Bajaj Hindusthan: Cyclical factors

Volatility in sugar prices and cyclical downtrend impact the overall performance

Despite the cyclical downturn seen in the industry in sugar year 2009-10 (October 2009-September 2010), Bajaj Hindusthan reported a 60 per cent year-on-year growth at Rs 2,991 crore. However, higher cane prices paid last year dented operating margins of the sugar segment that came in at 6.6 per cent, as compared to 7.2 per cent a year ago.

Revised prices for supply of ethanol to oil companies from April aided the distillery segment, as oil companies paid Rs 27 a litre against Rs 21.50 a litre previously. Distillery revenues rose an impressive 35 per cent to Rs 165.71 crore, with operating margins at 13.7 per cent compared to 0.7 per cent a year ago.

The bagasse-based particle board and medium-density fibre (MDF) segment contributed Rs 142.7 crore (up 46.1 per cent year-on-year), while revenues from the power segment surged 121 per cent to Rs 175.5 crore.

The consolidated top line of the company grew 58 per cent year-on-year to Rs 3,201 crore. Raw material costs surged three-fold to Rs 3,219 crore and pulled down earnings before interest, tax, depreciation and amortisation (Ebitda) margins by 425 basis points to 12.81 per cent. The consolidated net profit declined 29 per centto Rs 41.19 crore.

In terms of volatility in prices, the past nine months for the sugar industry have been the worst possible, say analysts. International sugar prices almost halved from 29 cents/lb in February to 14.45 cents/lb in May. However, analysts at Motilal Oswal reckon negative outlook has reversed over the past few months, as global prices have risen 142 per cent from the lows of May. A global sugar consultancy firm, Kingsman, has cut the global sugar surplus estimates for the sugar year 2011 to 3.5 million tonnes (mt) in September from the earlier 5.2 mt, which augurs well for the domestic industry.

Analysts at IIFL expect Bajaj Hindusthan’s cane costs to be in line with the state administered price, while sugar realisations may hover around Rs 27-28 a kg in the current financial year, boosting prospects going ahead.