ICICIdirect SugarSectorUpdate Sept20101

Industry Update
September 29, 2010
Stock Returns (%)

1M 3M 6M 12M
Sugar Industry Update
Bajaj Hindusthan 9.4 16.4 -4.4 -26.2
Balrampur Chini 1.4 11.0 -5.5 -27.4 India to play a balancing act…
Dhampur Sugar 21.2 22.4 6.4 -20.1
Shree Renuka 17.9 20.6 11.5 -17.8 With global sugar prices at seven-month highs discounting the deficit
across the globe, domestic sugar prices at eight-month lows discounting
Stock Ratings the expected excess production and the Indian sugar sector finally
waiting to witness the long waited decontrol, the outlook for the sugar
Shree Renuka Sugars Strong Buy
industry has transformed from a ‘falling meteorite’ to ‘shining star’.
CMP (|) 86
TP (|) 105
Global prices recover to 24 cents
Upside (%) 22.1
Having fallen from 30 cents/lb to as low as 13 cent/lb, global sugar prices
Market cap (|. Cr.) 5762
have recovered to 25 cents/lb. This sharp recovery was led mainly by
lower-than-expected Brazilian production on the back of adverse weather
Balrampur Chini Buy
conditions there and a 38% increase in China’s sugar imports as floods
CMP (|) 92
destroyed the sugarcane crop there. Moreover, the crop deficit in Europe
TP (|) 103
and Pakistan is also increasing import demand from these countries.
Upside (%) 12.0
Thus, we believe global sugar prices will remain firm until February 2011
Market cap (|. Cr.) 2438 as no major supplies (except India, which would not be able to export
more than 1 million tonnes) will be available in the market.
Dhampur sugar Buy
CMP (|) 77
Domestic prices to firm up in medium term
TP (|) 92
With the recent floods in western UP (Uttar Pradesh), sugar production in
Upside (%) 19.5
India is expected to be lower than earlier estimates of 25 million tonnes
Market cap (|. Cr.) 415
(MT) as UP is the second largest contributor to India’s sugar production.
Hence, the estimated production of UP in SY11 is 6.1 MT (down by
Bajaj Hindustan Sell ~10% from previous estimates of 6.8 MT). Thus, with the destruction of
CMP (|) 135 the cane crop in UP and, hence, lowering of sugar production estimates
TP (|) 105 for the country, coupled with the export obligation of ~1 MT till March,
Upside (%) -22.2 2011, we believe domestic prices would remain firm and could rule
Market cap (|. Cr.) 2579 above | 30 per kg in the medium-term.
Price movement Decontrol: A positive trigger

The various decontrol measures proposed by the sugar industry to the
250 8000 government including the discontinuation of prescribing monthly limits
200 6000 on free sale quota and obligatory levy sales quota through PDS are the
150
4000
highlights of the measures awaited. Moreover, the companies have
100 urged the government to consider alignment of sugarcane prices with
50 2000 the prevailing prices of sugar, molasses and bagasse to help in better
0 0 realisation and sharing of profits between companies and cane growers
as this would help in combating the volatility in sugar production and
Sep-09
Dec-09
Feb-10
Jul-10
Sep-10
Apr-10
prices, going forward. We believe implementation of these proposals

would result in a re-rating of the entire sugar space specifically smaller
sugar companies, which are trading anywhere between 30-60% below
Bajaj Balrampur Dhampur their replacement cost.
Renuka Nifty(R.H.S.)
Analyst’s name
Recommendations
We believe the sugar cycle has bottomed out and most of the negative
Sanjay Manyal
sanjay.manyal@icicisecurities.com
news has already been factored into the price. Shree Renuka Sugar
remains the Top Pick in the sector as it would benefit from its Brazilian
Parineeta Poddar
parineeta.poddar@icicisecurities.com acquisitions (VDI and Equipav). We are also positive on Balrampur Chini
as the decline in sugarcane cost and rise in power tariffs would help the
company to keep its earnings in black. Dhampur Sugar remains the most
undervalued stock in our universe, considering its crushing and power
capacities.
ICICIdirect.com | Equity Research

Domestic Scenario
Demand supply to remain tight

India’s sugar production had remained volatile between SY07 and SY10
due to the policy changes and regular government interventions.
Production moved from 26.5 MT in SY08 to 14.7 MT in SY09 and to 18.8
MT in SY10. Going ahead, we believe the volatility in production will
continue due to the inherent cyclical behaviour of the industry. However,
the consistent increase in consumption of sugar has shrunk the inventory
levels over the years. Lower inventory levels coupled with regular supply
side snags would result in a rise in domestic as well as global sugar
prices in future.
Exhibit 1: Domestic sugar demand supply scenario (million tonnes)
28.5
30.0 26.3
25.0
25.0 22.5 23.0 23.5
22.0
21.0
18.5 19.3 19.0 18.8
Robust production during SY11 to outpace demand. 20.0
12.7 14.7
15.0
10.0
5.0
0.0
SY05 SY06 SY07 SY08 SY09 SY10 SY11E
Production Consumption
Source: Company, ICICIdirect.com Research
Exhibit 2: Domestic sugar production (in million tonnes)

SY04 SY05 SY06 SY07 SY08 SY09 SY10 SY11E
Production 13.5 12.7 19.3 28.5 26.3 14.7 18.8 25.0
Domestic consumption 17.9 18.5 19.0 21.0 22.0 22.5 23.0 23.5
Exports 0.2 0.0 1.1 1.5 4.8 0.0 0.0 1.0
Imports 0.4 2.1 0.0 0.0 0.0 3.0 4.0 0.0
Opening stock 12.3 8.1 4.4 3.6 9.6 9.1 4.3 4.1
Closing stock 8.1 4.4 3.6 9.6 9.1 4.3 4.1 5.6
Closing Stock (Months) 5.4 2.9 2.3 5.4 5.0 2.3 2.1 2.9
India to export 1 MT
The government has allowed Indian mills to export 9, 67,000 tonnes of
sugar before March 2011 under the Advance License Scheme (ALS).
Mills can export 25% of the quantity (9,67,000 tonne) in the next three
months and the rest of the quantity after November, 2010. As much as
4.5 lakh tonnes of imported raw sugar is already lying at various ports.
The expected ~33% increase in sugar production in SY11 has resulted in
a decline in sugar prices from | 40 per kg to | 27 per kg. We believe
sugar inventory levels would remain at 4-5 MT, which would be two to
three months of consumption. Hence, this would keep sugar prices firm
above | 30/kg.

