DECLARATION

I Pandey Virendrakumar R, student of Master in Management study (MMS), Mumbai

Institute of Management and Research, Wadala, Mumbai here by declares that this report
“Fundamental Analysis Of Indian Sugar Industry” is a record of independent work
carried out by me, towards partial fulfillment of requirement for Master in Management
study (MMS) course of Mumbai University at Mumbai Institute of Management and
Research, Wadala, Mumbai.

To the best of my knowledge this report has not formed the basis for the award of any
other degree.
 ACKNOWLEDGEMENT

It’s my privilege in writing this acknowledgement to thank all those who gave their views
and suggestions for helping in the completion of my internship at Ajcon Global Services
ltd. I would like to take up this opportunity to convey my deep sense of gratitude to
CMD CA Ashok Kumar Ajmera for providing an opportunity to do this project and
internship.

I ardently thank Mr. Ankit A. Ajmera, Executive Director for having devoted their
precious time and for their guidance. I also thank them for the rich experience that I have
derived by working on this project under their guidance. This project would not have
been successful without the constant guidance and support of Mr. Sahil Vyas
fundamental Analyst.

I also extend my thanks to all staffs of the company, for giving such a friendly and
enthusiastic environment to work with them. Last but not the least, my thanks to my
beloved friends who have helped me a lot during the project for the successful
completion.
 Preface

Indian sugar industry, second largest agro-based processing industry after the cotton
textiles industry in country, has a lion's share in accelerating industrialization process and
bringing socio-economic changes in under developed rural areas. Sugar industry covers
around 7.5% of total rural population and provides employment to 5 lakh rural people.
About 4.5 crore farmers are engaged in sugarcane cultivation in India. Sugar mills
(cooperative, private, and public) have been instrumental in initiating a number of
entrepreneurial activities in rural India. Present paper is an attempt as to review progress
of sugar industry in India, understand its problems and challenges in context of ongoing
liberalization process. Indian sugar industry can be a global leader provided it comes out
of the vicious cycle of shortage and surplus of sugarcane, lower sugarcane yield, lower
sugar recovery, ever increasing production costs and mounting losses. It needs quality
management at all levels of activity to enhance productivity and production. Attention is
required on cost minimization and undertaking by product processing activities.

India is the second largest producer of sugar in world, after Brazil. Sugar industry
occupies an important place among organised industries in India. Sugar industry, one of
the major agro-based industrial in India, has been instrumental in resource mobilization,
employment generation, income generation and creating social infrastructure in rural
areas. Indeed, sugar industry has facilitated and accelerated pace of rural
industrialization.

Most of the sugarcane produced in India is a 10-12 month crop planted during January to
March. In northern Maharashtra and parts of Andhra Pradesh and Karnataka, there is also
an 18 to 20 month crop. In most areas, the 12-month crop is followed by just one ratoon
crop that is, a new crop grown from the stubble of the harvested crop. At present,
sugarcane is being cultivated throughout the country except in certain hilly tracts in
Kashmir, Himachal Pradesh, etc. The sugarcane growing areas may be broadly classified
into two agro-climatic regions
1) Tropical region 2) Sub-tropical region

The major sugarcane producing states in the tropical areas of India includes Maharashtra,
Andhra Pradesh (AP), Tamilnadu (TN), and Gujarat.

Subtropical regions include U.P, Bihar, Punjab and Haryana.

Indian sugar industry is highly fragmented with organized and unorganized players. The
unorganized players mainly produce Gur and Khandari, the less refined forms of sugar.
The government had a controlling grip over the industry, which has slowly yet steadily
given way to liberalization. At present, there are 553 registered sugar factories having
capital investment of Rs. 50,000 crores and annual production capacity of 180 lakh
metric tonnes. The annual turnover of industry is to the tune of Rs. 25,000 crores. The
central and state governments receive annually Rs. 2500 crore as excise duty, purchase
tax, and cess. More than 4.50 core farmers are engaged in sugarcane cultivation and
about 5 lakh rural people have got direct employment in the industry. Sugar industry has
brought socioeconomic changes in rural India by way of facilitating entrepreneurial
activities such as dairies, poultries, fruits and vegetable processing, and providing
educational, health and credit facilities.

