A

PROJECT REPORT

ON

COMPANY ANALYSIS IN SUGAR SECTOR

FOR
KHANDWALA SECURITIES LTD.

SUBMITTED TO UNIVERSITY OF PUNE

IN PARTIAL FULFILLMENT OF 2 YEARS FULL TIME COURSE
MASTERS IN BUSINESS ADMINISTRATION (M.B.A.)

SUBMITTED BY
ROHIT MALU
(BATCH 2005-07)

BANSILAL RAMNATH AGARWAL CHARITABLE TRUST S

VISHWAKARMA INSTITUE OF MANAGEMENT
S.NO. 3/4, KONDHWA (Bk),
PUNE 411048

[1]
 ACKNOWLEDGEMENT:

This project bears imprint of all those who have directly or indirectly helped and extended their
kind support in completing this project.

At the time of making this report I express my sincere gratitude to all of them.

I must first express my gratitude to Mr. Ajay Laddha (Vice-President,

Khandwala Securities Ltd.), Mr. Sameer Kulkarni and Mr. Ajay Phadke (Equity Research Team,
Khandwala Securities Ltd.) for having accorded me the permission to undertake a project in
Khandwala Securities Ltd. Pune

I also must show my deepest gratitude to Director Dr. Sharad Joshi and Prof.
Rajesh Vatkar for their valuable suggestions, guidance and advice in bringing out this project.

Finally I give immeasurable thanks to my parents and friends who endured many
evenings and weekends of solitude for the thrill of seeing this project. Much of the value of this
report is due to their patience, encouragement and love.

Rohit S. Malu.

[2]
 Contents

SR. NO. PARTICULARS PAGE

NO.

1. EXECUTIVE SUMMARY 1

2. OBJECTIVE AND SCOPE 4

3. COMPANY PROFILE 5

4. THEREOTICAL BACKGROUND 10

5. RESEARCH METHODOLOGY 15

6. DATA ANALYSIS 19

7. BAJAJ HINDUSTAN LTD. PROFILE 23

8. DATA INTERPRETATION 27

9. FINDINGS 38

10. LIMITATIONS 39

11. CONCLUSION 40

12. RECOMMENDATION 41

13. BIBLIOGRAPHY 42

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EXECUTIVE SUMMARY:

The strategy of selecting stocks that trade for less than their intrinsic value is called value
investing. Value investors actively seek stocks of companies that they believe the market has
undervalued. They believe the market overreacts to good and bad news, causing stock price
movements that do not correspond with the company's long-term fundamentals. The result is an
opportunity for value investors to profit by buying when the price is deflated.
The very definition of value investing is subjective. Some value investors only look at present
assets/earnings and don't place any value on future growth. Other value investors base strategies
completely around the estimation of future growth and cash flows. Despite the different
methodologies, it all comes back to trying to buy something for less than its worth.
The purpose behind this project was to learn the mannerisms of the stock market trading and to
understand the basic difference between speculation in the stock market and some study based
investments undertaken to derive value.

COMPANY ANALYSIS IN SUGAR SECTOR .

The reason behind choosing this project is that it provides hands on experience with what goes
on in the stock market on a day to day basis. The field of equity research is very vast and one has
to look into various aspects of the functioning of the company to get to any conclusion about the
possible performance of the company in the market. Investors like warren buffet made a fortune
out of investments in the stock market, which is quiet impossible without proper research about
the companies. The field of equity research is full of challenges. It is your door to fame, fortune
and, above all, professional challenge. In a world that is shrinking in size due to information
technology and blurring boundaries between nations, the stock market (or the equities market) is
all set to grow in size.

The project is done with Khandwala Securities Ltd. a very well known company in the field of
stock broking and capital market services sector. This project gave me a chance to get valuable
insights from a hoard of vastly experienced people in this field and to get various approaches
each one adopts to evaluate various companies.

[4]
The project was carried out in the Pune office of Khandwala Securities Ltd. which is located on
Bhandarkar road. The duration of the project was two months. These two months were not only
limited to learning and devoting time towards equity research but it also provided an insight on
what various services such broking houses provide and what efforts are required to manage such
organizations.

The project initiated with understanding the dynamics of the sugar sector, the threats and
opportunities surrounding this sector, the government policies and also the global scenario with
respect to the sugar sector. Based on a few parameters 1 company was short listed from a group
of about 12 companies. This company was further studied in detail with respect to their
financials and the management s future plans regarding the functioning of the company, their
expansion plans, various news about these company and its global forays.

Based on the complete study of the companies such companies like Bajaj Hindustan Ltd. looked
promising and with a view to derive maximum value from the investment Bajaj Hindustan, the
company with strong financials, competent management personnel, promising global forays was
recommended as a buy or hold share.

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[6]
OBJECTIVE:

To analyze the sugar industry and find the future growth opportunities.

To set up different parameters on the basis of which the listed sugar companies will be
compared so as to select one best company.

To carry out the company analysis of the selected company and to suggest whether it is a
viable investment option.

To look at the historical performance data of the company and estimate the future performance
of stocks. Looking at this information to gain an insight on the company s future performance. It
is a method of evaluating a security by attempting to measure its future performance by
examining related economic, financial and other qualitative and quantitative factors. To estimate
a value that an investor can compare with the security's current price and figure out what sort of
position to take with that security.