Page 2
Inventory levels to decline
Sugar inventory levels are on a declining trend. Domestic sugar

inventories in the previous cycle declined from 12.3 MT in SY03 to 3.6
MT in SY06 and the country imported 2.5 MT during this period.
Inventory levels have further declined from 9.6 MT in SY07 to 4.3 MT in
SY09 and 4.0 MT in SY10. Hence, despite a 33% (estimated) increase in
sugar production, inventories at the end of 2011 would remain between
5-6 MT, which is just 2.8 months of consumption. Therefore, we believe
the imports requirement of the country in the deficit years of the cycle is
increasing considerably. This could result in a further 30-40% rise in
global sugar prices in the next two or three years.
Exhibit 3: Domestic carry forward sugar inventory & imports and exports (million tonnes)
15.0 12.3
9.6 9.1
10.0 8.1
Hovering international prices could help the 4.3 5.6
4.4 3.6 4.1 4.0
sugar companies to capitalize through exports 5.0 2.1 3.0
under ALS. 0.2
0.0
SY03 SY04 SY05 SY06 SY07 SY08 SY09 SY10 SY11E
-5.0 -1.1 -1.5
-0.2 -1.0
-4.8
-10.0
Closing stock Imports
Sugarcane cost to come down in SY11
The central government declares a statutory minimum price (SMP) for

sugarcane. This is the minimum price that companies are required to pay
to cane growers (SMP in SY10 was | 125 per quintal) Also, the UP
government declares a state advised price (SAP) for sugarcane to be
paid by mills in UP to cane growers there (SAP in SY10 was | 165 per
quintal). However, mills across the country had paid | 240 per quintal for
sugarcane in SY10 on the back of lower production during the year. We
believe that despite the increase in SMP to | 165 per quintal in SY11 and
estimated SAP at | 185-190 per quintal, the actual purchase cost of
sugarcane for mills would decline from 240 per quintal to | 200 per
quintal as availability of sugarcane is expected to increase significantly.

Page 3
Exhibit 4: State advised prices and statutory minimum price (| per quintal)
220
185.0
165.0
170 140.0
125.0
107.0 115.0 165.0
120 90.0 95.0 95.0 95.0
85.0
125.0
107.8
70
73.0 74.5 79.5 80.3 81.2 81.2
62.1 69.5
20
SY01 SY02 SY03 SY04 SY05 SY06 SY07 SY08 SY09 SY10 SY11E
SMP SAP (UP)
Levy sugar
In order to maintain supplies, the government announces a certain fixed
percentage of raw sugar produced that has to be made available at lower
prices to the public distribution systems known as levy sugar. Apart from
this the government also declares the monthly quota to be sold in the
open market and through PDS every month. By doing this the
government attempts to control the sugar prices and availability to the
weaker section of the society. The levy prices in SY10 stood at Rs.13.5
per kg which the government is considering to revise to Rs.17.5 per kg in
SY11. Moreover, in 2009-10, the government raised the levy sugar quota
from 10% to 20% on the backdrop of plummeting sugar production
which it is again considering to bring down to 10% on the back of higher
sugar production expected this year and PDS requirements estimated to
be less than 2 MT. Hence, this would enable demand to adjust to realities
of supply via market forces, thereby, allowing price equilibrium to be
achieved rapidly.
Exhibit 5: Levy and free sale quota

Sugar Season Levy (%) Free sale (%)
1972-73 70.0 30.0
November 1979 65.0 35.0
1985-86 55.0 45.0
1986-87 50.0 50.0
1987-88 50.0 50.0
1988-89 45.0 55.0
1992-93 40.0 60.0
1999-2000 30.0 70.0
Febuary 2001 15.0 85.0
March 2002 10.0 90.0
2009-10 20.0 80.0
2010-11E 10.0 90.0
Source: National Federation of Cooperative Sugar Factories Ltd (NFCSF), CRISIL Research

Page 4
Cane payment arrears

While the central government declares the SMP for sugarcane for the
nation, the state government in Uttar Pradesh declares the SAP, which
the sugar mills are required to pay the farmers of the state. Typically, the
SAP commands a 30-72% premium vis-à-vis the SMP (SY99-09).
Nevertheless, during SY07 and SY08 the retail price of free sale sugar
had fallen below the cost of production (based on SAP). This exerted
severe pressure on the financial health of UP-based sugar mills.
Consequently, this led to the build-up of cane payment arrears. This
delay in payment put a strain on the farmer’s resources causing them to
undertake a paradigm shift in cultivation from cane to other more
lucrative crops.
However, with the spurt in sugar prices in 2009 and concurrent rise in
profitability of sugar mills, cane prices have risen and arrears have
declined significantly resulting in a shift back to sugarcane. This
increased the area under cultivation in SY10, thus, resulting in ~25 MT of
sugar production expected in SY11. However, the significant decline in
sugar prices from | 40 per kg in January 2010 to | 26-27 per kg currently
has resulted in most of the sugar mills incurring huge losses, leading to
~| 1500 crore of sugarcane payment arrears. These arrears coupled with
the decline in sugarcane cost would result in a decline in sugar
production in SY12 and SY13, consequently resulting in a significant
increase in imports in SY12 and SY13 and concomitant rise in global and
domestic sugar prices.
Sugarcane diversion to Gur and Khandsari

