The Balrampur Chini Mills stock crashed 7% from its closing price on Friday, after reports that the proposed leveraged buyout by India’s biggest sugar producer by capacity, Bajaj Hindusthan, had fallen through.

The transaction, which would have required Rs 1,700 crore for buying Balrampur Chini promoter’s 36.67% stake for around Rs 180 a share, would have stretched Bajaj Hindusthan’s balance sheet as the company is already sitting on huge debt. Bajaj Hindusthan’s debt was close to Rs 3,000 crore at the end of July 2009, making it one of the most indebted sugar companies in the country. The company had raised most of the debt for capacity expansion.

The proposed deal would have been more beneficial for Bajaj Hindusthan than for Balrampur Chini. It could have made Bajaj Hindusthan a less leveraged company with a lower debt-equity ratio of about 1:1 as against the current 2.5:1, as Balrampur Chini is relatively less leveraged with a debt-equity ratio of 1: 1.13.

At the end of September 2008, Balrampur Chini had a total debt outstanding of close to Rs 1,300 crore. But this assumes the two companies would have merged or that Bajaj Hindusthan would have been able to acquire a stake of at least 50% after the mandatory open offer to consolidate Balrampur accounts with its own, thus improving its consolidated debt-equity ratio.

Besides improving its balance sheet, the proposed acquisition would have also resulted in a near monopoly for Bajaj Hindusthan in Uttar Pradesh, one of the key sugar producing states in the country.

With a combined capacity of 2.1 lakh tcd in a normal operational season of 150 days and on an average sugar-to-cane recovery of 9.5%, the deal would have raised Bajaj Hindusthan’s sugar production capacity to 30 lakh tonnes of sugar.

This is a fifth of total production of 150-160 lakh tonnes in the sugar season between October 2008 and September 2009. These apart, the financial performance of the two companies is a study in contrast. Bajaj Hindusthan has not been able to post profits in the current sugar season October 2008-September 2009.

Its standalone turnover for the 12 months trailing ending June 2009 recorded a loss of Rs 1.93 crore against a profit of Rs 127 crore year ago on lower sugar volume and higher interest cost.

However, Balrampur Chini has recorded an over 300% jump in net profit to Rs 198 crore during the 12 months trailing ending June 2009 compared to Rs 48 crore a year ago on the back of improved sugar realisation and lower costs.