meeting 80 per cent of its urea requirement through indigenous production but is largely
import dependent for its requirements of phosphatic and potassic (P & K) fertilizers either as
finished fertilizers or raw materials. Its entire potash requirement, about 90 per cent of phosphatic
requirement, and 20 percent urea requirement is met through imports.

In India , complex fertilizer is produced by public sector, cooperative sector and private sector
players. Taking a closer look at the production scenario of complex fertilizer in the country which
has witnessed an overall negative growth for the period from 2008-09 to 2012-13, maximum fall
in production by both cooperative and the private sector was witnessed between 2010-11 and 2012-
13.

The entire requirement of around five million tonnes of potassic fertilisers would be met through
imports as India does not have commercially viable sources of potash. With a view to make the
nation self-sufficient in urea fertiliser, the Fertiliser Ministry has moved a proposal to boost
investment in the sector.
Comparing two Peer competitors of UPL – Pidilite Ind & Aarti
Industries

1. Pidilite Industries

Pidilite Industries, a well known name in adhesives market, was incorporated in 1969. Pidilite
Industries is the market leader in adhesives and sealants, construction chemicals, hobby colours
and polymer emulsions in India. Over two-third of the company sales come from products and
segments it has pioneered in India.
The company has diversified in various segments such as adhesives and sealants, construction
and paint chemicals, automotive chemicals, art materials, industrial adhesives, industrial and
textile resins and organic pigments and preparations. It has created brands like Fevicol, Dr Fixit,
Cyclo, hobby ideas, Roff and M-Seal.
To facilitate better global networking, Pidilite Industries has established offices / subsidiaries in
several countries including Singapore, USA, Brazil, UAE, Saudi Arabia, Indonesia, Egypt,
Bangladesh, UK, Kenya, South Africa and Ghana.In India it has subsidiaries namely Bhimad
Commercial Company and Madhumala Traders.
Pidilite also established a state-of-the-art research centre in Singapore that is now a member of
Singapore Chemical Industry Council (SCIC).

2. Aarti Industries

Aarti Industries Limited, an Aarti Group company was incorporated in 1984 by a group of
technocrats. It is the leading and highly integrated chemical manufacturer involved in mainly
manufacturing of various benzene based downstream and derivative products. The company owns
a state-of-the-art plant near Mumbai, India. It is recognized as the star trading export house, by
government of India.
The products of the company are exported to various countries like United States, United
Kingdom, Germany, Spain, Italy, Switzerland, Belgium, Japan, Korea, China, and Russia.
 Company: United Phosphorus Ltd
Industry Pesticides & Agrochem
Market cap Rs 39,202 Cr (Large Cap)
P/E 18.12 (Industry P/E 25.26)
Dividend Yield 1.05 %
Debt Equity 0.67
Net sales 12.92% growth QoQ

Data Analysis
 Sales growth (5yrs) 13.04%

EBIT growth (5yrs) 12.93%

ROCE (avg) 17.98%

ROE (avg) 20.95

UPL RATIOS

Y/E March 2014 2015 2016 2017 2018

EPS 9.70 10.81 16.47 4.83 10.76

Current Ratio 1.73 1.48 1.48 1.88 1.59

Dividend per share 4 5 5 7 8

Book Value per share 82.22 93.69 151.24 156.46

77.17
ROCE 12.96 19.26 7.17 8
18.21

Debt equity ratio 0.35 0.35 0.34 0.11 0.1

 SWOT - UPL
Strength
Strong product portfolio
Deep marketing reach
Better quality control
Global manufacturing facilities
UPL
Opportunity
Expansion into the countries
like brazil & Africa
Weakness
Competitive Market
Higher working capital
Threats
Unfavorable change in government
policies
Climate change & draught
Lower commodity prices
 ABOUT UPL
United Phosphorous (UPL) is a producer of crop protection products, intermediates, specialty
chemicals and other industrial chemicals, was incorporated in the year 1969. UPL is largest
producer of agrochemicals in India. It is amongst the top five post-patent agrochemical
manufacturers in the world. It offers wide range of products and has developed more than 100
insecticides, fumigants, rodenticides, fungicides PGR and herbicides. UPL is global player of crop
protection products has customer base in 123 countries. It has subsidiary offices in Argentina,
Australia, Bangladesh, Brazil, China, Canada, Denmark, Indonesia, France, Hong Kong, Japan,
Korea, Mauritius, Mexico, New Zealand, Russia, Spain, Taiwan, South Africa, USA, UK, Vietnam
and Zambia. UPL has 23 manufacturing facilities -- 9 in India, 2 in Spain, 4 in France,3 in
Argentina and 1 in UK, Vietnam, Netherlands, Italy and China. All the units are certified under
the ISO 9001 for quality assurance, 14001 for Environment Pollution Control norms and OHSAS1