SCOPE:

The scope of this project is limited to only one sector i.e. sugar sector.
This project is concerned with only one sector of companies in the stock market. The project
does not extend its scope to any other sector of companies.

Source of information for this project is only secondary data.

The data about the sugar sector, the government policies with respect to the sector, and the
information about the companies are all gathered from secondary sources, available on the
websites, annual reports, data bank of the firm, software used by the firm.

[7]
COMPANY PROFILE:

KHANDWALA SECURITIES LIMITED

MISSION STATEMENT:
The company s mission statement To provide unique solutions to meet client specific needs,
given time and resource parameters.
The mission statement of the company makes it very clear that the company has an inner urge to
satisfy the client s needs and with the given time and resource constraints the company is
dedicated to provide each of its client s unique yet reliable solutions. It is an inner urge to do the
utmost, of providing value that pervades over every activity.

COMPANY PHILOSOPHY:
ADDING ZEROES
The company s philosophy dates back to the 5th century when the numbers as we know them
today, came into being. It was when Aryabhatta invented ZERO . It s from ground zero that the
company started and has ever since evolved. Today the company is not just adding zeroes, its
adding value.

SLOGAN:
FINANCE AND MORE.
Finance and more... is not just a statement. To us it is a mission, an objective, a goal that we must
achieve a constant striving for that one additional step closer, to ultimately become someone
more than just a provider of financial services, to become an effective partner of a client in his
business.

[8]
SERVICES:
The company provides a hoard of services to its clients ranging from stock broking to equity
research, market intermediation and more.
The various services provided by the company are:
Investment banking group
Portfolio management services and investment advisory group
Corporate finance group
Research group
Market intermediation

1. Investment banking group:

Capital Market Services include public issue management and private placement of equity and
debt, representation as Indian agents for placement of Indian paper abroad and capital market
related execution of structured assignments for optimisation of debt and equity. Corporate
Advisory Services involves counseling and execution in specialised areas like mergers and
acquisitions. Corporate restructuring of capital and debt, valuation and revaluation of business,
big ticket structured lease transactions. This includes

Merchant Banking Group:

· Public Issue / Private Placement Management - Equity & Debt

· Management of Corporate Buy Back
· Structured Deals

Corporate Advisory Services Group:

· Merger & Acquisitions

· Buy Back
· Valuation of Business
· Corporate Restructuring - Capital & Debt
· Turnkey Corporate Revival - Planning & Execution

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· Project Financing
· Venture Capital and Financial JVs

2. Portfolio management services and investment advisory group:

Where in the company offers discretionary as well as non-discretionary Portfolio Management

and Investment Counseling with timely advice and execution to meet the overall goal of
maximizing yield and capital appreciation within predefined risk parameters.

· Investment Management - Debt & Equity

· Discretionary

Investment Advisory Group

· Investment Counseling - Debt & Equity

· Non-discretionary
· Investment Strategy & Risk Management

3. Corporate Finance group:

Wherein the company coordinates and syndicates financing for projects through venture capital
funds, foreign currency and term loans, placement of equity/debt with multilateral organisations
and also arrange for financial joint venture.

· Foreign Currency Loan Syndications

· Placement of Equity / Debt with Multilateral Organizations
· Short Term Funds Management - Debt & Equity
· Non-discretionary

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4. Research group:

· Macro Economic Analysis

· Macro Industry Analysis
· Macro Capital Market Analysis
· Micro Corporate Analysis
· Investment Strategy

5. Market Intermediation:

· Corporate Member of NSE (Debt & Equity Segments)

· Corporate Member of OTCEI / NSE
· Corporate Member of BSE through group Co.
· Active Participant in Equity & Debt
· Inter Bank Transactions
· Empanelled with all leading FIs / FIIs / MFs / Banks / Corporates

BRANCHES AND OFFICES:

Corporate office
Khandwala Securities Ltd.
Ground Floor, Vikas Building, Green Street,
Fort, Mumbai - 400 023.
Tel : 264 2300.

Pune branch
Khandwala Securities Ltd.
GC 8/9, Dr. Herekar Park,
Near Kamala Nehru Park,
Off Bhandarkar road,
Pune 411004.
Tel : +91 20 5671404

[11]
HISTORICAL DEVELOPMENTS OF THE COMPANY:

Though the company commenced operations only in February 1993, their roots date back all the
way to 1934... To the origins of Jayantilal Khandwala & Sons, currently one of the biggest and
most reputed brokerage house in the country. Promoted by Jayantilal Khandwala & Sons and Mr.
Samir S. Doshi, a professional member of the BSE having experience in diverse financial
activities, the primary objective of pooling resources and expertise was to enable us to offer a
broad spectrum of specialised financial services under a single umbrella.

CLIENTELE:
The company has an enviable list of clients, ranging from banks to mutual funds and asset
management corporations.
The company has clients like:
Unit trust of India
IDBI bank
Credit capital asset management co. ltd.
SBI mutual fund
Citibank
HSBC
Deutshe bank
Morgan Stanley and more.

LIST OF COMPETITORS:
In this field of financial services there are a whole lot of companies and a few keep adding every
year. To remain at the top of this sector is no mean task and there are a lot of big companies
which provide stiff competition to khandwala securities in this regard.
The list of competitors would include;
Motilal oswal securities ltd.
Anand rathi securities ltd.

