Higher cane costs and shrunken profits have hit the year-on-year performance of Bajaj Hindusthan, the country’s largest integrated sugar manufacturer by capacity, in the March 2010 quarter. The poor show in the last quarter followed four consecutive quarters of earnings growth. The company’s performance is in line with a peer like
Balrampur Chini.
The share price of Bajaj Hindusthan recorded a 4% decline after the result was announced on the back of a 60% decline in net profits over the year-ago period. The stock has logged a 50% decline over the past four months due to a sharp correction in sugar prices. Investors have been cautious due to the fundamental shift in this commodity.
The company’s revenue rose 34% on higher sugar prices that peaked out in January 2010. This pushed up average sugar realisation for the quarter by 45% to Rs 32/kg compared to the same period last year. However, on a sequential basis, the firm witnessed a 7% decline in revenue growth as compared to 48% for the quarter ended December 2009.
Although revenues increased, operating margins have been dented due to an increase in raw material costs. Raw material cost rose to 64% of sales as compared to 54% in the year-ago period. This is largely due to an increase in average cane prices that rose 60% to Rs 24/kg for this period. This led to a sharp fall in the company’s operating margin which fell to 14% in the second quarter against 34% a year ago. Net profit more than halved to Rs 31 crore from Rs 81 crore in the same quarter previous year even as interest and depreciation cost moderated.
See AlsoHow to raise a complaint with Bajaj Finserv?Bajaj Finance share price jumps over 7% after RBI lifts restrictions on its eCom and Insta EMI Card | Stock Market NewsBajaj Auto shares fall 3% after Q4 resultsStock Trading
Market 101: An Insight into Trendlines and Momentum
By - Rohit Srivastava, Founder
Stock Trading
Markets 102: Mastering Sentiment Indicators for Swing and Positional Trading
By - Rohit Srivastava, Founder
Stock Trading
Market 103: Mastering Trends with RMI and Techno-Funda Insights
By - Rohit Srivastava, Founder
Stock Trading
Market 104: Options Trading: Kickstart Your F&O Adventure
By - Saketh R, Founder- QuickAlpha, Full Time Options Trader
Stock Trading
Introduction to Technical Analysis & Candlestick Theory
By - Dinesh Nagpal, Full Time Trader, Ichimoku & Trading Psychology Expert
The sharp correction in the domestic sugar prices after hitting a peak earlier this year is the key issue for sugar manufacturers. Expectations of better output have prompted Indian Sugar Mills Association to revise upwards its production estimates by 30% to 18 million tonnes for the current sugar season ending September 2010.
Further, production estimates from key global market like Brazil have also been revised upwards to 34 million tonnes.
Taking cue from sugar price movement, ET Sugar index, a benchmark index of sugar companies’ scrips, has also crashed 39% over the past five months in line with the downtrend in commodity prices. The ability of sugar companies to manage their raw material costs will determine their profitability in the coming quarters.
With sugarcane crushing over for the current sugar season, Bajaj Hindusthan has 7.21 million tonnes of sugar
inventory at a cost of 27/kg, which is higher than that in the previous year. Given this background, financial numbers for the quarter ended June look bleak despite better volumes in the coming quarters. Further, rising cost and declining sugar prices will impact operating margins if the company is not able to keep material cost in check.
