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Aarati Krishnan

A SHARP slide in sugar prices and the rising input costs have soured Balrampur Chini Mills' performance for 2002-03. The company has managed a 3 per cent growth in its gross sales for the year. Since sugar prices in 2002-03 ruled around 15 per cent lower than in the previous year, this is a sign that the company has managed to push through significantly higher sales volumes than in the previous year. But the good news appears to end with this.

The sharp slippage in the company's operating profit margins shows that the higher volumes came at much lower realisations than the previous year. The company's operating profits for 2002-03 were 22 per cent lower than in the previous year.

The decline in margins may be due to a couple of factors. The company appears to have maintained or hiked the prices that it paid for raw materials (sugarcane), despite the sharp fall in market prices of sugar. Though the market prices of sugar have plunged in response to the gradual relaxation in government controls on supply over the year, the statutory minimum price for cane has continued to be pegged higher.

This apart, Balrampur's recent foray into potable alcohol has sharply increased the excise duty incidence on the company's sales. These factors have combined to depress operating profit margins. The increase in depreciation charges (probably due to investments in cogeneration and the new sugar project at Barabanki) has widened the gap between operating and net profits. As a result, the company has closed the year with a 38 per cent drop in net profits.

The near term outlook for Balrampur Chini appears sedate. For one, with the industry holding substantial accumulated stocks of sugar from the previous season, the pressure on prices is likely to continue unabated. Secondly, Balrampur has lined up a series of new product forays in the recent times. Balrampur has recently made a foray into new product categories such as potable alcohol, low-alcohol beverages and branded sugar. Each of these products is in the nature of forward integration for the company and may not require additional capital investments. But they certainly involve fairly aggressive brand-building efforts in the near term. Thirdly, the company has on the anvil, a greenfield integrated sugar complex at Barabanki, which may peg up the fixed cost component over the next fiscal.

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