[12]
THEORETICAL BACKGROUND:

Creating value for the shareholders is considered as a dominant corporate objective. To help
firms create value for shareholders, corporate evaluation approaches have been developed.

CORPORATE VALUATION:
From the early 1990 s the discounted cash flow approach has received great attention, emphasis
and acceptance. It is because of its conceptual superiority and endorsement by leading
consultancy firms. Valuing a firm using discounted cash flow approach calls for forecasting cash
flows over an indefinite period of time, for an entity that is expected o grow.

VALUE OF THE FIRM = PRESENT VALUE OF + PRESENT VALUE OF

CASH FLOW DURING CASH FLOW AFTER
AN EXPLICIT FORECAST THE EXPLICIT FORE-
PERIOD CAST PERIOD

An explicit forecast period is often 5 to 15 years. The firm is expected to grow and evolve
rapidly and hence a great deal of effort is expended to forecast its cash flow on annual basis. At
the end of this period, the firm is expected to reach a steady stage and hence a simplified
procedure is used to estimate continuing value.
The discounted cash flow approach to valuing a firm involves following steps:
1. Forecast the cash flow during the explicit forecast period.
2. Establish the cost of capital.
3. Determine the continuing value at the end of the explicit forecast period.\
4. Calculate the firm value and interpret results.
There are various other approaches developed by leading consulting organizations. They are:
Marakon approach
Alcar approach
McKinsey approach
BCG approach

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FINANCIAL RATIOS:

A ratio is an arithmetical relationship between two figures. Financial ratio analysis is a study of
ratios between various items or group of items in financial statements. Financial ratios help in
analyzing the financial performance of the firm. It is helpful in assessing corporate excellence,
valuing equity shares, assessing market risk, judging creditworthiness.
The financial ratios have been classified into the following broad categories:
Liquidity ratios
Leverage ratios
Turnover ratios
Profitability ratios
Valuation ratios

Liquidity Ratios:
Liquidity ratios refer to the ability of a firm to meet its obligations in the short run. The
important liquidity ratios are:
Current ratio
Acid Test ratio
Cash ratio.

Leverage Ratios:
Financial leverage refers to the use of debt finance. Debt capital is a cheaper source of finance
yet is also a riskier source of finance. Leverage ratios help in assessing the risk arising out of the
use of debt capital. The important leverage ratios are:
Debt-Equity ratio
Debt-Asset ratio
Interest Coverage ratio.

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Turnover Ratios:
Turnover ratios are also called as activity or management ratios. They measure how effectively
the assets are employed by a firm. Various important turnover ratios are:
Inventory turnover ratio
Debtor s turnover ratio
Average Collection Period
Fixed Assets turnover ratio
Total Asses turnover ratio.

Profitability Ratios:
Profitability reflects the final result of the business operations. There are two types of
profitability ratios: profit margin ratios and rate of return ratios. The most popular profitability
ratios are:
Gross Profit Margin ratio
Net Profit Margin ratio
Return on Assets
Return on Capital employed
Return on Equity.

Valuation Ratios:
Valuation ratios indicate how the equity stock of the company is assessed in the stock market.
The valuation ratios reflect a combined influence of risk and return; hence they are the most
comprehensive measure of a firm s performance. The important valuation ratios are:
Price-Earnings ratio
Yield.

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PRICE/EARNINGS RATIO:

Price earnings ratio is perhaps the most popular financial statistic in the stock market
discussions. This ratio is often referred to as P/E ratio.
The Price Earnings ratio is calculated as:

Market Price per Share / Earnings per Share

The market price may be the price prevailing in the market on a certain day or the average price
over a period of time. The Earnings per Share is simply the profit after tax less the preference
dividend divided by the number of outstanding shares.
P/E Ratio is often used by most analysts, investors in the stock market as it is a summary
measure which reflects the factors like:
Growth Prospects
Shareholders Orientation
Corporate Image
Degree of Liquidity
Risk Characteristics

A company with a low P/E ratio is considered better than a company with a high P/E ratio.
Usually the P/E ratio of the company is also compared with the average industry P/E ratio of the
industry to which the company belongs. The company with a lowers P/E is preferred.

COMPARISON WITH INDUSTRY AVERAGES:

Only the calculation of financial ratios is not an indicator of a firm s performance. For judging
whether the ratios are high or low, there needs to be a comparative analysis. Such a comparative
analysis may be a cross section analysis or a time series analysis.
On the basis of such a comparative analysis, if the ratios of the company are favourable as
compared to the industry average then it could be said that the company s stock can be
accumulated or bought.

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TIME SERIES ANALYSIS:

Also if the ratios of the company are compared with the ratios of several years, it would give a
fair idea of the performance of the company. It will also help eliminate any kind of bias in the
analysis.

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RESEARCH METHODOLOGY:

Research is often described as an active, diligent and systematic process of inquiry aimed at
discovering, interpreting and revising facts. This intellectual investigation produces a greater
understanding of events, behaviours or theories and makes practical applications through laws
and theories. The term research is also used to describe a collection of information about a
particular subject, and is usually associated with science and scientific method.

