2QSY2010 Result Update I Sugar

May 21, 2010

Bajaj Hindusthan NEUTRAL

CMP Rs102
Performance Highlights Target Price -
Bajaj Hindusthan (BJH)’s 2QSY2010 results were below our expectations, Investment Period -
primarily due to an increase in cane cost and a higher contribution from levy
sales. Total Sales for the quarter grew 34% to Rs567cr, on the back of strong Stock Info
sugar prices. The Total Reported PAT declined by 61% to Rs32cr; however,
Sector Sugar
after adjusting for a one-time exceptional item included in other operating
income (pertaining to AS-11 and Forex), the company posted a loss of Rs15cr Market Cap (Rs cr) 1,950
in the quarter (against a profit of Rs73cr in 2QSY2009). We have pruned our
Beta 1.2
SY2011E estimates due to the poor 2QSY2010 performance. At the current
levels, the stock is trading at fair valuations. Hence, we maintain our Neutral 52 WK High / Low 243/100
view on the stock.
Avg. Daily Volume 1462586
Higher Raw Material costs, Levy sales impact Margins: The Gross Margin for
Face Value (Rs) 1
the quarter declined by 900bp to 37% in 2QSY2010 from 46% 2QSY2009,
on the back of an increase in cane cost and higher contribution from levy BSE Sensex 16,446
sales. BJH incurred a cost of Rs2,470/tonnes on cane in SY2010, as against
Rs1,494/tonnes spent in SY2009, an increase of 65% yoy. Cane prices Nifty 4,931
increased primarily due to higher demand from mill operators, as the area Reuters Code BJHN.BO
under cane cultivation did not increase in tandem during the season. Hence,
due to the shortage of sugar, the government increased the levy quota sales Bloomberg Code BJH@IN
to 20% (of production) for SY2010 from 10% in SY2009. Levy sugar is being Shareholding Pattern (%)
sold at a fixed price of Rs13.8/kg, which led to an approximate loss of
Rs15/kg for the company during the quarter. Promoters 41.8

Outlook and Valuation: Going ahead, sugar prices are likely to be under MF/Banks/Indian FLs 25.6
pressure due to the higher-than-expected sugar production in India and
FII/NRIs/OCBs 17.1
Brazil. As a result, we expect that the demand-supply of sugar would achieve
balance in SY2011E, and that prices would further soften from the current Indian Public 15.5
levels. The Domestic ex-mill prices have corrected from a high of Rs42/kg to
Abs. (%) 3m 1yr 3yr
Rs28-29/kg over the past 4 months, while the cost of inventory is in the region
of Rs28/kg. Thus, we expect most sugar companies to break-even or record Sensex 1.6 19.7 14.1
losses at the Net level over the next six months. Give the fact that BJH has the
highest raw sugar inventory (700,000 tonnes) in the industry at a cost of BHL (37.5) (23.8) (44.1)
Rs28/kg, any further fall in sugar prices would put it at high risk. At the
current levels, the stock is trading at fair valuations of 5.6x EV/EBITDA,
1x P/BV and 1x Enterprise Value/Invested Capital, on SY2011E Estimates.
Hence, we maintain our Neutral view on the stock.

Key Financials
Y/E Sept (Rs cr) SY2008 SY2009 SY2010E SY2011E
Net Sales 2,070 2,026 5,485 5,133
% chg 16.3 (2.1) 170.7 (6.4)
Adj Profit (90) (33) (250) 183
% chg 167.4 (63.2) 655.6 -
EPS (Rs) - - - 9.5
EBITDA Margin (%) 14.2 20.8 3.7 15.2
P/E (x) - - - 10.7
RoE (%) - - - 9.3
RoCE (%) 0.3 1.3 - 7.9
P/BV (x) 1.2 0.9 1.0 1.0
EV/Sales (x) 2.7 2.8 0.9 0.9
Sageraj Bariya
EV/EBITDA (x) 19.0 13.6 24.6 5.6 Tel: 022 – 4040 3800 Ext: 346
EV / IC (x) 1.1 1.0 1.0 1.0 E-mail: sageraj.bariya@angeltrade.com
Source: Company, Angel Research.
1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539
 Bajaj Hindusthan I 2QSY2010 Result Update

