Balrampur Chini Mills: Moving into Branded Sugar
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Case Details:
Case Code : BSTA129
Case Length : 19 Pages
Period : -
Organization : -
Pub Date : 2005
Teaching Note :Not Available
Countries : India
Industry : -
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Introduction
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In 2005, Balrampur Chini Mills (Balrampur), the largest sugar manufacturer in India, was also one of the most efficient producers of sugar in the country. High capacity utilization rates, good recovery of sugar and a well-diversified business model with revenue streams from sugar, alcohol derivatives and power had kept Balrampur afloat even during the sugar industry's lean years.
Balrampur had also been remarkably successful in acquiring inefficient sugar mills and turning them around in the north Indian state of Uttar Pradesh (UP).
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Since 2000, Balrampur's turnover and net profits had grown at a compounded average growth rate (CAGR) of 21.37% and 27.25% respectively. During the same period, EPS (earnings per share) had nearly tripled from Rs 11.82 (2000) to Rs 31.88 (2004). Even as Balrampur had been expanding its capacity, it had been paying a dividend of around 35%.
Balrampur's financial health was reflected in the high rating for its commercial paper from credit rating agencies. Thanks to this rating, Balrampur could mobilize finances at the most competitive rates. Balrampur also enjoyed high cash credit limits.
In early 2003, with many of the low hanging fruits having been plucked, there were no underperforming sugar mills suiting the company's requirement, up for sale in UP. Balrampur's managing director, Vivek Saraogi realized that his company had to make new moves to build on the competitive advantages that had been created in the last two decades.
One such move was an initiative to enter the branded sugar segment where prices would be less vulnerable to market fluctuations. Would Balrampur be able to make a successful transition from commodities to brands? That was the question which analysts debated as 2003 got under way...
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