Dual Pricing System is adopted in the Indian sugar industry, which includes sugar price
in Public distribution system and the free sale sugar price. An analysis has been provided
on the relationship between Indian and international sugar prices. As the industry is a
fragmented one, even leading players do not control more than 4 percent market in India.
However, the situation is changing and player’s off late are striving to increase their
market share either by acquiring smaller mills or by going for green field capacity
additions. Another notable trend is the shift from Gur and Khandsari to sugar in the rural
areas. This should further increase the per capita consumption of sugar in India (currently
around 15.6 kg). Besides the Indian urban market is slowly moving towards branded
sugar. The potential in this segment seems to be very high. These trends along with the
other trends like increase in the production of by-products have been captured in detail.
The market shares of the leading players and financials of following players are given in
the report.
INTRODUCTION TO FUNDAMENTAL ANALYSIS
Fundamental analysis is the examination of the underlying forces that affect the well
being of the company, industry groups and companies. As with most analysis the goal is
to develop a forecast of future price movement and profit from it. At the company level,
fundamental analysis may involve examination of financial data, management, business
concept and competition. At the industry level their might be an examination of supply
and demand forces of the products. For the national economy fundamental
analysis might focus on economic data to asses the present and future growth of the
economy.
Fundamental analysis is a method of evaluating a security by attempting to
measure its intrinsic value by examining related economy, financial and other qualitative
and quantitative factors. Fundamental analysis attempt to study every thing that can affect
the securities value including macro economic factors and individual specific factors.
Three phase of the fundamental analysis
A. Understanding of the Macro Economic environment and developments
(Economy analysis)
B. Analyzing the prospectus of the industry to which the firm belongs (Industry analysis)
C. Assessing the projected performance of the company (Company analysis)
ECONOMY ANALYSIS
A wise man once said, "No man is an island". No person can work and live in isolation.
External forces are constantly influencing an individual’s actions and affecting him.
Similarly, no industry or company can exist in isolation. It may have splendid
managers and a tremendous product. However, its sales and its costs are affected
by factors, some of which are beyond its control - the world economy, price
inflation, taxes and a host of others. It is important, therefore, to have an appreciation of
the politico-economic factors that affect an industry and a company.
The economy is like the tide and the various industry groups and individual
companies are like boats. When economy expands most industry groups and companies
benefits and grows. When the economy decline, most sectors and companies usually
suffer. The stock market does not operate in a vacuum it is an integral part of the whole
economy of a country, more so in a free economy that of United States and to some
extent in mixed economy like ours. To gain an insight into the complexities of stock
market. One needs to develop a sound economic understanding and be able to interpret
the impact of important economic indicators on stock markets.

Indian Economy Analysis

Gross Domestic Product (GDP)
The sum of all goods and services produced either by domestic or foreign companies.
GDP indicates the pace at which a country's economy is growing (or shrinking) and is
considered the broadest indicator of economic output and growth.

The Gross Domestic Product (GDP) in India expanded at an annual rate of 8.60 percent
in the last quarter. India Gross Domestic Product is worth 1217 billion dollars or 1.96%
of the world economy, according to the World Bank. India's diverse economy
encompasses traditional village farming, modern agriculture, handicrafts, a wide range of
modern industries, and a multitude of services. Services are the major source of economic
growth, accounting for more than half of India's output with less than one third of its
labor force. The economy has posted an average growth rate of more than 7% in the
decade since 1997, reducing poverty by about 10 percentage points.

Year Mar Jun Sep Dec Average

2010 8.60 8.60

2009 5.80 6.00 8.60 6.50 6.73

2008 8.50 7.80 7.50 6.10 7.48

2007 9.60 9.30 9.40 9.70 9.50

India's gross domestic product (GDP) can expand by double-digit levels to emerge as the
fastest growing economy in the world by 2014, even as spiraling prices remains the
immediate concern, says the Economic Survey for this fiscal.

"It is entirely possible for India to move into the rarefied domain of double-digit growth
and even don the mantle of the fastest-growing economy in the world within the next four
years," said the survey, a day ahead of the federal budget.

"The Indian GDP can be expected to grow around 8.5 percent (plus or minus 0.25
percent), with a full recovery, breaching the 9 percent mark in 2011-12," said the survey
tabled by Finance Minister Pranab Mukherjee in the Lok Sabha, the lower house of
parliament.
It shows that India’s GDP rate is increasing. It shows good prospectus for investors in
future. And investor can get benefit by investing in Indian company.

Inflation Rate
Inflation indicates the rise in price of a basket of commodities on a point-to-point basis. It
basically suggests an increase in the cost of living over a period of one year. For instance,
you buy 10 essential commodities on January 1, 2009, for Rs 100. If the same set of 10
commodities costs Rs 105 on January 1, 2010, the inflation rate would be 5%. It would
mean that the prices are rising at 5% per annum. The rate of inflation is high if the prices
are rising by 7%-8% or more and low if the prices are rising at 2%-3%. A decline in
prices results in deflation which is not good for the economy. Economists believe that
moderate inflation is good for a growing economy as it provides incentives for growth.
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
16.2 14.8 14.8 13.3
2010
2 6 6 3
10.4 9.2 11.8 11.7 11.6 11.4 13.5
2009 9.63 8.03 8.70 8.63 14.97
5 9 9 2 4 9 1
7.6 10.4 10.4
2008 5.51 5.47 7.87 7.81 7.75 8.33 9.02 9.77 9.70
9 5 5
5.6
2007 6.72 7.56 6.72 6.67 6.61 6.45 7.26 6.40 5.51 5.51 5.51
9
* The table above displays the
monthly average.

The economy is recovering rapidly from the growth slowdown but inflationary pressures,
which were triggered by supply side factors, are now developing into a wider inflationary
process. As the domestic balance of risks shifts from growth slowdown to inflation, our
policy stance must recognize and respond to this transition
Inflation rate is rising year by year. Inflation in economy is not good from investor’s
point of view. When inflation rate rises it become the reason of extra costs to business,
thereby squeezing their profit margin and leading to real decline in profitability and there
by reducing the dividends on variable income securities.