Exhibit 1: 2QSY2010 Performance

Y/E Sept (Rs cr) 2QSY10 2QSY09 % chg 1HSY10 1HSY09 % chg
Sales 567 425 34 1,183 785 51
Other Op Income 18 113 (84) 18 93 (80)
Total Revenues 585 538 9 1201 878 37
Consumption of RM 360 231 56 684 474 44
(% of Sales) 62 43 57 54
Gross Profit 207 194 7 498 311 60
Gross margin (%) 37 46 (20) 42 40 6
Staff Costs 44 35 26 75 65 16
(% of Sales) 7 6 6 7
Other Expenses 85 45 92 144 98 47
(% of Sales) 15 8 12 11
Total Expenditure 489 310 58 903 636 42
as % of sales 84 58 75 72
EBITDA 96 228 (58) 298 242 23
EBITDA Margin (%) 17 54 25 31
Depreciation 46 55 (16) 97 103 (6)
EBIT 50 173 (71) 201 139 45
EBIT Margin (%) 9 32 17 16
Other Income 1 0 3 0
Interest 65 63 4 111 111 (0)
PBT (excl. Extr. Items) (14) 110 - 93 28 238
Extr. (Income)/Expense (46) (8) - (60) (3) -
PBT (incl. Extr. Items) 32 119 (73) 153 31 398
Provision for Taxation 1 37 (98) 36 5 584
(% of PBT) (5) 34 39 19
Reported PAT 32 81 - 117 25 360
PM (%) 5 15 10 3
Minority & Others - - - -
Adj PAT (15) 73 - 57 22 156
Adj NPM (%) (3) 14 5 3
Equity capital (cr) 19 18 19 18
EPS (Rs) 1.6 4.6 (64) 6.1 1.4 325
Adj EPS (Rs) (0.8) 4.1 - 3.0 1.3 -
Source: Company, Angel Research

May 21, 2010 2

 Bajaj Hindusthan I 2QSY2010 Result Update

Key highlights
Strong realisations support Sales growth: Net Sales for 2QSY2010 grew 34% yoy to
Rs567cr (Rs425cr). Sugar Division Sales grew 38% yoy, while Sales of the Power
Division increased by 110% yoy. Such strong growth was witnessed inspite of the
sugar sales volume falling by 18% during the quarter. Thus, the Top-line was
supported by a 48% surge in Sugar realisation, which grew on account of a
demand-supply mismatch.

Increase in Raw Material costs, high contribution of levy sales impact Margins: The
company’s Gross Margin fell by a substantial 900bp to 37% in 2QSY2010 (from
46% in 2QSY2009). Margins were hit due to the increase in cane costs and a higher
contribution of levy sales. BJH incurred a cost of Rs2,470/tonne of cane in SY2010,
as against Rs1,494/tonne in SY2009, an increase of 65% yoy. Cane prices were
driven by high demand from the mill operators, as sugar prices kept increasing,
while the area under cane cultivation remained flat during the season. The levy
quota (sales to PDS) increased to 20% in SY2010, from 10% in SY2009, due to the
shortage in sugar production. Levy sugar is being sold at a fixed price of Rs13.8/kg,
which led to a loss of Rs15/kg for the company during 2QSY2010.

Exhibit 2: Segmental Performance

Y/E Sept (Rs cr) 2QSY10 2QSY09 % chg 1HSY10 1HSY09 % chg
REVENUES
Sugar 564 408 38 1166 764 53
Cogeneration 35 39 (9) 188 51 269
Distillery 105 50 110 147 81 83
Total revenues 704 496 42 1502 895 68
PBIT
Sugar 27 31 (11) 163 5 3088
Cogeneration 10 (1) (962) 7 (8) (184)
Distillery 90 38 139 122 58 113
Total PBIT 128 67 90 292 55 432
PBIT margin (%)
Sugar 5 7 14 1
Cogeneration 29 (3) 4 (15)
Distillery 86 76 83 72
Source: Company, Angel Research

