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Kultur Dokumente
Company BBG code Rating Share price (INR) 120.10 83.55 69.70 TP (INR) 95.00 100.00 75.00 Chg in TP (%) -20.8 Mkt cap
19 JULY 2010
P/E FY1 (USD m) 492 460 1,002 (x) (35.6) 18.7 7.7 FY2 (x) 47.0 9.8 10.6 Yld FY1 (%) 0.7 3.6 1.7
INDUSTRY OUTLOOK
Increase in Brazil and Indian sugar production to weigh on sugar prices. Expect weak 2HF10; FY11 to be driven by higher volume and by products. Deregulation could be positive; BRCM well positioned to benefit. Initiate with BUY on BRCM; HOLD on SHRS; retain REDUCE on BJH.
Kunal Vora, CFA
+91 22 6628 2453 kunal.d.vora@asia.bnpparibas.com
A Bittersweet Symphony
Brazilian production and Indian monsoon are near-term drivers Brazilian sugar production is expected to increase by 5.5m tonnes due to dry weather during the crushing season and Bisada (previous years uncrushed) cane. The Indian Sugar Mills Association expects sugar production to increase by 6.5m tonnes, from 18.5m tonnes, to 25m tonnes. Due to strong production increase in the top two producers, global sugar supply is set to exceed demand after two deficit years. Our analysis of sugar futures indicates that though there is some tightness in the white-sugar market the same will get resolved by end of Brazilian crushing season. We maintain a negative view on global sugar prices. Weak 2HF10; FY11 to be driven by volume and by-products We expect sugar companies to breakeven or report losses in sugar segment due to high inventory value and low sugar prices. Companies had acquired sugar cane at high prices, as they were eyeing 28-year high sugar prices. Sugar prices have since declined sharply. In FY11 we expect 30% increase in India sugar production. We expect profitability to be driven by higher volume and sugar byproducts, such as power. Deregulation could be positive; BRCM preferred play The Indian sugar industry is highly regulated (Exhibit 15). In view of the high sugar cane production, the Indian government is considering deregulating the sugar sector. It may consider measures such as removing the levy quota, sugar release mechanism, bulk holding restriction, and reserve area as well as freeing up sugar cane pricing. We prefer BRCM as the play on deregulation as it tends to benefit from measures like removal of levy quota and change in sugar cane pricing mechanism. Prefer BRCM (BUY) over BJH (REDUCE) and SHRS (HOLD) We expect FY11 profits to be driven by higher volumes and by-products rather than sugar prices alone. In this scenario, we prefer BRCM, as the company has the least-leveraged balance sheet, no significant capex plan and the highest contribution from the power segment. We have a HOLD rating on SHRS as we like the domestic business but Brazilian acquisitions have leveraged the balance sheet. We retain REDUCE on BJH. Valuation Our analysis of the EV trend of sugar mills indicates that BJH and BRCM are trading near their bottom EV. We initiate on BRCM with a TP of INR100.00 (6.5x FY11 EV/EBITDA) and SHRS at INR75.00 (6.5x EV/EBITDA). We retain REDUCE on BJH and reduce TP to INR95.00 from INR120 (0.9x P/BV). Positive catalyst for the stocks could be from a negative production surprise from Brazil or India, deregulation of the sector or a lower-than-expected sugar cane price.
BNP Paribas Securities Asia research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://equities.bnpparibas.com. Please contact your salesperson for authorisation. Please see the important notice on the inside back cover.
19 JULY 2010
Contents
1) Sugar sector outlook: Maintain negative view.......................................................................................................................... 3 2) Domestic sugar production outlook.......................................................................................................................................... 4 3) International sugar demand supply and price outlook ............................................................................................................ 6 4) Why a negative price outlook at current levels ...................................................................................................................... 10 5) Deregulation: Potentially a game changer.............................................................................................................................. 13 6) Stable and inelastic demand .................................................................................................................................................... 15 7) Sugar Business Process And Comparison On Key Segments ............................................................................................. 17 8) Valuation: We prefer defensive ................................................................................................................................................ 22 9) Devils Advocate........................................................................................................................................................................ 26 10) Company updates ................................................................................................................................................................... 27
Looking for an alternative way to invest in the views and themes covered in this report? Explore BNP Paribass
2 2
BNP PARIBAS
19 JULY 2010
Sugar price still higher than pre-rally prices, but benefit already passed on to farmers
Sugar companies are unlikely to gain from the high sugar realisation in FY10 as the entire benefit of the high sugar price in FY10 has already been passed on to the farmers. Sugar mills were eyeing the 28-year high sugar prices during the early part of the crushing season, and acquired sugar cane at a 60% higher price in FY10 compared to FY09. However, sugar prices have collapsed subsequently and the companies are currently selling manufactured sugar near the cost of production.
3 3
BNP PARIBAS
19 JULY 2010
India demand supply of sugar (m tonnes) Opening stock Production Imports Total sugar availability Internal consumption Exports Closing stock
Sources: ISMA, BNP Paribas estimates
4 4
BNP PARIBAS
19 JULY 2010
(m tonnes) 15 10 5
We expect Indian sugar production to marginally exceed consumption after two deficit years
Sugar inventory levels are low. Negative production surprise could lead to a fresh rally in sugar prices.
5 5
BNP PARIBAS
19 JULY 2010
We do not expect a significant increase in global prices from the current level
On the international side, Brazil the largest producer and exporter of sugar is likely to see a significant increase in production due to dry weather in its top sugarproducing areas. Brazil production should be helped by Bisada cane. Bisada cane is cane which was left uncrushed last year, due to heavy rains and has grown for two years and thus has higher yield per hectare. Indian sugar production estimate for FY11 was recently raised to 25m tonnes (from 23m tonnes) by Indian sugar mills association (ISMA) compared to 18.5m tonnes in FY10. This will likely rule out any further imports to India, which was amongst the largest importer in FY09 and FY10. Some of the Asian countries, such as China, Indonesia, and Pakistan, have been importers of sugar in 2010. Thailand, which is the second largest exporter of sugar, has reduced its sugar production estimate by about 1m tonnes. However, unless there is a negative production surprise from Brazil or India in the next crushing season, we expect the demand to be met as the two largest producers (Brazil and India) are expected to see between them 12m tonne increase in production. At current prices, domestic sugar price higher than import parity prices: Current international sugar futures at USD0.17/lb translates into INR21-22/kg post processing, which is still lower than domestic sugar prices at INR27-29. We therefore expect the import duty to be reinstated by the beginning of FY11 crushing season, which would support the domestic sugar prices. Exhibit 4: Long Term Sugar Price Trend
(USD/lb) 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 May-62
Global sugar prices retreating from 28 year high. Prices still at premium to historical average.
May-70
May-78
May-86
May-94
May-02
May-10
6 6
BNP PARIBAS
19 JULY 2010
Production
Consumption
Sugar production set to surpass consumption in FY11 after two consecutive deficit years
Global sugar inventory levels still low. Negative production surprise from India or Brazil could trigger a fresh rally.
