Result Update

February 15, 2013

Rating matrix
Rating Target Target Period Potential Upside : : : : Sell | 19 12-15 months -14%

Bajaj Hindusthan (BAJHIN)

| 22
WHATS CHANGED
PRICE TARGET........................................................................... Changed from | 22 to | 19
SY13E 5,045 642.6 (153.4) (2.4) SY14E 5,052 732.6 (72.4) (1.1)

Key Financials
| Crore Net Sales EBITDA Net Profit EPS SY11 4,849 850.5 12.0 0.5 SY12E 4,211 457.8 (234.6) (3.7)

EPS (SY13E)...........................................................................Changed from | 0.3 to | (2.4) EPS (SY14E)......................................................................................... Introduced at | (1.1) RATING...............................................................................................................Unchanged

Valuation summary
P/E Target P/E EV / EBITDA Price to Book Value RoNW(%) RoCE (%) SY11 41.9 2.5 0.2 0.3 9.7 SY12E 6.0 0.3 -6.5 3.9 SY13E 4.4 0.4 -3.8 5.0 SY14E 3.5 0.4 -1.9 6.6

Underperformance to continue
Bajaj Hindustan posted dismal Q1SY13 results with losses increasing to | 55.1 crore against loss of | 44.4 crore in Q1SY12. During the quarter, Bajajs raw material (RM) cost to sales ratio was lower at 53% (66.5% in Q1SY12), despite ~19% increase in cane cost. We believe this was due to delayed start of the crushing season. However, increase in operating cost by ~59% YoY pulled down margins by 148 bps YoY to 20.9%. Declining margins were further drained by higher interest cost of | 126.5 crore. We believe that increasing cane cost pressure, higher working capital requirement and persisting huge debt on books leading to high interest cost would continue to keep earnings subdued. We maintain SELL. Sugar sales volume declines; outlook from segment remains distressed Bajaj Hindusthan sold 1.6 lakh tonne (lt) of sugar during the quarter, decline of ~0.1 lt YoY and below our expectation of 1.95 lt. Despite sugar realisation improving by ~| 4/kg, lower sales volume continued to drain the companys earnings from the segment with a loss of | 37.6 crore. We expect that with higher availability of cane in Uttar Pradesh (UP) for the current season, the company would produce ~1.3 million tonnes of sugar in SY13E. However, higher cane cost at | 280/quintal and sugar prices at par with the cost of production (~| 33/kg), we believe earnings from the segment for the company would continue to remain dismal. By-products sales improve The company sold 14868 kl of alcohol (6848 KL in Q1SY12) and 9.2 crore units of power (8.0 crore units in Q1SY12) in Q1SY13. We believe that higher cane crushing in SY13E would provide higher availability of molasses and bagasse (RM for alcohol and power production), keeping revenues from these segments strong. Further, with increased demand for alcohol from brewery industry, realisation per KL would also increase. Higher interest cost remains a concern; maintain SELL With the performance in the sugar segment expected to remain dismal and further huge interest cost remaining an overhang on the stock, we maintain our cautious stance. Valuing the stock at ~65% discount to book value (SY14E), we assign a target price of | 19/share. We maintain SELL.
Exhibit 1: Financial Performance
(| Crore) Net Sales EBITDA margin (%) Depreciation Interest Other Income Reported PAT EPS (|) Q1SY13 626.8 20.9 90.2 126.5 1.2 -55.1 -0.9 Q1SY13E 719.4 -3.0 86.4 91.2 14.7 -129.2 -2.0 Q1SY12 556.6 22.4 84.9 113.1 1.3 -44.4 -0.7 Q4SY12 1123.6 7.2 95.2 143.4 17.6 -122.4 -1.9 YoY(%) 12.6 -148 bps 6.1 11.9 -8.7 24.2 24.2 QoQ(%) -44.2 1367 bps -5.3 -11.8 -93.5 -55.0 -55.0

Stock data
Market Capitalisation Total Debt (SY12) Cash and Investments (SY12) EV 52 week H/L Equity capital Face value MF Holding (%) FII Holding (%) | 1406 crore | 4787 crore | 180.3 crore | 6013 crore 37 / 22 | 63.9 crore |1 14.3 12.9