In India, sugarcane is also used to produce gur (jaggery) and khandsari.
The drawal of sugar from sugarcane has been wavering over the years
ranging from 78.6% in SY07 to 51% in SY09. These erratic movements
are led by a number of factors such as the prevailing gur and khandsari
prices, cane payment arrears to farmers and the prevailing cane prices.
During falling cane prices and rising arrears the farmers are lured
towards supplying cane to the alternate sweetener manufacturers as they
get immediate payment for the same. Thus, with the increase in
production of sugarcane expected in SY11 and the price of cane
expected to come down would drive the farmers to supply cane to the
alternate sweetener manufacturers who would get back to manufacturing
the commodity with the cane available at cheaper prices thereby keeping
the sugar supply position tight.
Exhibit 6: Absorption of sugarcane by various categories
100.0
11.7 11.9 11.9 11.9 11.9 11.9 11.9 11.9
80.0 9.5 14.7
Diversion to alternate sweeteners in the wake of falling 20.7 21.0 26.1
31.4 35.5 37.1
cane prices cannot be overlooked in SY11, thereby
60.0
limiting the crop’s availability for sugar.
40.0 78.6 73.4

67.6 67.1 62.0
56.7 52.6 51.0
20.0
0.0
SY03 SY04 SY05 SY06 SY07 SY08 SY09 SY10
White Sugar Gur and Khandsari Seed,Feed and chewing
Source: NFCSF

Page 5
Distillery to increase earnings
With the government’s implementation of long proposed ethanol

blending programme by oil marketing companies (OMC) at 5% and
revision of prices for purchase of ethanol from | 21.5 per litre to | 27 per
litre, we believe it would give additional revenues to sugar companies.
The blending is to be introduced from October 1, 2010 onwards. Under
the terms of the policy, the government has made it obligatory for both
OMCs and sugar companies to meet each other’s demand and supply.
Failing this, they would be susceptible to penalty charges.
Exhibit 7: Ethanol demand at 5% blending in India (million litres)
1,000 882
900 843
794
800 729
655
700 582
556 576
Increasing ethanol demand and 10% blending yet to 600 534
be announced, ethanol prices could also remain firm 500
going ahead. 400
300
200
100
0
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09E 2009-10F 2010-11F
Ethanol demand at 5%
Source: CRISIL
The total ethanol demand at 5% blending is estimated at ~900 million

litres. However, sugar companies have offered to provide 1000 million
litres during the year. Of the total demand, Maharashtra is expected to
supply 390 million litres, followed by Uttar Pradesh at 280 million litres
and Karnataka to supply 160 million litres. The remaining would be
fulfilled by Tamil Nadu, Andhra Pradesh and Gujarat. On an individual
company basis, Renuka Sugar has committed to supply 120 million litres,
Bajaj Hindusthan 100 million litres and Balrampur Chini ~40 million litres.
Hence, with the increased realisation of ~ | 6.5 per litre from the sale of
this by-product, sugar companies’ revenues should see some
improvement in Q1FY11.
Exhibit 8: Distillery capacity of firms (in klpd) and revenues from the segment in SY11E
Capacity (in klpd) Ethanol Prod (KL) Ethanol Sold (KL) Ethanol Sales (Rs. Crore)
Bajaj Hindustan 800 76800 75000 169.0
Balrampur Chini 320 80000 80000 184.0
Dhampur Mills 240 47000 47000 126.9
Renuka Sugars 900 120000 120000 324.0

Page 6
Maharashtra: The game changer

Sugarcane acreage in Maharashtra has historically been more volatile
than in Uttar Pradesh. We believe Maharashtra is instrumental in the rise
or decline in sugar production. The state has witnessed significant
volatility in sugar production from 2.2 MT in SY05 to 9.1 MT in SY08 and
again 4.6 million tonnes in SY09 and 7.1 million tonnes in SY10. This year
it is expected to be highest ever at 9.6 MT in SY11. In a down cycle,
production in Maharashtra dropped by as much as 64.5% compared to
12.3% in UP from SY03 to SY05. Moreover, in SY07 production rose by
300% compared to 70% in UP in SY07 resulting in a glut in sugar
production. Going forward also, we believe that any major volatility
exhibited in Maharashtra’s production is likely to have a major impact
(surplus or deficit) on pan-India sugar production.
Exhibit 9: State-wise sugar production (in million tonnes)
10.0
Production from Maharashtra to be robust, however UP
could suffer due to floods destroying the cane crop. 8.0
6.0
4.0
2.0
0.0
SY03 SY04 SY05 SY06 SY07 SY08 SY09 SY10 SY11E
Uttar Pradesh Maharashtra Karnataka Tamil Nadu
Source: Industry
Domestic prices to bounce back and remain above | 30 per kg
Despite a higher sugar production, estimated at ~25 MT in SY11, the

overall global shortfall and decontrol measures for the industry due to be
announced by the government would help to keep sugar prices firm in
SY11. With a record low stock to consumption ratio of the decade in
SY10 and lower-than-expected production in Brazil, higher than expected
import demand by Pakistan and the export obligation of 1 MT to be
fulfilled by Indian mills, India’s surplus production is being awaited to
meet the demand shortage in the industry. Hence, it would help in
keeping prices firm, going forward, thereby enabling mills to maintain
margins and recover losses incurred during the recent sharp fall in
prices.

