idirect_bajajhindusthan_q1sy13=23-213

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February 15, 2013

ICICI Securities Ltd|Retail Equity Research

Result Update

WHATS CHANGEDPRICE TARGET.............. .................................... ......................... Changed from | 22 to | 19

EPS (SY13E)...........................................................................Changed from | 0.3 to | (2.4)

EPS (SY14E)..................................... ................................... ................. Introduced at | (1.1)

RATING...............................................................................................................Unchanged

Underperformance to continueBajaj Hindustan posted dismal Q1SY13 results with losses increasing to| 55.1 crore against loss of | 44.4 crore in Q1SY12. During the quarter,Bajajs raw material (RM) cost to sales ratio was lower at 53% (66.5% inQ1SY12), despite ~19% increase in cane cost. We believe this was due todelayed start of the crushing season. However, increase in operating costby ~59% YoY pulled down margins by 148 bps YoY to 20.9%. Decliningmargins were further drained by higher interest cost of | 126.5 crore. Webelieve that increasing cane cost pressure, higher working capitalrequirement and persisting huge debt on books leading to high interestcost would continue to keep earnings subdued. We maintain SELL.Sugar sales volume declines; outlook from segment remains distressedBajaj Hindusthan sold 1.6 lakh tonne (lt) of sugar during the quarter,

decline of ~0.1 lt YoY and below our expectation of 1.95 lt. Despite sugar

realisation improving by ~| 4/kg, lower sales volume continued to drain

the companys earnings from the segment with a loss of | 37.6 crore. We

expect that with higher availability of cane in Uttar Pradesh (UP) for the

current season, the company would produce ~1.3 million tonnes of sugarin SY13E. However, higher cane cost at | 280/quintal and sugar prices at

par with the cost of production (~| 33/kg), we believe earnings from the

segment for the company would continue to remain dismal.

By-products sales improveThe company sold 14868 kl of alcohol (6848 KL in Q1SY12) and 9.2 crore

units of power (8.0 crore units in Q1SY12) in Q1SY13. We believe that

higher cane crushing in SY13E would provide higher availability of

molasses and bagasse (RM for alcohol and power production), keeping

revenues from these segments strong. Further, with increased demand

for alcohol from brewery industry, realisation per KL would also increase.

Higher interest cost remains a concern; maintain SELLWith the performance in the sugar segment expected to remain dismal

and further huge interest cost remaining an overhang on the stock, we

maintain our cautious stance. Valuing the stock at ~65% discount to book

value (SY14E), we assign a target price of | 19/share. We maintain SELL.Exhibit 1: Financial Performance(| Crore) Q1SY13 Q1SY13E Q1SY12 Q4SY12 YoY(%) QoQ(%)

Net Sales 626.8 719.4 556.6 1123.6 12.6 -44.2

EBITDA margin (%) 20.9 -3.0 22.4 7.2 -148 bps 1367 bps

Depreciation 90.2 86.4 84.9 95.2 6.1 -5.3

Interest 126.5 91.2 113.1 143.4 11.9 -11.8

Other Income 1.2 14.7 1.3 17.6 -8.7 -93.5

Reported PAT -55.1 -129.2 -44.4 -122.4 24.2 -55.0

EPS (|) -0.9 -2.0 -0.7 -1.9 24.2 -55.0

Source: Company, ICICIdirect.com Research

Bajaj Hindusthan (BAJHIN)

| 22

ting matrix

ing : Sell

get : | 19

get Period : 12-15 months

ential Upside : -14%

y Financials

Crore SY11 SY12E SY13E SY14E

et Sales 4,849 4,211 5,045 5,052

BITDA 850.5 457.8 642.6 732.6

et Profit 12.0 (234.6) (153.4) (72.4)

PS 0.5 (3.7) (2.4) (1.1)

luation summary

SY11 SY12E SY13E SY14E

E 41.9 - - -

rget P/E - - - -

/ EBITDA 2.5 6.0 4.4 3.5

ce to Book Value 0.2 0.3 0.4 0.4NW(%) 0.3 -6.5 -3.8 -1.9

CE (%) 9.7 3.9 5.0 6.6

ock data

arket Capitalisation | 1406 crore

tal Debt (SY12) | 4787 crore

sh and Investments (SY12) | 180.3 crore

| 6013 crore

week H/L 37 / 22

uity capital | 63.9 crore

ce value | 1

F Holding (%) 14.3

Holding (%) 12.9

ce movement

10

20

30

40

50

60

70

Feb-13Nov-12Aug-12May-12Feb-12

3,500

4,000

4,500

5,000

5,500

6,000

Price (R.H.S) Nifty (L.H.S)

alysts name

anjay Manyal

[email protected]

arineeta Poddar

[email protected]


