Bajaj Hindusthan: Profit impacted by lower sales and rise in cane price :Centrum

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Profit impacted by lower sales and rise in cane price
Bajaj Hindusthan’s Q1SY12 result was significantly below our estimates with
Revenue at Rs5.6bn (49.6% below our estimates of Rs11bn), EBITDA at
Rs633mn (71.5% below our estimates of Rs2.2bn) and adjusted loss at
Rs444mn (vs. estimated profit of Rs117mn). The primary reason for lowerthan-
estimated revenue and profit was a steep decline in sugar sales volume.
Sugar sales volume declined 54.3% YoY (and 35.7% QoQ) to 16.5 lac quintals
(est. 33 lac quintal). Led by a significant decline in sales volume, Sugar
segment reported EBIT level loss of Rs846mn against a profit of Rs1,189mn in
Q1SY11. Revenue from distillery segment too declined 61.5% YoY (and 46.1%
QoQ) to Rs5.4bn primarily due to 54.3% YoY (and 53.7% QoQ) decline in sales
volume to 68.5 lac litres. We believe that the profitability of the company
would be under pressure given the higher State Advised Price (SAP)
(Rs240/quintal vs. Rs205/quintal in SY11) fixed by the Uttar Pradesh State
government and pressure on sugar prices as higher production is expected in
SY12E. The stock has appreciated by 21% since our last update post Q4SY11
results driven by positive news flows like a) allowance of further export of
1mt by the Central government (approval of poll committee is needed due to
ongoing state elections in Uttar Pradesh) and b) A committee formed by the
Prime Minister to look into the sugar de-control issue. However, we expect
that in the near-term the stock could be under pressure as we expect the
company to report losses in SY12E and SY13E due to higher sugarcane prices
and lower realization as the sugar inventory in India is expected to increase in
SY12E We downgrade our rating on the stock to Sell from Hold with a target
price of Rs30 (earlier: Rs31), downside of 12.7% from CMP.
􀂁 Disappointing performance of the sugar segment: Revenue from the sugar
segment declined 61.5% YoY (and 46.1% QoQ) to Rs5.4bn primarily due to
significant 54.3% YoY (and 53.7% QoQ) decline in sales volume to 16.5lac
quintals. Realization of open market sugar increased 5.8% YoY (and 6.5% QoQ)
to Rs30.1/kg. Led by lower sales volume and rise in sugarcane price, the
segment reported EBIT level loss of Rs846mn against a profit of Rs1,189mn in
Q1SY11. Recovery rate of sugar was at 8.1% against 8.5% in Q1SY11.
􀂁 Lower sales impacts distillery business’ performance: Led by 78% YoY (and
75.8% QoQ) fall in distillery sales volume, revenue from the distillery segment
declined 72.8% YoY (and 72.1% QoQ) to Rs220mn. Realization of Alcohol
increased 24.3% YoY (and 8.8% QoQ) to Rs31.4/litre. EBIT of the distillery
segment declined 80.7% YoY (and 64.3% QoQ) to Rs65mn and EBIT margin
declined 12pp YoY (and 6.4pp QoQ) to 29.5%.
􀂁 Increase in cane crushing and sugar production during the quarter:
Sugarcane cane crushing by the company increased 30.9% YoY to 3.1mn
tonnes during the quarter and sugar production increased 24.5% YoY to
0.39mt. Recovery rate was 42bps lower at 8.1% during the quarter, however,
recovery rate is expected to improve going forward as the crushing of new
crop starts in February.
􀂁 Downgrade to Sell: The stock is trading at 0.58x SY12E P/BV and 0.71x SY13E
P/BV. We downgrade our rating on the stock to Sell from Hold due to 21%
appreciation post our last recommendation with target price of Rs30 (earlier:
Rs31), downside of 12.7% from CMP.