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Sweet & Powerful Times Ahead

An integrated player in sugar, ethanol & power manufacturing, Bajaj Hindustan can be a sound investment

Synopsis
Bajaj Hindustan Limited (BHL) has similar business interests as the company profiled earlier, SRSL. BHL too is an integrated player with focus on sugar, ethanol and power manufacturing. The company has 10 sugar plants, which are all located in the northern Indian state of Uttar Pradesh. The aggregate sugarcane crushing capacity of BHL and its subsidiaries is 136,000 tcd (tonnes crushed per day). BHL is a pioneer in ethanol manufacturing and claims to be India's largest ethanol producer. Besides this, the company also generates power from the bagasse produced in its sugar mills.


Recent Results
BHL posted robust results for Q2SY08 as bottom-line surged by a whopping 1075 per cent to Rs 43 crore from Rs 3.7 crore led by higher sugar realizations and lower sugarcane prices. Net sales were however down 4.6 per cent to Rs 490 crore from Rs 513.9 crore. Staff cost and other overhead expenses had seen a significant jump due to the expansion of capacities the past year. The company's net profit margin was up from 0.7 per cent to 8.7 per cent.



  Sep-03  Sep-04  Sep-05  Sep-06  Sep-07
Operating Income  420.91 497.48 837.69 1,450.92 1,708.09
Cost of Sales  372.33 403.43 636.05 1,131.87 1,482.94
Operating Profit  48.58 94.05 201.64 319.05 225.15
Reported Net Profit  28.35 61.02 140.39 190.83 45.65
Rs.Crore
Source: BSE

Segment-wise breakup shows that the sugar segment contributed 75 per cent of the total revenue, lesser than the 94 per cent in Q2SY07. Ethanol and power contributed 11 per cent and 13 per cent to total revenue, respectively. Earnings from ethanol and power were Rs 8.6 crore and Rs 62.4 crore, respectively. Over the years, the company has diversified it’s revenue stream and reduced dependency on the sugar business.


Valuation
At the current price at which the company's stock is trading, its SY08 EPS is Rs 10.2 at 23.3x and SY09 EPS is Rs 16.5 at 14.5x. The stock is valued at 15x of its SY09E EPS to arrive at the target of Rs 248. ICICI Securities recommend investors to buy the stock at the Rs 200 levels with a 12-month perspective.