The Hindu Business Line : Capacity ramp-up plans sweeten Bajaj Hind

A PERCEPTION that Bajaj Hindustan's capex plans will position it as one of the largest sugar manufacturer, has been propelling interest in the said counter on the bourses. While the stock price has been range-bound for practically the whole of September, the stock has seen a surge in volumes (123 per cent) as compared to its five-day average volume.

Bajaj Hindustan plans to set up three new plants, all in western Uttar Pradesh, to raise capacity from 31,000 tcd (tonnes crushed per day) to 52,000 tcd at a cost of Rs 375 crore. This is scheduled for completion by FY05 October, to coincide with the crushing season. Analysts maintain that the proposed capex would mean a complete changeover for the company in terms of profitability across each point in the sugar cycle.

As per a Merrill Lynch report, post-expansion and at current sugar prices, revenues should grow three-fold in the next three years. "The leverage effect on Bajaj Hindustan would be higher on sugar up-cycle, given that the company would operate on expanded capacity during the sugar price boom. Based on financials at full capacity, the stock is attractively valued today," added the report.

Industry sources maintain that sustained demand-supply gap will continue to drive sugar prices. Analysts as such are bullish on the sugar industry. However there are concerns that if the Government were to fix the SAP or state advised price of cane over Rs 100, it could impact companies like Bajaj Hindustan adversely. At one point in time, Bajaj Hindustan had planned to acquire 24 co-operative mills in Uttar Pradesh. However, those plans were put on hold following the company capex plans.

The stock ended the day at Rs 75 up 4.97 per cent with around 4.18 lakh shares traded on the BSE today.