Current Account:
Current Account is the sum of the balance of trade (exports minus imports of goods and
services), net factor income (such as interest and dividends) and net transfer payments
(such as foreign aid). The balance of trade is typically the most important part of the
current account. This means that changes in the patterns of trade are key drivers in the
current accounts of most of the world's economies. However, for the few countries with
substantial overseas assets or liabilities, net factor payments may be significant. Positive
net sales to abroad generally contributes to a current account surplus; negative net sales to
abroad generally contributes to a current account deficit. Because exports generate
positive net sales, and because the trade balance is typically the largest component of the
current account, a current account surplus is usually associated with positive net exports.
The net factor income or income account, a sub-account of the current account, is usually
presented under the headings income payments as outflows, and income receipts as
inflows. Income refers not only to the money received from investments made abroad
(note: investments are recorded in the capital account but income from investments is
recorded in the current account) but also to the money sent by individuals working
abroad, known as remittances, to their families back home. If the income account is
negative, the country is paying more than it is taking in interest, dividends, etc. For
example, the United States' net income has been declining exponentially since it has
allowed the dollar's price relative to other currencies to be determined by the market to a
point where income payments and receipts are roughly equal of trade forms part of the
current account, which also includes other transactions such as income from the
international investment position as well as international aid. If the current account is in
surplus, the country's net international asset position increases correspondingly. Equally,
a deficit decreases the net international asset position.

Per Capita Income

Per capital income means income of each Indian if national income is evenly divided
among the country's population of 117 crore. The size of the economy rose to Rs
62,31,171 crore in the last fiscal, up 11.8 per cent over Rs 55,74,449 crore in FY09.

The per capita income grew by 10.5 per cent to Rs 44,345 in 2009-10 against Rs 40,141
in the year-ago period, according to the government data.

The per capita income was slightly higher than Rs 43,749 as calculated by the Central
Statistical Organization (CSO) in its advance estimates for FY10. However per capita
income grew by 5.6 per cent last fiscal if it is calculated on the basis of 2004-05 prices,
which is a better way of comparison and broadly factors inflation.

This increase shows that the purchasing power of the Indian public is increasing y-o-y,
this will cause increase in the demand, ultimately results in the profitability of companies.
So investors can make good money.
Indian Rupee Exchange Rate (USDINR)

The Indian Rupee exchange rate (USDINR) appreciated 5.59 percent during the last four
weeks. During the last 12 months, the USDINR declined 0.52 percent. The Indian Rupee
spot exchange rate specifies how much one currency, the USD, is currently worth in
terms of the other, the INR. While the Indian Rupee spot exchange rate is quoted and
exchanged in the same day, the Indian Rupee forward rate is quoted today but for
delivery and payment on a specific future date.

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2010 46.10 46.41 45.45 44.47 45.99 46.85
2009 48.79 49.58 51.12 50.02 48.60 47.73 48.36 48.34 48.38 46.80 46.61 46.55
2008 39.32 39.74 40.32 39.95 41.98 42.85 42.77 42.97 45.69 48.77 49.20 48.47
2007 44.33 44.13 43.94 42.07 40.86 40.81 40.43 40.87 40.22 39.51 39.44 39.42

Foreign Exchange Trade:

Foreign Trade Policy of India 2009-14 had set a target of annual export growth of 15%
with an export target US$ 200 Billion by March 2011. Exports in April-December 2009
down 20.3 per cent. Imports in April-December 2009 down 23.6 per cent. Gold and
Silver imports registered a negative growth of 7.3% which is primarily on account of
volatility in Gold Prices.
Fiscal Deficit:

Fiscal deficit is the total resource gap or overall financing requirements in the
Government’s fiscal operations. It also reflects total borrowings by the government. The
fiscal deficit is the excess of spending over non-borrowed receipts, financed through
borrowing.

The Government of India projects the total expenditure of Rs. 11,08,749 Crores, however
it projects to receive Rs. 682212 Crores from Tax and other revenue receipts, 5129 crores
from the recoveries of loans, and Rs. 40000 crore from Other Capital Receipts. The fiscal
deficit for this year is 5.5% of the GDP. The 13th Finance commission had mandated a
fiscal deficit of 5.7. The 13th Finance Commission has also recommended a calibrated
exit strategy from the expansionary fiscal stance of last two years.
In the above graphic, we can see that Fiscal deficit in last year’s budget was 6.8% which
was in revised to 6.7%. This year our finance minister projects the Fiscal deficit at 5.5%
of the GDP.

Index of Industrial Production (IIP)

In simplest terms is an index which details out the growth of various sectors in an
economy. E.g. Indian IIP will focus on sectors like mining, electricity, Manufacturing &
General. Also base year needs to be decided on the basis of which all the index figures
would be arrived at. In case of India the base year has been fixed at 1993-94 hence the
same would be equivalent to 100 Points

Index of Industrial Production (IIP) is an abstract number, the magnitude of which

represents the status of production in the industrial sector for a given period of time as
compared to a reference period of time.

India will march ahead in its journey towards economic prosperity. In the last fiscal,
seven out of eight sectors/sub-sectors showed a growth rate of 6.5% or higher with the
exception of the agriculture sector. Sectors including mining and quarrying,
manufacturing, electricity, gas and water supply have significantly improved their growth
rates at over 8% in comparison with 2008-09. The most notable development has come in
the manufacturing sector, which has grown at 8.9% in FY 2009-10, higher than that of
services (at 8.7%) and industry (at 8.2%).

Indices gained momentum after the index of industrial production for the month of April
grew above estimates at 17.6% vs 13.5% in March. All the sectoral indices were in the
green with realty, oil & gas and auto stocks in the lead.

Sectoral Performance
The negative growth rate of agriculture output is a cause of serious concern and warrants
focused policy intervention both from a food security perspective as well as providing a
safety net for the vast majority of consumers who depend on this sector.

