Bajaj Hindusthan shares information on sugar companies

Bajaj Hindustan: Rising costs, falling prices cause concern (updated - 12 May 2010)
Higher cane costs and shrunken profits have hit the year-on-year performance of Bajaj Hindusthan, the country’s largest integrated sugar manufacturer by capacity, in the March 2010 quarter. The poor show in the last quarter followed four consecutive quarters of earnings growth. The company’s performance is in line with a peer like
Balrampur Chini.

The share price of Bajaj Hindusthan recorded a 4% decline after the result was announced on the back of a 60% decline in net profits over the year-ago period. The stock has logged a 50% decline over the past four months due to a sharp correction in sugar prices. Investors have been cautious due to the fundamental shift in this commodity.

The company’s revenue rose 34% on higher sugar prices that peaked out in January 2010. This pushed up average sugar realisation for the quarter by 45% to Rs 32/kg compared to the same period last year. However, on a sequential basis, the firm witnessed a 7% decline in revenue growth as compared to 48% for the quarter ended December 2009.

Although revenues increased, operating margins have been dented due to an increase in raw material costs. Raw material cost rose to 64% of sales as compared to 54% in the year-ago period. This is largely due to an increase in average cane prices that rose 60% to Rs 24/kg for this period. This led to a sharp fall in the company’s operating margin which fell to 14% in the second quarter against 34% a year ago. Net profit more than halved to Rs 31 crore from Rs 81 crore in the same quarter previous year even as interest and depreciation cost moderated.

The sharp correction in the domestic sugar prices after hitting a peak earlier this year is the key issue for sugar manufacturers. Expectations of better output have prompted Indian Sugar Mills Association to revise upwards its production estimates by 30% to 18 million tonnes for the current sugar season ending September 2010.

Further, production estimates from key global market like Brazil have also been revised upwards to 34 million tonnes.

Taking cue from sugar price movement, ET Sugar index, a benchmark index of sugar companies’ scrips, has also crashed 39% over the past five months in line with the downtrend in commodity prices. The ability of sugar companies to manage their raw material costs will determine their profitability in the coming quarters.

With sugarcane crushing over for the current sugar season, Bajaj Hindusthan has 7.21 million tonnes of sugar
inventory at a cost of 27/kg, which is higher than that in the previous year. Given this background, financial numbers for the quarter ended June look bleak despite better volumes in the coming quarters. Further, rising cost and declining sugar prices will impact operating margins if the company is not able to keep material cost in check.
source - economic times

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Bajaj Hindusthan Ltd (updated - 21 Sept 2010)
No doubt, sugar is a cyclical sector. The sugar stocks can rise three times or drop to a third within a year, with little regard for broad market conditions. Global factors (weather, acreage, consumption), diversion to ethanol or domestic factors (monsoon, politics) can drive prices and, hence, the fortunes of sugar companies.

This uncertainty seems to be the reason why a sugar producer like Bajaj Hindusthan is foraying into the power sector. Already diversified into particle board and mediumdensity fibre operations, it has entered the thermal power business. The company had signed a memorandum of understanding (MoU) with the Uttar Pradesh government for a 2,430-Mw power capacity, of which 450 Mw is already being commissioned and will be ready for captive consumption by the end of 2011. It will now invest `10,000 crore to set up the remaining 1,980 Mw capacity.

In the non-sugar revenues, the company’s bagasse products subsidiary has begun production and is expected to bring revenues of `200 crore for the year ending March 2011. On the ethanol front, profitability is likely to increase, with the recent revision in ethanol prices to `27 a litre from `21.50 earlier.

While the benefits from bagasse-based products and ethanol will accrue immediately, power generation will yield results only after a few years, given the long gestation period. For now, sugar will continue to contribute around 90 per cent to the company’s revenues. In the new sugar year (October 2010 to September 2011), companies are likely to gain on crushing, as estimates suggest 22-23 million tonnes of cane production against 18 million tonnes this year. With higher production, procurement prices are likely to be subdued.

However, with the government under pressure to control food inflation, there may not be much headroom for sugar prices to go up in the near future.
source - business standard

The bagasse-based particle board and medium-density fibre (MDF) segment contributed `142.7 crore (up 46.1 per cent year-on-year), while revenues from the power segment surged 121 per cent to `175.5 crore. The consolidated top line of the company grew 58 per cent year-on-year to `3,201 crore. Raw material costs surged three-fold to `3,219 crore and pulled down earnings before interest, tax, depreciation and amortisation (Ebitda) margins by 425 basis points to 12.81 per cent. The consolidated net profit declined 29 per cent to `41.19 crore. In terms of volatility in prices, the past nine months for the sugar industry have been the worst possible, say analysts. International sugar prices almost halved from 29 cents/lb in February to 14.45 cents/lb in May. However, analysts at Motilal Oswal reckon negative outlook has reversed over the past few months, as global prices have risen 142 per cent from the lows of May. A global sugar consultancy firm, Kingsman, has cut the global sugar surplus estimates for the sugar year 2011 to 3.5 million tonnes (mt) in September from the earlier 5.2 mt, which augurs well for the domestic industry.

Analysts at IIFL expect Bajaj Hindusthan’s cane costs to be in line with the state administered price, while sugar realisations may hover around `27-28 a kg in the current financial year, boosting prospects going ahead.
source - business standard

Bajaj Hindusthan Ltd (updated - 03 Dec 2010)
Despite the cyclical downturn seen in the industry in sugar year 2009-10 (October 2009 - September 2010), Bajaj Hindusthan reported a 60 per cent year-on-year growth at `2,991 crore. However, higher cane prices paid last year dented operating margins of the sugar segment that came in at 6.6 per cent, as compared to 7.2 per cent ayear ago.

Revised prices for supply of ethanol to oil companies from April aided the distillery segment, as oil companies paid `27 a litre against `21.50 a litre previously. Distillery revenues rose an impressive 35 per cent to `165.71 crore, with operating margins at 13.7 per cent compared to 0.7 per cent a year ago.