SC ruling on cane arrears +ve for sugar cos: Experts

The Supreme Court has fixed the price of cane at Rs 110 per quintal in the sugarcane arrears case. It has asked Uttar Pradesh sugar mills to pay FY08 arrears of Rs 578 crore in four weeks time. This payment represents 62% of total cane arrears.

What do experts read into this court judgement?

P Tulsian of sptulsian.com feels this ruling is positive for sugar mills in Uttar Pradesh as they don’t have to pay anything extra. “They have paid Rs 110 per quintal. So, there won't be any new liability. However, I would wait for the final judgement of the Supreme Court. This could just be an interim relief. The expiry of differential payment happened on September 6. If they would not have pronounced this judgement, the State government might have gone ahead with the recovery. I think this is just a clarification to avoid any coercive recovery process by the State government."

Vivek Saraogi, MD, Balrampur Chini feels the Supreme Court's order is extremely positive for sugar companies.

Vijay Banka, CFO, Dwarikesh Sugar Industries, said the interim judgment is positive. “Cane price at Rs 125 per quintal, which the State Government had fixed and confirmed by the High Court, would have had disastrous consequences. There should be subjectivity. I am hope for the sugar industry with this interim judgement.”

According to CNBC-TV18’s Abhijit Neogy, this is an interim order by the Supreme Court. “The contention in UP was that there was a State Advised Price, or SAP, of Rs 125 per quintal that cane farmers demanded from mill owners. There was a conflicting judgement by the Lucknow Bench of the Allahabad High Court, which said that these arrears could be paid at a much lesser rate of Rs 85 per quintal, which is the price fixed by the Centre. Mill owners paid about Rs 110 per quintal, with the balance amount remaining outstanding. The Supreme Court has questioned why arbitrators fixed the SAP of Rs 125 per quintal. Sugar mill owners are not exactly upset about it as this is something they have paid out and factored-in. That is why sugar stocks have been rising. Within four weeks, not only do private sugar mills have to pay up but states and cooperatives owned by the state government also will have to pay up. The entire payout would be around Rs 755-800 crore. Though it may be an interim order, it is a significant judgement.”

PK Bhalla, ED, Mawana Sugars, said the contrary judgement by two coordinate benches of the apex court was a severe proprietary issue. “There was no doubt about the matter getting admitted for consideration by the Supreme Court. In February, the Supreme Court had, as an interim measure, passed an order asking sugar companies to pay Rs 110 per quintal. They have maintained the order subject to actually examining the whole matter in detail. However, it is too early to pass any judgement on the price front.”

What will the Supreme Court do next?
According to SP Tulsian, the Supreme Court will decide on the power of the State government to fix the State Advised Price (SAP). "If they upheld the power of the state government to fix SAP, then it will decide on the equation to arrive at SAP. However, it may not take a stand as it will only go into the legal aspects."

According to Dwarikesh Sugar’s Vijay Banka the final hearing is eight weeks from now. “When the matter is finally heard and decided, rationality would prevail and augur well for the industry.”

Mawana Sugars’ PK Bhalla said the state or respondents to the case have been asked to file their replies within four-weeks and then the petitioners will file rejoinders in two-weeks. “The Supreme Court would hear the matter based on this and determine what the right price is. It is not the jurisdiction of the court to determine the price. The apex court has to determine whether the process adopted by the state government for fixing the price was right or not. So, the next hearing may take 3-6 months.”

Balrampur Chini's Vivek Saraogi said there were two special leave petitions in question. "First, by the UP government against the Bajaj Hindusthan order. Second, by the industry against the Lucknow High Court order, which ruled that cane prices should be fixed at Rs 125 per quintal. The Supreme Court said the interim price of Rs 110 per quintal is going to be the price as of now. Obiviously, merits have been found in the fact that the season has run at Rs 110 per quintal and it is going to be the price. The matter would come up for regular hearing from now on."

Road ahead for sugar companies:
At present, SP Tulsian said, all sugar mills in Uttar Pradesh have stopped crushing. "They are selling inventories at cost or about Rs 14 a kg. Since the commodity is getting sold anywhere close to Rs 17-18, there is an element of profit. However, one will have look at the price to be decided for 2008-09, which will start in the middle or end of October, to work out profitability. Right now, mills will definitely be making profits for the next 2-3 months on account of their inventories."

Dwarikesh Sugar’s Vijay Banka sees healthy margins in the current quarter. “This judgement is only for 2007-08 prices. For most sugar companies, the year ends on September 30. As far as 2007-08 is concerned, these prices would definitely have an impact on the industry. 2008-09 will be a new year and one will have to see what price is decided for that year.”

According to Mawana Sugars’ PK Bhalla, cane price have stayed at Rs 110 per quintal without making any deduction or adjustment for transport. Therefore, there is no immediate cash outflow from Mawana, except it has to probably show it as a contingent liability till the matter is finally decided.”

source:moneycontrol