For 2QSY2011, Bajaj Hindusthan (BJH) reported an increase of 116% yoy in its total revenue to `1,262cr. PAT for the quarter grew by 131% yoy to `73cr. Numbers are not comparable on a yoy basis due to merger of the company’s subsidiary. We remain Neutral on the stock.
EBITDA margin improves due to lower cane cost and higher contribution from distillery and power: EBITDA margin improved by 720bp yoy to 25.4% in 2QSY2011 from 17% in 2QSY2010 and 18% in 1QSY2011, on account of lower cane and other costs. Raw-material cost as a percentage of sales fell to 63.7% in 2QSY2011 compared to 73% in 1QSY2011. Revenue contribution from the sugar division declined to 84% in 2QSY2011 from 90% in 1QSY2011. However, revenue contribution from the distillery and power divisions increased to 6% and 10% in 2QSY2011 compared to 5% and 4% in 1QSY2011, respectively.
Outlook and valuation: Going ahead, we expect sugar prices to remain at
`28–30/kg. Domestic ex-mill prices have corrected from the highs of `42/kg to `28–29/kg currently, while cost of inventory is at `28/kg. However, due to declaration of SAP by the UP Government, margins in the sugar business would be under pressure; however, the same is likely to be compensated by higher contribution from the power and distillery divisions. At current levels, the stock is trading at fair valuations of 0.6x P/BV and 0.8x EV/IC on SY2012 estimates. Hence, we maintain our Neutral view on the stock.
`28–30/kg. Domestic ex-mill prices have corrected from the highs of `42/kg to `28–29/kg currently, while cost of inventory is at `28/kg. However, due to declaration of SAP by the UP Government, margins in the sugar business would be under pressure; however, the same is likely to be compensated by higher contribution from the power and distillery divisions. At current levels, the stock is trading at fair valuations of 0.6x P/BV and 0.8x EV/IC on SY2012 estimates. Hence, we maintain our Neutral view on the stock.
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