Products
● UPL manufactures plant growth and regulatory products. Brands like Saaf, Doom, Samar,
Jhatka, SaathiI, Renova and Ratol among others.
● UPL also manufactures Caustic Chlorine, White Phosphorus, Industrial Chemicals and
Specialty Chemicals. It has created brands like Copter, Vijeta, Uthane, Phoskill, Sweep,
UMet , TikTok, Oorja and many more.
● It also has captive power plant that has a generating capacity of 48.5 MW.

Other Businesses
● BEIL (Bharuch Enviro Infrastructure) UPL hold majority stake, in this company. It has
developed centralized secured landfill facility. BEIL is engaged in collection and disposing
off solid/hazardous wastes from member industries in the regions.
● CEL (Chemo Electronic Laboratory) is part of UPL's diversification strategy. It is one of
the largest manufacturers of toxic gas detection devices in India; the only manufacturer of
chemical detector tubes in India.
● ETL (Enviro Technology) has a common effluent treatment plant located in Gujarat.
Financial Highlights – FY 2018
Particulars Growth Comments
Revenue 9% Delivering consistent and
growth growth profitable growth year on year
EBITDA 47 bps In spite adverse business
improvement conditions
ROCE 23.4% Efficient utilization of scarce
resources

Income statement
Balance sheet

Cash flow

Valuation
● This Large Cap stock is Good quality but has Expensive valuation
● While Price (-1.56%) has fallen, earnings (9.75%) have increased over the last year
● At the current stock price and financial performance, the stock has Expensive valuation
● UPL Outperformed Sector By 9.71% but Underperformed Sensex By -5.24%
 What’s working What’s not working

Operating cash flow highest at 2836cr Operating profit to interest(Q): lowest at 4.00 times

the company has generated higher cash revenues
from business operations
Profit before tax less other income has grown at
28.79
Near term the PBT trend seems positive
Company’s ability to manage interest payments is
detoriating
Debt equity ratio(HY): highest at 0.89 times
the company is borrowing more to fund its
operations its liquidty situation maybe stressed
Inventory turnover ratio(HY): lowest 2.88 times

Company’s pace of selling inventory has slowed

down

UPL acquires Arysta:

● Upl snaps up Florida-based Arysta Life Science Inc for USD 4.2 billion in an all-cash deal.
● The transaction will enhance the position of UPL as a global leader in the agriculture
solutions market and make it a USD 5 billion entity in combined sales offering it a USD
200 million savings through operational synergies
● Combined entity will become the fifth largest generic agrochemicals company in the world
after Bayer,
● Dupont, Syngenta and BASF.
● Arysta possesses expertise in speciality molecules where UPL is relatively weaker.
● Integration may help as UPL is strong in manufacturing and Arysta on the marketing side.
● Arysta has reach over Brazil, Africa, the U.S. and Asia, complementing UPL’s businesses.
● Offers cost synergies using UPL’s strong manufacturing base in India and outsourcing by
Arysta.
● Greater exposure to Africa, China and a few other countries which UPL lacks.
● Greater economies of scale in marketing and distribution as a merged entity.
Recommendations for UPL
 Sustained revenue growth – set to Continue
 UPL has been expanding its footprint into multiple geographies and enhances its reach
through acquiring brands that are reasonably valued and having a payback period of
3-4 years
 The management has set an estimated revenue target of $ 4bn in the next 4 years,
which if achieved, will set UPL apart from the competition in terms of ROE and ROI
 International penetration de – risks UPL’s business model
 Increased focus on per hectare productivity will increase demand for Agrochemicals
 The world’s population is estimated to reach 11bn in 2100, posing grave challenges
for food supplies. Hence, it is crucial to increase per hectare, productivity to meet
food supply that can segment, is expected to benefit proportionately from strong
demand for agrochemical.