India and Brazil combined account for 40% of global sugar production. Indian sugar production is driving global sugar prices. India was a large buyer in FY09 and FY10 triggering rally in sugar prices. India unlikely to import in FY11
7 7
BNP PARIBAS
19 JULY 2010
(m tonnes) South Central (LHS) Change in Brazil production (RHS) 5 Significant increase in Brazil production 4 3 2 1 0 92/93 94/95 96/97 98/99 00/01 02/03 04/05 06/07 08/09 10/11E North East (LHS) 6
Brazil sugar production could expect by 5.5m tonne driven by dry weather and last years uncrushed cane which has grown for two years
8 8
BNP PARIBAS
19 JULY 2010
Currently, crushing season is on in Central South region which accounts for ~85% of Brazilian sugar production.
NE region crushing season: Oct-Mar
Source: UNICA
9 9
BNP PARIBAS
19 JULY 2010
Food crop reserves increasing; sugarcane an attractive crop for farmers: Wheat crop in the current rabi (spring) season has been good and the government is facing storage issues due to limited warehousing facilities. As a result, minimum support prices of food crops have not been increased significantly. This should maintain the relative attractiveness of sugar cane crop.
10 10
BNP PARIBAS
19 JULY 2010
Exhibit 12: India Minimum Support Price Trend; Sugar Cane Attractive
(%) 400 Sugarcane - SAP / CMP Bajra Maize Wheat Paddy Jowar Groundnut
300
Sugar cane is an attractive crop for farmers based on FY10 sugar cane prices paid by sugar mills. We expect sugar cane price to decrease in FY11 as sugar cane production increases.
200
100
Indian production costs have increased significantly There has been a significant increase in the production cost for Indian sugar mills. Sugar cane costs have increased 60% y-y for the Indian sugar mills. Sugar manufacturing cost increase for the Indian mills is significantly higher than for the Brazilian mills. This should weigh on the profit margins of Indian sugar mills, especially as long as free imports are allowed. In the current year, we estimate the cost/kg of sugar for Indian mills is INR25-28, while the cost of production for a Brazilian sugar mills is about USD0.10-0.15/lb, which translates into INR10-15/kg. In addition to higher production cost, Indian sugar mills lose money on the levy sugar sale. Sugar futures indicates tightness will last until the end of Brazil crushing season At the end of 2008, sugar futures for most deliveries traded at USD0.14/lb. By the end of 2009, in view of strong import demand from India and tight supply situation, near term deliveries were trading at USD0.24-0.26. Even 2011 contracts were trading higher at USD0.18-0.20/lb. By April 2010, with significantly higher Indian sugar production and postponement of Imports by countries like Pakistan and Egypt, spot prices crashed to as low as USD0.13/lb while 2011 sugar prices were at USD0.16/lb. With the surge in demand from countries like China, Russia, Indonesia spot sugar prices rebounded sharply to USD0.17/lb. Sugar futures are in marginal backwardation indicating that sugar availability is expected to improve over the next 2 years. Amongst our coverage, SHRS will likely have the highest impact from change in global sugar prices as the company has subsidiaries in Brazil which will export raw sugar.
11 11
BNP PARIBAS
19 JULY 2010
FY11 sugar futures have declined from ~USD0.22/lb at the beginning of the 2010 to USD0.17/lb. However they are significantly higher than sugar futures in beginning of 2009. SHRS will be most impacted by the move in sugar futures due to its Brazilian subsidiaries.
Sugar mills will be under pressure to liquidate inventory Most sugar mills are holding significant quantity of high cost sugar inventory. The companies will be under pressure to liquidate inventory as sugar prices are expected to decline further in FY11. Though the domestic production has been lower than consumption, most mills have high inventory levels as in addition to manufactured sugar they are also holding processed sugar(processed from imported raw sugar). However, currently the sugar companies do not have a control over the quantity of sugar they can sell. Sugar sales in India are based on sugar release orders from the government. Sugar mills have requested for scrapping of sugar release mechanism so that they can plan their sales and have a better control over their cash flows. Exhibit 14: Monthly Sugar Release Data
(m tonnes) 2.2 2.0 1.8 1.6 1.4 1.2 1.0 Oct nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 2003-04 2007-08 2004-05 2008-09 2005-06 2009-10 2006-07
Sugar mills have to sell sugar based on sugar release order from government. Sugar mills are requesting deregulation of sugar sales.
Reinstatement of Import duty would support domestic prices but a rally unlikely In view of the collapse in the domestic sugar price and high domestic cost of sugar production, we believe India will re-instate import duty at the latest by the beginning of the next crushing season. The rationale for the same is domestic cost of sugar production is significantly higher than the cost of production in Brazil. Indian sugar production was INR25-28/kg in FY10 and could go down to INR21-24 in FY11. However this will be significantly higher than Brazils cost of USD0.10-0.15 (INR1015/kg). In the absence of an import duty, the domestic sugar price will decline further and Indian sugar mills will be unable to pay the farmers.
12 12
BNP PARIBAS
19 JULY 2010
Sugar
Only certain types of sugar can be produced in India Sugar has to be packed in Jute bags
Farmer
Minimum price of cane regulated by central and state government (Statutory minimum price, state adviced price and recently introduced fair and remunerative price) Minimum support price fixed for competing crops like wheat and paddy has impact on cane
Mill
Assignment of command area, reserve area and regulation on minimum distance between mills Regulation that mills cannot own agricultural land State regulation on ownership of mills
Molasses
Part of molasses to be sold to country liquor manufacturers Movement of molasses restricted within some states
Excise duty and sugar cess levied on sugar Import export order required for sugar import or export
Ethanol Bagasse
Ethanol blending - E5 requiring oil marketing companies to blend 5% ethanol with petrol
Power
Open access regulation allowing sugar mills to sell power in open market Power purchase agreements
Sources: KPMG; BNP Paribas
13 13
BNP PARIBAS
19 JULY 2010
14 14
BNP PARIBAS
19 JULY 2010
Sugar demand inelastic due to lack of satisfactory substitutes and small portion of household income: Sugar demand in India and globally has been relatively inelastic. This is primarily because of the lack of satisfactory substitutes. Even from a household spending perspective, sugar accounts for a small portion of household income. At 8kg purchase per person (40% of per-capita consumption of 20kg), and a prevailing retail price of around INR30, annual spending on sugar per person is USD45, which is less than 1% of per capita income. Fragmented supply side: India has more than 500 sugar mills and the largest producer of sugar, BJH, produced 1m tonnes of sugar in its 14 mills in FY10. Its production was 5% of the 19m tonnes total sugar produced in the country. Most mills in Maharashtra, accounting for approximately 30% of production, are co-operative societies. Sugar has high weight in inflation measurement which leads to high regulation: Sugar has a disproportionately high weight in inflation: Its weight in Wholesale Price Index (WPI) is 3.61% compared to 1.38% for wheat. Due to high weight of sugar in WPI, the government has taken various steps to manage sugar prices. Last year, in view of the rising sugar prices government had introduced measures like banning sugar futures, bulk holding restrictions, increasing levy quota, and removal of import duty on sugar. With the sharp decline in sugar prices, some of these measures are being removed.
