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Firm sugar prices are a good start for Bajaj Hindusthan

Firm sugar prices are a good start for Bajaj Hindusthan
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First Published: Thu, Nov 24 2011. 11 19 PM IST

Sugar Cubes. File photo Bloomberg)
Sugar Cubes. File photo Bloomberg)
Updated: Thu, Nov 24 2011. 11 19 PM IST
Sugar prices have risen further in the past few days, after the government allowed the industry to export one million tonnes of the commodity and removed stock-holding limits on bulk users. Wholesale sugar prices have reached about Rs 34 a kg in Delhi, gaining 10% in November.
Sugar Cubes. File photo Bloomberg)
Bajaj Hindusthan Ltd reported its financial results for the year 2010-11 (October-September) on Wednesday evening. In the September quarter, it incurred a Rs 120 crore loss, even as sales rose 9.8% year-on-year (y-o-y) to Rs 1,071 crore. This quarter is seasonally a weak one; though sugar cane is not crushed, fixed expenses are still incurred. This year, softer sugar prices also affected profit margins, while higher working capital requirements led to higher interest costs for Bajaj Hindusthan.
The company’s full year results show total sales rising 68.8% y-o-y to Rs 4,850.4 crore, reflecting higher production, while operating profit rose by 45%. The sugar division’s profit rose 22%, but the real kickers to profit came from its distillery and power divisions; their profit rose 4.6 times and 27%, respectively. Still, a 28% increase in depreciation and a 71% increase in interest costs led to net profit declining 76.8% to Rs 12 crore.
Bajaj Hindusthan’s interest costs in 2011-12 are expected to be lower. One, it has used Rs 1,145 crore from its rights issue proceeds to fund working capital needs. Further, its opening inventories are far lower than last year. The company has preferred to write down inventory, and lower carrying costs, rather than wait for sugar prices to increase.
The company expects to produce about 1.1 million tonnes of sugar in the current season, which is about 10% higher than last year’s level. The cost of cane is expected to be higher, as the state advised price (SAP) has been hiked by about 17% y-o-y in Uttar Pradesh. The industry has said it needs sugar prices to be about Rs 34-35 a kg to justify the current SAP. So, current price trends are encouraging.
At the consolidated level, Bajaj Hindusthan’s operating income (sales plus other operating income) rose 53% to Rs 5,082 crore, while it earned a profit of Rs 21 crore, nearly half of what it got in the previous year. In the current year, results will also reflect higher income from the power business, as investment in coal-based power units adjoining the sugar plants come on stream.
The single positive in the company’s favour is the firmness being displayed by sugar prices. If they hold up—which is uncertain given the trends of the past few years—its results should better last year’s numbers. The stock rose 5.3% on Thursday. If food inflation trends down in the next few months, the government may well look the other way. The risk is if it does not; as then the government may turn the screws on sugar prices again.
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First Published: Thu, Nov 24 2011. 11 19 PM IST