BUY: At 782.68
TARGET PRICE: Rs 1004
 Sugar Industry

The sugar industry subsumes the production, processing and marketing of sugars. Globally,
most sugar is extracted from sugar cane and sugar beet. Sugar is an essential basis for soft
drinks/sweetened beverages, convenience foods, fast food, candy / sweets, confectionery,
baking products and the respective industries.
Around 160 million tonnes of sugar is produced every year. The largest producers are Brazil
(22%), India (15%) and the European Union (10%). There are more than 123 sugar-producing
countries, but only 30% of the produce is traded on the international market.

Sugar Production Process

Summary of Sugar Industry of India

India is the largest sugar consumer and second largest producer of sugar in the world according
to the USDA foreign Agricultural Service. Sugar Industry has a total turnover of Rs. 500 billion
per annum and contributes almost Rs. 22.5 billion to central and state exchequer as tax, cess,
and excise duty every year according to the sources of Ministry of Food & Government of
India.
Sugar Industry is regarded second after the Textile Industry in India as per the agro- processing
industry in the country. The industry has 453 operating sugar mills in different parts of the
country. Today nearly 50 million sugarcane farmers and a large number of agricultural laborers
are involved in sugarcane cultivation and ancillary activities contributing to 7.5% of the rural
population.
Indian Sugar Industry generates power for its own requirement and even gets surplus power
for export to the grid based on byproduct bagasse. There is even production of ethanol, an
ecology friendly and renewable energy for blending with petrol. Sugar Companies have been
established in large sugarcane growing states like Uttar Pradesh, Maharashtra, Karnataka,
Gujarat, Tamil Nadu and Andhra Pradesh and are the six states contributing more than 85% of
total sugar production in India. And 57% of total production is together contributed by Uttar
Pradesh and Maharashtra.

Types of Sugar Industries in India

The Sugar industry in India has two sectors including organized and unorganized sector. The
sugar factories usually belong to the organized sector and those producers who produce
traditional sweeteners fall into unorganized sector. Gur and khandsari are the traditional
sweeteners.
· Extracting juice by pressing sugarcane
· Boiling the juice to obtain crystals
· Creating raw sugar by spinning crystals in extractors
· Taking raw sugar to a refinery for the process of filtering and washing to discard
remaining non-sugar elements and hue
· Crystallizing and drying sugar
· Packaging the ready sugar

Key Characteristics of Sugar industry:

● Capital intensive
● Government regulated
● Seasonal fluctuation in the industry (demand increases during festive season)
● Raw materials constitute major cost
● No proper substitutes

Key success factors (key performance indicators)

● Capital utilization
 ● Optimum utilization of by-products for additional revenue
● Captive power generation

Global Sugar Industry

Brazil, India, EU and Thailand together account for over 50% global sugar production. India is
2nd largest sugar producer in the world and the largest sugar consumer country. Brazil is the largest
sugar producer with 50-60% of sugarcane used for production of Ethanol as a substitute for the
fuel.
ETHANOL INDUSTRY

Ethanol is a very key by-product for integrated sugar mills. On an average, 10.8 lt of Ethanol can
be produced from 1 tonne of sugar. B-Heavy molasses have better yield of Ethanol (explained in
detail later on in the article) than the molasses currently used for Ethanol production.

Ethanol is blended in the fuel to reduce the dependence of the country on crude imports generally,
and also ethanol is a cleaner fuel. ‘E20’ is a term to express 20% blending in the fuel.

India has ~330 distilleries which can produce over 4 bn litres of rectified spirit (alcohol) per year.
Of these, ~162 distilleries have the capacity to distil over 200 cr litres of conventional bio-ethanol.
India produces conventional bio-ethanol mostly from sugar molasses and partly from grains.
Production of advanced bio-ethanol is still in the R&D stage.

India will triple its ethanol production over the next four years till 2022 and this will save ₹12,000
crore in the country’s oil import bill, Prime Minister Narendra Modi said on Friday, which is being
celebrated as World Biofuels Day.

The Prime Minister also blamed the previous government for not encouraging the production and
adoption of ethanol, saying his government has planned 12 biofuel refineries in the country at an
investment of ₹10,000 crore. “The ethanol blending programme was started during the Vajpayee
government,” Mr. Modi said. “But previous governments did not take the ethanol programme
seriously. Now we will produce 450 crore litres of ethanol in the next four years from the existing
141 crore litres. This will result in an import savings of ₹12,000 crore.” The government will
achieve 10% ethanol blending in petrol by 2022 and is aiming to double it to 20%,” Mr. Modi
added.

