JM Financial sees huge potential in Balrampur Chini polylactic acid project, maintains ’buy’ rating

Global brokerage firm JM Financial, in its latest note, expressed optimism about Balrampur Chini’s $20 billion investment in polylactic acid (PLA), viewing it as a strong contender to replace traditional fossil-based plastics due to its environmental benefits, such as biodegradability and a low carbon footprint, and its economic viability.

PLA is considered one of the most preferred bio-polymers, outpacing others like bio-PE, PHA, and PCL, due to its higher biodegradability, lower sugar consumption in production, minimal land use, and reduced life cycle greenhouse gas (GHG) emissions compared to traditional fossil fuel polymers.

According to the brokerage, the company is establishing the country’s first large-scale bio-plastic plant with a production capacity of 75,000 tons per annum (TPA), comparable to global players like NatureWorks, TotalEnergies Corbion, and Zhejiang Corbion.

JM Financial believes that Balrampur’s PLA project could be cost-competitive against its global peers due to its fully integrated setup. The company’s partnerships with three globally renowned technology providers for establishing its unit will position it among the top bio-polymer manufacturers worldwide and open up export opportunities if the company chooses to pursue them, it stated.

Raw sugar, derived from sugarcane or sugar beet, and dextrose from corn starch, are the primary feedstocks for producing lactic acid and its derivatives. The most efficient raw materials are those with a high yield per hectare of arable land (measured by carbohydrate yields per hectare) and efficient energy conversion.

In this context, raw sugar stands out as one of the most efficient raw materials for producing bio-based polymers. Therefore, JM Financial expects raw material consumption for PLA production to be manageable for Balrampur Chini’s new project.

According to the brokerage’s analysis, producing 1 kg of PLA will require the consumption of 110,000–120,000 tonnes of sugar. Balrampur Chini’s net sugar production capacity is estimated at 0.9 million to 1 million TPA.

India’s PLA market poised for growth

India’s PLA market is currently underdeveloped, with no domestic production and a complete reliance on imports to meet demand. However, the launch of Balrampur Chini’s PLA production unit, with a capacity of 75,000 tons per annum (KTPA), is expected to gradually reduce the reliance on single-use plastics, which currently have a market size of 4.5–5 million tons per annum.

To encourage the manufacturing of bio-based products, the Union Finance Minister announced a new scheme in the Interim Budget of 2024–25 (February 2024) focused on bio-manufacturing and bio-foundry.

This initiative aims to provide environmentally friendly alternatives, such as biodegradable polymers, bioplastics, bio-pharma products, and bio-agricultural inputs.

Globally, the PLA market is dominated by a few key players, including NatureWorks LLC in the USA and Thailand, Futerro in Belgium, the TotalEnergies Corbion Joint Venture in Thailand, COFCO, BASF SE in Germany, and Hisun Biomaterials in China.

Among these, very few are fully integrated, and Balrampur Chini stands out as the only player that will be sourcing sugarcane directly to manufacture PLA, unlike others who rely on external sources for sugar, lactic acid, or lactide, the brokerage underscored. 

PLA project to provide long-term growth visibility

“Our work on the BRCM’s upcoming project suggests it can incrementally add revenue of ₹13.8 billion and EBITDA of ₹5.5 billion in FY30E. We expect the project to start commercial production in FY28, although the company guides to commence production in Oct-Nov’26 (we estimate the first few months of trial run) and reach a 70% utilisation level in FY30. Our realisation and profitability assumptions are based on prevailing global PLA prices and the consumption cost of raw sugar,” said JM Financial.

Amid the expected growth from the PLA project, JM Financial has maintained its ‘buy’ rating on the stock, with a target price of ₹640 per share.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.