Balrampur Chini Mills: Why investors should accumulate this stock

Investors with a moderate risk appetite and investment horizon of three-five years can consider accumulating the stock of Balrampur Chini Mills (Balrampur). We believe that the company’s growth is at an inflexion point, as it transitions from a sugar, ethanol and co-generation player into an integrated bio-plastics company, with its foray into manufacturing of Polylactic acid (PLA). Balrampur is expected to commission its 8,000-tpa (tonnes per annum) PLA manufacturing plant, which has been set up at a cost of ₹3,080 crore, by Q2FY27. At the current price of ₹587, the stock trades 31 times its FY26 consolidated earnings and 25 times and 16.7 times its estimated FY27 and FY28 earnings respectively (Bloomberg consensus).

Balrampur is among India’s integrated sugar producers with a crushing capacity of 80,000 tonnes per day and distillery capacity of 1,050 kilo litre per day (klpd). Despite sugar being a cyclical business, the company, through its efficient operations, has managed to generate consistent profits from its sugar business and reinvest it into better-margin ethanol business over the last few years. This has helped the company better the industry in terms of operating margins.

As the company is poised to morph into an integrated bio-plastics player now, the pay-offs can be significant, if the company is able to monetise the PLA opportunity well. This can be a potential re-rating story for the stock for three reasons. For one, Balrampur will no longer remain vulnerable to the cyclicality in the sugar industry, as PLA will lend stability to the overall business. Two, the transition to a higher margin product such as PLA (given the management guidance of 35 per cent operating profit margin), will help improve overall margins, which will call for better valuations. For instance, in FY26, the company reported revenue of ₹6,271 crore, with an operating margin of 12 per cent, translating into operating profit of ₹741 crore. The PLA plant, according to management sources, can fetch a revenue of ₹2,000 crore at its peak, with a target operating margin of 35 per cent, which is ₹700 crore. This can potentially double the company’s operating profit over the next two-three years, if Balrampur can achieve scale sooner.

Third, the company being the first large-scale integrated domestic player will not only be well positioned to play the import substitution market, but can also disrupt the plastic packaging market with its sustainable, bio-based products. So, the market potential can possibly be much bigger, over a period of time, than what is available to day (20,000 tonnes of PLA currently being imported into India).

Further, the company plans to process gypsum, which is a by-product from PLA into lactogypsum boards by setting up a facility at Kumbhi. For 80,000 tonnes of PLA, the company will make 1.16 lakh tonnes of lactogypsum, which will translate into 63 lakh units of gypsum board, with a revenue potential of about ₹150 crore, as per management sources. The cost for the board facility will be around ₹160 crore, and will likely be commissioned in 18 months.

While the new PLA business holds significant promise, the sugar and ethanol business may likely remain modest in the current year on three counts and this may provide an opportunity for investors to accumulate the stock.

While sugar season 2026 (October 2025-September 2026) started on an optimistic note with output expectation of over 32 million tonnes (mt) and about 3.1 mt of diversion for ethanol, lower cane yield in key States – Maharashtra, Uttar Pradesh and Karnataka, was a dampener. Now, the production this year is expected to be under 28 mt. In May, the government announced a ban on exports till September, until clarity on consumption, production and current season acreage and cultivation emerges. While area under sugarcane across the country, until mid-July, has been higher by 1.5 per cent compared to last year, at 57.58 lakh hectares, up by 0.86 lakh hectares, deficient rainfall in eastern Uttar Pradesh (wherein seven out of Balrampur’s 10 plants are located), is a concern.

The only silver lining is that tight supply conditions, if the production remains muted as expected, will support stable sugar prices. Also, the ethanol procurement price for B heavy molasses (₹60.73 per litre) and sugar juice (₹65.61 per litre), which has remained unchanged despite increase in cane costs, is expected to be revised this year. In FY26, State advised price (SAP) for cane was increased from ₹370 per quintal to ₹400 per quintal; however, ethanol prices were kept unchanged.

The company recently did a preferential issue of ₹450 crore (₹193 crore by promoters) to fund the escalation in cost for PLA of ₹230 crore and ₹160 crore for the lactogypsum plant.

While we are optimistic about the company’s long-term prospects, short-term challenges in the sugar and ethanol business may keep the stock price under check. For patient long-term investors, such weakness may be a good buying opportunity, with the only caveat being the successful scale-up of the PLA business.

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