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Will move Lucknow HC in few days on SAP prices: Balrampur

Balrampur Chini's MD, Vivek Saraogi indicated that they are planning to move the Lucknow High Court in a couple of days on the SAP cane prices. However, he pointed out that the second half realisations would be much better for this year.

November 15, 2011 / 04:17 PM IST
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The UP government raised the state advised price (SAP) for sugarcane in season started October by Rs 35-40 per quintal to Rs 235-250 per quintal. Mills will now have to pay farmers at least Rs 240 per quintal for fair average cane, Rs 250 per quintal for early maturing varieties that have higher recovery and Rs 235 for late maturing cane, against Rs 205, Rs 210 and Rs 200 per quintal, respectively during the last year.

Meanwhile, Balrampur Chini announced its second quarter FY12 results. The company reported a 1.1% fall in revenue at Rs 507 crore versus Rs 512.8 crore (YoY) and the operating profit margin (OPM) was at 3.8%. Moreover, Morgan Stanley is equal-weight on Balrampur Chini with a target of Rs 54 levels.
Managing director of the company, Vivek Saraogi indicated that they are planning to move the Lucknow High Court in a couple of days on the SAP cane prices. He said, "We are looking to challenge Rs 240 per quintal cane price fixed by UP government."

However, Saraogi pointed out that the second half realisations would be much better for this year.

Here is the edited transcript of his interview to CNBC-TV18. Also watch the accompanying video.

Q: What are your thoughts on the recent indications in terms of the new SAP prices? How detrimental will the new price be? There were indications that the mills has been planning to move court on the issue. What way do you plan to go forward?

A: The price is arbitrary. We are moving the Lucknow High Court in a couple of days.

Q: Will you not start crushing operations in the next one month till you hear from the courts on the SAP price?

A: No, the crushing has got nothing to do with the SAP prices. The crushing has begun in parts in UP. The balance would also start in the next five-seven days. The court case is for the price determination. We are challenging the Rs 240 price.

Q: You have gone to through the legal route once in the past too. What was the outcome then? Are you hopeful that it will get resolved as you want or eventually you will have to cough up?

A: In 2007-2008, similar losses were inflected on the mills because of high SAP. We had gone to court for that one year. We got in interim price, which was a midway between the SAP and the price we were paying.

Q: This quarter, operation realisations have been a little subdued on domestic side. What do you hope to do in terms of sales for the second half? How much would realisations move up to?

A: After September 30, the realisations have gradually improved as we moved into October-November. Export should be announced very soon. This year, second half realisation should be much better.

Q: If you have to pay the new SAP price, given the current realisations in the market, will you be able to operate profitably?

A: If we had to pay the SAP at Rs 240 per quintal and sell sugar at the current price at around Rs 30 per kilogram, sugar would lose money.

Q: The disappointment has come in from the cogen division with a fairly significant drop. Do you see that getting corrected going forward?

A: This is the lean quarter. We plan to mostly use up all our bagasse before the rainy season. The previous quarter was good and the next quarter would be fully operational from almost November 10.

Q: Market is a bit concerned about what is happening in the sugar space. A couple of months back, everyone was talking about de-control of the sugar industry. Instead you have a completely marked up SAP price ahead of the UPA elections. Will there be any regulatory action in your favour rather than against as it seems with this SAP?

A: The SAP action is from the state government. They have done what thought was best for themselves. Now, the central government has three agendas pending with them.

First agenda is levy abolition on us. They are welcome to continue with their systems, but must buy the sugar from open market. This is the only product where the industry is giving levy. They are putting the bill for any other agri-product. This is the reason why we have almost a one-lakh crore food security bill.

The second agenda is ethanol. The pricing of ethanol has been pending at their end, which would receive an upward bias with the increase in the retail price of petrol.

The third agenda is exports. Export should happen very quickly. It should begin with one million, and then should be gradually scaled up depending on the production.

Q: The distillery segment has done quite well. Do you expect that to be the biggest contributor to profits for the rest of the year?

A: For the full year, cogen will be the best followed by distillery. I don