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Bajaj Hindustan
Sugar
Higher volumes drive profits. BJH reported 1QFY11 EBITDA at Rs2.67 bn (+25% yoy,
+140% qoq) vs our estimates at Rs1.77 bn. The outperformance is led by (1) Higher
sales volumes in the sugar segment (0.36 mn tons vs our estimates at 0.3 mn tons), and
(2) marginally higher volumes (vs our estimates) in the distillery and power business.
EBITDA margins in 1QFY11 at 18% were lower than our estimates at 19%. We have
reduced our estimates for FY2012E and maintain SELL with a target price of Rs80.
Higher volumes drive profits—EBITDA margins lower than estimates
BJH reported 1QFY11 sales at Rs14.83 bn (+135% yoy, +67% qoq) vs our estimates at Rs9.30 bn.
Higher-than-estimated sales have come on account of: (1) Higher-than-estimated sales volumes in
the sugar segment (0.36 mn tons vs our estimates at 0.30 mn tons), (2) raw sugar sales of 0.13
mn tons which were not there in our estimates, and (3) marginal outperformance in distillery and
power business. 1QFY11 PAT came at Rs579 mn vs our estimates at Rs113 mn.
Expenses to rise going forward
We expect expenses to rise on two fronts: (1) Higher interest cost on account of refinancing of
FCCBs. The company has redeemed the entire outstanding FCCB (face value US$99 mn;
redemption premium US$33 mn). As the refinancing has been done from domestic borrowings
(interest rate ~11%), we expect the interest costs to move up going forward, and (2) the cost of
inventory at the end of 1QFY11 is at Rs27.42 (with excise duty) as against Rs26.76/kg at the end
of 4QFY10 which means higher raw material expenses going forward.
Two new SPVs for power business have been created
The company has created two new SPVs: (1) Lalitpur Power Generation Company, and (2) Bajaj
Power Generation Company which would invest in setting up thermal power plants of 1,980 MW
each at two locations in the state of Uttar Pradesh. The company would have minority stakes in
these ventures.
Maintain SELL with a reduced target price of Rs80
We have reduced our EBITDA estimates for FY2012E (-4%) and adjusted depreciation and interest
expense in our earnings model to factor in 1QFY11 results. We maintain SELL with a reduced
target price of Rs80.
Sugar prices to remain range-bound—government focused on reducing inflation
In our opinion policy environment in sugar sector would be managed to keep a tight lid on
prices. We highlight a few instances where the government has dithered on policies in order
to maintain the price equilibrium: (1) Permits for exports of 0.5 mn tons of sugar under open
general license have been held back till February 2011-end in order to be certain on
availability on sugar in the country, (2) duty-free imports of raw sugar have been extended
till March 31, 2012. Earlier, import duty was restored at 60% from Jan 1, 2011. Though the
move is not useful as global prices are higher than the domestic price but still it signifies the
intent of the government to keep a tight lid on prices.
Change in estimates; maintain SELL with TP of Rs80 (Rs98 previously)
We have revised our EBITDA estimates for FY2012E downwards by ~4% and also made
changes to our depreciation and interest expense estimates. We have reduced our EBITDA
multiple for BJH to 5.5X to account for risks on account of limited disclosures of financial
details of unlisted subsidiaries. Maintain SELL with a target price of Rs80 (Rs98 previously).
We will take a further relook at our estimates post our call with the management.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bajaj Hindustan
Sugar
Higher volumes drive profits. BJH reported 1QFY11 EBITDA at Rs2.67 bn (+25% yoy,
+140% qoq) vs our estimates at Rs1.77 bn. The outperformance is led by (1) Higher
sales volumes in the sugar segment (0.36 mn tons vs our estimates at 0.3 mn tons), and
(2) marginally higher volumes (vs our estimates) in the distillery and power business.
EBITDA margins in 1QFY11 at 18% were lower than our estimates at 19%. We have
reduced our estimates for FY2012E and maintain SELL with a target price of Rs80.
Higher volumes drive profits—EBITDA margins lower than estimates
BJH reported 1QFY11 sales at Rs14.83 bn (+135% yoy, +67% qoq) vs our estimates at Rs9.30 bn.
Higher-than-estimated sales have come on account of: (1) Higher-than-estimated sales volumes in
the sugar segment (0.36 mn tons vs our estimates at 0.30 mn tons), (2) raw sugar sales of 0.13
mn tons which were not there in our estimates, and (3) marginal outperformance in distillery and
power business. 1QFY11 PAT came at Rs579 mn vs our estimates at Rs113 mn.
Expenses to rise going forward
We expect expenses to rise on two fronts: (1) Higher interest cost on account of refinancing of
FCCBs. The company has redeemed the entire outstanding FCCB (face value US$99 mn;
redemption premium US$33 mn). As the refinancing has been done from domestic borrowings
(interest rate ~11%), we expect the interest costs to move up going forward, and (2) the cost of
inventory at the end of 1QFY11 is at Rs27.42 (with excise duty) as against Rs26.76/kg at the end
of 4QFY10 which means higher raw material expenses going forward.
Two new SPVs for power business have been created
The company has created two new SPVs: (1) Lalitpur Power Generation Company, and (2) Bajaj
Power Generation Company which would invest in setting up thermal power plants of 1,980 MW
each at two locations in the state of Uttar Pradesh. The company would have minority stakes in
these ventures.
Maintain SELL with a reduced target price of Rs80
We have reduced our EBITDA estimates for FY2012E (-4%) and adjusted depreciation and interest
expense in our earnings model to factor in 1QFY11 results. We maintain SELL with a reduced
target price of Rs80.
Sugar prices to remain range-bound—government focused on reducing inflation
In our opinion policy environment in sugar sector would be managed to keep a tight lid on
prices. We highlight a few instances where the government has dithered on policies in order
to maintain the price equilibrium: (1) Permits for exports of 0.5 mn tons of sugar under open
general license have been held back till February 2011-end in order to be certain on
availability on sugar in the country, (2) duty-free imports of raw sugar have been extended
till March 31, 2012. Earlier, import duty was restored at 60% from Jan 1, 2011. Though the
move is not useful as global prices are higher than the domestic price but still it signifies the
intent of the government to keep a tight lid on prices.
Change in estimates; maintain SELL with TP of Rs80 (Rs98 previously)
We have revised our EBITDA estimates for FY2012E downwards by ~4% and also made
changes to our depreciation and interest expense estimates. We have reduced our EBITDA
multiple for BJH to 5.5X to account for risks on account of limited disclosures of financial
details of unlisted subsidiaries. Maintain SELL with a target price of Rs80 (Rs98 previously).
We will take a further relook at our estimates post our call with the management.
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