Expect P&L hit of Rs 90cr post SC ruling: Balrampur Chini

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Expect P&L hit of Rs 90cr post SC ruling: Balrampur Chini

Shares of Uttar Pradesh-based sugar companies took a beating after the Supreme Court directed private sugar mill owners to pay farmers in accordance with the special advisory price fixed by the state government.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See latest News about Balrampur Chini See previous management interviews See what other Experts & Brokerages are saying about Balrampur Chini Balrampur Chini BSE | NSE 29/05/12 Are Mutual Funds betting on Balrampur Chini?

Shares of Uttar Pradesh-based sugar companies took a beating after the Supreme Court directed private sugar mill owners to pay farmers in accordance with the special advisory price fixed by the state government. Mill owners were asked to cough up total dues of about Rs 10 billion to farmers for the two years to 2008. India's sugar season starts from Oct 1.

Commenting on the apex court's decision, Vivek Saraogi , MD of Balrampur Chini said that according to  the judgement, the companies have three months time to make the payment of the principal amount beyond they may have to pay interest. So the companies will try all possible legal options after which they may follow the accounting standard advice.

Saraogi explained, "In 2006-07, as we have to pay Rs 20 crore, no accounting has to be done in P&L because it was already booked in 2006-07. For 2007-08, in the balance sheet, it stands as a contingent liability at Rs 90 crore for which if we do not get a stay order, we would have to book probably in the coming quarter."

Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: What kind of outflows and P&L reversal do you expect for the season 2007-2008 because of the Supreme Court ruling?

A: I think P&L would be around Rs 90 crore and cash payout Rs 110 crore. In 2006-07, it was Rs 20 crore which has already been accounted for.

Q: Which quarter would you look to book this reversal in?

A: According to the judgement, we have three months time to make the payment of the principal amount beyond which we are required to pay interest. So we will be trying for all our legal recourses that exist after such an order, after which we will follow whatever is the accounting standard advice.

Q: Does it have any repercussions though on the case for the 2011 season, something that sugar companies such as you are contesting with the court?

A: The matter came up in the bench yesterday and the opposite party said this order should have a bearing. But since the order was based on Statutory Minimum Price (SMP),  whether states have the power to fix a price higher than Statutory Minimum Price will not have a bearing because this year we are contesting a price fix after Fair and Remunerative Price (FRP).

 Q: Any major reversals that you have to do on the P&L even if there is no cash outflow for the season 2006-2007?

A: Let me clarify - in 2006-07, as we have to pay Rs 20 crore, no accounting has to be done in P&L because it was already booked in 2006-07. For 2007-08, in the balance sheet, it stands as a contingent liability at Rs 90 crore for which if we do not get a stay order, we would have to book probably in the coming quarter.

Q: There has been some talk on which sugar stocks rallied a few days back on decontrols, scrapping of levy sugar, quota etc. Sugar companies have met the government as well; is there any hope that some of this will be implemented before the UP election results come in or does one have to wait post elections?

A: I was there in the meeting; we had met the Finance Minister and there were lot of other delegates from within the government. The sense I got was that because of the code of conduct being in place, nothing major is possible before the UP election but they would look at it seriously. But it has been very long and we have had various such meetings in the past so one cannot conclusively say they would do something but we had a good timeframe and very focussed presentation.

Q: What is your estimate of the hit to the entire industry because of this ruling for all the UP sugar companies put together?

A: It should be around Rs 1,000 crore plus cash outcome. I don't have the exact number but it should be in that range.

Q: Won't this make it a tough couple of quarters for UP companies?

A: We have to book it in one quarter; we will not be able to book this account in two quarters, that's my view, so that one quarter will be hit hard wherever you book it.