Sunday, January 10, 2010


Strong earnings for 1QFY10 should be driven by higher sugar prices. Bajaj Hindusthan, the largest Indian sugar company by capacity, is likely to report earnings on 8 January. We expect 1QFY10 stand-alone profit of INR755m, compared to a loss of INR559m in 1QFY09 (one-time forex loss of INR273m). Earnings strength is primarily due to higher sugar prices (+125% y-o-y to INR32/kg), even though sugar sales volumes may decline 13% to 175m kgs due to low sugar opening inventory.

  • We expect strong stand-alone 1QFY10 earnings of INR755m, driven by a 125% y-o-y rise in sugar prices
  • Updates also expected on power business, fund raising plans, and sugar business outlook
  • We rate the stock Overweight (V) with a target price of INR270; key downside risk: higher sugar cane costs

Key focus will be on an update on the power business and fund raising plans. Bajaj Hindusthan recently announced power capacity expansion plans of 400MW. In its 1QFY10 results announcement, we expect the company to provide an update on equipment ordering, government approvals, and fuel linkage. In addition, the company may announce equity issuance plans, if any, to fund capex on new power capacities.

Sugar production, cane cost, and levy price update. We expect an update from the company on the sugar business, which includes progress in the current crushing season that started in November 2009; likely cane costs, as the sugar price has increased; a likely rise in the levy price – 20% of production supplied to government at fixed price, currently INR13.8/kg – announced by the government; and the status of ethanol price revision.

We rate the stock Overweight (V) with an INR270 target price. We remain bullish on sugar cycle, and diversification into the power business should be positive for the company but has execution risk. Our target price is the midpoint of PB-based (target PB multiple of 2.5x on FY11 BVPS) fair value of INR310 and EV/EBITDA-based fair value of INR230. Higher cane cost is key downside risk to earnings.

To read the full report: BAJAJ HINDUSTHAN