Exhibit 3: 2QSY2010 Quantitative data

Y/E Sept (Rs cr) 2QSY10 2QSY09 % chg 1HSY10 1HSY09 % chg
Cane crushed (mn
5.7 2.9 95.2 8.3 5.4 52.2
tones)
Production
Sugar
-cane based (mn tones) 0.5 0.3 100.7 0.8 0.5 53.0
-raw (mn tones) 0.1 0.0 - 0.1 0.0 -
Distillery ( mn litres) 35.6 20.2 75.7 43.1 22.9 88.1
Sales
Sugar (mn tonnes) 0.1 0.2 (17.7) 0.3 0.4 (11.1)
Distillery ( mn litres) 13.0 16.5 (21.5) 18.8 20.6 (8.9)
Power ( mn units) 76.6 46.9 63.4 105.6 72.9 44.9
Realisation
Sugar ( Rs / kg) 32.9 22.2 48.0 32.2 18.6 73.4
Distillery ( Rs / ltr) 26.8 26.1 2.9 27.3 28.5 (4.3)
Power (Rs/ unit) 4.0 3.0 31.7 4.0 3.0 31.7
Source: Company, Angel Research
May 21, 2010 3
 Bajaj Hindusthan I 2QSY2010 Result Update

Exhibit 4: Sugar Realisation Trend

35 33
32
30

25 22

Rs / Kg
20
17

15

10

0
1QSY2009 2QSY2009 1QSY2010 2QSY2010

Source: Company, Angel Research

Other developments

BJH has decided to hive-off its power venture into an SPV, where it plans to hold a
minimum 26% stake. We believe that the sharp correction in sugar prices has led the
management to reconsider its power venture plan, one which would entail a huge
investment. As per disclosed plans, BJH was planning to set up a 450MW thermal
power plant on land adjacent to its sugar mill. This would have entailed investment
of roughly Rs1,800cr (Rs4cr/MW). Considering that BJH is likely to have net
debt:equity of 1.2x at the end of SY2011E, the power venture would have put
additional pressure on the company’s balance sheet and cash flow.

Outlook and Valuation

BJH’s 2QSY2010 performance was below our expectations. Going ahead, sugar
prices are likely to be under pressure due to the higher-than-expected sugar
production in India and Brazil. As a result, we expect that the demand-supply of
sugar would achieve balance in SY2011E, and that prices would further soften from
the current levels. The Domestic ex-mill prices have corrected from a high of
Rs42/kg to Rs28-29/kg over the past 4 months. The correction in prices has been
severe and sharp, owing to which we expect a small bounce back in the near term.
However, the rise would not take realisations to the earlier highs of Rs42/kg.

We have revised our SY2011E and SY2012E estimates for BJH, due to the lackluster
2QSY2010 performance. We have lowered our SY2011E sugar realisation from the
earlier Rs33.5/kg to Rs30.5/kg, and for SY2012E from Rs25/kg to Rs24/kg. We
estimate the inventory cost of BJH to be in the region of Rs28/kg, slightly above its
peers, due to a higher cane cost borne by the company – BJH paid Rs2,470/ tonne
of cane against Rs2,260/tonne paid by Balrampur Chini. Thus, we estimate BJH to a
post loss in SY2010E.

At the current levels of Rs102, the stock is trading at fair valuations of

5.6x EV/EBITDA, 1x P/BV and 1x Enterprise Value/Invested Capital on SY2011E
Estimates. Hence, we maintain our Neutral view on the stock.

May 21, 2010 4

 Bajaj Hindusthan I 2QSY2010 Result Update

Exhibit 5: Revised Estimates

Rs crore Old New % change
SY2010 SY2011 SY2010 SY2011 SY2010 SY2011
Sales 5,471 5,301 5,485 5,133 0 (3)
EBITDA 843 818 202 781 (76) (5)
EBITDA % 15 15 4 15
PAT 237 201 (250) 183 - (9)
EPS 12 11 - 10 - (9)
Source: Company, Angel Research

Exhibit 6: One-year Forward EV/IC Chart

12,000

10,000

8,000
EV (Rs cr)

6,000

4,000

2,000

0
Apr-02

Apr-03

Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10
Oct-01

Oct-02

Oct-03

Oct-04

Oct-05

Oct-06

Oct-07

Oct-08

Oct-09
EV 0.8x 1.1x 1.3x 1.6x 1.8x
Source: C-line, Angel Research

May 21, 2010 5

 Bajaj Hindusthan I 2QSY2010 Result Update

Profit & Loss Statement (Consolidated) (Rs cr)

