Bajaj Hindusthan: Not so sweet

Bajaj Hindusthan reported a stellar performance on a standalone basis for the fourth quarter ended September 2009, largely due to its non-operational items. Despite marginal growth of 5.5 per cent in sales year-on-year, the company reported a net profit of Rs 69.1 crore, as against a loss of Rs 87.5 crore in the September quarter last year.

Profits returned due to an additional income of Rs 70 crore booked on account of the currency swap gains. Also, the company had issued equity shares worth Rs 723 crore to qualified institutional investors in mid-2009. It used these funds to repay a debt of Rs 710 crore. This resulted in interest expenses falling by more than half to Rs 26 crore during the September quarter.

For the year ended September 2009, Bajaj Hindusthan’s average sugar realisations were higher by a fourth at about Rs 21 a kg as compared to the previous year. However, the company reported a mere 2.1 per cent growth in sales to Rs 2,026 crore, which was primarily due to a sharp decline in cane crushing volumes. The company crushed 5.42 million tonnes of cane in 2008-09, as against 9.83 million tonnes in 2007-08.

Lower cane crushing led to a decline in the availability of molasses and bagasse, and therefore, the company’s power and distillery segments reported a drop in revenues. Nevertheless, the company ended the year with a net profit of Rs 155 crore.

Going ahead, the fortunes of the company are expected to improve. On the back of an increase in cane crushing to around seven million tonnes, as well as higher sugar prices, which are expected to remain firm on account of the sugar deficit globally, the company’s sales are expected to more than double in 2009-10.

Even after accounting for higher procurement cost of sugarcane, which is estimated at Rs 205-210 a quintal in 2009-10, analysts believe that a near 50 per cent increase in average sugar realisation would augur well for the company’s profitability. This, along with lower interest costs, should push up Bajaj Hindusthan’s profits sharply this year.

While the company has announced its plans to expand its power generation capacity from 400 Mw currently to 830 Mw, it is still at the early stages of development.

Factoring in the improved financials, analysts are expecting the company to report earnings per share (EPS) of Rs 17 for 2009-10 against Rs 3.1 in 2008-09. However, most of the positives are already factored into the valuations, given that the stock at Rs 212.20 is trading at 12 times its 2009-10 estimated earnings.