15 15
BNP PARIBAS
19 JULY 2010
Jul-97
Sep-99
Nov-01
Jan-04
Mar-06
May-08
Jul-10
Large demand from commercial, industrial users; low-income households get levy quota Only 41% of Indias sugar consumption is household consumption. Industrial users, which include restaurants, confectionaries, soft drink manufacturers, dairies, and others, account for 59% of total sugar consumption. Low-income households consume about 27% of the total sugar consumption and this is largely taken care of by the levy quota of 20%, which is distributed through the public distribution system. Exhibit 19: Sugar Consumption In India
Other industrial 18% Confectionary 6% Dairy 8% Reataurant & other small business 11%
Sweetmeat 16%
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BNP PARIBAS
19 JULY 2010
Sugar Mill
Direct sale
surplus power
17 17
BNP PARIBAS
19 JULY 2010
BNP PARIBAS
19 JULY 2010
19 19
BNP PARIBAS
19 JULY 2010
100
50
20 20
BNP PARIBAS
19 JULY 2010
Sugar companies are no longer investing in Greenfield expansion. BRCM has no capex plan, BJH is investing in setting up coal fired power plants while SHRS has made two acquisitions in Brazil
21 21
BNP PARIBAS
19 JULY 2010
22 22
BNP PARIBAS
19 JULY 2010
REDUCE 95
BUY 100
HOLD 75
7,658 736 74
8,613 918 92
108 0.9
50 2.0
36 2.1
5.3 1.3
0.8 0.3
2.9 2.1
Sugar price INR 1 decrease per KG Sugar cane price INR 10 decrease per QTL Ethanol price INR 1 decrease per liter Power INR 1 decrease per unit Production 10% decrease
EPS
Sugar price INR 1 decrease per KG Sugar cane price INR 10 decrease per QTL Ethanol price INR 1 decrease per liter Power INR 1 decrease per unit Production 10% decrease
Source: BNP Paribas estimates
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BNP PARIBAS
19 JULY 2010
BJH near bottom EV it has traded since its capacity expansion. However, stock could decline further due to weak outlook for FY11 and increase in debt levels due to power capex.
BRCM trading near its bottom EV since capacity expansion. We believe current levels provide good entry point as its balance sheet is stronger and and business outlook is better than previous bottoms
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
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BNP PARIBAS
19 JULY 2010
Mean Median
14.7 13.1
13.0 10.2
20.2 12.0
9.8 9.7
8.8 8.5
6.9 6.3
1.4 1.3
0.8 0.9
0.8 0.8
2.0 2.1
Cosan Sao Martino Acucar Guarani Agrana Beteil Tate & Lyle Tongaat Hulett Illovo Sugar Khon Kaen Sugar Xiwang Sugar Nanning Sugar
CSAN3 BZ SMTO3 BZ ACGU3 BZ AGR AV TATE LN TON SJ ILV SJ KSL TB 2088 HK 000911 CH
24.0 14.0 3.9 69.5 4.8 107.3 29.4 11.3 1.9 15.2
5,536 897 634 770 1,431 1,475 1,792 543 234 642
9.9 17.1 45.9 13.7 144.7 3.9 18.2 19.5 15.4 35.3
12.2 17.9 9.7 14.6 11.2 15.7 15.4 21.4 7.1 18.2
15.7 22.9 13.7 12.6 10.4 13.8 13.3 16.1 5.9 22.5
8.5 6.3 5.6 8.7 21.0 7.8 8.8 20.4 11.1 12.8
6.6 5.2 3.8 8.0 7.2 7.8 7.0 14.5 5.9 22.5
0.6 1.3 0.8 0.5 0.6 1.2 1.6 1.5 0.7 1.2
0.6 1.2 0.7 0.5 0.7 1.2 1.4 1.4 0.6 1.1
0.5 1.1 0.7 0.5 0.7 1.1 1.3 1.2 0.5 1.2
1.6 0.9 0.9 1.1 2.0 1.8 0.1 1.7 0.9 2.4
Mean Median
32.4 17.6
14.3 15.0
14.7 13.7
11.1 8.7
8.9 7.1
6.7 6.9
1.0 1.0
0.9 0.9
0.9 0.9
1.3 1.3
Sources: * BNP Paribas estimates; all others (Not rated) are Bloomberg consensus estimates
25 25
BNP PARIBAS
19 JULY 2010
Devils Advocate
Negative production surprise from Brazil or India
According to industry estimates, Brazils sugar production could increase from 32.9m tonnes in CY09 to 38.4m tonnes in CY10 and India sugar production could increase from 18.5m tonnes in FY10 (YE Sep 2010) to 25m tonnes in FY11. Global sugar inventory levels are low on the back of two years of low production in India. Any significant negative production surprise from either India or Brazil could lead to a fresh sugar rally as global sugar inventory levels are still low.
26 26
BNP PARIBAS
19 JULY 2010
Company updates
Bajaj Hindusthan .........................................................................................................................................................................28 Balrampur Chini Mills..................................................................................................................................................................31 Shree Renuka Sugars .................................................................................................................................................................34
27 27
BNP PARIBAS
Bajaj Hindusthan
INDIA / FOOD BEVERAGE & TOBACCO HOW WE DIFFER FROM THE STREET
BNP Consensus Target Price (INR) EPS 2010 (INR) EPS 2011 (INR) 95.00 (3.37) 2.55 Positive Market Recs. 1 93.50 8.87 6.13 Neutral 5 % Diff 1.6 nm (58.4) Negative 14
BJH IN
REDUCE
UNCHANGED
INDUSTRY OUTLOOK
CHANGE IN NUMBERS
Headwinds ahead
Weak 2HFY10E, estimates cut on lower sugar price assumptions. High sugar-price sensitivity, due to operating & financial leverage. Power business and FCCB repayment to pressure balance sheet. Retain REDUCE; cut TP to INR95.00 based on 0.9x FY11E P/BV.
Weak 2HFY10 ahead We expect a weak 2HFY10 for Bajaj Hindusthan (BJH) as it is holding high cost inventory (~INR28/kg) and sugar prices have declined. We expect BJH to break even or make losses on its sugar inventory. BJH is sitting on huge inventory and we believe will be under pressure to liquidate this as sugar prices are likely to decline further given the industrys high Kunal Vora, CFA production estimate for FY11. We raise +91 22 6628 2453 our FY10 assumptions of sugar cane kunal.d.vora@asia.bnpparibas.com prices (from INR230/quintal to INR245) and cut those for sugar realization (from INR32.6 to INR30.3). We expect BJH to report a loss in FY10. FY11 outlook: low by-product profitability to hurt In FY11, we expect a significant volume increase as sugar cane availability increases. BJH sugar production increased from 0.61m tonnes in FY09 to 1.03m tonnes in FY10, and we expect it to increase further, to 1.41m tonnes in FY11. However, we expect sugar prices to fall further to INR24-26/kg as production increases. We estimate sugar cane price will decline to INR190/quintal in FY11, from INR245 in FY10. The key to profitability in FY11 is by-products, in our view. BJH utilizes part of the bagasse for its particle-board business, which has yet to break even. Balrampur Chini Mills (BRCM), by comparison, utilizes most of its bagasse in power generation, which is highly profitable. Debt still high; power foray to increase leverage BJHs high leverage will likely remain a concern in view of its deteriorating profitability outlook and its capex on setting up an 450MW green field power capacity. BJH has high net debt-to-equity of 1.6x in FY10, and net debt-to-EBITDA of 7.5x. The company has announced the demerger of its coal-based power plant business, and it is trying to reduce its stake in the business by getting an equity infusion. Power capacity is due to come online by end of FY11. BJH also has FCCBs outstanding, amounting to INR5b, which are due in February 2011. Maintain REDUCE, cut TP to INR95.00 on lower profit We maintain our REDUCE rating on BJH and cut our TP from INR120 to INR95.00, due to the earnings revision. We are changing our valuation methodology from EV/EBITDA to P/BV in view of BJHs deteriorating profit outlook. We value BJH on 0.9x FY11E P/BV (8.8x implied EV/EBITDA), at the low end of its historical trading range of 0.3-5.4x P/BV. Risks to our TP include lower sugar production driving up sugar prices deregulation of the sugar sector, and equity infusion in the power business.