Price movement
6,000 5,500 5,000 4,500 4,000 3,500 Feb-12 May-12 Aug-12 Nov-12 Nifty (L.H.S) Price (R.H.S) 70 60 50 40 30 20 10 Feb-13

Analysts name
Sanjay Manyal sanjay.manyal@icicisecurities.com Parineeta Poddar parineeta.poddar@icicisecurities.com

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Exhibit 2: Assumption Sheet

Sugarcane Crushed (in tonnes) Recovery rate (%) Sugar Production (in tonnes) Sugar Sales volumes (in tonnes) Realisations (| per tonnes) Distillery Sales volumes (in kilo litres) Realisations Power Sales volumes (in crore) Realisations (| /unit) Sugarcane Prices (| / tonnes) SY10 8467200 9.2 782100 995700 27163 63123 24458 20.3 4.0 2650 SY11 10220300 9.3 951600 1374400 27498 124366 26665 25.6 4.1 2250 SY12 12755900 9.1 1165761 1138494 30300 148835 27000 31.6 4.5 2550 SY13E 13884000 9.2 1271700 1300000 35084 161080 30356 36.7 0.0 2900 SY14E 12390000 9.3 1146075 1265000 36000 151500 32800 34.2 4.6 3050

Source: Company, ICICIdirect.com Research

Exhibit 3: Sugar volumes and realisations trend

35 34 33 32 31 30 29 28 27 26 25 33.6 30.7 27.6 28.1 28.8 31.9 4.0 3.5 3.0 2.5 2.0 1.7 Q1SY12 3.4 Q2SY12 4.0 Q3SY12 2.1 Q4SY12 1.6 Q1SY13 1.5 1.0

Lower sales volumes, we believe, were in anticipation of higher sugar prices. However, this kept revenues and earnings from the segment subdued in spite of higher prices YoY

27.2 3.1 Q2SY11

27.6 3.5 Q3SY11

3.6 Q4SY11

Sugar Sales(MT) (RHS)

Sugar Prices (| per kg) (LHS)

Source: Company, ICICIdirect.com Research

Exhibit 4: Distillery volumes and prices trend

34 32
Higher realisation from distillery was due to the sale of alcohol to breweries and no sale of ethanol

32.4 30.1 27.2 25.3 27.7 26.4 29.0 26.8 27.4

60 50 40 30 20 (in '000)

30 28 |/litre 26 24 22 20 18 31

10 33 32 28 7 40 46 56 15 0

Q1SY11 Q2SY11 Q3SY11 Q4SY11 Q1SY12 Q2SY12 Q3SY12 Q4SY12 Q1SY13 Distillery Volumes(in KL) Distillery Prices(| per litre)

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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Exhibit 5: Interest cost (| crore) trend

160
Higher interest cost YoY in spite of lower crushing remains a concern as this would increase from here on as crushing increases,

141.8 140 120 100 80 60 Q1SY11 Q2SY11 Q3SY11 107.0 130.7

146.3 136.4 113.1 133.6

143.4 126.5

Q4SY11

Q1FY12

Q2SY12

Q3SY12

Q4SY12

Q1SY13

Source: Company, ICICIdirect.com Research

Revising estimates
With the increase in cane cost by ~19% to | 280/quintal by the UP government for the current season (SY13E) and higher operations cost of Bajaj Hindusthan, we are revising our estimates for SY13E. We are also introducing our estimates for SY14E.
Exhibit 6: Revising Estimates
(| crore) Revenue EBITDA EBITDA Margin % PAT EPS (|) Old 4,910.6 640.5 13.0 16.8 0.3 SY13E New 5045.2 642.6 12.7 -153.4 -2.4 % Change 2.7 0.3 -31 bps SY14E New 5,052.0 732.6 14.5 -72.4 -1.1

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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Financial Performance
Exhibit 7: Profit &l loss Account
(Year-end September) Total operating Income Growth (%) Raw Material Expenses Employee Expenses Marketing Expenses Administrative Expenses Other expenses Total Operating Expenditure EBITDA Growth (%) Depreciation Interest Other Income PBT Others Total Tax PAT Growth (%) EPS (|) SY11 4,903.8 63.0 3,627.9 170.4 41.0 53.5 160.7 4,053.4 850.5 43.3 330.9 516.0 15.4 18.9 0.0 6.9 12.0 NA 0.5 SY12 4,262.6 -13.1 3,308.0 191.9 41.0 68.0 195.9 3,804.9 457.8 -46.2 348.8 536.4 106.2 -321.3 0.0 -86.8 -234.6 NA -3.7 SY13E 5,085.4 19.3 3,845.4 220.9 0.0 0.0 376.5 4,442.8 642.6 40.4 372.1 500.6 5.1 -225.0 0.0 -71.6 -153.4 NA -2.4 SY14E 5,092.6 0.1 3,779.0 227.3 0.0 0.0 353.6 4,359.9 732.6 14.0 379.9 462.3 6.2 -103.4 0.0 -31.0 -72.4 NA -1.1

