The Hindu Business Line : Bajaj Hindusthan reports profit after revaluing cane at SMP

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Bajaj Hindusthan reports profit after revaluing cane at SMP

New SAP to be decided after consulting various stakeholders

By order
PAT of (-) Rs 39.53 cr for 9 months ended June 30 was at at Rs 85.18 cr quarter ended September 30.
Until new SAP is fixed, mills are obliged to pay only SMP of Rs 85-90 per quintal.

Harish Damodaran

New Delhi, Jan. 2 Bajaj Hindusthan Ltd (BHL), the country’s leading sugar maker, has taken advantage of a favourable ruling on cane pricing by the Allahabad High Court to report a ‘corrected/revised’ profit after tax (PAT) of Rs 45.65 crore on net sales of Rs 1,713.01 crore for the year ended September 30, 2007.

The High Court, in its order dated December 19, had quashed the Uttar Pradesh (UP) Government’s State Advised Price (SAP) of Rs 125-130 per quintal payable by mills for cane crushed during the 2006-07 season (October-September) as “arbitrary” and “unreasonable”. The State Government was directed to reassess the SAP “backed by reasons giving adequate outlines of norms, criteria or guidelines”.

Until such time that the new SAP (to be decided after consulting the various stakeholders and not unilaterally) was fixed, mills were obliged to pay only the Centre’s statutory minimum price (SMP), ranging between Rs 85-90 per quintal for 2006-07.

Performance

On its part, BHL had registered a profit before tax (PBT) of (-) Rs 82.59 crore and a PAT of (-) Rs 39.53 crore on net sales of Rs 1,280.71 crore for the nine months ended June 30, 2007. But for the latest quarter ended September 30, it reported a PBT of Rs 120.43 crore and PAT of Rs 85.18 crore on net sales of Rs 432.30 crore.

As a result, the PBT, PAT and net sales numbers for the entire season worked out to Rs 37.84 crore, Rs 45.65 crore, and Rs 1,713.01 crore.

The sudden turnaround in fortunes is attributable to the December 19 judgement. The company, in a statement issued on December 27, has clarified that in the light of the order quashing the SAP, it has “accounted for sugarcane liability for the 2006-07 season based on (the lower) SMP fixed by the Central Government”.

Consumption valuation

The revised SMP-based valuation of cane — apparently done after seeking legal advice — comes out clearly in the expenditure subhead “consumption of raw materials”. For the nine months ended June 30, 2007, BHL has shown this as Rs 1,732.65 crore.

But the corresponding figure for the subsequent quarter ended September 30, 2007 — when very little crushing would have taken place — has been reported as (-) Rs 449.23 crore, against just Rs 5.63 crore for the previous year’s quarter ended September 30. The value of raw materials consumed for the 2006-07 season, thus, totalled Rs 1,283.42 crore.

Analysts, however, dispute this retrospective valuation citing the principle of conservatism in accounting and also the fact that virtually every other sugar company has posted losses in recent quarters. Given the possibility of the High Court ruling being challenged by the State Government or farmers’ organisations, BHL runs the risk of having to revert to SAP-based valuation, which would again spill red ink on its balance sheet.

‘Discriminatory’

Moreover, data from the UP Cane Commissioner shows that BHL’s mills made almost full payments to farmers against their cane valued at SAP well until March.

It is only thereafter — when sugar prices really tanked — that the company started accumulating cane arrears.

“It means that farmers who supplied till March would have got full SAP-based payments. Since the High Court order explicitly mentions that no part of the payment already made to growers as per the SAP will be refunded, how can these now be re-valued at SMP?” the analysts quipped.

Alternatively, even assuming that only the growers who supplied after March are paid the SMP, it would create a discriminatory situation vis-À-vis those who already received full SAP payment, they added.

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