BASIC RESEARCH:
Basic research is also called as fundamental or pure research. Its primary objective is the
advancement of knowledge and the theoretical understanding of the relations among the
variables. It is exploratory and often driven by researcher s curiosity or interest. It is conducted
without any practical end in mind. Basic research often lays down the foundation for further
applied research.

APPLIED RESEARCH:
Applied research is done to solve specific, practical questions. Its primary objective is not to gain
knowledge for its own sake. It is usually descriptive in nature. It is almost always done on the
basis of basic research.
As far as equity research is concerned there are two types of research methods that are followed:
Fundamental analysis
Technical analysis

FUNDAMENTAL ANALYSIS:
Financial statement analysis is the biggest part of Fundamental analysis also known as
quantitative analysis, it involves looking at historical performance data to estimate the future
performance of stocks. Followers of quantitative analysis want as much data as they can find on
revenue, expenses, assets, liabilities and all the other financial aspects of a company.
Fundamental analysts look at this information to gain insight on the company s future
performance. A method of evaluating a security by attempting to measure its intrinsic value by
examining related economic, financial and other qualitative and quantitative

[18]
factors. Fundamental analysts attempt to study everything that can affect the security's value,
including macroeconomic factors (like the overall economy and industry conditions) and
individually specific factors (like the financial condition and management of companies).The
end goal of performing fundamental analysis is to estimate a value that an investor can
compare with the security's current price in hopes of figuring out what sort of position to take
with that security (underpriced = buy, overpriced= sell or short).This method of security analysis
is considered to be the opposite of technical analysis.

TECHNICAL ANALYSIS:
A method of evaluating securities by analyzing statistics generated by market activity, such as
past prices and volume is called technical analysis. Technical analysis does not care one bit about
the value of the company, it is only interested in the price movements of the company s share in
the market. Technical analysts do not attempt to measure a security's intrinsic value, but instead
use charts and other tools to identify patterns that can suggest future activity. Technical analysts
believe that the historical performance of stocks and markets are indications of future
performance.

This project deals with the fundamental analysis aspect of the equity research. The researcher in
this project has tried to look into the details of the financial statements of the companies, the
environment surrounding the sugar sector, the latest developments in this regard, the
management discussions on the part of every company and the government policies concerned
with the sugar sector. There is an attempt to find the value of the company and then determine
whether the market prices are over or under valued.
Primary data for a project is the first hand information regarding the project being studied. In this
regard the primary data for this project would be getting the necessary information from the
company management by an interview, telephonic conversation or direct mail.
Secondary data for a project would be the collection of information that has a bearing on the
outcome of the project from secondary sources like news, press releases, internet etc. For this
project the secondary data was collected from the financial statements of the company, capital
line software, news about the company and data available on the internet.

[19]
The data collected for this project was from a secondary source. The data was complied with the
help of sources like News articles, Internet, Capital Line software.
In this research primary data could not be gathered as the company officials could not be
contacted for a one to one interview or a telephonic interview,

At Khandwala Securities Ltd. models were prepared by their equity research analysts and
company analysis was done on the basis of such models. The research process was such that the
data from the financial statements of the companies was gathered and was entered into the
models. Various models are prepared and on the basis of these models the company s financial
data is evaluated to get a relation between various variables and estimate various values for a
future point of time.

This data was processed by the models and certain results were obtained from these models.
These results were then analysed by the equity research analysts to get to some conclusions
regarding the value of the company and further decisions regarding the position of the stocks.

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RESEARCH PROCESS:

SUGAR SECTOR (INPUT)

INDUSTRY OVERVIEW

SETTING PARAMETERS FOR COMPETETIVE ANALYSIS

DATA COLLECTION

COMPETITIVE ANALYSIS

SELECTION OF COMPANY

DATA COLLECTION

DATA ANALYSIS/ DATA INTERPRETATION

DECISION ON INVESTMENT OF THE COMPANY

REPORT ON THE COMPANY

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DATA ANALYSIS:

INDIAN INDUSTRY SCENARIO:

India is the largest producer and consumer of sugar in the world. Despite record production by
the agriculturists and industrialists, neither of them were able to benefit from increased
production on account of high operative costs, which are not even sufficient to cover the
prevailing international prices, leave alone the profit margin.

The major raw material for the production of sugar is sugarcane. The Union government fixes
prices of sugarcane called Statutory Minimum Price (SMP). In a few states like Uttar Pradesh,
Punjab, Haryana, Tamil Nadu, the state governments are fixing higher rates than the SMP fixed
by the Central government, which is called State Advised Price (SAP). As a result, the actual
price paid for sugarcane, on an average, is over 50% higher than the SMP. The country has been
lacking in its efforts for an effective utilisation of by-products derived in the manufacture of
sugar. It extracts only 40% of the alcohol capacity, and the potential for co-generation of power
using bagasse is enormous.

From a situation of unmanageable surpluses, the Indian sugar industry has moved to a state of
deficit for the second year in a row. Sugar production touched a 20.1 mn tones in 02-03 to be
followed by a fall of almost 31% to 13.8mn tones in 03-04. The fall continued in 04-05, but the
sugar season of 05-06 was poised to be a strong recovering phase in terms of production of
sugar. The industry dynamics of low inventories would act as a buffer against any kind of sharp
fall in the sugar prices in India.
According to the ministry of agriculture in India, sugar production is expected to touch the 19.1
Million Tonnes.