Page 7
Exhibit 10: Vashi sugar prices (|/quintal)

4500
4000
3500
3000
2500
2000
1500
1000
Jul-08
Sep-08
Jul-09
Jan-08
Mar-08
Nov-08
Sep-09
May-08
Jan-09
Mar-09
Nov-09
May-09
Jan-10
Mar-10
May-10
Source: Bloomberg
Global scenario
World sugar balance expected to see a downside
While global sugar consumption has registered a CAGR of 2.3% over the
1999-2010 period, global production has registered a CAGR of 1.7% over
the 1999-2009 period. The expected decline in world production in 2011
led by adverse weather conditions has brought down the closing stock
estimates of the world. Moreover, the largest sugar supplier of world,
Brazil, has witnessed a decline in the production to 35 MT from the
previously estimated 37 MT on the back of drier weather conditions (La
Nina conditions). Also, with declining output concerns in Russia, China
and Pakistan, global surplus estimates have been revised to 2.1 MT from
previous estimates of 5.2 MT for 2011.
Exhibit 11: World sugar balance (in million tonnes)

2006-07 2007-08 2008-09 2009-10 2010-11E
Production 166.0 168.6 161.5 163.7 163.8
Consumption 153.5 158.8 161.7 163.9 167.5
Closing stock 67.9 74.0 66.3 60.6 58.6
Closing Stock (Months) 5.3 5.6 4.9 4.4 4.2
Source: ISO & Company Reports
Global supply concerns to keep prices firm
Raw sugar prices have rebounded to 24 cents/lb. Hence, they are

reigning at a seven month high on concerns of lower production
estimates in Brazil, the largest sugarcane producer. The overall global
supply and demand picture seems to be tight with crop forecasts in
Pakistan, Europe and Thailand also declining due to adverse weather
conditions. Pakistan has faced the worst ever floods during the year and
is expected to face a shortage of ~0.5 MT of sugar. It plans to meet this
through imports. Also, the adverse weather in Europe and Thailand has
impacted the crop production creating an overall shortfall of the
commodity. Hence, demand from these countries is leading to an
increase in prices in international markets. However, India is expecting a
surplus cane production in SY11 led by the increase in acreage and good
monsoons in the country during the year.

Page 8
Thus, with the overall shortfall the world seems to be looking at India for
exports. They are, in turn, awaiting government approval before they can
take advantage of the higher global prices and share their surplus with
the world.
Exhibit 12: Global raw sugar prices (cents/lb)
Recent upsurge in global prices

30
led by the adverse weather
conditions
25
20
15
10
5
Apr-09
Sep-09
Feb-10
Apr-10
Sep-10
May-09
Jun-09
Jul-09
Aug-09
Oct-09
Nov-09
Dec-09
Jan-10
Mar-10
May-10
Jun-10
Jul-10
Aug-10
Source: Bloomberg
Exhibit 13: Global white sugar prices ($/tonne)
700
600
500
400
300
200
100
0
Apr-09
Sep-09
Feb-10
Apr-10
Mar-09
May-09
Jun-09
Jul-09
Aug-09
Oct-09
Nov-09
Dec-09
Jan-10
Mar-10
May-10
Jun-10
Jul-10
Aug-10
Source: Bloomberg

Page 9
Global ethanol demand
With crude prices going up and nations across the globe moving towards
consumption of bio fuels, the demand for ethanol is expected to go up.
Moreover, we know that ~85% of the total ethanol produced in Brazil
(largest producer) is used by the country itself. This is expected to further
increase over the years thereby increasing the demand supply mismatch
of the product. Also, with ethanol prices going up, the diversion towards
ethanol production from sugarcane would be more attractive,
consequently reducing the sugar production and resulting in sugar prices
to remain firm going ahead.
Exhibit 14: Crude and ethanol prices
100 0.8
90 0.7
80
0.6
Increasing environmental concerns and rising crude prices 70
60 0.5
to drive ethanol demand, subsequently pushing ethanol
50 0.4
prices.
40 0.3
30
0.2
20
10 0.1
0 0
Apr-09
Apr-10
Feb-09
Feb-10
Dec-08
Jun-09
Aug-09
Oct-09
Dec-09
Jun-10
Aug-10
Crude(US$ per barrel) Ethanol(USD per litre)
Source: Bloomberg
Recommendations
We believe the sugar cycle has bottomed out and most of the negative
news has already been factored in the price. Global prices have risen to
December 2009 levels on the back of global imbalances in the supply of
sugar. We believe domestic prices would also soon see an uptrend led
by 1 MT of export obligation (to be fulfilled by March, 2011), rise in global
prices and recent floods in western UP (which could result in lower than
expected production in SY11). Shree Renuka Sugar remains the Top Pick
in the sector as it would benefit from its Brazilian acquisitions (VDI and
Equipav). Simultaneously, the decline in sugarcane prices in Maharashtra
would help the company to maintain its margins from its Indian
operations. We are also positive on Balrampur Chini as the decline in
sugarcane cost and rise in power tariffs would help the company to keep
the earnings in the black. Dhampur Sugar remains the most undervalued
stock in our universe, considering its crushing and power capacities. Any
measures in terms of decontrol would result in a re-rating of this stock.
We remain negative on Bajaj Hindustan due to the large debt on its book
and stretched capex plans in the power segment. We believe these
capex plans would result in a further increase in the company’s debt or
an equity dilution in future, which remains an overhang on the stock.