The Economic Survey reveals that manufacturing sector has grown at 8.9% in FY 2009-
10, higher than that of services (8.7%) and industry (8.2%).

The manufacturing sector contributes merely 16.3% to the GDP thereby causing an over
dependence on the services sector to foster GDP growth. Greater focus on manufacturing
will provide a balance to the future growth prospects of India.
The Banking, Financial Services and Insurance (BFSI) sector has been a pillar of strength
during the slowdown. With healthy capital adequacy ratios and prudent oversight by the
RBI, our capital market holds promise in providing the adequate support to investment
and development of institutions that will complement the high growth rates in the future.

Foreign Capital Inflow

Net inward FDI into India remained buoyant at US $21.0 billion during April-September
2009 (as against US$ 20.7 billion in April-September 2008) reflecting the continuing
liberalization and better growth performance of the Indian economy. (Figure 6) During
this period, FDI was channeled mainly into manufacturing (21.4%) followed by
communication services (12.8%) and the real estate sector (12.6%). Net outward FDI of
India at US$ 6.8 billion in April-September 2009 remained at almost the same level as
that of the corresponding period of 2008-09. Due to the large inward FDI, the net FDI
(inward minus outward) was marginally higher at US$ 14.1 billion in April-September
2009. Portfolio investment mainly comprising FIIs and ADRs/ GDRs witnessed large net
inflows (US$ 17.9 billion) in April-September 2009 (net outflows of US$ 5.5 billion in
April-September 2008). This was mainly due to large purchases by FIIs in the Indian
capital market reflecting revival in the growth prospects of the economy and
improvement in global investors’ sentiment.

The inflow of foreign investments during the April- February period of 2010 was USD
33 billion which was only a billion and half USD higher than the investments made in the
previous year.
Industrial Analysis
The purpose of industry analysis is to review prevailing conditions within
specific industry and its segments. The company's industry obviously influences the
outlook for the company. Even the best stocks can post mediocre returns if they are in an
industry that is struggling.
“It is often said that a weak stock in a strong industry is preferable to a strong stock in a
weak industry.”
To assess the industry group potential, an investor would want to consider the overall
growth rate, market size, and its importance to economy. While the individual company
is still important, its industry group is likely to exert as much as, or more, influence on
the stock price. When stock move the usually move as groups; there are very few lone
guns out there. An understanding of the industry sector involved, including the maturity
of the sector and any cyclical effects that the overall economies have on it, is also
necessary.

Introduction to Sugar Industry

Sugar is one of the oldest commodities in the world and traces its origin in 4th century AD
in India and China. In those days sugar was manufactured only from sugarcane. But both
countries lost their initiatives to the European, American and Oceanic countries, as the
eighteenth century witnessed the development of new technology to manufacture sugar
from sugar beet. However, India is presently a dominant player in the global sugar
industry along with Brazil in terms of production. Given the growing sugar production
and the structural changes witnessed in Indian sugar industry, India is all set continue its
domination at the global level.

Indian sugar industry is highly fragmented with organized and unorganized players. The
unorganized players mainly produce Gur and Khandari, the less refined forms of sugar.
The government had a controlling grip over the industry, which has slowly yet steadily
given way to liberalization.
The production sugarcane is cyclical in nature. Hence the sugar production is also
cyclical as it depends on the sugarcane production in the country. As the industry is a
fragmented one, even leading players do not control more than 4 percent market in India.
However, the situation is changing and players off late are striving to increase their
market share either by acquiring smaller mills or by going for green field capacity
additions.

Indian sugar industry can be broadly classified in to two sub sectors, the organized sector
i.e. sugar factories and the unorganized sector i.e. manufacturers of traditional sweeteners
like gur and khandsari. The latter is considered to be a rural industry and enjoys much
greater freedom than sugar mills. The production of traditional sweeteners gur and
khandsari is quite substantial. Though the trends indicate a progressive shift from
traditional sweeteners to white sugar over the years, they still account for about 37% of
total sweetener consumption in India.

Since the sugar industry in the country uses only sugarcane as an in input, sugar
companies have been established in large cane growing states like Uttar Pradesh,
Maharashtra, Tamil Nadu, Karnataka, Punjab and Gujarat. Uttar Pradesh leads the tally
by contributing 24% of the countries total sugar production and Maharashtra stands next
with 20% contribution. The farmer’s co-operatives own and operate the largest chunk of
the industry's total capacity. They are concentrated primarily in Maharashtra and eastern
Uttar Pradesh.

The largest number of sugar companies in the private sector is located in southern India,
in the states of Tamil Nadu, Andhra Pradesh and Karnataka. Out of 453 sugar mills in the
country, 252 are in the co-operative sector, 134 are in the private sector and 67 are in the
public sector. Besides 136 units in the private sector are in various stages of
implementation. A Few such units are under implementation in the co-operative sector as
well. But no new units have been proposed in the public sector.
Analysis of Sugar Industry
Production

Sugarcane and sugar production in India typically follow a 6 to 8 year cycle, wherein 3 to
4 years of higher production are followed by 2 to 3 years of lower production. After two
consecutive years of declining sugar production (MY 2007/08 and 2008/09), production
resurged in Marketing Year (MY oct-sept) 2009/10, and is set to gain strongly in the
upcoming MY 2010/11. India’s total centrifugal sugar production in MY 2010/11 is
forecast at 24.7 million tons (including 435,000 tons of khandsari sugar), up 27 percent
from the MY 2009/10, on expected improved sugarcane supplies due to higher cane
planting and yields. Gur production is forecast lower at 5.6 million tons compared to 6.6
million tons last year on expected weak prices. Relatively strong cane prices vis-à-vis last
year and also compared to competing food crops (rice, wheat, pulses) during the ongoing
MY 2009/10 will support higher cane acreage; MY 20010/11 is forecast to increase by 13
percent to 4.8 million hectares. Assuming normal monsoon and subsequent weather
condition, yields are expected to improve over last year’s adverse weather impacted crop.
Consequently, MY 2010/11 sugarcane production is forecast higher at 325 million tons
compared to 282 million tons in MY 2009/10.

