Though growing not as fast as two years ago, Balrampur Chini has definitely turned some bitter truth about last year's bottomline into a sweet one again. Net profit, which stagnated around Rs 19.50 crore in 1995-96, surged by 21 per cent to Rs 23.60 crore during 1996-97. The growth in turnover at 28 per cent, however, remained lower than previous year's.

While operating profit margin improved in the current year to 23 per cent, net profit margin slipped to 10.2 per cent. Margins at net level came under pressure mainly due to debt financing of the company's Rs 130-crore expansion project implemented last year, which raised debt-equity ratio from 0.3 to 1.8 per cent over the two year period. The borrowings ballooned from a mere Rs 16 crore in 1993-94 to over Rs 200 crore as of now, interest outgo burgeoned seven times from just Rs 3 crore to Rs 21 crore during the same period and doubled just over the last year, which affected net profit.

Nevertheless, the company deserves full marks for efficient management under Meenakshi and son, Vivek Saraogi, who have emerged expert in turn-around of ailing sugar mills after their success with Bhabhan Sugar. Through meticulous planning, "cane on wheels" method and hi-tech electronic monitoring in cane collection, the company could achieve, during the bad climate of 1995-96, a recovery rate at 9.6 per cent which was much higher than the industry recovery rate. Balrampur Chini's strategy of take-over, turn-around and expansion of Bhabhan Sugar paid rich dividends during 1993-94 sugar boom. Bhabhan unit can expand capacity from the current 5500 tcd to 15500 tcd, and is entitled to 100 per cent free sale upto 2002. With this the company plans to acquire sick mills for a good bargain.

Another smart business move has been in industrial alcohol. At a time when alcohol prices at home remained depressed, the company exported the same for double the realisation at Rs 12 per litre through Avantika Ganna and set up storage tanks at Calcutta port for this purpose. The company expanded industrial alcohol capacity from 60 kilolitres per day (klpd) to 100 klpd last year and with this expects a 15 per cent contribution to the bottomline.At a time when sugar industry is facing difficult time and crushing lower quantities of sugarcane, the company not only doubled its Balrampur unit's capacity to 10000 tcd but actually crushed higher at 21.90 lakh tonnes of sugarcane during 1996-97 as against 17.75 lakh tonnes during 1995-96. Sugar production increased from 17.08 lakh quintals to 21.18 lakh quintals and sales rose from 15.43 lakh quintals to 18.19 lakh quintals during the same period. Through 100 per cent capacity utilisation, industrial alcohol production trebled from 4627 kilolitres to 15700 kilolitres and sales skyrocketed from 1333 kl to 18205 kl.

The company seems to be favouring investors through liberal bonuses - one 6:5 in August 94 and another 3:2 in April 96. It also paid 65 per cent dividend for last three years. The sugar scrips had started firming up on the hope of sugar shortage, and rising prices would spell good for sugar companies' bottomline. The sugar year beginning October 97 is expected to start with lower carry-over stock of 71 lakh.

As against consumption of 135 lakh tonnes, this year is expected not to produce more than 110 lakh tonnes reducing the stocks even lower to 36 lakh tonnes. By January 98, the news of shortages would trigger the sugar prices to flare up and with that the expectation of higher profits for companies like Balrampur Chini which would have dual advantage of higher production and soaring prices. Balrampur Chini share gained 100 per cent since December 96 when the scrip started rising from Rs 51 to Rs 94 in early March 97. After a slide to Rs 68 early April 97, the scrip rose to Rs 100 early May 97. The 1996-97 results pushed it up by 12 per cent to the current price of Rs 112. In the next fall, the share should provide an investment opportunity.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.