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SP Tulsian of sptulsian.com said that the judicial process will accept that the State Advised Price (SAP) of Rs 125 announced in earlier years is right. He feels that sugar prices will rise as the production will fall after April because by that time crushing will be over and the country will have the general elections which are likely to get over by April. Thus, post that, there will be a sharp increase in the sugar prices to the extent of about Rs 3 per kg.



Speaking on government's announcement that sugar mills can export without prior government nod till December 31, Tulsian said this news just remains an academic one––nobody will be able to take advantage out of this.



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



Q: First one word on sugar and whether you think there is any potential upside in the near-term because they are going to contest this State-advised Price (SAP)?



A: The protest or the hearing that will come up tomorrow in Allahabad High Court seems to be more symbolic in nature because mills are already contesting this SAP of Rs 67 and Rs 78. If they do not dispute this, obviously, the judicial process will accept that the Rs 125 SAP announced in earlier years are right because if mills can accept Rs 140 for this year what is problem for them to accept Rs 125 for the immediate year and Rs 125 for the year thereafter.



Secondly, Allahabad Court has given relief in the past. The Lucknow bench judgment went against the mill owners while the Allahabad High Court judgment was in their favour. So, again because of the jurisdiction the Eastern UP sugar mills, whatever claims or dispute they make are all referred or heard by the Allahabad bench. This time also this same process has happened. Eastern UP Sugar mills have gone to the Allahabad High Court, the hearing is tomorrow, and even if there is no harm in them to go and prefer a litigation because even if the court does not allow them below Rs 140 or does not give them any relief there is no harm because the association of the UP sugar mills has decided that unless and until there is unanimity, crushing will not start in the state.



Now, coming to the operational side of the industry all the integrated players like Balrampur, Bajaj Hindusthan, Dhampur and Triveni are very keen to start the crushing even at the rate of Rs 140. However, the standalone mills, those who do not have the cogeneration or the distillery operations, probably, will get mildly affected. With respect to the longer-term cycle of the industry, after April the production will be low. Although the estimates at present are 21 million tonne, industry experts say that it is likely to be anywhere between 19 million tonne to 20 million tonne. That will obviously be raising the sugar prices from April because by that time crushing will be over and the country will have their general elections which are likely to get over by April. Thus, post that there will be a sharp increase in the sugar prices to the extent of about Rs 3 per kg.



Lastly, this time sugar crushing will be very low in UP; it is likely to be for about 140 days against the estimated cycle of about 170–180 days, which have been happening in the previous year. So taking overall, I do not think much relief can really be expected from Allahabad High court tomorrow below Rs 140, and even if it doesn’t come, it is not industry negative. Ultimately, all the industry players at their heart are keen to start production, even buying sugarcane at Rs 140. So, this is the overall scenario likely to remain quite positive for the sector in time to come.



Q: Which of these infrastructure stocks would you sell on this big pullback we have seen up until now?



A: I don’t think that any investor can really take a trading call on these stocks. I agree for if he is an investor because he cannot say that let me just get out on this pullback rally and re-enter at the lower levels because necessarily in all these stocks–– whether it is Punj Lloyd, JP Associates, GMR Infra, GVK Power or maybe Mundra Port––one has to take a slightly long-term call because all of them have operational projects in place. Profitability will start coming in maybe over a period of time. So maybe for a trader, they have a trading range but as a fundamental analyst, I will definitely not be attracted to exit from the stock on this pullback rally and then maybe think of re-entering into the stocks.



Q: What is your sense of fair value for Suzlon now?



A: In fact, after the rights announcement got scraped and they had bad results, taking all into this consideration, I think Rs 90 qualifies as the right value. However, that may not again be the case because still many of the stocks which deserve a better valuation than the rate at what they are ruling may not come in the very near future. So, probably, one has to wait for the next quarter results of Suzlon, and if that happens probably Rs 90 qualifies as a stable value for the stock.



Q: You were talking about it and even the government had indicated earlier on as season began that they see a marked slowdown in exports but would this mean anything for the industry as of now?

A: Last year the season which we have completed on September 31, 2008, we had an export of about 4 million tonne. However, this year it is not likely to be more than 1 million tonne for the simple reason that we will be having production of lessen than 20 million tonnes. Second, there are no re-export obligations left. Third, the domestic realisation is better. Coming to the news, which has come today, that the government has given permission that without any nod, one can go ahead for exports. However, government will not be giving any transport subsidy of USD 13.50 or 14.50 per tonne to any sugar mill, and in spite of that if somebody wants to export they can go ahead. But the strengthening rupee will definitely result in lower realisation for the sugar mills. The international prices of sugar and FOB will not be more than Rs 14 per kg while the domestic realisation is much better than that. It is ruling anywhere between Rs 15–16 per kg, and even if I take that probably this will help the sugar companies. Only the coast-based companies like EID Parry and Sakthi Sugar will be able to take advantage of exporting sugar. However, this will not be of any help to the UP sugar mills because they are located in the central part of the country. Overall, this news just remains an academic news––nobody will be able to take advantage out of this.

Source: news.moneycontrol.com