Post’s MY 2009/10 centrifugal sugar production estimate is revised higher to 19.5

million tons due to lower diversion of cane for production of alternative sweeteners
(khandsari and gur) and better than anticipated cane production. After drought like
conditions in June through mid-August, most of the cane growing areas received
adequate and well scattered rains from mid-August through October during the crop
growth stage. Low winter temperature and scattered rains in December-January further
contained expected crop damage due to early dry conditions. High sugar prices and
speculation' [3] on lower cane crop resulted in sugar mills offering substantial increase in
cane prices to farmers compared to last year (see Table 6). The higher cane prices by the
sugar mills coupled with relatively weak gur prices vis-a-vis sugar (see tables 5 & 6)
limited the diversion of sugarcane for production of gur during the peak crushing season.
The mill sugar production for MY 2009/10 up to March 15, 2010 is estimated at 15.3
million tons (crystal weight basis) compared to 13.3 million tons for the corresponding
period of MY 2008/09. The recent weakening of gur prices has lowered the prospects for
late season diversion of cane for gur production. Crushing is going on in the major
producing states of Maharashtra and U.P., and may continue through April/early May,
nearly 4 weeks longer than last year. Industry sources report the average crushing
duration during the MY 2009/10 at 150 days (vs. 120 days last year) and average sugar
recovery higher at 10.3 percent (vs. 10.0 percent last year). Consequently, MY 2009/10
centrifugal sugar production has been raised to 19.5 million tons against the earlier
estimate of 17.3 million tons.

Post’s estimates for MY 2008/09 sugarcane production have been revised higher and
sugar production revised marginally lower based on final estimates from the Ministry of
Agriculture and the Indian Sugar Mills Association, respectively.
Consumption:
Sugar consumption in MY 2010/11 is forecast to increase to 24.5 million tons on forecast
improved domestic supplies and strong demand – fueled by a growing population and
continued growth in economy(Despite the global recession, the Indian economy showed a
recovery in Indian fiscal year 2009/10 (April/March) with growth rate expected at 7.2
percent compared to 6.7 percent in IFY 2008/09. Analysts expect Indian economy to
grow further in IFY 20010/11 anywhere between7.5 to 9 percent per annum. Indian
population has been growing at 1.8 percent per annum as per the last census.). Bulk
consumers such as bakeries, makers of candy and local sweets, and soft-drink
manufacturers account for about 60 percent of mill sugar demand. Local sweets
manufacturers consume most of the khandsari sugar. Gur is mostly consumed in rural
areas for household consumption and feed use.

Prices
Despite various measures taken by the Government of India (GOI) to control sugar
prices, sugar prices escalated during calendar year 2009 on fears of short domestic
supplies and strong international sugar prices. Sugar prices have eased significantly from
February 2010 on improved expectations of domestic production in MY 2009/10 and
forecast higher production in MY 2010/11.
March end sugar prices in major domestic wholesale markets ranged from $685 to 745
per ton, about 17 percent lower than peak prices in January 2010. However, sugar prices
are still more than 50 percent higher than prices in March 2009. Prices are expected to
continue to weaken further in the coming months on improved domestic supplies,
although international price movements can impact domestic prices. Gur prices had been
under pressure from the beginning of the MY 2009/10 due to record opening stocks
However, gur prices are expected to remain stable relative to sugar prices in the coming
months due to draw down in the stocks and lower production in MY 2009/10 and MY
2010/11.

Stocks

The MY 2010/11 ending stocks are forecast higher at 5.36 million tons compared to 3.98
million tons for MY 2009/10 ending stocks, both well below the normal acceptable stock
levels of the three-month consumption requirement.
Trade:
India’s MY 2010/11 imports are forecast lower at 1.2 million tons due to forecast
improved domestic supplies. Industry sources expect imports mostly during the early part
of the season. The government of India may withdraw the relaxed import policy (The
local industry is already lobbying for re-imposition of import duty on white sugar imports
alleging that the sugar prices have declined below cost of production after paying the
high cane price to farmers.) on improving domestic supplies and lowering of sugar prices
to more comfortable levels as the domestic crushing season progresses. Despite forecast
higher sugar production, relatively tight domestic supplies preclude any significant
commercial exports of sugar in MY 2010/11; exports will be largely limited to quota
countries.

Post’s MY 2009/10 import estimate is revised lower to 4.5 million tons based on the
current pace of imports reported by industry sources. Trade sources estimate India’s
sugar imports during the October 2009 to February 2010 at 2.9 million tons; of which
about 2.3 million tons is raw sugar mostly from Brazil, and rest white sugar from
Thailand, Brazil, U.A.E. An additional 500,000 tons, mostly white sugar, have been
contracted for delivery through June/July, 2010. Despite weakening domestic sugar
prices, industry sources expect additional imports of raw sugar in August/September
before the beginning of the next crushing season. Consequently, MY 2009/10 imports are
forecast to reach a record level of 4.5 million tons 62 percent higher than the last year’s
record imports of 2.8 million tons.