2/6

ICICI Securities Ltd|Retail Equity Research Page 2

Exhibit 2:Assumption SheetSY10 SY11 SY12 SY13E SY14E

Sugarcane Crushed ( in tonnes) 8467200 10220300 12755900 13884000 12390000

Recovery rate (%) 9.2 9.3 9.1 9.2 9.3

Sugar Production (in tonnes) 782100 951600 1165761 1271700 1146075

Sugar

Sales volumes (in tonnes) 995700 1374400 1138494 1300000 1265000

Realisations (| per tonnes) 27163 27498 30300 35084 36000

Distillery

Sales volumes (in kilo litres) 63123 124366 148835 161080 151500

Realisations 24458 26665 27000 30356 32800

Power

Sales volumes (in crore) 20.3 25.6 31.6 36.7 34.2

Realisations (| /unit) 4.0 4.1 4.5 0.0 4.6

Sugarcane Prices (| / tonnes) 2650 2250 2550 2900 3050 Source: Company, ICICIdirect.com Research

Exhibit 3:Sugar volumes and realisations trend

3.1 3.5 3.6 1.7 3.4 4.0 2.1 1.6

30.7

28.828.127.627.627.2

31.9

33.6

25

26

27

28

29

30

31

32

33

34

35

Q2SY11

Q3SY11

Q4SY11

Q1SY12

Q2SY12

Q3SY12

Q4SY12

Q1SY13

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Sugar Sales(MT) (RHS) Sugar Prices (| per kg) (LHS)


Exhibit 4:Distillery volumes and prices trend

33 32 28 40 46 56 1531 7

25.3

27.226.4

30.129.0

32.4

26.827.427.7

18

20

22

24

26

28

30

32

34

Q1SY11 Q2SY11 Q3SY11 Q4SY11 Q1SY12 Q2SY12 Q3SY12 Q4SY12 Q1SY13

|/litre

0

10

20

30

40

50

60

(in'000)

Distillery Volumes(in KL) Distillery Prices(| per litre)


Lower sales volumes, we believe, were in anticipation of

higher sugar prices. However, this kept revenues and

earnings from the segment subdued in spite of higher prices

YoY

Higher realisation from distillery was due to the sale of

alcohol to breweries and no sale of ethanol


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Exhibit 5:Interest cost (| crore) trend

107.0

130.7

141.8136.4

113.1

133.6

146.3 143.4

126.5

60

80

100

120

140

160

Q1SY11 Q2SY11 Q3SY11 Q4SY11 Q1FY12 Q2SY12 Q3SY12 Q4SY12 Q1SY13


Revising estimates

With the increase in cane cost by ~19% to | 280/quintal by the UP

government for the current season (SY13E) and higher operations cost of

Bajaj Hindusthan, we are revising our estimates for SY13E. We are also

introducing our estimates for SY14E.

Exhibit 6:Revising Estimates(| crore) SY14E

Old New % Change New

Revenue 4,910.6 5045.2 2.7 5,052.0

EBITDA 640.5 642.6 0.3 732.6

EBITDA Margin % 13.0 12.7 -31 bps 14.5

PAT 16.8 -153.4 - -72.4EPS (|) 0.3 -2.4 - -1.1

SY13E


Higher interest cost YoY in spite of lower crushing

remains a concern as this would increase from

here on as crushing increases,


4/6


Financial Performance

Exhibit 7:Profit &l loss Account(Year-end September) SY11 SY12 SY13E SY14E

Total operating Income 4,903.8 4,262.6 5,085.4 5,092.6Growth (%) 63.0 -13.1 19.3 0.1

Raw Material Expenses 3,627.9 3,308.0 3,845.4 3,779.0

Employee Expenses 170.4 191.9 220.9 227.3

Marketing Expenses 41.0 41.0 0.0 0.0

Administrative Expenses 53.5 68.0 0.0 0.0

Other expenses 160.7 195.9 376.5 353.6

Total Operating Expenditure 4,053.4 3,804.9 4,442.8 4,359.9

EBITDA 850.5 457.8 642.6 732.6

Growth (%) 43.3 -46.2 40.4 14.0

Depreciation 330.9 348.8 372.1 379.9

Interest 516.0 536.4 500.6 462.3

Other Income 15.4 106.2 5.1 6.2

PBT 18.9 -321.3 -225.0 -103.4

Others 0.0 0.0 0.0 0.0

Total Tax 6.9 -86.8 -71.6 -31.0

PAT 12.0 -234.6 -153.4 -72.4

Growth (%) NA NA NA NA

EPS (|) 0.5 -3.7 -2.4 -1.1 Source: Company, ICICIdirect.com Research

Exhibit 8:Cash flow Statement(Year-end September) SY11 SY12 SY13E SY14E

Profit before Tax 18.9 -321.3 -225.0 -103.4Add: Depreciation 330.9 348.8 372.1 379.9