Page 10
Event Update
September 29, 2010
Rating matrix
Rating : Strong Buy Shree Renuka Sugar (RENSUG)
Target : | 105
Target Period : 12 months | 86
Potential Upside : 22%
WHAT’S CHANGED…
Key Financials
PRICE TARGET ....................................................................Changed from | 80 to | 105
SY08 SY09 SY10E SY11E
EPS (SY10E) .................................................................................................. Unchanged
Net Sales 2,114.3 2,816.0 6,711.1 4,220.7
EBITDA 252.6 465.6 1,012.9 1,173.3 EPS (SY11E) .................................................................................................. Unchanged
Net Profit 133.9 223.6 643.5 599.3 RATING....................................................................................from Buy to Strong Buy
EPS 2.1 3.5 10.2 9.5
Valuation summary Brazil: The next best destination…
P/E 40.2 24.1 8.4 9.0
Shree Renuka Sugars (SRS) has become the largest sugar producer in the
Target P/E 35.8 21.4 7.5 8.0 country and seventh largest in Brazil after the acquisition of VDI and
EV / EBITDA 24.5 13.3 6.4 4.7 Equipav. With the surge in global sugar prices and increase in volumes
P/BV 6.5 3.5 2.5 2.0 from the acquired companies, SRS would be able to get positive cash
RoNW(%) 16.1 14.6 30.1 21.9 flows from Brazilian operations. We believe the company is going to
RoCE (%) 12.3 13.8 19.9 17.6 consolidate its operations in Brazil after these two significant acquisitions.
Positive cash flows from operations would result in considerable de-
Stock data leveraging of Equipav books and re-rating in the stock.
Market Capitalization 5387 Crore
Total Debt (SY09) 3200 Crore
‘ VD I ’ a nd ‘ R e n uk a d o B r a si l ’ t o p us h n e xt l e v e l o f gr owt h
Cash (SY09) 494 Crore
EV 8093 Crore
With the acquisition of VDI and Equipav, Renuka Sugars created a
52 week H/L 123.5 / 51.5 significant presence in the largest sugar producing and exporting country.
Equity capital 67 Crore The company has benefited from the large amount of sugar imports in
Face value 1.0 SY10. The Brazilian acquisitions would help the company to sustain the
MF Holding (%) 8.6 growth in future.
FII Holding (%) 25.9
S u ga r c a ne cos t t o c o me d o w n i n SY1 1
Price movement Considering ~33% rise in sugar production in India and 1/3 of that
coming from Maharashtra, we believe the sugarcane cost will come down
significantly from the | 240/quintal in SY10.
200
5400
160 4500 Valuation
120 3600
2700
At the current price of | 86, the stock is trading at 8.4x its SY10E EPS of |
80 10.5 and 9.0x its SY11E EPS of | 9.5. Given the significant sharp recovery
1800
40 900 in global sugar prices to 24 cents/lb, margins from VDI and Equipav (the
0 0 acquired companies) would improve significantly in the future. We
believe the company would be able to de-leverage Equipav and VDI
Nov-09
Sep-09
Mar-10
May-10
Jan-10
Jul-10
Aug-10
books in the next two or three years. Considering the current enterprise
Renuka Sugars Nifty(R.H.S.) value of the company and ~| 1500 crore of payback of its debt in the next
two or three years would result in 27% upside in market capitalisation.
Analyst’s name
We have valued the stock at 11x its SY11 EPS of | 9.5 to arrive at a target
Sanjay Manyal of | 105 per share.
sanjay.manyal@icicisecurities.com
Exhibit 1: Financial Performance
Parineeta Poddar SY08 SY09 SY10E SY11E
parineeta.poddar@icicisecurities.com
Total Income 2129.5 2822.4 6795.4 4231.4
EBITDA 252.6 465.6 1012.9 1173.3
EBITDA Margins(%) 11.9 16.5 14.9 27.7
PAT 133.9 223.6 643.5 599.3
EPS 2.1 3.5 10.2 9.5

Page 11
Shree Renuka Sugar (RENSUG)
Uniq ue b usine ss model

SRS has successfully grown over the last five years in a cyclical industry.
The company has leveraged on its refining capacities in India, which has
helped SRS to play an arbitrage between global and domestic prices in
SY10. This, in turn, resulted in a 2x increase in volumes over SY08-10. We
believe the foray into the Brazilian market would sustain the volume
growth while the rise in global prices would help sustain the margins for
the company. Moreover, with the increased crushing capacity the
company would be able to achieve 2 million tonnes of sugar volume in
the next four years on a consolidated basis.
Exhibit 2: Segmental Revenues and PAT(| crore)
8000 700
Increased capacity and Brazilian acquisitions to 7000 600
push volumes and rising sugar prices to help in 6000 500
sustaining the margins 5000
400
4000
300
3000
2000 200
1000 100
0 0
SY07 SY08 SY09 SY10E SY11E
Sugar Trading Power Distillery Other subsidieries PAT
‘ VD I ’ a nd ‘ R e n uk a d o B r a si l ’ t o p us h n e xt l e v e l o f gr owt h
With the acquisition of VDI and Equipav, Renuka Sugars created a
significant presence in the largest sugar producing and exporting country.
The company has benefited from the large amount of sugar imports in
SY10. The Brazilian acquisitions would help the company to sustain the
growth in future. Soaring sugar prices to 24 cents/lb would result in more
than 50% EBITDA margins from Brazilian subsidiaries in Q4SY10 as cost
of production remains at 12-13 cents/lb. This would help the company to
offset the losses it would incur in the domestic business. We believe the
company’s primary focal point would be to de-leverage VDI and Equipav
books in the next two or three years, which would ultimately result in
lower interest cost and higher profitability. We have not taken VDI and
Equipav revenues in our estimates. The disclosure of VDI and Equipav
financial numbers by the company could lead to further change in our
estimates.
S u ga r c a ne cos t t o c o me d o w n i n SY1 1
Considering ~33% rise in sugar production in India and more than 1/3 of
that coming from Maharashtra, we believe sugarcane costs will come
down significantly from | 240/quintal in SY10 to below | 200/quintal in
SY11. We believe domestic sugar prices have bottomed out in the current
cycle and a significant decline in sugarcane cost would help the company
to maintain its margin in SY11.
C o ns oli da t ed s ug ar v ol um e s t o r ea ch 2 M T
We expect SRS to be able to sell 1.2 million tonnes (MT) of sugar in SY10.
It would be able to sell more than 1.4 MT in SY11. We believe the
company would be able to achieve the 2 MT mark in the next three years.
SRS will be one of the largest sugar manufacturers in the world.