Post’s MY 2008/09 sugar exports have been revised marginally based on the export and
import shipments compiled by the industry sources.

TRADE POLICY
Forced by the severe domestic shortages and abnormally high sugar prices since
beginning of 2009, the GOI took several measures to relax import restrictions to augment
domestic supplies.
On February 17, 2009, the government relaxed the norms for duty free imports of raw
sugar under the advance-licensing scheme (ALS) (The mills are permitted to sell the raw
sugar imported under ALS after refining in the domestic market, subject to the condition
that they will re-export 1.00 ton of refined sugar for every 1.05 tons of raw sugar
imported within two years.) exempting future export commitments from actual user
conditions for raw sugar imports during February 17, 2009 to September 30, 2009. On
April 17, 2009, the government allowed mills to import raw sugar at zero duty under the
open general license (no future export commitments). The government also allowed
select state trading enterprises (STEs) to import white sugar at zero duty. Subsequently,
on July 31. 2009, the government allowed duty free imports of white sugar by traders and
processors until November 31, 2009.

Through a series of notifications the GOI has extended the duty free imports of raw sugar
and white sugar up to December 31, 2010. The GOI has also exempted imported sugar,
both raw sugar and white sugar, from the levy sugar obligation and the market quota
release system, applicable to domestic sugar. With the sugar prices easing, there is an
increasing pressure from the local industry to re-impose the import duties on white and
raw sugar, and reverting back to the old import policy regime. Currently, the GOI does
not allow exports of sugar and nor provide any export incentive (transport subsidy) for
sugar.

Policy:
Sugarcane Production and Pricing Policy
The Government of India (GOI) supports research, development, training of farmers and
transfer of new varieties and improved production technologies (seed, implements, and
pest management) to growers in its endeavor to raise cane yields and sugar recovery
rates. The Indian Council of Agricultural Research (ICAR) conducts sugarcane research
and development at the national level. State agricultural universities, regional research
institutions, and state agricultural extension agencies support these efforts at the regional
and state levels. The central and state governments also support sugarcane growers by
ensuring finances and input supplies at affordable prices.
The GOI establishes a minimum support price (MSP) for sugarcane on the basis of
recommendations by the Commission for Agricultural Costs and Prices (CACP) and after
consulting State Governments and associations of the sugar industry and cane growers.
Last year the GOI announced a new system of fair and remunerative Price (FRP) that
would links the cane prices with sugar price realization by the sugar mills. Several state
governments further augment the MSP/FRP, typically by 20-25 percent, due to political
compulsions rather than market pricing.

Sugar mills are required to pay the “state advised price (SAP)” to sugarcane farmers
irrespective of the market price of sugar. However, high sugar prices coupled with fears”
of lower cane crop encouraged the sugar mills to pay much higher prices than the FRP or
SAP in most of the growing states. Although the local industry has been advocating
rationalization of cane pricing policy by linking it with domestic/world sugar prices,
industry sources do not expect any downward revision of FRP in the coming years if the
sugar prices decline given the political clout of the farmers lobby.

Sugar Production and Marketing Policy

The GOI levies a fee of Rs. 240 ($5.33) per ton of sugar produced by mills to raise a
Sugarcane Development Fund (SDF), which is used to support research, extension, and
technological improvement in the sugar sector. The SDF is also often used to support
sugar buffer-stocks operations, provide a transport subsidy for sugar exports, and provide
an interest subsidy on loans for the installation of power generation and ethanol
production plants. In March 2008, the GOI enacted the Sugar Development Fund
(Amendment) Bill, 2008 that enables the government to include the use of the funds for
debt restructuring and soft loans to the sugar mills.

The GOI follow a policy of partial market control and dual pricing for sugar. The local
sugar mills are required to supply 20 percent (The GOI raised the levy sugar ratio from
10 percent to 20 percent from October 2009.) of their production to the government as
“levy sugar” at below-market prices, which the government distributes through the Public
Distribution System (PDS) to its below-poverty line population at subsidized rates. Mills
are allowed to sell the balance of their production as “free sugar” at market prices.
However, the sale of free-sale sugar and levy sugar is administered by the government
through periodic quotas, designed to maintain price stability in the market.
On March 12, 2009, the central government advised the state governments to impose
stock and turnover limits on traders to prevent hoarding of sugar. Khandsari sugar has
also been brought under the ambit of stockholding and turnover limit from July 17, 2009.
Most state governments imposed stock and turnover control orders in their respective
states. On August 22, 2009, the government imposed stock holding limits on large
consumers (food and beverage companies) who consume more than 1.0 ton of sugar per
month. Initially these consumers were asked to maintain stock necessary to meet not
more than 20 days requirement; which was further lowered to 10 days requirements in
February 2010. These limits are effective up to Sept 30, 2010. With the improvement in
domestic sugar supplies, there is growing pressure from the domestic sugar mills and
traders to remove these stock limits.

In May 2001 the government allowed futures trading in sugar, and three national
exchanges have been given permission to engage in sugar futures trading. However, in
May 2009, the government suspended futures trading in sugar until December 2009,
which has been subsequently extended till September end 2010.

