Find deeper value in buyback than dividend, says Balrampur Chini

Sonia: Before talking about your earnings, I want to ask you about the buyback. Instead of a buyback why did you not consider something like a dividend perhaps to shareholders? It's something that Balrampur Chini has not given out in while?

A: We have always maintained right from the beginning that should we not do new business or invest into something which is related. We would either payoff loans or return money to shareholders.

I guess these are the two things. A dividend is a same thing. A buyback is a same thing. We find deeper value in buyback. We think there is intrinsic worth at the price. We also think that ultimately when buyback happens down the line the equity reduces, so earnings are better-off per share. Therefore, it's a better and more efficient is what the board thought.Latha: The deeper statement you are making is that there is no point in expanding this business?

A: I did not say that. I said should you not find opportunity till you find opportunity. Half year has happened and we are distributing money.

Anuj: The counter argument is this acceptance ratio only works out to 6 percent. Could you have done a buyback where promoters did not participate - that would have made things much better because the stock reaction is telling you that the market did not like it?

A: Let us understand. It is 4.08 percent of equity of everyone will be taken. Everyone will be offered to tender 4.08 percent of their equity holding. So what is your percentage pre holding remains your percentage post holding? Should you tender 4.08 percent? So there is nothing else but there is a distribution of money to the shareholders. Promoters are shareholders; dividend is going to all shareholders. So this is nothing but distribution of money to shareholders and the board debated at the pricing and found intrinsic worth of fixing a price like this, which we did finally come up with.

Anuj: But at the end of the day it only works out to only 6 percent acceptance ratio. It works out to a minimal dividend. So you could have chosen a clear option of either giving a special dividend or maybe promoters not participating in the buyback - that would have made things more rewarding for minority shareholders - that's the point I was making.

A: First of all let me correct the percentage. It is not 6. It is 4.08     

Anuj: That is even lower.

A: Yes, but if you take somebody holding 100 shares. He tenders four shares; he gets 175 into Rs 4. If you calculate that and divide it with the number of shares then you will come to what he is getting and taking home.

Anuj: That is almost Rs 3 per share.

A: No, it's more.

Sonia: At point should minority shareholders expect any dividend from the company in the near future?

A: It is something which the board would relook at after the numbers come out finally in the year. We have done an interim last time. We did this now. The idea is we are going ahead and paying off loans, over Rs 400 crore this year. As a company, our target is to be at the lowest level of loans and whatever is left after that is distributed.

Latha: You have a reasonable clarity about the amount of raw material that will be available for the sugar year that started on October 1. How does it look like? Does it look like it will be another good year? You will have a fair idea of inventories, the cost of the inventories. Give us an idea of the business outlook for the next 12 months?

A: The season has just begun. Two of our factories have begun out of 10 and the quantity of raw material for Uttar Pradesh and especially for us, we feel extremely comfortable. Our initial estimates show that our crushing could be higher than last year, recovery will wait and in another couple of months we should have a clearer view. The demand-supply situation, we are aware, is in extremely tight balance. However, there is no shortage. Having said that the price trajectory would remain firm and there would be some increase in cane price because last year we were looking at certain sugar price, this year we are looking at certain sugar price. I think all and all one looks ahead with optimism and positivity.

Anuj: Your thoughts on the sugar cycle and what is happening. We are close to UP election as well. Are you getting a sense that we may have moved back closer to the peak than the bottom of the cycle?

A: No, I don't say that. I see UP elections. One is definitely aware that there would be some increase in cane price, which is absolutely justifiable if done within the realms of logic. Having said that the demand supply situation, I see, remaining very tight. Hence the final product price is something I am also positive on. It is not looking at tearaway price, a run into 40s, I am not saying that but your sugar margins will continue to be on the positive side even in the sugar segment and that is my prediction to the best of my ability.

Latha: We do not get anyone who is so close to rural India and to the farmlands. How is demonetisation playing out there? Are you able to pay, are you getting the trucks coming. Are things stranded for the moment?

A: There is some disruption in terms of daily life but if we see our company, our wages were paid 100 percent by bank. So our workers are not affected. People who are buying our sugar, for a couple of days it was stagnant but from buying has picked up again from yesterday. So, in our area even the farmers are all bank holders.

However, the trucks, which would come in etc, might have a problem but it is not so bad.                

Sonia: You mentioned that Rs 400 crore of loans is what you are going to repay by the end of this year. What does the total debt of the company stand at currently?

A: We have already repaid over Rs 400 crore till now. We may be paying off Rs 50 crore.

We are around Rs 225 crore, out of which there would be debts of interest free and soft loan also of 4 percent. So, our idea is to collapse the debt. Our idea is to pay off the shareholders. Should business opportunity arise, we are there light feet footed to grab it with both our hands.