SAP impact: Balrampur Chini sugar unit to incur loss

Vivek Saraogi of Balrampur Chini said the company has to pay SAP (state advised price) Rs 140 per quintal of cane effective from this season, that is the current quarter and added that at the current price of Rs 19.50 per kilogram the sugar division of the company would incur losses.
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Dec 10, 2008, 01.39 PM | Source: CNBC-TV18

SAP impact: Balrampur Chini sugar unit to incur loss

Vivek Saraogi of Balrampur Chini said the company has to pay SAP (state advised price) Rs 140 per quintal of cane effective from this season, that is the current quarter and added that at the current price of Rs 19.50 per kilogram the sugar division of the company would incur losses.

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SAP impact: Balrampur Chini sugar unit to incur loss

Vivek Saraogi of Balrampur Chini said the company has to pay SAP (state advised price) Rs 140 per quintal of cane effective from this season, that is the current quarter and added that at the current price of Rs 19.50 per kilogram the sugar division of the company would incur losses.

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Vivek Saraogi, Balrampur Chini

Allahbad high court has rejected the petition on sugar SAP and has upheld the price of Rs 140 for 2008-09 for sugar mills.

 

Vivek Saraogi of Balrampur Chini said the company has to pay SAP (state advised price) of Rs 140 per quintal for cane effective this season, or from the current quarter. He added that at the current price of Rs 19.5 per kg the sugar division of the company would incur losses. He sees sugar breakeven at Rs 19 per kg.

 

SP Tulsian of sptulsian.com said the cost of cane is Rs 14 per kg and the process cost is Rs 4-4.5 per kg which makes the total cost of production around Rs 18-18.5 per kg.

Here is a verbatim transcript of the exclusive interview with SP Tulsian and Vivek Saraogi on CNBC-TV18. Also watch the accompanying video.

Q: What does Rs 140/quintal translate into per kilogram of finished sugar?

 

Saraogi: Just the cane cost itself Ėthat means Rs 14 per kilogram is just the cane cost ex-field, beyond which you have to incur transport expenses, you have to incur taxes, processing cost, interest and depreciation.

 

Q: What would the conversion cost be then?

 

Saraogi: This yearís cost is not below Rs 19.50.

 

Q: So at the current prices are you making a loss or would you make up money with bagasse and molasses?

 

Saraogi: At current prices, the sugar division would definitely incur a loss. The other divisions would give a profit but it is impossible to give you figures because we donít know the quantum of crushing we would get into.

 

Q: What is your own estimate of what might happen for the bottomline performance of the sugar companies, if we are working with Rs 140 per quintal?

 

Tulsian: The conversion cost is working out to be about Rs 5.50, it has always been taken at Rs 4.50 because there is a grey area in respect to the transportation cost, which is expected from this judgment because that has only been pronounced in the court but the copies have not been delivered.

 

So, the relief of Rs 10 on account of the transportation is likely to be given to the mills. If I presume that to be coming in this judgment, the cost of cane will not be more than Rs 14 added to that the conversion cost at Rs 4-4.5 amounts to about Rs18-18.5 as the cost of production. Yesterday, there has been a realization of Rs 18 ex mill. Prices have been inching up everyday. It has been going up. About a week back or about 10 days back it was at about Rs17.40-17.50, which now has touched Rs 18.

 

So, there may be a loss of about Rs 1 per kg on sugar division, which will get offset by cogeneration and molasses on which you can expect a profit of about Rs 4.50. So, if I sum up the entire operations probably there is a profit of about Rs 3-3.50, this is more for the integrated sugar mills like Bajaj Hindusthan, Balrampur Chini and Triveni Engineering those who have the integrated operations. So, this will be the total situation in the present scenario as it stands today.

 

Q: What is your own sense of what kind of production we might have in this season because we were working with the targets of about 19-20 million tonne. Do you think that is what it is going to be or it might be lower?

 

Saraogi: At present, we should work with those targets only 19-20 million tonne is the band.

 

Q: What is the plan of action from hereon because there are many cases still pending? I believe there is a meeting scheduled as well by Indian Sugar Mills Association (ISMA)? Are you more or less coming around to the view that you will have to work with this 140 per quintal as a pay out to farmers or are you going to be contesting this again?

 

Saraogi: Once the order is out, once you read the order I think in a couple of days from now or by Monday this strategy should be better in place.

 

Q: Would you say that is the transport bit clear now, is this Rs 140/quintal what you will have to pay for sugarcane reaching your gates or is it at the farm?

 

Saraogi: That is what we are waiting to see in the order. Transport deduction is not yet clear; it will only get clear once we see the order.

 

 

Q: How about the outlook for sugar prices ?

 

Saraogi: We are at the beginning of the up cycle, itís going to be a gradual up cycle and thatís the way its best played out. So beginning gradually if we trend up then itís digestible and then the uptrend lasts.

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