Ethanol Program
India’s ethanol program is based on producing ethanol from sugar molasses, a by-product
of the sugar industry and not directly from sugarcane or corn as in most countries.
Mill Sugar Production by State
(Figures in 100,000 tons crystal weight basis)
State 2007/08 2008/09 2009/10 2009/10
Final Revised Revised Forecast

Andhra Pradesh 13.4 5.9 5.5 12

Bihar 3.4 2.1 2.6 3

Gujarat 13.7 10.1 12 14
Haryana 6 2.3 2 4

Karnataka 29 16.5 22 24

Maharashtra 90.8 45.8 63 74

Punjab 5.3 2.4 1.8 4

Tamil Nadu 21.4 16 12 20

Uttar Pradesh 73.2 40.6 52 65

Others 7.5 3.5 4.1 7

Total 263.56 145.38 177 227
Import Trade matrix: Centrifugal Sugar
(Quantities in Raw weight basis)

Time Oct-Sept Units: Metric

Period Tons

Imports 2009 2010

for:
U.S. 0 U.S. 0
Others Others
Brazil 257020 Brazil 2376600
0
Thailand 144260 Thailand 375750
Myanmar 23590 U.A.E 79980

South 29950 Argentina 22970

Africa
U.A.E 18000 Guatemala 17390

Total for 278600 2872690

Others 0
Others 0 63710
not
Listed
Grand 278600 2936400
Total 0
Note: Import figures for 2010 refer to the period Oct, 2009 to Feb 2010.
Industrial Ratio Analysis:

Profitability Ratios:

Ratios % Ratio
Gross Margin 6.54
Operating Margin 2.46
PBT 2.35
Net Profit Margin 1.70
Return on Assets 1.54
Return on Investment 2.25
Return on Equity 4.61
Liquidity and Solvency Ratios:

Ratio % Ratio
Current Ratio 1.68
Quick Ratio 1.27
Debt Equity Ratio 48.41
Long Term Debt Equity Ratio 29.84

Management Efficiency Ratios:

Ratio % Ratio
Inventory Turnover 1.38
Debtors Turnover 1.96
Asset Turnover 0.25
Investment Valuation Ratios:

Ratio % Ratio
P/E Ratio 13.89
Beta 0.47
Price to Sales 0.3
Price to Book 1.69
Price to Tangible Book 1.54
Price to Cash Flow 3.1
Renuka Sugar Limited:
Shree Renuka Sugars, is India's largest sugar refiner and ethanol producer with refining
capacity of 4000 tonnes/day and distillery capacity of 600 Kilo liter/day. It has 21%
market share in India's fuel ethanol market and has an aggressive growth plan of
increasing its ethanol production capacity to 900 Kilo liter/day by Dec 2009. It also
accounts for 20% of India's international sugar trade.

On the basis of distillery to sugar capacity and power generation to sugar capacity, SRS is
India's most integrated sugar producer with double the asset utilization rate of that of its
industry peers. It has expanded in fuel ethanol and power production using its by-
products, molasses and bagasse. In FY2008 non sugar products accounted for 77% of the
net profits.

After its IPO in October 2005, the company has expanded from 500 tonnes crushed/day
to 37,500 tonnes crushed/day through inorganic and organic growth modes. On 1st
August 2008,it announced plans to develop a SEZ in Gujarat. The production in the SEZ
is free from the domestic sugar release mechanism and local taxes. It also announced
plans to jointly develop integrated sugar and ethanol plant with Hindustan Petroleum on
11th September 2008

Shree Renuka Sugars has managed to salvage its billion-dollar acquisition of closely held
Equipav SA Acucar e Alcool, the sugar and alcohol assets of Brazil’s Equipav Group. It
will now be getting the 51 per cent controlling interest by paying only $240 million or Rs
1,080 crore, 25 per cent less than its original bid.

Post this acquisition, Renuka would have gained access to 10.5 million tonnes of annual
crushing capacity from two of Equipav’s plants in Sao Paolo. It would be among the top
five sugar companies in Brazil. In November 2009, it had also bought another Brazilian
sugar and ethanol producer, Vale Do Ivai Acucar E Alcool, for an enterprise value of Rs
1,110 crore.

In February, Renuka had agreed to pick up a 51 per cent stake in Equipav SA for $329
million (Rs 1,305 crore) to secure raw material supplies. At the time, the enterprise value
of Equipav’s sugar assets was close to $1.3 billion. The equity was valued at $600
million (Rs 2,700) and there was $830 million (Rs 3,735 crore) of secured and unsecured
debt.
Stock Info:

Sector sugar
Market Cap (Rs cr) 4213
Beta 1.11
52 Week High/Low 124/45
6m Avg Volume (000 nos) 11605
Face value (Rs) 1
BSE Sansex 17570.82
Nifty 5562.6
Reuters Code SRES.BO
Blommberg code SHRS IB

Share Holding Pattern:

Particular no. of shares(Mn) %

Foreign 157.05 23.50%

Domestic 85.18 12.70%
Non Promoter Corporate
Holding 59.29 8.90%
Promoters 254.4 38.00%
Public & others 113.88 17.10%
Total 669.8 100%
Ratio Analysis:

Profitability Ratios:

Sugar Year SY06 SY07 SY08 SY09

Operating Profit Margin(%) 12.38 14.54 13.31 16.82
PBIT (%) 11.29 11.26 11.23 14
Gross Profit Margin(%) 11.23 14.33 11.24 14.03
Cash Profit Margin(%) 7.46 9.8 6.34 9.15
Net Profit Margin(%) 6.44 6.72 5.27 6.41
ROCE(%) 17.23 10.44 12.18 12.4
Return On Net Worth(%) 24.99 16.21 15.08 11.55

