In line with the trend in the sugar industry, Balrampur Chini too has reported excellent first half results. Higher prices of sugar in the domestic market as a result of lower cane production and benefits from expanded capacity have helped the company post good results.

Balrampur has recorded a growth in turnover of 38 per cent from Rs 95.87 crore in 1995-96 to Rs 132.75 crore in the first half of the current fiscal. On the other hand net profit growth has been 68 per cent to Rs 16.67 crore. Higher profit growth has been mainly because of better operating margin, which improved from 24.80 per cent to 29.38 per cent during the same period. However, higher interest (up 60 per cent) and depreciation (up 73 per cent) has partly absorbed the gain achieved at the operating levels. Increased interest cost has been partly because of timely payment to the farmers. This strategy has however prevented the farmers from shifting their crop, while on the other hand area under sugarcane cultivation has increased in their command zone, resulting in higher crushing by the company.

Expansion of both the units (Babhnan Sugar and Balrampur Chinni) has helped the company tremendously. Enhanced capacity resulted in lesser time required for crushing higher quantity of sugar, which in turn resulted in improving yields as well as reducing operating expenses. The company's lately acquired Babhnan unit has the highest yield in eastern U.P, while its own plant has the third highest yield in the region.

Balrampur has for the last two years crushed the entire sugarcane in its command area, though this resulted in the extension of operation to the unviable summer season. More importantly, Balrampur was among the few sugar mills that paid their farmers on time.

Traditionally the second half performance of sugar companies have been better than the first half. As for Balrampur Chini, it has already posted 70 per cent of 1996-97's profit in the first half of the current fiscal. Considering that the country is facing shortage of sugar, which has sent prices skyrocketing, the company with its strong fundamentals will do exceedingly well in the second half.

Loans and cash credit

With credit growth sluggish, banks and corporates have joined hands to find innovative ways out of being locked into the RBI-stipulated loan component of working capital limits. RBI instructions say that out of every Rs 100 advanced by banks for working capital, Rs 80 should be in the form of a loan, while the balance of Rs 20 could be under the old cash credit system. Since under the cash credit system, the entire limit need not be utilised, banks were left with large unutilised credits, disrupting their cash management.

With credit offtake sluggish, in an effort to coax corporates to use their credit facilities, banks are now trying to make the loan component more flexible. For example, they allow corporates to repay the loan component in part or in full after a month. That means corporates who draw down their loan components are not locked in for a year. They could repay part of it after a month, take some more and so on, as and when it suits them. In other words, the system is being made more or less similar to the cash-credit system, although all drawals from the loan component have an initial lock-in period of one month.

Cement

Over the past 12 months, cement stocks have under performed the broader Indian market significantly, falling by 37 per cent compared with the 10 per cent increase in the BSE Sensex. Demand being largely inelastic, oversupply has had a significant impact on the value of cement. Although prices have recovered marginally, current realisations are still 3-20 per cent lower on a year-on-year basis.

The current situation should change by the second half of 1998-99. Very few of the huge number of cement projects announced will see the light of day and there might also emerge a small shortage of cement. All major players like Indian Rayon, Grasim and SAIL have put their projects on hold and existing projects being put up by Sanghi cements and Phoenix are being delayed. Since no new plant is slated to come up in the next two years, the situation is bound to improve. Rickety public infrastructure has contained investments in capacity addition and has slowed project implementation. The need for captive infrastructure is absorbing cash that would otherwise have been used for new capacity. For example, Gujarat Ambuja will spend Rs 1.2bn on sea transport and Rs 2 billion on a power plant for its site at Gujarat. This sum could have sufficed to put up a fourth cement line and increase capacity by 33 per cent at that site. Delays in plant commissioning due to poor infrastructure, diversion of cash accruals into captive infrastructure and a process of consolidation overdue in this highly fragmented industry will combine to restrict supply. Further, by the second half of 1998-99, there are clear signs of an emerging deficit in the East. As Madhya Pradesh is the dominant supplier in this region with some 19.5m tonne production. Years of poor cash accruals have taken their toll on the players in this region. With few expansion plans being implemented currently a deficit of some 0.8 m tonne might emerge from today's oversupply situation.

There will be an additional supply of 6m tonne by next year from the new capacities. If the demand picks up by 1998-99 then demand would be 79 million tonne (excluding exports) and 90 million tonne (including exports). With no new major expansions and plants coming up in the next two years the outlook then should be positive for existing companies.

Shishir Asthana and Parul Monga

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.