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Bajaj Hindustan (BJH)
Sugar
Disappointing results. BJH reported 4QFY11 EBITDA at Rs553 mn versus our estimates
at Rs1.7 bn. Profitability was lower (EBITDA margin at 5% versus estimate of 19%) as
higher amount of high-cost inventory (FY2011 production) was sold. 9MFY11 margins
(21%) were higher on sale of low-cost inventory of raw sugar. Company has raised
Rs14.7 bn through rights issue out of which Rs11 bn has gone towards reduction of
debt. With SAP at Rs2,400 per ton, we expect profitability to remain under pressure in
FY2012E. We have reduced our estimates. Maintain REDUCE with a TP of Rs30 (Rs60
earlier) at 5.5X March 2013E EBITDA.
Lackluster results
BJH reported 4QFY11 sales at Rs11 bn (+25% yoy; +4.6% qoq) which were higher than our
estimates at Rs8.8 bn on higher-than-expected sales volume of sugar. Reported loss at the PBT
level of Rs1.2 bn was higher than our estimate of loss of Rs313 mn. Lower-than-expected
profitability was on account of sale of higher-cost inventory of sugar which was produced
domestically in FY2011. As per the company, 9MFY11 profitability (EBITDA margin at 21%) was
higher on account of sale of low-cost inventory of raw sugar.
Bleak prospects for SY2012E – SAP increased to Rs2,400 per ton
UP government has increased State Advised Price (SAP) for sugarcane from Rs2,050 to Rs2,400 per
ton. Even as the sugar mills have appealed against the decision, till the time a verdict is delivered
sugar mills have to pay farmers as per SAP. As per our estimates, at the current SAP, cost of sugar
would range in Rs31-32 per kg, which is higher than the current market price of ~Rs31 per kg.
Hence, in the light of surplus projected (25.5 mn tons of sugar production versus demand of ~23
mn tons) for SY2012E, it looks like sugar companies would make a loss in the sugar business.
Exports quota of 1 mn tons – too small, too late
Indian government recently allowed first tranche of 1 mn tons of sugar exports for SY2012E and
has also lifted the stock holding limits from November 30, which barred any sugar trader to hold
more than 500 tons of inventory. With the global price of white sugar at US$610 per ton (Rs31.7
per kg), it is unlikely that even exports would be profitable for UP-based mills after accounting for
transportation cost to the port. Also, export quota of 1 mn tons is lower than 3 mn tons which
was expected by the sugar mills. Hence, in our view, exports would do little to help the UP-based
sugar mills, in case the export prices do not increase from the current levels.
Reducing our estimates; maintain REDUCE with a target price of Rs30
We have reduced our earning estimates to take into account higher SAP. We maintain our
REDUCE rating with a revised target price of Rs30 at 5.5X March 2013E EBITDA.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bajaj Hindustan (BJH)
Sugar
Disappointing results. BJH reported 4QFY11 EBITDA at Rs553 mn versus our estimates
at Rs1.7 bn. Profitability was lower (EBITDA margin at 5% versus estimate of 19%) as
higher amount of high-cost inventory (FY2011 production) was sold. 9MFY11 margins
(21%) were higher on sale of low-cost inventory of raw sugar. Company has raised
Rs14.7 bn through rights issue out of which Rs11 bn has gone towards reduction of
debt. With SAP at Rs2,400 per ton, we expect profitability to remain under pressure in
FY2012E. We have reduced our estimates. Maintain REDUCE with a TP of Rs30 (Rs60
earlier) at 5.5X March 2013E EBITDA.
Lackluster results
BJH reported 4QFY11 sales at Rs11 bn (+25% yoy; +4.6% qoq) which were higher than our
estimates at Rs8.8 bn on higher-than-expected sales volume of sugar. Reported loss at the PBT
level of Rs1.2 bn was higher than our estimate of loss of Rs313 mn. Lower-than-expected
profitability was on account of sale of higher-cost inventory of sugar which was produced
domestically in FY2011. As per the company, 9MFY11 profitability (EBITDA margin at 21%) was
higher on account of sale of low-cost inventory of raw sugar.
Bleak prospects for SY2012E – SAP increased to Rs2,400 per ton
UP government has increased State Advised Price (SAP) for sugarcane from Rs2,050 to Rs2,400 per
ton. Even as the sugar mills have appealed against the decision, till the time a verdict is delivered
sugar mills have to pay farmers as per SAP. As per our estimates, at the current SAP, cost of sugar
would range in Rs31-32 per kg, which is higher than the current market price of ~Rs31 per kg.
Hence, in the light of surplus projected (25.5 mn tons of sugar production versus demand of ~23
mn tons) for SY2012E, it looks like sugar companies would make a loss in the sugar business.
Exports quota of 1 mn tons – too small, too late
Indian government recently allowed first tranche of 1 mn tons of sugar exports for SY2012E and
has also lifted the stock holding limits from November 30, which barred any sugar trader to hold
more than 500 tons of inventory. With the global price of white sugar at US$610 per ton (Rs31.7
per kg), it is unlikely that even exports would be profitable for UP-based mills after accounting for
transportation cost to the port. Also, export quota of 1 mn tons is lower than 3 mn tons which
was expected by the sugar mills. Hence, in our view, exports would do little to help the UP-based
sugar mills, in case the export prices do not increase from the current levels.
Reducing our estimates; maintain REDUCE with a target price of Rs30
We have reduced our earning estimates to take into account higher SAP. We maintain our
REDUCE rating with a revised target price of Rs30 at 5.5X March 2013E EBITDA.
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