SAP ruling to hit bottomlines of sugar cos: Tulsian

Sugar stocks are slipping on the news that the Allahabad High Court has upheld the SAP first of all and then fixed a price at Rs 125 from the earlier interim price of Rs 110. Balrampur Chini sounded quite distressed by the news. SP Tulsian, sptulsian.com feels that all the sugar companies will have to make an additional provision of Rs 15, which will take place into huge losses. That will hit the bottomline of each company operating from UP, he added.

Excerpts from CNBC-TV18’s exclusive interview with SP Tulsian:

Q: Balrampur Chini sounded very distressed and said they would post losses, what’s your reading of this SAP price?

A: In the interim order, Rs 110 was given as the price by the Court. All the companies having reported or posted the results for December as well as March quarter have booked the sugarcane prices at Rs 110. So, they will have to make an additional provision of Rs 15, which will take place into huge losses.

If you recall, even Bajaj Hindusthan has to provide for about Rs 400 crore extra liability on account of accounts for the year ended September 30, 2007. So, one could imagine the impact this will have on the sugar companies.  For Bajaj Hindusthan, it could be about Rs 400-450 crore per year while in case of Balrampur Chini the quantum could be about Rs 200-250 crore. Suppose if you have a company like 10,000 tonnes crushed per day (TCD), the impact could be as about Rs 30-40 crore per year.          

Q: So you think it is not going to be a problem for one or two quarters. You would worry about the full year numbers as well on the bottomline?

A: We have already seen the crushing season getting over for which this ruling has been announced. Whatever the quantity we will be seeing getting sold by the sugar companies, they have already done that for the operations. They have carried out and closed in the month of April or May. So the cost to them would be high by at least about Rs 1.50 paisa to Rs 2 per kg because of this Rs 15 increase. Sugar recoveries are less than 10% and Rs 15 increase implies a straight increase of at least Rs 1.75 paisa to Rs 2 per kg. So, that will hit the bottomline of each company operating from UP.

More to come...