Oct-09
Jan-10
1 Month 4.9 1.0
Apr-10
3 Month (16.3) (13.3)
(64) Jul-10
12 Month (37.6) (64.7) July 2010 492 6.5 63
Share price performance Absolute (%) Relative to country (%) Next results Mkt cap (USD m)
3m avg daily turnover (USD m) Free float (%) Major shareholder 12m high/low (INR) 3m historic vol. (%) ADR ticker ADR closing price (USD)
Sources : Bloomberg consensus; BNP Paribas estimates
28
19 July 2010
THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. IMPORTANT DISCLOSURES CAN BE FOUND IN THE DISCLOSURES APPENDIX.
BAJAJ HINDUSTHAN
19 JULY 2010
FINANCIAL
STATEMENTS
Bajaj Hindusthan
Profit and Loss (INR m) Year Ending Sep
Revenue Cost of sales ex depreciation Gross profit ex depreciation Other operating income Operating costs Operating EBITDA Depreciation Goodwill amortisation Operating EBIT Net financing costs Associates Recurring non operating income Non recurring items Profit before tax Tax Profit after tax Minority interests Preferred dividends Other items Reported net profit Non recurring items & goodwill (net) Recurring net profit
Per share (INR) Recurring EPS * Reported EPS DPS Growth Revenue (%) Operating EBITDA (%) Operating EBIT (%) Recurring EPS (%) Reported EPS (%)
2008A
20,701 (13,693) 7,008 0 (5,571) 1,437 (2,799) 0 (1,361) (1,570) 0 0 204 (2,727) 980 (1,747) 173 0 0 (1,574) (204) (1,779) (12.58) (11.13) 0.70 16.3 (24.6) (559.3) (8,665.1) (7,677.5)
2009A
20,259 (12,209) 8,051 0 (3,838) 4,213 (3,457) 0 757 (1,565) 0 0 1,859 1,051 (456) 595 22 0 0 618 (1,859) (1,242) (8.07) 4.01 0.56 (2.1) 193.1 (155.6) (35.9) (136.1) 22.7 20.8 3.7 (6.1) 43.4 0.5 261.4 9.4 266.2 0.9 (9.7) 0.9 (9.7) (7.5) (0.3)
2010E
51,306 (42,351) 8,954 0 (4,394) 4,560 (3,282) 0 1,278 (2,053) 0 0 0 (775) 155 (620) 0 0 0 (620) 0 (620) (3.37) (3.37) 0.82 153.2 8.2 68.9 (58.2) (184.0) 11.1 8.9 2.5 (1.2) 0.6 73.8 6.2 79.0 1.4 (9.1) 1.4 (9.1) (3.0) 1.0
2011E
39,783 (29,620) 10,163 0 (4,868) 5,295 (2,974) 0 2,321 (1,670) 0 0 0 651 (163) 488 0 0 0 488 0 488 2.55 2.56 0.82 (22.5) 16.1 81.6 (175.8) (175.8) 18.1 13.3 5.8 1.2 25.0 32.1 1.4 92.3 10.2 136.6 2.9 (7.6) 2.9 (7.6) 2.4 2.2
2012E
37,867 (27,003) 10,864 0 (4,740) 6,124 (2,802) 0 3,322 (1,303) 0 0 0 2,018 (505) 1,514 0 0 0 1,514 0 1,514 7.93 7.93 0.82 (4.8) 15.7 43.1 210.2 210.2 21.3 16.2 8.8 4.0 25.0 10.3 2.5 95.7 9.2 157.0 4.4 (6.1) 4.4 (6.1) 7.1 3.4
Operating performance Gross margin inc depreciation (%) 20.3 Operating EBITDA margin (%) 6.9 Operating EBIT margin (%) (6.6) Net margin (%) (8.6) Effective tax rate (%) Dividend payout on recurring profit (%) Interest cover (x) (0.9) Inventory days 163.4 Debtor days 14.8 Creditor days 212.9 Operating ROIC (%) (1.7) Operating ROIC WACC (%) (12.3) ROIC (%) (1.7) ROIC WACC (%) (12.3) ROE (%) (13.6) ROA (%) (1.4) * Pre exceptional, pre-goodwill and fully diluted
Low EBITDA margin due to high sugar cane cost and low sugar prices in FY10
2008A
17,486 410 3,549 349 383 (1,475) -
2009A
18,346 358 1,274 293 881 (893) -
2010E
47,773 45 2,490 996 1,550 (1,549) -
2011E
34,581 58 3,313 1,054 2,229 (1,452) -
2012E
32,744 53 3,010 1,035 2,340 (1,316) -
6 29
BNP PARIBAS
BAJAJ HINDUSTHAN
19 JULY 2010
Bajaj Hindusthan
Cash Flow (INR m) Year Ending Sep
Recurring net profit Depreciation Associates & minorities Other non-cash items Recurring cash flow Change in working capital Capex - maintenance Capex new investment Free cash flow to equity Net acquisitions & disposals Dividends paid Non recurring cash flows Net cash flow Equity finance Debt finance Movement in cash
Per share (INR) Recurring cash flow per share FCF to equity per share
2008A
(1,779) 2,799 (173) 408 1,255 (4,742) 0 (3,216) (6,703) 135 (98) (515) (7,182) 50 6,198 (934) 8.88 (47.41)
2009A
(1,242) 3,457 (22) 1,729 3,922 (5,172) 0 (1,660) (2,910) 56 (98) (461) (3,413) 7,222 (4,277) (468) 25.48 (18.91)
2010E
(620) 3,282 0 0 2,663 3,128 0 (580) 5,211 0 (156) 0 5,054 14 (900) 4,168 14.48 28.33
2011E
488 2,974 0 0 3,462 3,395 0 (680) 6,177 0 (156) 0 6,021 0 (4,000) 2,021 18.12 32.34
2012E
1,514 2,802 0 0 4,316 (1,186) 0 (714) 2,416 0 (156) 0 2,259 0 (5,000) (2,741) 22.59 12.65
Our capex estimate does not include capex on the 450MW power plant BJH is in process of setting up
2008A
2009A
2010E
2011E
25,972 (14,836) 11,137 38,905 50,041 0 0 1 0 50,042 (7,463) 28,658 7,005 28,200 486 0 20,704 651 50,041
2012E
25,270 (12,947) 12,322 36,817 49,139 0 0 1 0 49,140 (4,722) 23,658 7,005 25,941 486 0 22,062 651 49,139
Working capital assets 24,181 28,658 26,414 Working capital liabilities (11,693) (10,997) (11,882) Net working capital 12,488 17,660 14,532 Tangible fixed assets 41,848 43,901 41,199 Operating invested capital 54,336 61,561 55,731 Goodwill 0 0 0 Other intangible assets 0 0 0 Investments 1 1 1 Other assets 0 0 0 Invested capital 54,337 61,562 55,731 Cash & equivalents (1,740) (1,273) (5,442) Short term debt 36,637 28,658 28,658 Long term debt * 6,714 11,905 11,005 Net debt 41,610 39,290 34,221 Deferred tax 39 486 486 Other liabilities 0 0 0 Total equity 12,014 21,135 20,373 Minority interests 673 651 651 Invested capital 54,337 61,562 55,731 * includes convertibles and preferred stock which is being treated as debt
Per share (INR) Book value per share Tangible book value per share Financial strength Net debt/equity (%) Net debt/total assets (%) Current ratio (x) CF interest cover (x)
High debt levels, set to increase further on investment in coal based power
Valuation
2008A
2009A
2010E
2011E