Page 12
Shree Renuka Sugar (RENSUG)
Exhibit 3: Sugar volumes (in million tonne)
1.6
1.4
Acquisitions to drive volumes and make it the
1.2
largest producer in the country.
1.0
0.8 1.50
0.6 1.24
0.4 0.87
0.60
0.2
0.0
SY08 SY09 SY10E SY11
Sugar volumes (in million tonnes)
Soari n g gl obal pri ces to boost pr ofit abilit y

Soaring global prices would result in higher margins from Brazilian
operations for Renuka Sugars in Q4SY10 when most of the other
domestic producers would be posting losses. We believe the company
would be able to de-risk cyclical changes with its presence in Brazil. The
surge in the global sugar prices has given cushion to the domestic sugar
prices. We believe soaring global prices and decontrol measures would
lead to firming up of the domestic sugar prices. However we have
assumed company’s sugar realisations at Rs 25 per kg on the full year
basis.
Exhibit 4: Global sugar price (cents/lb)
30
25
20
15
10
0
Nov-09
Aug-09
Oct-09
Aug-10
Apr-09
May-09
Jun-09
Jul-09
Sep-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Sep-10

Page 13
Sector Update
September 29, 2010
Rating matrix
Rating : BUY Balrampur Chini (BALCHI)
Target : | 103
Target Period : 12 months | 92
Potential Upside : 12 %
WHAT’S CHANGED…
Key Financials % (YoY)
PRICE TARGET .............................................................................................. Unchanged
Net Sales 1,490.9 1,700.0 1,939.5 2,268.0 EPS (SY10E) ..................................................................................................Unchanged
EBITDA 314.2 452.0 309.4 467.3 EPS (SY11E) ........................................................................Changed from | 6.8 to | 8.6
Net Profit 78.4 226.3 104.9 228.2 RATING.....................................................................................................Reduce to Buy
EPS 3.1 8.5 4.0 8.6
By products realisations to sustain margins…
Valuation summary
With the sugar manufacturing capacity of 73,500 TCD (tonnes crushed
per day), Distillery capacity of 240 KLPD (kilo-litres per day) and power
P/E 29.9 10.8 23.2 10.7
capacity of 126 MW), Balrampur Chini (BCL) is likely to benefit from the
Target P/E 24.3 8.8 18.9 8.7
expected decontrol measures by the government and firmed up global
EV / EBITDA 11.7 7.5 10.4 6.4
prices. BCL has all its mills in eastern UP, sugar volumes would remain
Price to Book V 2.4 2.0 1.8 1.6 unaffected by the recent floods in western UP. However, a rise in
RoNW(%) 6.1 14.3 6.6 13.7 domestic sugar prices on 10% lower than estimated production in UP, is
RoCE(%) 8.3 13.7 8.6 15.5 imminent. We believe BCL would benefit from the rise in sugar prices as
margins in coming quarters will improve as compared to Q3SY10.
Stock data (| crore)
Rise in domestic price imminent
Market Capitalization 2,438.0
Considering global sugar prices at 24 cents/lb and with recent floods in
Total Debt (SY09) 983.1
western UP affecting sugar production, a rise in domestic prices is
Cash and Investments (SY09) 37.2
imminent. We believe domestic sugar prices would rise to | 30/kg, which
EV 3,383.9
would result in better margins for UP-based sugar mills.
52 week H/L (|) 168 / 70
Co-generation segment to improve earning
Equity capital 26.5
Face value (|) 1.0 Balrampur Chini, having the highest co-generation capacity among sugar
MF Holding (%) 19.2 mills, will benefit the most from the rise in power realisation by the Uttar
FII Holding (%) 19.4 Pradesh State Electricity Board (UPSEB) to | 4 per unit.
Exports to benefit Indian manufacturers
Price movement The government has allowed 2.5 lakh tonnes of exports (20,000 tonnes
200
for Balrampur Chini). This would result in lowering already high inventory
5400 levels. We believe mills will benefit from the current arbitrage between
160 4500 domestic and global prices.
120 3600
80 2700 Valuation
1800 At the current price of | 92, the stock is trading at 23.2x its SY10E EPS of
40 900 | 4.0 and 10.7x its SY11E EPS of | 8.6. Given the lower-than-expected
0 0
production of 25 million tonnes (MT) in SY11 due to floods in western UP
Nov-09
Sep-09
Mar-10
May-10
Jan-10
Jul-10
Aug-10
and also higher global sugar prices a rise in domestic prices is imminent.
We believe BCL, being the most integrated sugar mill in the country,
Balrampur Nifty(R.H.S.)
would be able to improve its margins in SY11. Hence, we have valued the
Analyst’s name stock at 12x its SY11E EPS of | 8.6 to arrive at a target price of | 103.2
Sanjay Manyal
with a BUY rating. We believe the company would get acquisition
sanjay.manyal@icicisecurities.com premium as it remains one of the favourite acquisition candidate.
Parineeta Poddar
parineeta.poddar@icicsecurities.com Exhibit 1: Key Financials (| crore)
Net Sales 1,490.9 1,700.0 1,939.5 2,268.0
EBITDA 314.2 452.0 309.4 467.3
EBITDA Margins(%) 21.1 26.6 16.0 20.6
Net Profit 78.4 226.3 104.9 228.2
EPS (Rs) 3.1 8.5 4.0 8.6