(Inc)/dec in Current Assets 1,425.1 -50.7 -677.2 -14.2

Inc/(dec) in CL and Provisions -409.4 -958.3 394.0 155.6

Others 467.8 513.9 567.0 487.2

CF from operating activities 1,833.3 -467.6 431.0 905.0

(Inc)/dec in Investments -510.5 -1,160.6 -10.0 -55.0

(Inc)/dec in Fixed Assets -38.9 -80.5 -50.0 -100.0

Others 115.6 135.8 5.1 6.2

CF from investing activities -433.9 -1,105.3 -54.9 -148.8

Issue/(Buy back) of Equity 0.0 1,472.6 0.0 0.0

Inc/(dec) in loan funds -667.9 418.9 0.0 0.0

Dividend paid & dividend tax -18.5 -28.2 0.0 0.0

Inc/(dec) in Sec. premium -610.4 -695.3 -500.6 -462.3

Others 0.0 1.0 0.0 0.0

CF from financing activities -1,296.7 1,169.1 -500.6 -462.3

Net Cash flow 102.7 -403.8 -124.4 293.8

Opening Cash 481.3 584.0 180.3 55.8

Closing Cash 584.0 180.3 55.8 349.7 Source: Company, ICICIdirect.com Research

Exhibit 9:Balance Sheet(Year-end September) SY11 SY12 SY13E SY14E

Liabilities

Equity Capital 22.8 63.9 63.9 63.9

Reserve and Surplus 3,117.1 4,030.3 3,877.0 3,804.6Total Shareholders funds 3,139.9 4,094.3 3,940.9 3,868.5

LT Debt 2,239.7 1,500.7 1,500.7 1,500.7

LT Provisions 26.9 31.8 31.8 31.8

Deferred Tax Liability 87.7 0.0 0.0 0.0

Total Liabilities 5,494.3 5,626.8 5,473.4 5,401.1

Assets

Gross Block 6,746.4 7,204.9 7,254.9 7,354.9

Less: Acc Depreciation 1,356.7 1,785.0 2,157.2 2,537.0

Net Block 5,389.6 5,419.9 5,097.7 4,817.9

Capital WIP 24.3 7.4 7.4 7.4

Total Fixed Assets 5,413.9 5,427.3 5,105.1 4,825.3

Non Current Investments 1,343.8 1,600.4 1,600.4 1,650.4

LT Loans & Advances 74.9 92.1 102.1 107.1

Other Non current assets 1.3 1.7 1.7 1.7

Inventory 467.8 558.2 630.7 631.5

Debtors 248.2 192.0 280.3 350.8

Cash 583.8 180.3 55.8 349.7

Other Current Assets 1,659.4 2,145.3 2,661.8 2,604.7

Total Current Assets 2,959.2 3,075.9 3,628.6 3,936.7

Creditors 284.8 236.4 420.4 421.0

Short Term Borrowings 1424.3 3286.3 3486.3 3636.3

Other Current Liabilities 2,589.7 1,047.8 1,057.8 1,062.8

Total Current Liabilities 4,298.9 4,570.5 4,964.5 5,120.1

Net Current Assets -1,339.7 -1,494.6 -1,335.9 -1,183.4

Application of Funds 5,494.3 5,626.8 5,473.4 5,401.0 Source: Company, ICICIdirect.com Research

Exhibit 10:Ratios(Year-end September) SY11 SY12 SY13E SY14E

Per share data (|)

EPS 0.5 -3.7 -2.4 -1.1

Cash EPS 15.0 1.8 3.4 4.8BV 137.5 64.0 61.6 60.5

DPS 0.0 0.0 0.0 0.0

Cash Per Share 25.6 2.8 0.9 5.5

Operating Ratios (%)

EBITDA Margin 17.5 10.9 12.7 14.5

PBT / Total Operating income 0.4 -7.6 -4.5 -2.0

PAT Margin 0.2 -5.6 -3.0 -1.4

Inventory days 59 70 45 45

Debtor days 31 24 20 25

Creditor days 36 30 30 30

Return Ratios (%)

