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Bajaj Hindusthan: Mixed year - Views on News from Equitymaster
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Bajaj Hindusthan: Mixed year
Dec 29, 2008

Performance summary
  • The results are not comparable as for the fourth quarter and full year, figures for a new segment - Power are included.
  • Reports a 12% YoY growth in sales during 4QFY08, while sales for FY08 increase marginally by 3% YoY. During FY08, the company’s operating margins expand by 2.4%.
  • During FY08, excluding the forex loss, the profits decline by 28% YoY, due to higher depreciation charges and interest costs.


Standalone financials
Rs(m) 4QFY07 4QFY08 Change FY07 FY08 Change
Net sales 4,269 4,768 11.7% 17,432 17,944 2.9%
Expenditure 2,180 4,293 96.9% 14,952 14,972 0.1%
Operating profit (EBDITA) 2,088 475 -77.3% 2,480 2,971 19.8%
EBDITA margin (%) 48.9% 10.0%   14.2% 16.6%  
Other income 5 2 -58.3% 5 85 1675.0%
Interest 337 590 75.2% 637 1,394 118.8%
Depreciation 552 488 -11.5% 1,469 1,872 27.5%
Profit before tax 1,205 (602)   379 (210)  
Extraordinary item ( forex) 0 714   0 871  
Tax 299 (441)   (132) (580)  
Profit after tax/(loss) 906 (875)   510 (502) -198.3%
Net profit margin (%) 21.2% -18.3%   2.9% -2.8%  
No. of shares (m) 141.4 141.4   141.4 141.4  

What has driven performance in FY08?
  • Bajaj Hindusthan (BJHN) reported a 12% YoY growth in sales during 4QFY08, while sales for FY08 grew marginally by 3% YoY. While sales for the sugar division declined by 1% YoY during FY08, the revenues grew by a decent 15% YoY during the fourth quarter. The sugar realisations improved during the last quarter on account of estimates of low sugar production. The sugar realisations touched Rs 17 a kg, higher by 35% YoY. Lower availability of sugarcane during the current year and even lower production estimates for the next year has resulted in an increase in the prices of by-products. The distillery division reported a 53% YoY growth for FY08, while the power segment contributed 7% to topline sales in FY08. 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) 4QFY07 4QFY08 Change FY07 FY08 Change
    Sugar 3,430 3,937 14.8% 15,957 15,780 -1.1%
    % of total revenues 80% 84%   90% 80%  
    Distillery 836 731 -12.6% 1,753 2,675 52.6%
    % of total revenues 20% 16%   10% 14%  
    Power - 31   - 1,302  
    % of total revenues   0.7%     6.6%  
    Revenues 4,266 4,699 10.1% 17,710 19,757 11.6%
    less intersegment (57) 68 -219.6% 580 2,194 278.4%
    Total revenues 4,323 4,631 7.1% 17,130 17,563 2.5%

  • During 4QFY08, the company’s operating margins nosedived from 49% to 10%. This was mainly on account of higher raw material costs, which increased by 180% YoY. During FY08, the margins, however, improved. Over the last two years, the sugar industry of UP has been fighting on pricing of cane (State Advised Price). This is the third year in a row that the sugar industry has gone to court. The operating uncertainty continues, as the issue of cane pricing remains unresolved and is under review by the judiciary. The state advised price (SAP) has been fixed at Rs 140 per quintal. This is higher than Rs 125 last year.

  • While during 4QFY08, the company reported losses on the PBIT front, for the full year, PBIT was up 5% YoY. Though not comparable on a like to like basis (as power division was not there in FY07), the PBIT profits were mainly on account of the contribution from the power segment.

  • Excluding the forex loss during the quarter, the company has reported net loss of Rs 161 m. BJHN has foreign currency loans to the tune of US$ 200 m. With the rupee depreciating against the dollar, it faced a forex loss of Rs 714 m during the quarter. During FY08, excluding the forex loss, the profits declined by 28% YoY due to higher depreciation charges and interest costs. Interest and depreciation were higher due to its expansion plans.

  • The company’s 100% subsidiary, Bajaj Eco-Tec Products Limited (BEPL) has successfully set up three plants for manufacturing Particle Boards (PB) and Medium Density Fibre Boards (MDF), from sugarcane bagasse. BEPL is slated to become one of the only two companies in the world to manufacture MDF from sugarcane bagasse. The combined capacity of all three plants, at 210,000 cubic metres per annum, is the largest in the country, and has been set up at a total cost of around Rs 2.9 bn.

What to expect?
While Bajaj Hindusthan’s performance for the whole year was not good, the fourth quarter witnessed some turnaround. Higher sugar realisations on account of lower production bought some cheer. The industry expects the realisations to witness an uptrend as lower sugar production is expected even during the next year. With a total capacity of 136,000 TCD, the company continues to be the largest sugar producer in the country. Higher volumes coupled with higher prices would aid its topline going forward. Further its integrated model would also reduce its dependence on the sugar division. However, the pricing of the raw material still continues to be an issue. While the sugar industry is hopeful of the state government bringing some rationality in cane pricing, the risk continues to be high.

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