Page 14
Sector Update
September 29, 2010
Rating matrix
Rating : Buy Dhampur Sugar (DHASUG)
Target : | 92
Target Period : 12-15 months | 77
Potential Upside : 19 %
WHAT’S CHANGED…
Key Financials
PRICE TARGET ......................................................................Changed from | 54 to | 92
Net Sales 667.9 935.6 1,444.8 1,407.2 EPS (FY10E) .................................................................................................. Unchanged
EBITDA 140.5 203.9 181.8 239.1 EPS (FY10E) .................................................................................................. Unchanged
Net Profit 3.6 55.6 28.6 89.9 RATING..................................................................................................... Reduce to Buy
EPS 0.1 10.6 3.5 16.7
At a bargain price…
Valuation summary
Dhampur Sugar Mills is an Uttar Pradesh (UP) based sugar company
with its plants located in western and central UP. It has sugarcane
P/E NA 7.3 21.9 4.6
crushing capacity of ~40,000 tonnes per day, cogen capacity of 85 MW
Target P/E NA 5.1 15.4 3.2
and distillery unit capacity of 240 kilo litres per day. The company’s
EV / EBITDA 9.8 5.8 6.3 4.1
cogeneration business has acted as a strong contributor to its growth in
P/BV 1.5 1.5 1.5 1.3 recent quarters. This is because it has an operating capacity of 17 MW
RoNW(%) 0.8 11.8 3.9 11.5 of power generation through its different multi-feed boilers established
RoCE (%) 5.8 11.0 9.8 13.8 in its plants at different locations. Through this it aims to capitalise on
the ‘Energy Policy 2009’ of the UP Government.
Stock dat
By-products to improve earning visibility
Market Capitalization 415 Crore
Increased sugarcane availability would result in higher availability of
Total Debt (SY09) 555 Crore
bagasses. This would result in increased number of units from co-
Cash (SY09) 37 Crore
generation. We believe the company would be able to increase revenue
EV 836 Crore
contribution from the power segment. This, in turn, would result in better
52 week H/L 158.6 / 58.3
overall margins for the company.
Equity capital 53.9 Crore
Face value Rs. 10 Valuation
MF Holding (%) 7.4 At the current market price of | 76.9, we believe the stock is available at a
FII Holding (%) 4.7 much cheaper price compared to its peers like Balrampur Chini (BCL).
With the cane crushing capacity of the two companies, BCL and Dhampur
Price movement being in the ratio of 1.8:1, power capacity 1.5:1 and distillery being 1.3:1,
200
the stock’s valuation stands at 1/5 that of BCL and also has a higher
5400 replacement cost. The replacement cost/share of Dhampur is estimated at
160 4500 around | 159.5 per share compared to Bajaj Hindusthan and Balrampur
120 3600 Chini, which have replacement costs at | 64.9 and | 78.4 per share,
2700
80 respectively whereas the capacities are much higher. Thus, with
1800
40 900 Dhampur’s stock trading at 4.6x its FY11E EPS of | 16.7, we believe the
0 0 company remains highly undervalued. Hence, with the structural changes
due for the sector, there is a significant upside for the stock. We have
Nov-09
Sep-09
Mar-10
May-10
Jan-10
Jul-10
Aug-10
valued the stock at 5.5x its SY11 EPS to arrive at a target price of | 92.
Dhampur Nifty(R.H.S.)
Exhibit 1: Financial Highlights ( | crore)
Analyst’s name SY08 SY09 SY10E SY11E
Sanjay Manyal Net Sales 667.9 935.6 1444.8 1407.2
sanjay.manyal@icicisecurities.com EBITDA 140.5 203.9 181.8 239.1
Parineeta Poddar EBITDA Margin (%) 21.0 21.8 12.6 17.0
parineeta.poddar@icicisecurities.com
Depreciation 53.4 61.6 65.8 72.5
Interest 77.3 81.0 76.8 56.2
Reported PAT 3.6 55.6 28.6 89.9
EPS (Rs.) 0.1 8.9 5.3 16.7

Page 15
Sector Update
September 29, 2010
Rating matrix
Rating : Sell Bajaj Hindusthan (BAJHIN)
Target : | 105
Target Period : 12-15 months | 135
Potential Upside : -22%
WHAT’S CHANGED…
Key Financials
PRICE TARGET ....................................................................Changed from | 96 to | 110
| Crore SY08 SY09 SY10E SY11E
Net Sales 2,070 1,584 2,832 2,758 EPS (FY10E) .................................................................................................. Unchanged
EBITDA 335.8 470.0 526.2 606.3 EPS (FY11E) ........................................................................Changed from | 4.8 to | 8.4
Net Profit (197.6) 154.6 73.6 161.1
EPS (14.0) 8.7 3.8 8.4 RATING.......................................................................................................... Unchanged
Valuation summary
Highly leveraged…
SY08 SY09 SY10E SY11E Bajaj Hindusthan, the UP-based sugar mill with around nine factories
P/E -9.7 15.4 35.1 16.0 located in western UP, is the country’s largest sugar manufacturer. The
Target P/E -2.5 4.0 9.0 12.5
company has a sugarcane crushing capacity of 1,35,000 tonnes, a
EV / EBITDA 18.1 13.4 10.9 9.5
cogeneration capacity of 90 MW and distillery unit with 900 klpd
Price to Book Value 1.6 1.1 1.2 1.1
RoNW(%) -10.8 5.0 2.3 4.7
capacity. The company’s major concern is the huge debt on its books,
RoCE (%) -9.3 5.1 5.6 6.9 amounting to around | 3600 crore, which is a lingering concern for it.
Foraying into power – is it the right time?