47.0 37.2 47.0 0.7 6.6 3.7 1.1 1.1 10.3 9.4 1.0
2012E
15.2 12.0 15.2 0.7 5.3 9.5 1.0 1.0 8.3 7.5 1.0
Recurring P/E (x) * neg neg neg Recurring P/E @ target price (x) * neg neg neg Reported P/E (x) 29.9 neg neg Dividend yield (%) 0.6 0.5 0.7 P/CF (x) 13.5 4.7 8.3 P/FCF (x) (2.5) (6.4) 4.2 Price/book (x) 1.4 1.0 1.1 Price/tangible book (x) 1.4 1.0 1.1 EV/EBITDA (x) ** 38.2 14.3 13.0 EV/EBITDA @ target price (x) ** 35.7 13.3 12.0 EV/invested capital (x) 1.1 1.0 1.0 * Pre exceptional, pre-goodwill and fully diluted ** EBITDA includes associate income and recurring non-operating income
Sources: Bajaj Hindusthan; BNP Paribas estimates
7 30
BNP PARIBAS
BRCM IN
BUY
INDUSTRY OUTLOOK
INITIATION
Defensive in a cyclical industry We recommend Balrampur Chini Mills (BRCM) as our top pick in the Indian sugar sector. BRCM is a relatively defensive stock in the cyclical sugar industry, in our view, due to its low financial and operating leverage. We have a negative outlook for the sector, but we believe the downcycle in FY11 will not be as severe as the one we saw in FY07, as we expect the production-consumption gap to be about 1m tonne versus the 7m tonne gap in FY07.
Oct-09
Jan-10
1 Month (21.3) (14.4)
Apr-10
3 Month (38.9) (45.1)
FY11 will likely be driven by higher volumes and power We expect BRCMs FY11 sugar production to increase 47%, aided by higher cane crushed and higher recovery. With highest saleable power capacity, we believe the company is well positioned to capitalize on higher bagasse availability. We expect the sugar cane price to decline from INR240 to INR190 per quintal. We assume non-levy sugar realisation at INR26/kg in FY11. We expect EBITDA margin to improve from 15.2% to 20.1% on lower raw material costs and higher contribution from the power segment. Strong FCF generation as no capex ahead We expect BRCM to generate strong FCF on higher profits and negligible capex in FY11. We expect net debt/equity to decline from 0.6x in FY10 to 0.1x by FY12. Beneficiary of potential sector de-regulation Indian Agriculture Minister has said that the government will consider deregulating the sector in view of the high sugar production in FY11. Government could consider moves like scrapping levy quota, sugar release mechanism, and bulk holding restrictions. The industry is also demanding a variable sugar cane pricing arrangement with farmers. Scrapping of levy sugar obligation would add 13% to our FY11 EBITDA estimate. Change in sugar cane pricing could be a structural positive. Initiate with BUY; TP of INR100.00 We initiate coverage on BRCM with a BUY rating and TP of INR100.00. Our TP is based on 6.5x FY11 EV/EBITDA which is in line with global peers. Our analysis of BRCMs EV indicates that the stock is trading near its bottom EV, which we believe is a good buying opportunity. BRCMs promoters increased their stake in the company by 1% in 3QF10 via secondary market purchases, which we view as a positive sign. Risks to our thesis are higher-than-expected sugar cane price and lower-thanexpected sugar realization.
Share price performance Absolute (%) Relative to country (%) Next results Mkt cap (USD m)
3m avg daily turnover (USD m) Free float (%) Major shareholder 12m high/low (INR) 3m historic vol. (%) ADR ticker ADR closing price (USD)
Sources: Bloomberg consensus; BNP Paribas estimates
31
19 July 2010
THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. IMPORTANT DISCLOSURES CAN BE FOUND IN THE DISCLOSURES APPENDIX.
19 JULY 2010
FINANCIAL
STATEMENTS
2008A
14,909 (9,062) 5,847 0 (2,708) 3,139 (1,253) 0 1,886 (849) 0 0 2 1,039 (256) 783 0 0 0 783 (2) 781 3.10 3.11 0.50 6.9 281.3 (3,627.8) (227.5) (263.1)
2009A
17,471 (10,640) 6,831 0 (2,357) 4,473 (1,160) 0 3,314 (986) 0 0 138 2,465 (370) 2,095 (4) 0 0 2,091 (138) 1,953 7.63 8.16 3.00 17.2 42.5 75.7 145.8 162.6 32.5 25.6 19.0 11.2 15.0 39.3 3.4 160.4 7.2 53.7 9.4 (4.6) 9.2 (4.9) 18.3 9.7
2010E
21,076 (15,245) 5,831 0 (2,630) 3,201 (1,094) 0 2,107 (669) 0 0 0 1,438 (288) 1,150 0 0 0 1,150 0 1,150 4.48 4.48 3.00 20.6 (28.4) (36.4) (41.3) (45.1) 22.5 15.2 10.0 5.5 20.0 67.0 3.1 76.7 3.2 45.2 6.8 (7.2) 6.4 (7.6) 10.0 6.1
2011E
22,404 (15,124) 7,281 0 (2,788) 4,492 (1,048) 0 3,445 (520) 0 0 0 2,925 (731) 2,194 0 0 0 2,194 0 2,194 8.55 8.55 3.00 6.3 40.3 63.5 90.7 90.7 27.8 20.1 15.4 9.8 25.0 35.1 6.6 62.4 3.4 65.8 12.4 (1.6) 11.7 (2.4) 17.9 9.5
2012E
22,971 (15,122) 7,849 0 (2,909) 4,940 (994) 0 3,946 (520) 0 0 0 3,427 (857) 2,570 0 0 0 2,570 0 2,570 10.01 10.01 3.00 2.5 10.0 14.6 17.1 17.1 29.8 21.5 17.2 11.2 25.0 30.0 7.6 56.0 3.5 73.1 15.4 1.3 14.3 0.3 18.7 10.2
Operating performance Gross margin inc depreciation (%) 30.8 Operating EBITDA margin (%) 21.1 Operating EBIT margin (%) 12.7 Net margin (%) 5.2 Effective tax rate (%) 24.7 Dividend payout on recurring profit (%) 16.1 Interest cover (x) 2.2 Inventory days 206.4 Debtor days 12.0 Creditor days 104.5 Operating ROIC (%) 5.3 Operating ROIC WACC (%) (8.8) ROIC (%) 5.3 ROIC WACC (%) (8.8) ROE (%) 8.4 ROA (%) 4.9 * Pre exceptional, pre-goodwill and fully diluted
We expect FY11 margin to improve due to lower sugar cane cost and higher contribution from power segment
2008A
12,050 1,863 1,739 164 (906) 0
2009A
15,356 1,347 1,248 254 (734) 0
2010E
17,459 1,306 2,663 279 (631) 0
2011E
18,090 1,545 3,200 364 (796) 0
2012E
18,467 1,622 3,296 393 (807) 0
Strong growth in power segment revenue aided by increase in power tariffs, higher crushing and coal-based power.