According to various sources, it is believed that the sugar production and consumption both will
see a rise thereby leading to a situation of low inventories carried forward.

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GLOBAL SCENARIO:
The global sugar Market is also experiencing a scenario of sugar deficit, as production has failed
to meet the consumption for two consecutive years. The sugar production is expected to bounce
back this season due to the increased capacities in Brazil and India.
Consumption is also expected to increase in the global sugar market, thus creating a balance in
the global sugar scenario.
Brazil s sugar production will be closely related to its ethanol policy. With global oil prices
remaining firm, significant amount of sugarcane diversion may happen for ethanol production,
which will hamper sugar production.
The recent WTO ruling out the European Union sugar subsidies, it has the potential to
significantly reduce European Union exports, which would further improve the outlook for
global sugar prices.

ETHANOL TO PROVIDE ADDITIONAL REVENUE:

The ethanol blending programme has opened up additional revenue stream for the sugar industry.
With the governments intention of increasing the blending proportion from 5% to 10% the
potential is huge. The ethanol blending programme has been successfully implemented in 9
states and it will soon be implemented throughout the nation.
This would further strengthen the position of the sugar industries in the country and make them a
viable investment option.

SECTOR OUTLOOK POSITIVE:

The Indian sugar industry outperformed the sensex in FY 04 and FY 05 on the back of change in
the dynamics of the industry. Going forward the industry is poised for a growth in the coming 2
seasons. With the inventories remaining low and the consumption matching the production levels
in the country the prices or sugar would also remain firm.
With huge expansion activities undertaken by the key players in the industry and also the land
under cultivation of sugarcane reaching an all time high, Indian sugar industry is set to show
good results in the next two seasons.

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SELECTION OF THE COMPANY:

After understanding the dynamics of the sugar sector and the various issues revolving around it,
one company was chosen from a group of around twelve players in the sugar sector.
Such a company had to be chosen which showed consistent performance in the past and was also
fundamentally sound. Various companies were put through a test of certain parameters in order
to gauge their past performance and potential growth.
Companies which were tested against the parameters in order to choose one company for further
analysis were:
Bajaj Hindustan Ltd.
Balrampur Chinni Mills
Dhampur Sugar Mills
Sakthi Sugars Ltd.
DCM Shriram
EID Parry
Bannari Amman
Thiru Arroran Sugar
Simbhaoli Sugar Ltd.
Ugar Sugar Works Ltd.
Triveni Engineering

PARAMETERS:
To select one company out of so many players from a particular sector is not an easy task. We at
khandwala securities ltd. put these companies to a test against a set of parameters which would
give us a fair idea of how these companies have been performing with respect to their peers in
the same sector.
The company which showed consistent performance and looked in the best position to use its
resources in the best possible manner was selected from this bunch of companies. Further this
companies was further analysed fundamentally on the basis of the model used at Khandwala
Securities Ltd. and to determine its intrinsic value.

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The following parameters were used:
Sales Growth or Top Line Growth.
Profit Growth or Bottom Line Growth.
Operating Profit Margin Growth.
Return on Capital Employed.
Debt Equity Ratio
Cash Conversion Cycle
Debtors to Net Current Assets
EPS Growth
P/E Ratio

All these parameters are selected in such a way that they give an absolute knowledge about the
company s performance in the past. The financial data for each company was taken from the last
three years financial statements and compared with each other. This exercise ensured that the
selection of the company is not done on the basis of a single year s performance alone. A single
year s data can sometimes be misleading as the company might have made a profit due to other
income like sale of an asset which will not be seen in the next year s performance. These
parameters give an insight into how the company has used its resources, what is its return on the
capital employed, how the sales and profit of the company fare as well as the capital structure of
the company.
A basic criteria is that the companies growth in respect to above parameters should be above
25%. Such performance could be termed as acceptable performance.
On comparing the companies with each others, Bajaj Hindustan Ltd. was the company which
was seen to fare well on each of the grounds. This company stayed in the top two companies
with respect to every parameter.
It was at this stage that Bajaj Hindustan Ltd. was chosen for further fundamental analysis and to
assess its investment viability.

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BAJAJ HINDUSTAN Ltd.

COMPANY OVERVIEW:
Bajaj Hindustan ltd. A part of the Bajaj group , is India s largest sugar and ethanol
manufacturing company headquartered in Mumbai. The company has its various plants located
in the northern Indian state of Uttar Pradesh.
Currently the company has the largest sugarcane crushing capacity in India of over 56000 tonnes
crushed per day. The company is slated to undertake huge expansion plans to take its current
crushing capacity of 56000 tcd to about 100000 tcd in the year 2006-07.
BHL is expected to produce about 7.6 lac MT of sugar in FY06. This big jump is attributable to
the 3 new plants in west UP to be operational by November 05.
Industrial alcohol output is also expected to be strengthened due to the new distillery in kinauni
district which has been operational since November 05.

BUSINESS OVERVIEW:
The company is operating in only one segment i.e. production of sugar.
Currently the company also plans to enter ethanol production in domestic as well as overseas
market looking forward for growth in demand for ethanol blended fuel.

BUSINESS RISK:
Demand and supply gap in domestic as well as international market which leads to fluctuations
in commodity price.

