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Debt remains an overhang…
Bajaj Hindusthan reported subdued Q4SY10 results on the back of huge
interest cost concerns. Though net sales for the quarter jumped by
214% to | 1302.9 crore, margins declined significantly from 43.4% in
Q4SY09 to 7.6% in Q4SY10. This was mainly due to high cane prices
paid (~| 240 per quintal) in the beginning of the year followed by a fall
in sugar prices to around | 24 per kg during the quarter. Also, interest
costs surged drastically by 616% YoY from | 26.1 crore to | 186.8 crore
in Q4SY10. Consequently, the bottomline remained under pressure.
Hence, the company reported a loss of | 60.9 crore against a profit of |
69 crore in the corresponding quarter last year.
Highlights of the quarter
The company sold 0.3 million tonnes (MT) of sugar during the quarter at
an average realisation of | 25.8 per kg against 0.14 MT sold in Q4SY09 at
| 26.8 per kg. During the quarter, Bajaj Hindusthan received approval
from the government to export 0.21 MT of raw sugar under the advance
license scheme (ALS). With the global shortfall in sugar and prevailing
higher prices in international markets, the company could pare off its
losses on account of lower domestic prices.
Valuation
At the current price of | 114, the stock is trading at 23.6x its SY11E EPS of
| 4.8 and 10.8x its FY12E EPS of | 10.5. With the lower availability of cane,
the commitment by the company to supply around 100 million litre of
ethanol to oil marketing companies in 2011 (failing which the company
would be facing penalty charges) seems difficult. Also, the huge debt on
the company’s books would continue to be a drag on the bottomline.
Hence, the stock looks expensive at the current price. Therefore, we have
assigned a REDUCE rating to the stock.
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