23 32
BNP PARIBAS
19 JULY 2010
2008A
781 1,253 0 212 2,246 (2,761) 0 (843) (1,358) 15 0 (10) (1,354) 678 874 198 8.92 (5.39)
2009A
1,953 1,160 4 (784) 2,333 1,975 0 (117) 4,191 28 (149) (261) 3,809 55 (3,900) (37) 9.11 16.36
2010E
1,150 1,094 0 0 2,244 1,700 0 (320) 3,624 0 (901) 0 2,723 0 (1,450) 1,273 8.74 14.11
2011E
2,194 1,048 0 0 3,241 1,007 0 (150) 4,098 0 (901) 0 3,197 0 0 3,197 12.63 15.96
2012E
2,570 994 0 0 3,564 106 0 (345) 3,325 0 (901) 0 2,424 0 0 2,424 13.88 12.95
2008A
2009A
2010E
2011E
4,891 (4,194) 697 16,639 17,336 0 0 1,222 4 18,563 (4,811) 8,425 31 3,644 2,039 0 12,880 0 18,563
2012E
4,994 (4,403) 591 15,990 16,581 0 0 1,222 4 17,808 (7,235) 8,425 31 1,220 2,039 0 14,549 0 17,808
Working capital assets 8,004 6,082 5,499 Working capital liabilities (2,626) (2,679) (3,795) Net working capital 5,378 3,403 1,704 Tangible fixed assets 19,447 18,311 17,537 Operating invested capital 24,824 21,714 19,241 Goodwill 0 0 0 Other intangible assets 0 0 0 Investments 16 1,222 1,222 Other assets 17 4 4 Invested capital 24,857 22,941 20,467 Cash & equivalents (378) (342) (1,614) Short term debt 12,773 9,875 8,425 Long term debt * 1,031 31 31 Net debt 13,426 9,564 6,841 Deferred tax 1,426 2,039 2,039 Other liabilities 0 0 0 Total equity 10,006 11,338 11,587 Minority interests 0 0 0 Invested capital 24,858 22,941 20,467 * includes convertibles and preferred stock which is being treated as debt
Per share (INR) Book value per share Tangible book value per share Financial strength Net debt/equity (%) Net debt/total assets (%) Current ratio (x) CF interest cover (x)
Valuation
2008A
2009A
2010E
2011E
9.8 11.7 9.8 3.6 6.6 5.2 1.7 1.7 5.9 6.9 1.4
2012E
8.3 10.0 8.3 3.6 6.0 6.5 1.5 1.5 4.8 5.7 1.3
Recurring P/E (x) * 26.9 11.0 18.7 Recurring P/E @ target price (x) * 32.2 13.1 22.3 Reported P/E (x) 26.9 10.2 18.7 Dividend yield (%) 0.6 3.6 3.6 P/CF (x) 9.4 9.2 9.6 P/FCF (x) (15.5) 5.1 5.9 Price/book (x) 2.1 1.9 1.9 Price/tangible book (x) 2.1 1.9 1.9 EV/EBITDA (x) ** 10.9 7.4 9.3 EV/EBITDA @ target price (x) ** 12.2 8.3 10.6 EV/invested capital (x) 1.4 1.4 1.4 * Pre exceptional, pre-goodwill and fully diluted ** EBITDA includes associate income and recurring non-operating income
Sources: Balrampur Chini Mills; BNP Paribas estimates
24 33
BNP PARIBAS
SHRS IN
HOLD
INDUSTRY OUTLOOK
INITIATION
Innovative sugar business We initiate on Shree Renuka Sugars (SHRS), the most-diversified sugar company in India (Exhibit 3). The company has owned and leased sugar mills, integrated and secondary distilleries and has set up strategically located standalone sugar refineries. In FY10, SHRS has made two large acquisitions in Brazil, which will make it the only sugar company globally with a large presence in the top global producer (Brazil) and top consumer (India) of sugar.
Weak 2HFY10 ahead; better positioned in FY11 SHRS, like most other sugar mills, is carrying high-cost white sugar inventory. Sugar in Maharashtra is trading at INR26-27/kg, which is near SHRSs cost of production of INR25/kg. In FY11, we believe SHRS is better positioned in terms of sugar cane cost compared to the UttarPradesh-based companies, due to its variable sugar cane cost arrangement with farmers. Standalone refineries; well positioned if spreads hold SHRS has set up two strategically located sugar refineries. We believe the refineries can operate at high utilization level in most scenarios (regardless of whether India imports or exports). We believe SHRSs refining profitability will depend on raw-white spread, which is currently high due to the high demand for white sugar. We expect refining spreads to decline over the next few months as supply situation eases. Acquisitions increase debt level and risk profile With the recent Brazilian acquisitions of VDI and Equipav, SHRSs FY11E net debt/equity will increase from 0 to 2.1x and net debt/EBITDA from 0.3x to 2.9x (detailed analysis in Exhibit 20). SHRS will need to make further investment in operations of Brazilian operations to turn around the operations. Given the high global sugar production we estimate, sugar prices could decline and we believe SHRS is vulnerable because of Brazilian subsidiaries and sugar refineries. Valuation We initiate coverage on SHRS with a HOLD rating and TP of INR75.00, based on our target FY1E EV/EBITDA of 6.5x, in line with global peers on Bloomberg consensus estimates (Exhibit 27). At our TP, SHRS would trade at 2.1x FY11E P/BV. Although we like SHRSs business model, we believe the increase in leverage will weigh on the stock price until the sugar cycle turns. We believe an upturn in the sugar cycle is unlikely in FY11. Risks include a possible decline in sugar prices.
Oct-09
Jan-10
1 Month (21.5) (14.7)
Apr-10
3 Month (41.0) (41.8)
Share price performance Absolute (%) Relative to country (%) Next results Mkt cap (USD m)
3m avg daily turnover (USD m) Free float (%) Major shareholder 12m high/low (INR) 3m historic vol. (%) ADR ticker ADR closing price (USD)
Sources: Bloomberg consensus; BNP Paribas estimates
34
19 July 2010
THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. IMPORTANT DISCLOSURES CAN BE FOUND IN THE DISCLOSURES APPENDIX.