However, the government’s biofuel policy has come under some criticism, with Kalikesh Singh
Deo, Member of the Parliamentary Standing Committee on the Ministry of Petroleum and Natural
Gas saying the policy itself needs revisiting.

“On the occasion of World Biofuels Day, the government needs to revisit its recently announced
biofuels policy,” Mr. Deo said in a note.

‘Abysmal levels’

“India needs to adopt a holistic approach to meet the consistent targets of ethanol blending, which
this government has been maintaining at abysmal levels (2% currently as per the policy document
itself),” Mr. Deo said in a note.

“The Union Government is highlighting the fact that it is investing significantly in the effort to
transform biomass to biofuel,” Mr. Deo added. “There is a plan to set up 12 modern refineries for
generating advanced biofuel. The plans announced by the government have been repeated in one
form or other since 2014, with little or no success,” he added

Comparing two Peer competitors of Balrampur chini – Shree Renuka & EID
Parry

1. Shree Renuka Sugars

(SRSL) was established in 1995. It is a fully integrated player focused on manufacturing and
marketing of sugar, power and ethanol. Shree Renuka Sugars has a leadership position with
20% market share in the current fuel ethanol tenders by the oil marketing companies (IOC,
HPCL, BPCL) and would supply a total of 217 million litres over a period of 3 years.It has a
Market Cap of Rs. 2,102.75 cr. Products portfolio of the company: Sugar- This being the core
product of the company, Power- Out of the by-products like Bagasse and molasses it generates
power for captive consumption and sale to state grid. Ethanol. Bio fertilizers- The residue
product from distillery operations blended with chemical are sold as Bio fertilizers.
2. EIDParry

EID Parry established in 1788, is engaged in the business of manufacturing and marketing of
sugar and bio products. The company was incorporated in 1975. It has a Market Cap of
Rs.3,919.55 cr. Products-Sugars- Under sugar, EID Parry operates 5 plants located at
Nellikuppam, Pugalur, Pudukottai, Pettavaithallai and Puducherry. The company has a
combined crushing capacity of all the five plants is 15800 (TCD) metric tonnes of cane per
day. From the by-products of sugar manufacturing, the company manufactures alcohol, bio-
fertiliser, power and ethanol. Bio Products- The bio products division of the company is a
world leader in the plant extract based bio pesticides business. The company’s azadirachtin
based product range-NEEMAZAL is registered in over 30 countries that include Argentina,
Brazil, Australia and Korea and many more. Nutraceuticals- Under this, the company has
product portfolio that includes astaxanthin and haematococeus algae, natural mixed
carotenoids, Astaxanthin and Lutein(all carotenoid products).

Balance sheet (March 2018) Amt in cr

Particulars Balrampur Shree EID Parry

chini Renuka

Total debt 876.19 1,095.96 707.41

Total 2,463.34 3,159.46 2,345.54

liabilities

Total Assets 2,463.32 3,159.47 2,345.54

Profit and loss (March 2018)
Balrampur Chini Mills ltd

Industry Sugar
Market cap Rs 2,532 Cr (Small Cap)
P/E 13.82 (Industry P/E -4.05)
Dividend Yield 2.26%
Debt Equity 0.03
Net sales -17.94%
Net profit 10.35% growth

Sales growth (5yrs) 6.56%

EBIT growth (5yrs) 18.12%
ROCE (avg) 14.99%
ROE (avg) 18.58%

Balrampur chini is the second largest sugar manufacturing company. India is the second largest
sugar producer and the largest sugar consuming country in the world; Balrampur Chini Mills
Limited is one of India’s largest integrated sugar manufacturing companies. The business portfolio
consists of manufacturing and marketing of sugar, ethyl alcohol, ethanol, generation and selling of
power and also manufacturing and marketing of organic manure.
The Company possesses a cane crushing capacity of 76,500 tonnes per day, distillery capacity of
360 KL per day and saleable co-generation capacity of 163.20 megawatts. Company has nine sugar
factories located in Eastern U.P.During FY18, it earned revenues worth Rs.4400.72 crore (up by
20.87 % from FY17), reported PBIT of Rs.384.21 crore (compared to Rs.789.57 crore in FY17).
Revenues and PBIT from the distillery and co-generation vertical stood at B643.50 crores and
B280.27 crores during FY18 respectively (compared to B602.29 crore and B275.61 crore during
FY17, respectively). The result was that the non-sugar proportion of profitability for the Company
increased from 32.92% to 66.88%.

