News Regarding Closure of GAEL's Uttaranchal Plant
As per a news appeared in Times of India dated 3rd June, National Green Tribunal (NGT) has ordered closure of eight Industrial Plants in Sitarganj, Uttaranchal on account of violating pollution control norms. Apparently this list also has Gujarat Ambuja Exports Ltd.'s Maize Processing Plant. Others in the list include the likes of Reckitt and Benkiser (Two Units).
While there has been no communication from the company to the exchange/investors, based on the news article we understand the local residents had complained that the effluent released by industrial units was polluting Baigul and Kailash rivers to a dangerous level.
Accordingly, a team from Central Pollution Control Board (CPCB) conducted a survey during May and found them violating the prescribed norms. Acting on the reports, the NGT seems to have now ordered the closure of these eight industries.
As per Suresh Kumar, president of Sitarganj Industries Welfare Association, “All the ‘wet’ industrial units in the industrial area are equipped with Primary Effluent Treatment Plants (PETP) and further connected to Combined ETP, run by state authorities. If the pollution findings were beyond the permissible limits, it should be CETP authority and operators to be blamed. Even the 'dry' industries have efficient treatment plants in their premises. The industrialists have always abide by the rules. We are moving to Supreme Court and file a petition against the Tribunal's order.”
We believe the NGT ruling is extreme because prima facie it seems like one of those situations where worst case the industries are fined and ordered to upgrade their PETPs which might involve some capital investment and a temporary shutdown of operations, in which case the revenue loss to GAEL should be minimal, thanks to their newly commissioned Maize plant that has increased the installed capacity by 50%.
Also, Uttaranchal plant is one of the four maize processing plants with an installed capacity of 700 tons per day i.e. about 23% of the total capacity of 3,000 tons per day.
Moreover in this case as per the comments of President of association the lapse has been at the State Authority level and not at plant level. Further, these eight plants employee more than 15,000 workers which will make the decision of actually shutting them down extremely difficult.
While we await some clarity from the management, we thought it is important to issue this note immediately. Of late the market sentiment for small and mid caps has been brutal and we may see an over-reaction on account of this news as well.
However, if at all the price corrects steeply, we should look at it as an opportunity to add and accordingly we might upgrade the stock back to Buy list from Hold, assuming our initial analysis is correct and the issue is indeed a minor one and temporary.
We are keeping a close eye on any further developments and will keep you posted, for now we suggest to just stay the course and hold our position tight.
