Bajaj Hindusthan

For Q4FY09, Bajaj Hindusthan reported numbers were in line with our estimates. Net sales dipped by 10.3% YoY on account of lower sugar sales volume while increased by 8.2% on sequential basis. However, on account of higher other operating income of Rs88 cr (up 543.6% YoY) from unwinding of swap transaction on long-term ECB loans, total income grew by 5.5% YoY and 26% QoQ. The company has closing stock of about 0.17 million tons as on Sep 30,2009. The company reported net profit of Rs69 crore (up 15% QoQ) as compared to a loss of Rs87 cr corresponding period last year.



Upturn in sugar cycles led to revival of Bajaj Hindusthan

For Q4FY09, Bajaj Hindusthan reported numbers were in line with our estimates. Net sales dipped by 10.3% YoY on account of lower sugar sales volume while increased by 8.2% on sequential basis. However, on account of higher other operating income of Rs88 cr (up 543.6% YoY) from unwinding of swap transaction on long-term ECB loans, total income grew by 5.5% YoY and 26% QoQ. The company has closing stock of about 0.17 million tons as on Sep 30,2009. The company reported net profit of Rs69 crore (up 15% QoQ) as compared to a loss of Rs87 cr corresponding period last year.


Margins improved on YoY basis

On sequential basis, EBITDA registered a de-growth of 23.3%, driven by higher employees cost (up 39.4%) and stock in trade and consequently EBITDA margins decreased by 1178 bps to 18.3% during the quarter. Led by significant reduction in interest outlays (down 47.7% QoQ) PAT margins improved marginally by 97 bps on QoQ basis. Foray into power will offset the sugar cyclicality To reduce dependence on the cyclical nature of the sugar industry, BHL had proposed expansion of its power generation capacity by 400 MW for Rs1,600 cr. The company plans to set up a 80 MW coal based power capacity each at five locations in Uttar Pradesh. The power plants are expected to be operational by the next 20 months, which would take the total power generation capacity of BHL to 830 MW. The company expect to sell half of the power to the UP government while the other half would be sold in the open market. The management has guided average power selling price at Rs5 per unit while the cost of power is likely to be around Rs2.5-2.8/unit. We have valued coal based power
generation units at Rs36/share based on DCF valuation with a cost of equity of 14.7%.


Incumbent FCCB redemption in Feb-2011 could pressurize balance sheet

BHL had issued US$120 mn zero coupon convertible bonds due 2011. Out of which, the company had repurchased FCCBs aggregating to face value of US$19.9 mn. The aggregate principal amount of bonds which remained outstanding after repurchase is US$99.6 mn. We estimate cash flow from operations at about Rs1,183 crore during FY10-11E. We estimate balance sheet would be little stretched if these bonds will be redeemed at 133.57% of its principal amount on the maturity date. BHL to raise Rs2,000 cr to fund its expansion plans Bajaj Hindusthan had announced for raising of additional long term funds up-to Rs2000 crores in line with our earlier projections, by further issue of equity shares and/or securities convertible into or exchangeable with equity shares, in domestic and/or international market in one or more tranches. Price settlement between UP mills and farmers in line with our estimates After month-long row between farmers and UP mills over cane price, the UP mills agrees to pay Rs190 per quintal for the common variety and Rs 195 for the early variety, which is in line with our earlier estimates of Rs200 per quintal. The impasse between farmers and mills has already delayed crushing season in the state by about a month.


FY09 Performance review

On consolidated basis, the company reported marginal dip of 2.1% YoY in its net sales. However, on account of 557% YoY growth in other operating income total income grew by 8.8%. Led by lower cane crushed (down 39.7% YoY) during the year raw material costs decreased 10.8% YoY. EBITDA registered impressive growth of 193% on account of lower raw material costs and other expenditure (down 15.5% YoY) and consequently margins improved 1386 bps YoY to 20.8% during FY09. The company reported net profit of Rs57.9 cr during FY09 as compared to a loss of Rs197.6 cr same period last year.