Even after factoring a 3% consumption increase over the previous year’s level of ~25 million
tonnes, the country is expected to close the 2018-19 sugar season with a projected surplus of ~15
million tonnes, equivalent to seven months of sugar inventory – the highest ever.It is Supported
by very strong farmer relationships.

Cyclicality of sugar industry: The sugar sector is impacted by induced cyclicality, since high
sugar and sugarcane prices lead to increase in production at the cost of other crops. The resulting
low prices for sugar impact the ability of mills to pay the farmers, thus leading to creation of arrears

Scenarios for Balrampur Chini

Political: New Delhi, Sep 26 () The government Wednesday approved a Rs 4,500 crore package
for the sugar industry that includes over two-fold jump in production assistance to cane growers
and transport subsidy to mills for export up to 5 million tonnes in the marketing year 2018-19
The Cabinet Committee on Economic Affairs (CCEA)help mills in clearing huge cane arrears of
around Rs 13,000 crore

These steps will enable mills to boost sugar exports and clear cane arrears, which currently stand
at Rs 13,567 crore. Mills in Uttar Pradesh owe the maximum at Rs 9,817 crore to cane farmers.

Economic: The industry is facing a glut-like situation because of record production of 32 million
tonnes (MT) in the 2017-18 marketing year (October-September), resulting in a closing stock of
10 MT at the end of this month. With low global prices, the ministry has suggested helping mills
to export 5 million tonnes of sugar under the Minimum Indicative Export Quota (MIEQ) during
2018-19 by compensating expenses towards internal transport, freight, handling and other charges

Social: Though consumption of sugar in India has been growing at a steady rate of 3%, and is
currently at 23.1 million tones, per capita consumption at 18 Kg (lower than world average of 22
Kg) indicates potential upside from a demand standpoint.
FINANCIAL HIGHLIGHTS
Income statement

Balance sheet
 Cash flow

Y/E March 2014 2015 2016 2017 2018

EPS 0.15 -2.36 4.09 25.20 9.68

Current Ratio 1.63 2.14 2.28 3.37 1.77

Dividend per share 0.00 0.00 0.00 2.5 3.5

Book Value per share 49.76 46.12 50.28 65.58 69.48

ROCE 5.27 0.93 12.73 24.18 15.51

Debt equity ratio

1.11 1.43 1.22 1.09 0.54

 SWOT- BCML

This Small Cap stock with Good quality and Attractive valuation looks Positive for Long Term

● Outperformed Sector By 10.96% and Underperformed Sensex By -19.19%

● Both Earnings (-68.30%) and Price (-15.51%) have fallen over the last year, but the fall in
Earnings has been higher
● At the current stock price and financial performance the stock has Attractive valuation
 What’s working What’s not working

Highest operating cash flow(annually) at Net sales has fallen at 17.94%(Q)

1179.84 cr
This implies that company has generated Near term sales trend is negative
higher revenue from operations
Debtors t/o ratio (hy) highest at 28.30 ROCE lowest at 14.57% (hy)
Company has been able to settle its debtors on Profit generated on overall capital is
time deteriorating
C&CE highest(hy) at 316.51 cr
Short term liquidity is improving
Dividend payout ratio(y) highest at 25.83%
Company is distributing higher propotions of
profit as dividend
Earnings per share highest at 3.98
Increase in profitability has created higher
earnings for shareholders

Why the stock price of Balrampur Chini could double?

Globally energy security and environmental concerns are driving the adoption of fuel ethanol
across countries. Leading countries including Brazil, U.S., Europe, Australia, Canada and Japan
have established fuel ethanol programmes.

In the future, global fuel ethanol demand is likely to grow exponentially. Global ethanol exports,
currently at 6.5 billion litres are expected to increase to 50 to 200 billion litres by 2020

The government, earlier in September 2018, increased the prices of ethanol by 25 per cent. Only a
few players will benefit from this ethanol blending because only 25% of the sugar mills in India
have the distillery capacities and fewer have environmental clearance as well and Balrampur is
one of them.

Considering the company has the ability to sell more than 10 crore litre of ethanol/alcohol and 55-
60 crore units of power, we believe it would be able to generate more than 700 crore of revenues
from by-products. Additionally, it is also increasing its ethanol capacity to 18 crore litre.