Y/E Sept SY2006 SY2007 SY2008 SY2009 SY2010E SY2011E
Gross sales 1,565 1,914 2,218 2,115 5,721 5,354
Less: Excise duty 82 133 148 89 236 221
Net Sales 1,483 1,780 2,070 2,026 5,485 5,133
Other operating income - - - - - -
Total operating income 1,483 1,780 2,070 2,026 5,485 5,133
% chg 77.2 20.1 16.3 (2.1) 170.7 (6.4)
Total Expenditure 1,169 1,590 1,776 1,605 5,283 4,352
Net Raw Materials 975 1,205 1,369 1,221 4,364 3,525
Other Mfg costs 10 16 24 29 53 44
Personnel 58 142 148 165 232 261
Other 126 226 234 189 634 522
EBITDA 313 191 294 421 202 781
% chg 56.2 (39.2) 54.2 43.2 (52.0) 286.5
(% of Net Sales) 21.1 10.7 14.2 20.8 3.7 15.2
Depreciation& Amortisation 76 161 280 346 366 373
EBIT 237 30 14 76 (164) 409
% chg 43.5 (87.5) (51.8) 430.1 - -
(% of Net Sales) 16.0 1.7 0.7 3.7 (3.0) 8.0
Interest & other Charges 23 139 278 263 281 235
Other Income 87 80 121 141 111 106
(% of PBT) 29 - - - - 38
Recurring PBT 302 (29) (143) (47) (334) 280
% chg 77.1 - - - - -
Extraordinary (Expense)/Inc. - - 130 (152) - -
PBT (reported) 302 (29) (273) 105 (334) 280
Tax 117 (20) (98) 46 (67) 56
(% of PBT) 38.9 68.1 35.9 43.4 20.0 20.0
PAT (reported) 185 (9) (175) 60 (267) 224
Add: Share of earnings of
4 5 6 7 8 9
associate
Less: Minority interest (MI) - (11) 17 2 17 (41)
Prior period items - - - - - -
PAT after MI (reported) 185 (21) (157) 62 (250) 183
ADJ. PAT 226 (34) (90) (33) (250) 183
% chg 77.1 - - - - -
(% of Net Sales) 15.3 - - - - 3.6
Basic EPS (Rs) 16.0 - - - - 9.5
Fully Diluted EPS (Rs) 16.0 - - - - 9.5
% chg 45.7 - - - - -

May 21, 2010 6

 Bajaj Hindusthan I 2QSY2010 Result Update

Balance Sheet (Consolidated) (Rs cr)

Y/E Sept SY2006 SY2007 SY2008 SY2009 SY2010E SY2011E
SOURCES OF FUNDS
Equity Share Capital 14 14 14 18 19 19
Preference Capital - - - - - -
Reserves& Surplus 1,347 1,392 1,187 2,096 1,875 2,002
Shareholders Funds 1,361 1,406 1,201 2,114 1,894 2,021
Minority Interest - 23 67 65 82 41
Total Loans 1,541 3,593 4,335 4,056 3,439 2,820
Deferred Tax Liability 126 105 4 49 49 49
Total Liabilities 3,029 5,127 5,608 6,283 5,464 4,931
APPLICATION OF FUNDS
Gross Block 1,379 2,922 4,745 5,295 5,315 5,330
Less: Acc. Depreciation 305 467 719 1,060 1,426 1,798
Net Block 1,074 2,455 4,026 4,235 3,889 3,532
Capital Work-in-Progress 1,472 1,630 159 155 155 155
Goodwill - - - - - -
Investments 0 0 0 0 0 0
Current Assets 4 5 6 7 8 9
Cash 231 267 174 127 424 370
Loans & Advances 444 1,240 1,571 1,859 1,481 1,540
Other 210 548 847 1,006 1,734 1,552
Current liabilities 402 1,013 1,169 1,100 2,218 2,218
Net Current Assets 483 1,042 1,423 1,893 1,420 1,244
Others - - - - - -
Total Assets 3,029 5,127 5,608 6,283 5,464 4,931

Cash Flow (Consolidated) (Rs cr)