Stock data
The company plans to set up a 2430 MW capacity power plant in Uttar
Market Capitalisation 2517 crore
Pradesh. Of the total capacity, 450 MW has already been commissioned
Total Debt (FY09) 3600 crore
Cash and Investments (FY09) 127.4 crore
and will be operative by the end of 2011. Thus, a further investment of |
EV 5,990.0 10,000 crore to set up the remaining 1980 MW would be required.
52 week H/L 242 / 98 Therefore, setting up the plant will require infusion of fresh funds on the
Equity capital 19.1 crore back of already prevailing huge debt on the books and question marks
Face value 1.0 remain on its rationality.
MF Holding (%) 9.81 Floods in Uttar Pradesh to impact sugar sales
FII Holding (%) 15.0 Bajaj Hindustan’s plants are located mainly in the western part of UP.
With floods creating havoc in the region during September 2010 the
Price movement company stands to lose its crops there.
200 Valuation
5400
160 At the current market price of | 135 we believe the stock to be expensive.
4500
120 3600
The company could suffer a setback from sugar sales, which account for
2700 ~90% of the company’s revenues due to floods in western UP. However,
80
1800 the revision of ethanol prices by the government from | 21.5 to | 27 per
40 900 litre could provide some relief on the distillery segment. The company
0 0 has also committed to supply around 100 million litres of ethanol to oil
Sep-09
Jan-10
Aug-10
Nov-09
Mar-10
May-10
Jul-10
marketing companies in 2011. Failing this, the company would face

penalty charges. However, with floods in UP and, hence, lower cane
Dhampur Sugar Nifty(R.H.S.) availability for the company, fulfilling the commitments could be a difficult
task. Consequently, we assign a SELL rating to the stock.
Analyst’s name
Sanjay Manyal Exhibit 1: Financial Highlights
sanjay.manyal@icicisecurities.com Rs Crore SY08 SY09 SY10E SY11E
Parineeta Poddar Net Sales 2070.2 1583.7 2832.1 2758.5
parineeta.poddar@icicisecurities.com EBITDA margin (%) 16.2 29.7 18.6 22.0
Depreciation 279.9 202.2 202.8 211.8
Interest 207.1 187.1 262.5 182.5
Other Income -141.9 34.2 18.0 0.0
Reported PAT -197.6 154.6 73.6 161.1
EPS (Rs) -14.0 8.7 3.8 8.4

Page 167
Bajaj Hindusthan (BAJHIN)
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, Add, Reduce 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: 20% or more;

Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,

ICICI Securities Limited,
7th Floor, Akruti Centre Point,
MIDC Main Road, Marol Naka,
Andheri (East)
Mumbai – 400 093
research@icicidirect.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
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Industry Update

September 29, 2010

Stock Returns (%)

Price movement Decontrol: A positive trigger

prices, going forward. We believe implementation of these proposals

ICICIdirect.com | Equity Research

Demand supply to remain tight

Exhibit 1: Domestic sugar demand supply scenario (million tonnes)

Source: Company, ICICIdirect.com Research

Exhibit 2: Domestic sugar production (in million tonnes)

ICICIdirect.com | Equity Research

Inventory levels to decline

Sugar inventory levels are on a declining trend. Domestic sugar

Closing stock Imports

Source: Company, ICICIdirect.com Research

Sugarcane cost to come down in SY11

The central government declares a statutory minimum price (SMP) for

ICICIdirect.com | Equity Research

SMP SAP (UP)

Source: Company, ICICIdirect.com Research

Exhibit 5: Levy and free sale quota

ICICIdirect.com | Equity Research

Cane payment arrears

Sugarcane diversion to Gur and Khandsari

Exhibit 6: Absorption of sugarcane by various categories

40.0 78.6 73.4

White Sugar Gur and Khandsari Seed,Feed and chewing

ICICIdirect.com | Equity Research

Distillery to increase earnings

With the government’s implementation of long proposed ethanol

Exhibit 7: Ethanol demand at 5% blending in India (million litres)

The total ethanol demand at 5% blending is estimated at ~900 million

ICICIdirect.com | Equity Research

Maharashtra: The game changer

Exhibit 9: State-wise sugar production (in million tonnes)

Uttar Pradesh Maharashtra Karnataka Tamil Nadu

Domestic prices to bounce back and remain above | 30 per kg

Despite a higher sugar production, estimated at ~25 MT in SY11, the

ICICIdirect.com | Equity Research

Exhibit 10: Vashi sugar prices (|/quintal)

World sugar balance expected to see a downside

Exhibit 11: World sugar balance (in million tonnes)

Global supply concerns to keep prices firm

Raw sugar prices have rebounded to 24 cents/lb. Hence, they are

ICICIdirect.com | Equity Research

Exhibit 12: Global raw sugar prices (cents/lb)

Recent upsurge in global prices

Exhibit 13: Global white sugar prices ($/tonne)

ICICIdirect.com | Equity Research

Global ethanol demand

Exhibit 14: Crude and ethanol prices

ICICIdirect.com | Equity Research

ICICIdirect.com | Equity Research

Uniq ue b usine ss model

Exhibit 2: Segmental Revenues and PAT(| crore)

Sugar Trading Power Distillery Other subsidieries PAT

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Exhibit 3: Sugar volumes (in million tonne)

Sugar volumes (in million tonnes)

Source: Company, ICICIdirect.com Research

Soari n g gl obal pri ces to boost pr ofit abilit y

Foraying into power – is it the right time?