DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS.
U.S.Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investorsshould consider this report as only a single factor in making their investment decision.11 August 2008Asia Pacific/India
Agricultural Products & Agribusiness
India Sugar Sector
Play the price, mind the costs
India’s sugar industry has gone through difficult times over the past two years.Looking ahead, however, we see a bright outlook in the form of a significantimprovement in the demand-supply-stock situation. As a result, we expect sugarprices to rise by 20-25% in FY09E and further in FY10E. This should lead to asignificant improvement in the prospects for the sector going forward.
FY09-10E: less sugar to sweeten the sugar story.
We expect sugarproduction to decline by more than 20% in FY09E and inventories to fall tobelow two months of consumption by FY10E.
Policy: cane price an overhang, sugar price less likely to be hurt.
Caneprice continues to be an issue, particularly in Uttar Pradesh, where there is alack of clarity on state advised prices (SAP) for FY07, 08 and 09.
Integration: contribution to rise.
The Indian sugar industry is increasinglyshifting to a more integrated model. With a large pass-through to the bottomline, the impact on margins is likely to be significant.
We initiate with an OUTPERFORM on Balrampur (target priceRs120). We remain cautious on Bajaj on account of a number of headwindsand initiate with a NEUTRAL rating (target price Rs199). We initiate with anOUTPERFORM on Shree Renuka (target price Rs165).
Figure 1:India's sugar inventory likely to fall to lowest level in two decades
0246810FY90FY92FY94FY96FY98FY00FY02FY04FY06FY08EFY10EIndia sugar - closing stock (months of consumption)
Source: ISMA, Credit Suisse estimates
Figure 2:Summary of coverage universe
Mkt cap. CMP TP Pot. up. EV/EBITDA (x)Company BB code Rating (US$ mn) (Rs) (Rs) (% ) FY09E FY10E
Balrampur Chini BRCM IN O 570 93.8 119.6 27.5 8.4 5.4Bajaj Hindusthan BJH IN N 619 184.1 199.5 8.4 11.6 7.0Shree Renuka SHRS IN O 855 133.2 165.3 24.1 11.2 7.6
Note: O = OUTPERFORM, N= NEUTRAL; Source: Bloomberg, Credit Suisse estimates
Research AnalystsArya Sen
9122 6777 firstname.lastname@example.org
India Research Analyst Team
Nilesh Jasani(Head of Research, Strategy)Anand Agarwal(Infrastructure & Cement, Property)Vinod Chari(Machinery, Utilities)Govindarajan Chellappa(Automobiles)Venugopal Garre(Media)Prashant Gokhale(Chemicals, Oil & Gas)Sanjay Jain(Banks)Neelkanth Mishra(Pharmaceuticals)Sanjay Mookim(Oil & Gas)Amish Shah(Construction)Bhuvnesh Singh(IT Services, Telecoms)Aditya Singhania(Banks)
Anubhav AggarwalR HarishankarSwapnil NadkarVikramaditya NarendraMusaed NooraniK RajasaDeepak RamineediArya SenR SrinivasanAnand SwaminathanSunil Tirumalai