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Bajaj Hindusthan: Bad times continue - Views on News from Equitymaster
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Bajaj Hindusthan: Bad times continue
Feb 20, 2009

Performance summary
  • Reports a muted growth of 3% YoY during the quarter on account of decline in distillery and cogen revenues.
  • Operating margins decline by 19.2% YoY. A combination of higher crushing costs driven by lower recovery and lower distillery sales affected the operating profits
  • Lower operating profits coupled with higher interest and depreciation costs affected its performance. Excluding forex loss, the net loss stood at Rs 287 m


Financial snapshot
Rs(m) 1QFY08 1QFY09 (%) Change
Net sales 3,527 3,622 2.7%
Expenditure 2,495 3,260 30.6%
Operating profit (EBDITA) 1,032 363 -64.8%
EBDITA margin (%) 29.3% 10.0%
Other income - - -
Interest 194 486 151.0%
Depreciation 431 485 12.3%
Forex gain/ loss (4) (273)
Profit before tax 407 (608) -249.3%
Tax 107 (321) -401.4%
Profit after tax/(loss) 297 (560)
Net profit margin (%) 8.4% -15.5%  
No. of shares (m) 141.4 141.4  

What has driven performance in 1QFY09?
  • Bajaj Hindusthan (BJH) reported a tepid growth of 3% YoY in topline during 1QFY09. While sugar division revenues jumped 24% YoY, distillery and cogen division reported a drop of 83% YoY and 14% YoY. The sugar recovery fell below 9%. Also on account of lower cane production, the crushing was on the lower side. During the December quarter the sugar realisations moved up significantly higher than the corresponding period last year. The realisations touched about Rs 19 per kg as compared to Rs 13 to Rs 14 per kg witnessed last year. However, sugar yields took a sharp dip. They were lower by 0.7% YoY, which remains a cause for concern.

    Segment wise performance
    Rs m 1QFY08 1QFY09 (%) Change
    Sugar 2,874 3,559 23.9%
    % of total revenues 83.5% 98.9%
    Distillery 730 124 -83.0%
    % of total revenues 21.2% 3.5%
    Cogeneration 355 307 -13.6%
    % of total revenues 10.3% 8.5%
    Total revenues 3,959 3,990 0.8%
    Less inter segment revenue 519 391
    Net Revenues 3,440 3,600 4.7%

  • The operating margins declined by 19.2% YoY. A combination of higher crushing costs driven by lower recovery and lower distillery sales affected the operating profits. On the PBIT front, sugar and distillery segment reported losses as compared to profits last year. Higher cane costs also played the spoil sport. The cogen division saw a 32% YoY decline in PBIT levels.

  • Lower operating profits coupled with higher interest and depreciation costs led to a 289% YoY fall in the net profits. The company reported huge foreign exchange fluctuation losses of Rs 273 m on its unhedged foreign currency loan (including FCCBs) during the quarter. Excluding this, the net loss stood at Rs 287 m.

What to expect?
Drop in recovery and drawal rates affected Bajaj Hindusthanís performance in 1QFY09. It also continues to face the brunt of higher raw material prices. With sugarcane production estimated lower, the raw material prices would be on higher side. While production is expected at 18 to 19 MT, the demand is around 21 to 22 MT. This gap would move up the sugar realisations, which was seen in December 2008. However, from a producerís perspective the sugar companies need prices to move up reasonably as the cost of production has gone up fairly sharply from the previous year. We believe that the lower availability of cane for crushing, lower capacity utilizations, higher cane prices and fixed expenses would impact the companyís performance in the coming quarters.

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