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Bajaj Hindusthan: Bitter sweet quarter - Views on News from Equitymaster
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Bajaj Hindusthan: Bitter sweet quarter
Aug 6, 2008

Performance summary
  • The results are not comparable as for the current quarter and nine months ended June 30, 2008, figures for a new segment - Power are included.
  • Reports a 4% YoY decline in sales for 3QFY08, while sales for 9mFY08 are flat.
  • Reports profits at the operating level for 3QFY08 as against losses in 3QFY07. The operating margins in 9mFY08 substantially improve to 16% (0.3% in 9mFY07).
  • Manages to reduce the net losses on account of operating profits and lower tax outgo in 3QFY08. For 9mFY08, Bajaj Hindusthan reports net profits on account of strong operating profits.


Rs(m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
Net sales 4,802 4,589 -4% 12,807 12,932 1%
Expenditure 5,440 4,410 -19% 12,771 10,836 -15%
Operating profit (EBDITA) (638) 179   36 2,096 5770%
EBDITA margin (%) -13.3% 3.9%   0.3% 16.2%  
Other income 139 142 2% 356 327 -8%
Interest 202 509 152% 300 804 168%
Depreciation 349 491 40% 917 1,384 51%
Profit before tax (1,050) (678) -35% (826) 235  
Tax (445) -324.1 -27% (431) (138) -68%
Profit after tax/(loss) (605) (354) -41% (395) 373  
Net profit margin (%) -12.6% -7.7%   -3.1% 2.9%  
No. of shares (m) 141.4 141.4   141.4 141.4  
Diluted earnings per share (Rs)*         9.0  
Price to earnings ratio (x)*         19.0  
*(trailing 12 months)

What has driven performance in 3QFY08?
  • Bajaj Hindusthan (BJHN) reported a 4% YoY decline in sales for 3QFY08, while sales for 9mFY08 were flat. The sugar division yet again witnessed decline in sales due to lower realisations. However, the distillery division reported 62% YoY and 112% YoY growth for both the periods and was the key driver. The power segment contributed 8% to topline sales in 9mFY08. With the sugar sector witnessing tough times in the past one year, the growth in by products provided some relief.

    Segment wise performance

    (Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
    Sugar 4,770 4,318 -9.5% 12,527 11,843 -5.5%
    % of total revenues 94% 87%   93% 79%  
    Distillery 321 519 62.1% 917 1,944 112.1%
    % of total revenues 6% 11%   7% 13%  
    Power - 102   - 1,271  
    % of total revenues   2.1%     8.4%  
    Revenues 5,091 4,939 -3.0% 13,444 15,058 12.0%
    less intersegment 289 350 20.9% 637 2,126 234.0%
    Total revenues 4,802 4,589 -4.4% 12,807 12,932 1.0%

  • The company was able to generate operating profits of Rs 179 m in 3QFY08 as against losses of Rs 638 m in 3QFY07. The operating margins in 9mFY08 improved to 16% (0.3% in 9mFY07). The chief reason for the higher margins is the decline in the raw material costs. The Supreme Court had directed the sugar companies by its interim order dated February 27, 2008 to pay a rate of Rs 118 per quintal of sugar cane and accordingly the company paid the cane liability for the season 2006-07. During the current quarter and nine months period ended June 30, 2008 the company has accounted for sugarcane purchases for the season 2007-08 at the rate of Rs 110 per quintal pursuant to the interim order dated May 15, 2008 of the Supreme Court. However, the final decision is still pending and any liability in this respect will have to be accounted for. Hence, if the cane prices are fixed higher than what the company has accounted for, the margins will come under pressure.

  • While the company was able to reduce the losses in the sugar division, power was the main driver (though not strictly comparable as the power division was not present during the previous year).

  • Though still in losses in 3QFY08 at the net level, the company managed to reduce the same on account of operating profits and lower tax outgo. For 9mFY08, BJHN reported net profits on account of a quantum jump in operating profits. However, higher interest costs and depreciation charges (on account of expansions) restricted growth during both the periods under consideration.

What to expect?
At the current price of Rs 172, the stock is trading at 19.0 times its 12 month trailing earnings. Though the performance is still a tad subdued, the improving scenario of the sugar sector in recent times due to lower production and higher realisations aided the company to some extent in this quarter. The company is also increasing capacities of by products, which would provide some cushion to its overall performance. However, risks still remain on the margin front as the decision on the cane prices is still awaited.

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