Y/E Sept SY2006 SY2007 SY2008 SY2009 SY2010E SY2011E
Profit before tax 280 (29) (293) 105 (334) 280
Depreciation 72 161 280 346 366 373
Change in Working Capital (357) (25) (128) (263) 1,063 257
Less: Other income
Direct taxes paid (73) (20) (25) (14) 59 (49)
Cash Flow from Operations (77) 88 (166) 174 1,154 860
(Inc.)/ Dec. in Fixed Assets (1,229.3) (1,696.9) (291.6) (160.4) (20.0) (15.0)
(Inc.)/ Dec. in Investments (148.3) (301.5) (1.2) 35.0 - -
Inc./ (Dec.) in loans and adv. - - - - - -
Other income - - - - - -
Cash Flow from Investing (1,378) (1,998) (293) (125) (20) (15)
Issue of Equity 734 31 5 742 76 -
Inc./(Dec.) in loans 996 2,052 620 (428) (617) (619)
Dividend Paid (Incl. Tax) (8) (10) (10) (10) (14) (45)
Others (50) (126) (250) (399) (281) (235)
Cash Flow from Financing 1,672 1,947 365 (95) (837) (898)
Inc./(Dec.) in Cash 217.5 36.2 (93.4) (46.8) 296.4 (53.6)
Opening Cash balances 6 231 267 174 127 424
Closing Cash balances 223 267 174 127 424 370

May 21, 2010 7

 Bajaj Hindusthan I 2QSY2010 Result Update

Key Ratios
Y/E Sept SY2006 SY2007 SY2008 SY2009 SY2010E SY2011E
Valuation Ratio (x)
P/E (on FDEPS) 6.4 - - - - 10.7
P/CEPS 4.8 11.3 7.6 5.8 16.8 3.5
P/BV 1.1 1.0 1.2 0.9 1.0 1.0
Dividend yield (%) 0.6 0.6 0.6 0.7 2.0 2.5
EV/Sales 1.9 2.7 2.7 2.8 0.9 0.9
EV/EBITDA 8.8 25.0 19.0 13.6 24.6 5.6
EV / Total Assets 0.9 0.9 1.0 0.9 0.9 0.9
EV / IC 2.1 1.5 1.1 1.0 1.0 1.0
Per Share Data (Rs)
EPS (Basic) 16.0 - - - - 9.5
EPS (fully diluted) 16.0 - - - - 9.5
Cash EPS 21.4 9.0 13.4 17.7 6.1 29.0
DPS 0.6 0.6 0.6 0.7 2.0 2.5
Book Value 96.3 99.4 85.0 119.5 99.0 105.6
Dupont Analysis
EBIT margin 16.0 1.7 0.7 3.7 - 8.0
Tax retention ratio 61.1 31.9 64.1 56.6 80.0 80.0
Asset turnover (x) 1.1 0.6 0.4 0.3 1.1 1.2
ROIC (Post-tax) 11.0 0.3 0.2 0.7 - 7.4
Cost of Debt (Post Tax) 3.0 1.7 4.1 4.6 6.0 6.0
Leverage (x) 0.9 1.7 2.9 2.4 1.7 1.4
Operating ROE 18.3 - - - - 9.4
Returns (%)
ROCE (Pre-tax) 11.3 0.7 0.3 1.3 - 7.9
Angel ROIC (Pre-tax) 8.5 0.6 0.3 1.2 - 9.0
ROE 22.9 - - - - 9.3
Turnover ratios (x)
Asset Turnover (Gross Block) 1.1 0.8 0.5 0.4 1.0 1.0
Inventory / Sales (days) 24 59 108 158 84 106
Receivables (days) 10 18 15 9 7 10
Payables (days) 40 105 172 212 102 170
WC cycle (ex-cash) (days) 41 105 178 272 92 67
Solvency ratios (x)
Net debt to equity 1.0 2.4 3.5 1.9 1.6 1.2
Net debt to EBITDA 4.2 17.4 14.1 9.3 14.9 3.1
Interest Coverage (EBIT / Int.) 10.3 0.2 0.1 0.3 - 1.7

May 21, 2010 8

 Bajaj Hindusthan I 2QSY2010 Result Update

Research Team Tel: 022-4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com

DISCLAIMER

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this
document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to
arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved),
and should consult their own advisors to determine the merits and risks of such an investment.

Angel Securities Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are
inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company
may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as
opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true,
and are for general guidance only. Angel Securities Limited has not independently verified all the information contained within this document. Accordingly,
we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel
Securities Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other
reasons that prevent us from doing so.

This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on,
directly or indirectly.

Angel Securities Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services
in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past.

Neither Angel Securities Limited nor its directors, employees and affiliates shall be liable for any loss or damage that may arise from or in connection with the
use of this information.
Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section).

Disclosure of Interest Statement Bajaj Hindusthan

1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies’ Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies.

Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.
Tel : (022) 3952 4568 / 4040 3800

Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE:
INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946
Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM /
CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

May 21, 2010 9