RoE 0.3 -6.5 -3.8 -1.9

RoCE 9.7 3.9 5.0 6.6

RoIC 9.9 6.0 8.4 9.7

Valuation Ratios (x)

P/E 41.9 NA NA NA

EV / EBITDA 2.5 6.0 4.4 3.5

EV / Net Sales 0.4 0.6 0.6 0.5

Market Cap / Sales 0.1 0.3 0.3 0.3

Price to Book Value 0.2 0.3 0.4 0.4

Solvency Ratios

Debt/EBITDA 0.0 0.0 0.0 0.0

Debt / Equity 0.0 0.0 0.0 0.0

Current Ratio 0.7 0.7 0.7 0.8

Quick Ratio 0.6 0.6 0.6 0.6 Source: Company, ICICIdirect.com Research


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Company Description

Bajaj Hindusthan Ltd (BHL) is the largest integrated sugar company (by

capacity) in the country. The company has 14 sugar plants, which are all

located in Uttar Pradesh (UP): Golagokarannath, PaliaKalan and

Khambarkhera (district LakhimpurKheri), Barkhera (district Pilibhit),

Kinauni (district Meerut), Gangnauli (district Saharanpur), Thanabhavan

and Budhana (district Muzaffarnagar), Bilai (district Bijnore), Maqsoodapur

(district Shahjahanpur), Pratappur (district Deoria), Rudauli (district Basti),

Kundarkhi (district Gonda) and Utraula (district Balrampur). These plants

have aggregate sugarcane crushing capacity of 136,000 tonnes crushed

per day (TCD) and a distillery capacity to produce 800,000 litres of alcohol

per day. BHL generates close to 430 MW of power from the bagasse

produced in its sugar mills. After meeting its own energy needs, it exports

the surplus to the state grid (around 100 MW per annum). BHLs wholly

owned subsidiary, Bajaj Eco-tec Products Ltd (BEPL), produces

environment-friendly medium density fibre boards (MDF) and particle

boards (PB), both from its bagasse waste. BEPL has a capacity of 210000

cubic metre of MDF and particle boards in a year.

Exhibit 11:Recommendation History

0

5

10

15

20

25

30

35

40

Feb-13Jan-13Nov-12Oct-12Aug-12Jul-12May-12Apr-12Feb-12

Price Target Price


Exhibit 12:Recent ReleasesDate Event CMP Target Price Rating

4-Apr-12 Q4FY12 Result Preview 32 37 HOLD

9-May-12 Q2SY12 Result Updatre 27 26 HOLD

5-Jul-12 Q1FY13 Result Preview 33 26 SELL17-Aug-12 Q3SY12 Result Update 33 29 HOLD

8-Oct-12 Q2FY13 Result Preview 32 29 HOLD

29-Nov-12 Q4SY12 Result Update 27 22 SELL

8-Jan-13 Q3FY13 Result Preview 25 22 SELL Source: Company, ICICIdirect.com Research

ICICIdirect.com Coverage Universe (Sugar)CMP M Cap

(|) TP(|) Rating (| Cr) FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E

Bajaj Hindustan (BAJHIN) 22 19 Sell 1,407 0.5 -3.7 -2.4 41.9 - - 2.5 6.0 4.4 9.7 3.9 5.0 0.3 -6.5 -3.8

Balrampur Chini (BALCHI) 49 64 Buy 1,197 0.3 8.1 6.5 - 6.1 7.5 8.2 3.4 3.9 3.6 10.2 7.6 0.5 15.1 10.7

Dhampur Sugar (DHASUG) 44 54 Buy 276 4.7 7.7 4.3 9.4 5.7 10.3 5.7 4.9 6.1 7.0 8.0 5.8 5.9 9.4 4.9

Renuka sugar (RENSUG) 27 32 Hold 1,812 -0.5 2.8 3.2 - 9.6 8.3 6.3 7.3 6.1 6.7 5.9 6.8 -1.4 7.5 8.0

RoCE (%) RoE (%)

Sector / Company

EPS (|) P/E (x) EV/EBITDA (x)



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CICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

arget price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head Research [email protected] Research Desk,ICICI Securities Limited,1st Floor, Akruti Trade Centre,Road No. 7, MIDC,Andheri (East)

Mumbai 400 093

[email protected]

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idirect_bajajhindusthan_q1sy13=23-213

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