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Bajaj Hindusthan: Pleasantly surprising - Views on News from Equitymaster

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Bajaj Hindusthan: Pleasantly surprising

Feb 20, 2008

Performance summary
  • For 1QFY08, Bajaj Hindustan reports a 20% YoY growth in sales driven by the distillery and power division.
  • Margins touch 27% on account of lower raw material prices.

  • Profits are up 72% YoY. Higher interest and depreciation costs reduce growth.

Rs(m) 1QFY07 1QFY08 (%) Change
Net sales 2,866 3,440 20.0%
Expenditure 2,570 2,499 -2.8%
Operating profit (EBDITA) 297 941 216.9%
EBDITA margin (%) 10.4% 27.3%
Other income 78 88 12.0%
Interest -51 194
Depreciation 215 431 100.7%
Profit before tax 211 403 90.8%
Tax 39 107 176.2%
Profit after tax/(loss) 173 297 71.7%
Net profit margin (%) 6.0% 8.6%
No. of shares (m) 141.4 141.4
Diluted earnings per share (Rs)* 4.1
Price to earnings ratio (x)* 65.6
* 12 month trailing earnings

What has driven performance in 1QFY08?
  • For 1QFY08, Bajaj Hindustan reported a 20% YoY growth in sales driven by the distillery and power division. Distillery division clocked revenue growth of 182% YoY, while power earned revenues of Rs 355 m. The power division was not operational last year in the first quarter and hence the results are not like to like comparable. Sugar division has recorded 5% YoY growth in the topline, contributing 84% to the topline as compared to 96% in 1QFY07. On account of lower realisations of sugar, the division continues to remain under pressure.

    Segment wise performance
    Rs m 1QFY07 1QFY08 (%) Change
    Sugar 2,741 2,874 4.9%
    % of total revenues 95.6% 83.5%
    Distillery 259 730 181.5%
    % of total revenues 9.0% 21.2%
    Cogeneration - 355
    % of total revenues 0.0% 10.3%
    Total revenues 3,000 3,959 32.0%
    Less inter segment revenue 134 519
    Net Revenues 2,866 3,440 20.0%

  • The companyís margins improved 17% YoY in 1QFY08. While labour and other expenses were higher as a % of sales, raw material prices were at 49% of sales down from 68% in 1QFY07. That is mainly because the company has accounted for sugar cane price at Rs.110/per quintal based on the interim order of Allahabad High Court. However, the Supreme Court on a SLP has stayed the above order. Thus, any decision regarding the cane price may bring a charge on BHLís future profits. On the segmental basis front, distillery PBIT grew by 266% on account of lower base and capacity expansions. Power divisionís PBIT margins were 82%.

  • During 1QFY08, interest cost increased by 478% YoY. Also, the depreciation was higher on account of capacity expansions. Hence, PAT grew by 72% YoY as compared to a 217% YoY growth in operating profits.

What to expect?
At Rs 269, the stock is trading at 65.6 times its 12 month trailing earnings. Bajaj Hindusthan results were a surprise. It has performed well relative to its peers. On account of capacity expansion and commission of power division, the company has managed to reduce the effect of the downturn in sugar division. Going forward, due to the downward revision in sugar estimates to 26 MT, sugar prices may rise. However, raw material prices still continue to be a worry. Any decision regarding the cane price may affect its future profits.

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