Balrampur Chini - Polylactic Acid Opens New Growth Avenues: Systematix

Systematix Research Report

Balrampur Chini Mills Ltd. has announced its foray into polylactic acid, meant to produce bioplastics. The company will set up a global scale facility of 75,000 tonnes per annum to produce PLA which would be housed adjacent to the company’s existing sugar plant (forward integration of sugar).

The capex for this is estimated at Rs 20 billionand the company expects to fund this through mix of internal accrual (40%) and debt (60%). The new plant would be commissioned in ~2.5 years.

Management indicated that it would need 110,000 tonnes of sugar (10% of Balrampur Chini’s total annual sugar production) to produce 75,000 tonnes of PLA. This first-ever industrial bioplastic facility in India has following advantages-

1. a lot of the local infrastructure would be shared to accelerate the construction of the new plant,

2. proximity to the sugar plant would make the sourcing of key raw materials, sugar and bagasse, easier,

3. since production of PLA is power intensive, the use of bagasse to generate power would reduce cost of production.

Management believes bioplastics has huge demand, as currently, single use plastics (which it is looking to replace through bioplastics) is a ~5 million tonne market; government is keen to reduce the consumption of SUPs. However, the management did mention that the price of bioplastic is double that of conventional plastic, but in case government bans the use of SUP, the price of bioplastic would be irrelevant, as consumers would be left with no option but to use the replacement.

We see Balrampur Chini’s decision to venture into bioplastics as a step in the right direction, and perceive multifold growth prospects for it, given government’s thrust to reduce the carbon footprint to become net zero.

While management has not discussed the financials of the new venture, we believe these would be at least be at par or better than the company’s current numbers.

We expect management to share more details in due course, as the project is at least 2.5 years away from being commissioned. We have not included the financials of the new project in our FY26 estimates.

We reiterate 'Buy' on Balrampur Chini with an SoTP-based target price of Rs 488, based on implied FY26E price/earning of 14 times and enterprise value/ Ebitda of 10 times.

Key risks: Fall in sugar prices and lower production of ethanol.

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