Bajaj Hindustan- Heavy losses in subsidiaries:: Kotak Sec

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Bajaj Hindustan (BJH)
Sugar
Heavy losses in subsidiaries. BJH reported 4QFY10 EBITDA at Rs1,764 mn for the
standalone entity which includes the effect of merger of BHSIL. The reported
profitability is higher than our estimates and is a bit surprising given the fact that the
sugar prices were lower in 4QFY10 as compared to 3QFY10 whereas 4QFY10 EBITDA
margin was 20% vs 10% in 3QFY10. The subsidiaries have reported heavy losses for
FY2010. Maintain SELL with a target price of Rs98.




Subsidiaries report heavy losses
BJH reported PBT loss of Rs1.6 bn at the consolidated level, excluding exceptional items. On a
standalone level (including BHSIL from April 1, 2010 onwards), the reported PBT for FY2010 is
Rs550 mn. The subsidiaries (primarily Bajaj Eco-Tec) reported a loss of ~Rs2.18 bn at the PBT level,
in FY2010. The quantum of loss is a surprise to us considering that Bajaj Eco-Tec reported loss of
Rs738 mn (at the PBT level) in FY2009 (March fiscal year-ending). For a company that converts
bagasse into particle/MDF boards, had sales of Rs608 mn and total equity capital of Rs509 mn as
of March ’09, the extent of loss is a bit surprising.

Forays into coal mining – to secure fuel linkage for the proposed power plant
In 4QFY10, the company invested Rs934 mn into its subsidiary Bajaj Hindustan (Singapore) Pte Ltd.
This subsidiary would be a vehicle for acquisition of coal mines (reserves between 50 mn and 100
mn tons) which the company is scouting for in Indonesia.

Government policy direction would be a major variable for the next year
With expectations of a surplus of ~2.5 mn tons in the sugar year starting from October ’10, the
price of the commodity would be dependant on the government policy towards allowing exports.
The decision is expected to be taken shortly. Media reports suggest that the government could
approve by December 20, “open general license” sugar exports in three tranches of 0.5 mn tons
each in December, January and February.

Sugar prices in the domestic market have gone up in the last month on expectations of policy
action by the government on the exports front. Domestic prices at ~Rs30/kg (Mumbai-M grade)
are only ~8% lower than the global prices at $710/ton (Rs32.3/kg), making exports unremunerative,
especially for the UP-based mills.

Maintain SELL with a target price of Rs98 (previously Rs93)
We tweak our estimates to take into account FY2010 results. We have also changed our
assumptions for the price of sugar and sugarcane to take into account the recent trends in the
market. We retain SELL with a target price of Rs98.