Exhibit 8: Cash flow Statement

(Year-end September) Profit before Tax Add: Depreciation (Inc)/dec in Current Assets Inc/(dec) in CL and Provisions Others CF from operating activities (Inc)/dec in Investments (Inc)/dec in Fixed Assets Others CF from investing activities Issue/(Buy back) of Equity Inc/(dec) in loan funds Dividend paid & dividend tax Inc/(dec) in Sec. premium Others CF from financing activities Net Cash flow Opening Cash Closing Cash SY11 18.9 330.9 1,425.1 -409.4 467.8 1,833.3 -510.5 -38.9 115.6 -433.9 0.0 -667.9 -18.5 -610.4 0.0 -1,296.7 102.7 481.3 584.0 SY12 -321.3 348.8 -50.7 -958.3 513.9 -467.6 -1,160.6 -80.5 135.8 -1,105.3 1,472.6 418.9 -28.2 -695.3 1.0 1,169.1 -403.8 584.0 180.3 SY13E -225.0 372.1 -677.2 394.0 567.0 431.0 -10.0 -50.0 5.1 -54.9 0.0 0.0 0.0 -500.6 0.0 -500.6 -124.4 180.3 55.8 SY14E -103.4 379.9 -14.2 155.6 487.2 905.0 -55.0 -100.0 6.2 -148.8 0.0 0.0 0.0 -462.3 0.0 -462.3 293.8 55.8 349.7

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

Exhibit 9: Balance Sheet

(Year-end September) Liabilities Equity Capital Reserve and Surplus Total Shareholders funds LT Debt LT Provisions Deferred Tax Liability Total Liabilities Assets Gross Block Less: Acc Depreciation Net Block Capital WIP Total Fixed Assets Non Current Investments LT Loans & Advances Other Non current assets Inventory Debtors Cash Other Current Assets Total Current Assets Creditors Short Term Borrowings Other Current Liabilities Total Current Liabilities Net Current Assets Application of Funds SY11 22.8 3,117.1 3,139.9 2,239.7 26.9 87.7 5,494.3 6,746.4 1,356.7 5,389.6 24.3 5,413.9 1,343.8 74.9 1.3 467.8 248.2 583.8 1,659.4 2,959.2 284.8 1424.3 2,589.7 4,298.9 -1,339.7 5,494.3 SY12 63.9 4,030.3 4,094.3 1,500.7 31.8 0.0 5,626.8 7,204.9 1,785.0 5,419.9 7.4 5,427.3 1,600.4 92.1 1.7 558.2 192.0 180.3 2,145.3 3,075.9 236.4 3286.3 1,047.8 4,570.5 -1,494.6 5,626.8 SY13E 63.9 3,877.0 3,940.9 1,500.7 31.8 0.0 5,473.4 7,254.9 2,157.2 5,097.7 7.4 5,105.1 1,600.4 102.1 1.7 630.7 280.3 55.8 2,661.8 3,628.6 420.4 3486.3 1,057.8 4,964.5 -1,335.9 5,473.4 SY14E 63.9 3,804.6 3,868.5 1,500.7 31.8 0.0 5,401.1 7,354.9 2,537.0 4,817.9 7.4 4,825.3 1,650.4 107.1 1.7 631.5 350.8 349.7 2,604.7 3,936.7 421.0 3636.3 1,062.8 5,120.1 -1,183.4 5,401.0