GOVERNMENT REGULATIONS AND DE-REGULATIONS:

India s sugar industry is highly regulated. In he past, the government has raised the statutory
minimum prices and statutory advisory prices for cane independent of movements in sugar
prices. If there is a rise in sugar prices, there is a risk that the government may cap sugar prices
or curtail exports. A change in the government regulations has the potential to affect the sugar
companies financial performance.

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CLIMATIC REASONS:
The production of sugar is completely dependent on the yield of sugar cane from various parts of
the country. The yield of sugar cane is further dependent on the climatic conditions prevailing in
the country. The climate in India is of an uncertain nature. As seen in the past two seasons it
spoiled the yield of sugar cane to quite an extent. Thus, climate poses as definite risk for the
business of the company.

MARKET RISK:
There is very little market risk in this segment, considering sugar as a necessity commodity,
every household requires sugar in their daily cooking. There have been substitutes for sugar like
jaggery, which have been available in the market for years but the demand for sugar has never
been affected due to that. There is a permanent market in for the product, and it does not face any
serious market risk.

VOLUME BASED BUSINESS:

The company does not have any specific market created for itself. The sugar prices on the other
hand are controlled by the government authorities as it is a basic necessity for the household.
Therefore, the profits of the company are totally based on the volume of their business. The more
sugar they produce, their turnover will increase accordingly and thereby adding additional profits
to the company s account.
With the capacity expansion undertaken by the company in recent times, it is slated to make the
most of this situation.

FUTURE FORECAST:
In short term the prices of sugar are at an all time high, and in medium term the prices are likely
to remain firm considering increase in demand but also an increase on the supply side.
In long term the prices of sugar will depend on the demand for sugar cane for the production of
ethanol, which depends on further government regulations to allow the mixture of ethanol in
fuel.

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MANAGEMENT OVERVIEW:

NAME POSITION AGE(Years) Directorship

Tenure (Years)
Mr. Shishir Bajaj Promoter/Executive 58 19
Mr. Niraj Bajaj Promoter/Non-Executive 51 6
Mr. D.S. Mehta Non-Promoter/Non-Executive 69 19
Mr. M.L. Apte Independent 73 35
Mr. R.V. Rula Independent 45 4
Mr. D.K. Shulka Independent 63 6
MR. I.D.Mittal Non-Promoter/Executive 60 3

It is evident from the above table that the management of the company is very experienced in
this field of operations. They have been on the board of directors for years together and have
managed the company quite exceptionally. The company looks to be in safe and able hands.

[28]
UNITS AND CAPACITY OVERVIEW:

The company had a crushing capacity of only 24000 tonnes per day in the year 2003-04, but
since then the company has been on an expansion spree, acquiring companies as well as setting
up units of their own. In the year 2006-07 the company aims to achieve a crushing capacity of
100000 tonnes sugar cane per day, which would be the highest in the country. The company is in
a position to tap any potential opportunity, the growing crushing capacity will only bring
additional revenues to the company and also it can be said that the management of the company
is making sound investments of their available resources.

[29]
DATA INTERPRETATION:

Profit and Loss Statement

FY FY FY FY
Year to sept (Rs.m) 2005 2006e 2007e 2008e
Net Revenues 8368 16875 31085 39345
yoy growth% 68 102 84 27
Expenses
Raw Materials 4609 10973 19653 26586
Changes in inventory 706 0 0 0
Personnel 297 555 1026 1377
Other Operating Expenses 749 548 2542 2939
Total Expenses 6361 12076 23221 30902
EBIDTA 2006 4799 7864 8442
Other Income 182 0 0 0
Depriciation and Amortisation 351 747 853 906
EBIT 1837 4053 7010 7537
Interest 132 82 -63 -262
PBT 1705 3970 7073 7799
Tax 301 1310 2334 5225
PAT 1404 2660 4739 5225

NET REVENUES:
The net revenues of the company are growing at an average rate of 56.2% per year. In the year
2006 the revenues are expected to grow by 102% and in the year 2007 the revenues are expected
to grow by 84%, which indicates that the prices for sugar are going to be on the higher side and
the demand for the commodity will also be running head to head with the supply. In the year
2008 the revenues are expected to grow only by 27%, which means that the prices for sugar
would stabilize by that period and also there is a possibility that the sugar cane produce may be
diverted to the production of ethanol to a larger extent.

[30]
EXPENSES:
The expenses of the company are growing but the company is able to keep them within
permissible limits which would enable the company to earn higher operating profit.

OPERATING PROFIT:
The operating profit of the company as a percentage of net revenues is constantly above 20%,
which indicates that even tough the company is operating on a larger scale the operations of the
company are being carried out with utmost efficiency. The profitability of the company has not
taken a beating and real income of the company continues to look good.

PROFIT AFTER TAX:

The company is being able to manage its financing very well and on that account has managed to
keep its interest payout under control. A decline in the interest payments by the company is
reflected in the profit after tax of the company. The PAT shows a consistent growth in the future
years.