19 JULY 2010
FINANCIAL
STATEMENTS
2008A
21,143 (15,767) 5,376 0 (2,850) 2,526 (369) 0 2,157 (548) 0 0 183 1,791 (427) 1,365 (25) 0 0 1,339 (183) 1,156 2.15 2.49 0.10 122.4 91.4 101.5 23.9 43.6 23.7 11.9 10.2 5.5 23.8 4.5 3.9 37.7 21.3 16.3 10.4 (6.8) 10.2 (7.0) 18.1 9.3
2009A
28,160 (20,204) 7,956 0 (3,300) 4,656 (675) 0 3,980 (1,012) 0 0 (8) 2,960 (720) 2,240 (5) 0 0 2,235 8 2,243 3.90 3.89 0.09 33.2 84.3 84.6 81.2 55.9 25.9 16.5 14.1 8.0 24.3 2.2 3.9 117.2 21.8 83.4 12.6 (4.6) 12.4 (4.9) 19.0 9.6
2010E
61,911 (48,065) 13,846 0 (4,347) 9,499 (849) 0 8,650 (882) 0 0 0 7,769 (1,864) 5,904 0 0 0 5,904 0 5,904 9.06 9.06 1.17 119.9 104.0 117.3 132.2 133.0 21.0 15.3 14.0 9.5 24.0 12.9 9.8 83.5 16.5 66.2 22.6 5.3 22.1 4.9 33.1 15.1
2011E
59,909 (47,998) 11,911 0 (4,453) 7,458 (1,043) 0 6,415 (599) 0 0 0 5,815 (1,396) 4,420 0 0 0 4,420 0 4,420 6.60 6.60 1.17 (3.2) (21.5) (25.8) (27.2) (27.2) 18.1 12.4 10.7 7.4 24.0 17.7 10.7 81.0 22.8 79.1 17.4 0.1 17.0 (0.2) 19.9 9.8
2012E
58,335 (47,189) 11,147 0 (4,582) 6,565 (1,047) 0 5,518 (194) 0 0 0 5,324 (1,278) 4,046 0 0 0 4,046 0 4,046 6.04 6.04 1.17 (2.6) (12.0) (14.0) (8.4) (8.4) 17.3 11.3 9.5 6.9 24.0 19.4 28.4 77.5 22.6 89.6 16.2 (1.0) 15.8 (1.4) 15.8 7.7
Revenue growth in FY10 driven by processed raw sugar. Our estimates do not include Brazilian subsidiaries.
2008A
18,020 1,203 995 1,478 (553) 0
2009A
23,437 1,686 1,504 2,459 (927) 0
2010E
56,582 2,564 2,097 1,838 (1,169) 0
2011E
51,949 3,630 3,226 1,640 (536) 0
2012E
49,436 3,811 3,804 1,742 (458) 0
25 35
BNP PARIBAS
19 JULY 2010
2008A
1,156 369 25 1,153 2,704 (2,349) 0 (5,205) (4,851) 15 (54) (104) (4,993) 2,184 2,120 (690) 5.03 (9.03)
2009A
2,243 675 5 (294) 2,629 (2,897) 0 (4,705) (4,973) 24 (55) (167) (5,171) 5,178 4,678 4,685 4.57 (8.65)
2010E
5,904 849 0 0 6,753 (1,376) 0 (1,500) 3,877 0 (784) 0 3,093 0 0 3,093 10.36 5.95
2011E
4,420 1,043 0 0 5,463 3,948 0 (1,100) 8,311 0 (784) 0 7,528 0 0 7,528 8.16 12.41
2012E
4,046 1,047 0 0 5,093 (76) 0 (1,155) 3,862 0 (784) 0 3,079 0 0 3,079 7.60 5.77
2008A
2009A
2010E
2011E
18,923 (13,948) 4,975 17,442 22,417 0 0 477 28 22,922 (15,533) 421 13,006 (2,105) 821 0 24,059 147 22,922
2012E
18,823 (13,773) 5,051 17,550 22,601 0 0 477 28 23,106 (18,611) 421 13,006 (5,184) 821 0 27,321 147 23,106
Working capital assets 7,436 17,719 20,338 Working capital liabilities (2,786) (10,172) (11,415) Net working capital 4,650 7,548 8,924 Tangible fixed assets 12,728 16,734 17,385 Operating invested capital 17,378 24,281 26,309 Goodwill 0 0 0 Other intangible assets 0 0 0 Investments 310 477 477 Other assets 16 28 28 Invested capital 17,704 24,786 26,813 Cash & equivalents (227) (4,912) (8,005) Short term debt 264 421 421 Long term debt * 8,331 13,006 13,006 Net debt 8,368 8,516 5,422 Deferred tax 467 821 821 Other liabilities 0 0 0 Total equity 8,336 15,302 20,422 Minority interests 533 147 147 Invested capital 17,704 24,786 26,813 * includes convertibles and preferred stock which is being treated as debt
Per share (INR) Book value per share Tangible book value per share Financial strength Net debt/equity (%) Net debt/total assets (%) Current ratio (x) CF interest cover (x)
Leverage set to increase with the Brazilian acquisitions not currently in the estimates
Valuation
2008A
2009A
2010E
2011E
10.6 11.4 10.6 1.7 8.5 5.6 1.9 1.9 6.5 7.0 2.0
2012E
11.5 12.4 11.5 1.7 9.2 12.1 1.7 1.7 6.6 7.1 1.8
Recurring P/E (x) * 32.4 17.9 7.7 Recurring P/E @ target price (x) * 34.8 19.2 8.3 Reported P/E (x) 27.9 17.9 7.7 Dividend yield (%) 0.1 0.1 1.7 P/CF (x) 13.8 15.2 6.7 P/FCF (x) (7.7) (8.1) 11.7 Price/book (x) 4.6 2.9 2.3 Price/tangible book (x) 4.6 2.9 2.3 EV/EBITDA (x) ** 17.3 10.8 5.5 EV/EBITDA @ target price (x) ** 18.4 11.4 5.9 EV/invested capital (x) 2.7 2.1 1.9 * Pre exceptional, pre-goodwill and fully diluted ** EBITDA includes associate income and recurring non-operating income
Sources: Shree Renuka Sugars; BNP Paribas estimates
26 36
BNP PARIBAS
19 JULY 2010
GAUTAM MEHTA
Associate BNP Paribas Securities India Pvt Ltd +91 22 6628 2413 gautam.mehta@asia.bnpparibas.com
SHASHANK ABHISHEIK
Infrastructure - E&C (Associate) BNP Paribas Securities India Pvt Ltd +91 22 6628 2446 shashank.abhisheik@asia.bnpparibas.com
AVNEESH SUKHIJA
Real Estate (Associate) BNP Paribas Securities India Pvt Ltd +91 22 6628 2432 avneesh.sukhija@asia.bnpparibas.com
LAKSHMINARAYANA GANTI
Capital Goods/Cement BNP Paribas Securities India Pvt Ltd +91 22 6628 2438 lakshminarayana.ganti@asia.bnpparibas.com
CHARANJIT SINGH
Capital Goods/Cement (Associate) BNP Paribas Securities India Pvt Ltd +91 22 6628 2448 charanjit.singh@asia.bnpparibas.com
GIRISH NAIR
Utilities BNP Paribas Securities India Pvt Ltd +91 22 6628 2449 girish.nair@asia.bnpparibas.com
AMIT SHAH
Oil & Gas BNP Paribas Securities India Pvt Ltd +91 22 6628 2428 amit.shah@asia.bnpparibas.com
SRIRAM RAMESH
Oil & Gas (Associate) BNP Paribas Securities India Pvt Ltd +91 22 6628 2429 sriram.ramesh@asia.bnpparibas.com
ABHIRAM ELESWARAPU
Tech - IT BNP Paribas Securities India Pvt Ltd +91 22 6628 2406 abhiram.eleswarapu@asia.bnpparibas.com
AVINASH SINGH
Tech - IT (Associate) BNP Paribas Securities India Pvt Ltd +91 22 6628 2407 avinash.singh@asia.bnpparibas.com
SAMEER NARINGREKAR
Tech - Telecom BNP Paribas Securities India Pvt Ltd +91 22 6628 2454 sameer.naringrekar@asia.bnpparibas.com
ABHISHEK BHATTACHARYA
Financial Services (Associate) BNP Paribas Securities India Pvt Ltd +91 22 6628 2411 abhishek.bhattacharya@asia.bnpparibas.com
JOSEPH GEORGE
Consumer BNP Paribas Securities India Pvt Ltd +91 22 6628 2452 joseph.george@asia.bnpparibas.com
MANISH A GUPTA
Consumer (Associate) BNP Paribas Securities India Pvt Ltd +91 22 6628 2451 manish.a.gupta@asia.bnpparibas.com
ALOK RAWAT
Metals & Mining BNP Paribas Securities India Pvt Ltd +91 22 6628 2417 alok.rawat@asia.bnpparibas.com
KARAN GUPTA
Metals & Mining (Associate) BNP Paribas Securities India Pvt Ltd +91 22 6628 2427 karan.gupta@asia.bnpparibas.com
28 37
BNP PARIBAS
19 JULY 2010
HISTORY
OF CHANGE
IN
INVESTMENT
RATING
AND/OR
TARGET
PRICE
(INR) 435.00 385.00 335.00 285.00 235.00 185.00 135.00 85.00 35.00 Jul-06
Bajaj Hindusthan
Target Price
TP 270.00 120.00
Jul-07
Jul-08
Jul-09
Jul-10
Kunal Vora started covering this stock from 24 November 2009 Price and TP are in local currency Valuation and risks: Risks to our P/BV-based TP include lower sugar production driving up sugar prices deregulation of the sugar sector, and equity infusion in the power business Sources: Bloomberg, BNP Paribas
29 38
BNP PARIBAS
19 JULY 2010
DISCLAIMERS
&
DISCLOSURES