Exhibit 10: Ratios

(Year-end September) Per share data (|) EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Total Operating income PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio SY11 0.5 15.0 137.5 0.0 25.6 17.5 0.4 0.2 59 31 36 0.3 9.7 9.9 41.9 2.5 0.4 0.1 0.2 0.0 0.0 0.7 0.6 SY12 -3.7 1.8 64.0 0.0 2.8 10.9 -7.6 -5.6 70 24 30 -6.5 3.9 6.0 NA 6.0 0.6 0.3 0.3 0.0 0.0 0.7 0.6 SY13E -2.4 3.4 61.6 0.0 0.9 12.7 -4.5 -3.0 45 20 30 -3.8 5.0 8.4 NA 4.4 0.6 0.3 0.4 0.0 0.0 0.7 0.6 SY14E -1.1 4.8 60.5 0.0 5.5 14.5 -2.0 -1.4 45 25 30 -1.9 6.6 9.7 NA 3.5 0.5 0.3 0.4 0.0 0.0 0.8 0.6

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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Company Description
Bajaj Hindusthan Ltd (BHL) is the largest integrated sugar company (by capacity) in the country. The company has 14 sugar plants, which are all located in Uttar Pradesh (UP): Golagokarannath, PaliaKalan and Khambarkhera (district LakhimpurKheri), Barkhera (district Pilibhit), Kinauni (district Meerut), Gangnauli (district Saharanpur), Thanabhavan and Budhana (district Muzaffarnagar), Bilai (district Bijnore), Maqsoodapur (district Shahjahanpur), Pratappur (district Deoria), Rudauli (district Basti), Kundarkhi (district Gonda) and Utraula (district Balrampur). These plants have aggregate sugarcane crushing capacity of 136,000 tonnes crushed per day (TCD) and a distillery capacity to produce 800,000 litres of alcohol per day. BHL generates close to 430 MW of power from the bagasse produced in its sugar mills. After meeting its own energy needs, it exports the surplus to the state grid (around 100 MW per annum). BHLs wholly owned subsidiary, Bajaj Eco-tec Products Ltd (BEPL), produces environment-friendly medium density fibre boards (MDF) and particle boards (PB), both from its bagasse waste. BEPL has a capacity of 210000 cubic metre of MDF and particle boards in a year.
Exhibit 11: Recommendation History
40 35 30 25 20 15 10 5 0 Feb-12 Apr-12 May-12 Jul-12 Price Aug-12 Oct-12 Nov-12 Jan-13 Feb-13

Target Price

Source: Company, ICICIdirect.com Research

Exhibit 12: Recent Releases

Date 4-Apr-12 9-May-12 5-Jul-12 17-Aug-12 8-Oct-12 29-Nov-12 8-Jan-13 Event Q4FY12 Result Preview Q2SY12 Result Updatre Q1FY13 Result Preview Q3SY12 Result Update Q2FY13 Result Preview Q4SY12 Result Update Q3FY13 Result Preview CMP 32 27 33 33 32 27 25 Target Price 37 26 26 29 29 22 22 Rating HOLD HOLD SELL HOLD HOLD SELL SELL

Source: Company, ICICIdirect.com Research

ICICIdirect.com Coverage Universe (Sugar)

Sector / Company Bajaj Hindustan (BAJHIN) Balrampur Chini (BALCHI) Dhampur Sugar (DHASUG) Renuka sugar (RENSUG) CMP (|) TP(|) Rating 19 64 54 32 Sell Buy Buy Hold 22 49 44 27

M Cap (| Cr) 1,407 1,197 276 1,812

EPS (|) FY12 FY13E FY14E 0.5 0.3 4.7 -0.5 -3.7 8.1 7.7 2.8 -2.4 6.5 4.3 3.2

P/E (x) EV/EBITDA (x) FY12 FY13E FY14E FY12 FY13E FY14E 41.9 9.4 6.1 5.7 9.6 7.5 10.3 8.3 2.5 8.2 5.7 6.3 6.0 3.4 4.9 7.3 4.4 3.9 6.1 6.1

RoCE (%) FY12 FY13E FY14E 9.7 3.6 7.0 6.7 3.9 10.2 8.0 5.9 5.0 7.6 5.8 6.8

RoE (%) FY12 FY13E FY14E 0.3 0.5 5.9 -1.4 -6.5 15.1 9.4 7.5 -3.8 10.7 4.9 8.0

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

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RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey

Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com

pankaj.pandey@icicisecurities.com

ANALYST CERTIFICATION
We /I, Sanjay Manyal M.B.A.(FINANCE) Parineeta Poddar M.B.A.(FINANCE) research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

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