[31]
 BALANCE SHEET

FY FY FY FY
Year to Sept (Rs. m) 2005 2006e 2007e 2008e
Net Fixed Assets + CWIP 10797 16051 16797 16678
Investments 51 51 51 51
Total Non Current Assets 10848 16101 16848 16729
Receivables 1209 1400 1712 1893
Inventories 555 1536 2646 3575
Cash 58 6117 10459 16379
Total Current Assets 1823 9052 14817 21847

Total Assets 12671 25154 31665 38575

Current Liabilities 714 1625 2958 3986

Secured Loan 3818 500 500 500
Unsecured Loan 1282 5735 5587 5587
Deferred Tax Liability 453 1049 2110 3290
Others 260 0 0 0
Total Non Current Liabilities 5814 7284 8197 9377
Shareholders Equity 6142 16245 20510 25212

Total Liabilities 12671 25154 31665 38575

CASH:
The company s estimated balance sheet shows that the company s cash reserves are increasing,
and by the end of 2008 the company would be a cash rich company. This is a very good sign and
strengthens the company s balance sheet.

DEBT/EQUITY RATIO:
The debt equity ratio of the company decreases from 0.8 in 2005 to 0.2 in 2008. This means that
the company is making appropriate use of its revenue retentions. The company is paying off their
debts with the income retained by it which further strengthens the balance sheet of the company.

[32]
 CASH FLOW STATEMENT

FY FY FY FY
Year to Sept (Rs. m) 2005 2006e 2007e 2008e
Operating profit before tax 1705 3970 7073 7799
Interest 147 82 -63 -262
Depriciation and amortisation 351 747 853 906
Other cash flows -20 0 0 0
(Incr)/Decr in net working capital -440 -521 -88 -82
Direct tax paid -134 -715 -1273 -1394
Interest paid (net) -154 -82 63 262

Total cash from operations 1454 3481 6565 7229

(Incr)/Decr of fixed assets -6917 -6000 -1600 -787

(Incr)/Decr of fixed assets -50 0 0 0
Others 22 0 0 0

Total cash flow from investment -6945 -6000 -1600 -787

Proceeds from issuance of shares 4772 7511 0 0

Proceeds from issuance of debt 916 1135 -148 0
Others -139 0 0 0
Dividends -39 -68 -474 -523

Total cash flow from financing 5510 8577 -622 -523

Net change in cash 19 6058 4343 5920

OPERATING PROFIT BEFORE TAX:

The operating profit before tax of the company is increasing consistently every year. It shows a
sharp increase in the year 2007. This is a very good sign for the company that the operating
profit of the company is ever increasing. It shows that the performance of the company in terms
of their operations is good. The company is not only increasing its business in terms of volume
but it is also realizing more profits or in other words its margins have not dropped.

[33]
TOTAL CASH FROM OPERATIONS:
The total cash flow from operations for the company is also increasing. The rise in cash flow
from operations increases considerably in the years 2007 and 2008. This is a good sign for the
company. The rise in the cash flow from the operations signifies that the company is able to
extract maximum value from its available resources. The company has managed to maintain its
margins and thus not allowed its operating profit to dip.

On looking at the operating profit before tax and the total cash flow from operations it is clear
that the cash position of the company is secure. The company looks to be in a cash rich position.
The cash flow statement of the company indicates that the company is managing its cash position
very well and the inflows of cash are very well managed by the company and it is also evident
that the company is allocating adequate cash to increase their fixed assets.

[34]
 KEY RATIOS

FY FY FY FY
Per Share 2005 2006e 2007e 2008e

Book value 53 116 146 179

EBIDTA Margin % 26 28.4 25.3 21.5
ROCE % 12 17.8 31.2 36.5
ROE % 23 16.4 23.1 20.7
Total Debt/Equity 0.8 0.4 0.3 0.2
EV/Net Sales 5.6 3 1.5 1
EPS 14.3 20.6 31 34.2
P/E Ratio 14.8 17.6 11.7 10.6

BOOK VALUE:
The projected book value of the company is rising. This is a very good sign; it means that the
company is making good use of the retained earnings. The company is able to create value from
the retained earnings leading to a rise in the company s book value.

OPERATING PROFIT MARGIN:

The operating profit margin in true sense is the indicator of the company s actual operating
efficiency. The company might have increased its sales considerably but if there is no rise in the
operating profit margin then there is a lack of efficiency on the part of the company. In this case
the company s operating profit margin is consistently over 20%. This means that even though the
company is undertaking huge expansions it has maintained its operating profit margin.

RETURN ON CAPITAL EMPLOYED:

The company s ROCE is consistently increasing, which shows that the company is utilizing its
funds in the best possible manner, so as to increase the shareholders value. Shareholders and debt
holders are assured of their investment.

[35]
RETURN ON EQUITY:
The return on equity measures the profitability of equity funds invested in the firm. This ratio is
of utmost importance to the shareholders i.e. the true owners of the firm.

TOTAL DEBT/ EQUITY RATIO:

This ratio is the solvency ratio of the company. Debt holders are assured that on liquidation of
the company, the company will be able to repay their funds. This ratio shows that the company is
able to manage its capital structure.
If the capital structure is properly managed then it contributes to earnings per share held by the
owners. In this industry 0.7 or 0.8 is the average ratio. In any industry a debt equity ratio above 1
is considered high, very risky.

EV/NET SALES:
Entrepreneurial value is the actual value of the company if it would be sold to the acquiring
company. It is a more realistic value than the market value. It is calculated as;
EV= Total Market Capital + Debts of the company Cash holdings of the company.
For the investment purpose, if the ratio of the company is going down then it shows that, the
company is undervalued having huge growth prospects, exhibited by increasing denominator
which is net sales.

