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Target: ₹500
CMP: ₹379.95
After significant capex in the ethanol segment in the past 3 years (substitute of gasoline), Balrampur Chini Mills has announced a foray into the manufacture of polylactic Acid (PLA), also known as ‘bio-plastic’ with forward integration (conversion of sugar into PLA) . The company will invest ₹2,000 crore(₹800 crore equity from internal accruals; ₹1,200 crore debt mix) over a period of 2.5 years.
This new venture, with a capacity of 75k tpa, will be India’s first ever bio-plastic plant on a global scale. The new plant will be a greenfield unit next to the existing sugar capacity, enabling BRCM to be a low-cost producer (saving on transportation and power). The company has started building a strong team and has appointed senior management personnel with rich experience in the global bio-plastic industry.
We believe this is a step in the right direction given that the company is de-risking itself from government-regulated business (sugar, ethanol). As financial details pertaining to pricing/margins/RoCE have not been disclosed yet (likely over the next 4-6 months), we have not factored in this investment in our estimates.
Given the strong cash flows, we believe the company can comfortably fund this foray without significant stress on the balance sheet.
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