ANALYST(S) Kunal Vora, CFA, BNP Paribas Securities India Pvt Ltd, +91 22 6628 2453, kunal.d.vora@asia.bnpparibas.com. This report was produced by a member company of the BNP Paribas Group (Group)1. This report is for the use of intended recipients only and may not be reproduced (in whole or in part) or delivered or transmitted to any other person without our prior written consent. By accepting this report, the recipient agrees to be bound by the terms and limitations set out herein. The information contained in this report has been obtained from public sources believed to be reliable and the opinions contained herein are expressions of belief based on such information. No representation or warranty, express or implied, is made that such information or opinions is accurate, complete or verified and it should not be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy or sell any securities or other investments. Information and opinions contained in this report are published for reference of the recipients and are not to be relied upon as authoritative or without the recipients own independent verification or taken in substitution for the exercise of judgement by the recipient. All opinions contained herein constitute the views of the analyst(s) named in this report, they are subject to change without notice and are not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in this report. Any reference to past performance should not be taken as an indication of future performance. No member company of the Group accepts any liability whatsoever for any direct or consequential loss arising from any use of the materials contained in this report. The analyst(s) named in this report certifies that (i) all views expressed in this report accurately reflect the personal views of the analyst(s) with regard to any and all of the subject securities and companies mentioned in this report and (ii) no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed herein. This report is prepared for professional investors and is being distributed in Hong Kong by BNP Paribas Securities (Asia) Limited to persons whose business involves the acquisition, disposal or holding of securities, whether as principal or agent. BNP Paribas Securities (Asia) Limited, a subsidiary of BNP Paribas, is regulated by the Securities and Futures Commission for the conduct of dealing in securities, advising on securities and providing automated trading services. This report is being distributed in the United Kingdom by BNP Paribas London Branch to persons who are not private customers as defined under U.K. securities regulations. BNP Paribas London Branch, a branch of BNP Paribas, is regulated by the Financial Services Authority for the conduct of its designated investment business in the U.K. This report may be distributed in the United States by BNP PARIBAS SECURITIES ASIA or by BNP Paribas Securities Corp. Where this report has been distributed by BNP PARIBAS SECURITIES ASIA it is intended for distribution in the United States only to major institutional investors (as such term is defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) and is not intended for the use of any person or entity that is not a major institutional investor. Where this report has been distributed by BNP Paribas Securities Corp, a U.S. broker dealer, it will have been reviewed by a FINRA S16 qualified registered supervisory analyst or a S24 qualified and authorized person, in accordance with FINRA requirements concerning third party affiliated research. All U.S. institutional investors receiving this report should effect transactions in securities discussed in the report through BNP Paribas Securities Corp. BNP Paribas Securities Corp. is a member of the New York Stock Exchange, the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation. Reproduction, distribution or publication of this report in any other places or to persons to whom such distribution or publication is not permitted under the applicable laws or regulations of such places is strictly prohibited. Information on Taiwan listed stocks is distributed in Taiwan by BNP Paribas Securities (Taiwan) Co., Ltd. Distribution or publication of this report in any other places to persons which are not permitted under the applicable laws or regulations of such places is strictly prohibited. 1 No portion of this report was prepared by BNP Paribas Securities Corp personnel. Disclosure and Analyst Certification BNP Paribas represents that: BNPP or its affiliates beneficially own 1% or more the market capitalization of Balrampur Chini and Shree Renuka Sugars. BNPP or its affiliates had an investment banking relationship with Bajaj Hindusthan in the last 12 months. Within the next three months, BNPP or its affiliates may receive or seek compensation in connection with an investment banking relationship with one or more of the companies referenced herein. The analyst(s) named in this report certifies that (i) all views expressed in this report accurately reflect the personal view of the analyst(s) with regard to any and all of the subject securities and companies mentioned in this report; (ii) no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, relate to the specific recommendation or views expressed herein; and (iii) BNPP is not aware of any other actual or material conflicts of interest concerning any of the subject securities and companies referenced herein as of the time of publication of the research report. Recommendation structure All share prices are as at market close on 16 July 2010 unless otherwise stated. Stock recommendations are based on absolute upside (downside), which we define as (target price* - current price) / current price. If the upside is 10% or more, the recommendation is BUY. If the downside is 10% or more, the recommendation is REDUCE. For stocks where the upside or downside is less than 10%, the recommendation is HOLD. In addition, we have key buy and key sell lists in each market, which are our most commercial and/or actionable BUY and REDUCE calls and are limited to at most five key buys and five key sells in each market at any point in time. Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation. *In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value. Rating distribution (as at 15 July 2010) Out of 487 rated stocks in the BNP Paribas coverage universe, 324 have BUY ratings, 110 are rated HOLD and 53 are rated REDUCE. Within these rating categories, 2.47% of the BUY-rated companies either currently are or have been BNP Paribas clients in the past 12 months, 0.91% of the HOLD-rated companies are or have been clients in the past 12 months, and 5.66% of the REDUCE-rated companies are or have been clients in the past 12 months. Should you require additional information please contact the relevant BNP Paribas research team or the author(s) of this report. 2010 BNP Paribas Group
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