EARNINGS PER SHARE:

This ratio indicates the actual profit left for the owners of the company i.e. shareholders.
A growing EPS shows that the company is contributing to the shareholders value. A growing
EPS leads to increase in the value (price) of the company in the market.

P/E RATIO:
It is the parameter to judge the proper valuation of the company in the market. Higher P/E
shows that the market is valuing the company at a higher multiple. This is the widely used
parameter by the market for judging the over or under valuation of the company for investment
purpose. A lower P/E is considered one of the most important criteria for the selection of the
company by the investors.

[36]
REVENUE MIX AND GROWTH TRENDS:

According to the chart above, it is evident that the companies cogeneration and distillery
revenues are increasing with the years to come, though sugar still holds the greater share. The
growth in the distillery and cogeneration businesses is also a good sign for the company. It will
provide the company additional avenues to make money. This shows that future demand for the
sugar companies is not only from sugar but also from other activities.

[37]
EBIT MARGINS AND GROWTH TRENDS:

From the chart above it is again clear that, the growth in the cogeneration and distillery earnings
is gaining strong foothold in the revenue of the company. There is a clear rise in the EBIT
margins in these two businesses, whereas it can be seen that the EBIT margins in the sugar
business are going down. This is due to fall in the sugar prices in future or a rise in the raw
materials cost as sugar cane may also get diverted for ethanol production.

[38]
SHARE HOLDING PATTERN:

Promoters 38%
Mutual Funds 6%
FI s 3%
FII s 36%
PCB s 4%
Indian Public 12%
NRI s/OBC s 1%

[39]
BAJAJ HINDUSTAN Ltd. CAPACITY EXPANSION:

Bajaj Hindustan Ltd. With a crushing capacity of 56,000 is already India s largest sugar
producer. The management of the company has plans to increase its crushing capacity further to
1 lakh tons per day. The company is acquiring various units as well as setting up units on their
own and with such a huge capacity the company will continue to be the largest sugar producer in
the country.

[40]
FINDINGS:

INVESTMENT RATIONALE:
At CMP 361 (as on 27 June 2006) the share price trades at 11 times (on the basis EPS of FY
2007E i.e. 31) and at 10.6 times (on the basis EPS of FY 2008E i.e. 34).
I predict that the share prices would rise from 361 to 495 in a span of 8 months to 1 year.

P/E Price on the basis of 2007 EPS Price on the basis of 2008 EPS
12 372 408
13 403 442
14 434 476
15 465 510
16 496 544
17 527 578

ETHANOL- A POTENTIAL OPPORTUNITY

Bajaj Hindustan ltd. looks well positioned to benefit from potential ethanol opportunities from
the government s gasohol blending programme. It is estimated that this would create government
demand for 523 million litres and 1000 million litres of ethanol annually, corresponding to 5%
and 10% blending of ethanol in gasoline, respectively.

INTERNATIONAL FORAY- NEW MARKET:

A foray into Brazil and other global production bases could help Bajaj Hindustan ltd. Establish a
foothold in other sugar producing countries and provide access to the new sugar deficit markets
in those countries.

[41]
LIMITATIONS:

While conducting the research I was unable to collect data from primary source which I
feel would have had a bearing on the outcome of the research. Through interviews with
the concerned authorities I could have got first hand information about the company and
this could have certainly given me a broader perspective on the companies future plans.

I had to work with the existing model for company analysis which the organization was
using and therefore I could not experiment with the other ways of company analysis.

[42]
CONCLUSION:

Sugar as a commodity will see an upswing in the near future as the demand and the
supply for sugar will match each other worldwide. The sugar industry sees a bright future
ahead with the additional prospect of ethanol. This industry has huge growth prospects.

On comparing various sugar companies with each other on the basis of the set parameters
Bajaj Hindustan Ltd. was found to be the best sugar producing company.

A detailed company analysis of Bajaj Hindustan Ltd. on the basis of various aspects
showed that the company has tremendous growth potential. With their foreign forays and
huge capacity expansions the company is set to rule the sector for a long time to come.
Bajaj Hindustan Ltd. definitely is a viable investment option for the long term investors.

[43]
RECOMMENDATION:

On completion of the company analysis, I feel that Bajaj Hindustan Ltd. is fundamentally
a very strong company. I recommend Khandwala Securities Ltd. and all its clientele to
invest in this company s shares, exit in a medium term and derive maximum value from
it.

While carrying out the company analysis, I felt that the Earning Per Share and P/E Ratio
of the company is given too much weight age and not much importance is given to the
operating profit margin growth of the company. Earning Per Share and P/E Ratio are
illusive and they can be easily driven by the market price of a share. The operating profit
growth of a company is a true indicator of a company s true performance and due weight
age must be given to it.

[44]
BIBLIOGRAPHY:

WEBSITES:
www.kslindia.com
www.wikipedia.com
www.investopedia.com
www.google.com
www.capitallineplus.com
www.bseindia.com
www.nseindia.com

BOOKS:
FINANCIAL MANAGEMENT
Theory and Practice - Prasanna Chandra

MAGAZINES:
Capital Market
Dalal Street

[45]
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