Liquidity and Solvency Ratios:

Sugar Year SY06 SY07 SY08 SY09

Current Ratio 0.83 0.69 0.9 1.15

Quick Ratio 1.16 1.45 1.15 0.88

Debt Equity Ratio 1.67 1.96 1.6 1.04

Long Term Debt Equity

Ratio 1.21 1.43 1.22 0.77
Management Efficiency Ratios:
Sugar Year SY06 SY07 SY08 SY09
Inventory Turnover Ratio 7.69 8.08 12.77 2.42
Debtors Turnover Ratio 23.25 17.24 40.26 29.22
Asset Turnover Ratio 5.26 1.26 2.26 1.59

Investment Valuation Ratios:

Sugar Year SY06 SY07 SY08 SY09
Face Value 10 10 1 1
Dividend Per Share 2 2 0.2 1
Operating Profit Per Share (Rs) 44.57 46.8 8.48 11.86
Net Operating Profit Per Share (Rs) 360.03 321.67 63.69 70.5
Free Reserves Per Share (Rs) 79.09 120.84 21.19 37.72
Per share data (annualised):

Sugar Year  Sep '06 Sep '07 Sep '08 Sep '09
Shares in issue (lakhs) 238.1 248.1 2,759.63 3,169.00
Earning Per Share (Rs) 23.34 20.51 3.36 4.53
Equity Dividend (%) 20 20 20 100
Book Value (Rs) 93.43 132.81 22.35 39.24
Trend Analysis:
------------------- In Rs. Cr. -------------------
Sep
Sugar Year '07 Percentage Sep '08 Percentage Sep '09 Percentage
732. 1,815.2 2,234.2
Sales Turnover 4 100 0 247.8 0 305.1
Other Income 11.5 100 -0.3 -2.6 5.6 48.7
743. 1,814.9 2,239.8
Total Income 9 100 0 244.0 0 301.1
627. 1,596.9 1,871.3
Total Expenses 7 100 0 254.4 0 298.1
104.
Operating Profit 7 100 218.3 208.5 362.9 346.6
116.
Gross Profit 2 100 218 187.6 368.5 317.1
Interest 13.3 100 67.8 509.8 88.4 664.7
102.
PBDT 9 100 168.4 163.7 280.1 272.2
Depreciation 24.9 100 36.5 146.6 62.5 251.0
PBT 78 100 131.9 169.1 217.6 279.0
Tax 23.6 100 39.2 166.1 74.1 314.0
Net Profit 54.4 100 92.7 170.4 143.5 263.8
21.9
Earnings Per Share 3 100 3.36 15.3 4.53 20.7
24.8
Equity 1 100 27.6 111.2 31.7 127.8
Reserves 304. 100 589.3 193.4 1,211.9 397.7
 7 0

Comparative Financial Performance:

------------------- In Rs. Cr. -------------------
6 mths 6 mths Mar
Sugar Year Mar '09 Mar '10 % Chg Mar '09 '10 % Chg

Sales Turnover 324.1 1,557.00 380.4 662.4 2,810.00 324.2

Other Income 2.4 44.7 1,762.5 3.6 71.4 1883.3

Total Income 326.5 1,601.70 390.6 666 2,881.40 332.6

Total Expenses 245.3 1,267.60 416.8 526.9 2,247.10 326.5
Operating Profit 78.8 289.4 267.3 135.5 562.9 315.4
Gross Profit 81.2 334.1 311.5 139.1 634.3 356.0
Interest 29.2 16 -45.2 58.2 37 -36.4
PBDT 52 318.1 511.7 80.9 597.3 638.3
Depreciation 15.5 19.4 25.2 28.9 37.4 29.4
PBT 36.5 298.7 718.4 52 559.9 976.7
Tax 12.4 102.8 729.0 17.8 169.3 851.1
Net Profit 24.1 195.9 712.9 34.2 390.6 1042.1
Earnings Per
Share 0.86 2.92 239.5 1.22 5.83 377.9
Equity 28 67 139.3 28 67 139.3
Reserves 648.1 1,773.10 173.6 648.1 1,773.10 173.6

In 2Q the company has shown tremendous growth in sales as well as in Net profit, the
sale of company rose by 380.40% it 1557.00 against 324 in 2Q of SY ’09.Net profit rose
to 712.9% to 195.9 cr against 24.1cr in 2Q of SY ’09.

Shree Renuka Sugar can go up to Rs 75-76 again. It is unlikely that it will cross that 200
DMA. But 15-20% of rally can easily happen.

Sugar was poised to pull back rally. Shree Renuka Sugar can go up to Rs 75-76 again. Its
200 DMAs is around Rs 90 and it is unlikely that it will cross that 200 DMA. But 15-
20% of rally can easily happen.

The company's trailing 12-month (TTM) EPS was at Rs 7.46 per share. (Mar, 2010). The
stock's price-to-earnings (P/E) ratio was 8.94. The latest book value of the company is Rs
18.59 per share. At current value, the price-to-book value of the company was 3.59. The
dividend yield of the company was 1.5%.

Shree Renuka Sugars has signed an agreement to acquire a majority stake in Brazilian
firm Equipav SA Açúcar e Álcool for Rs 1,151 crore, which is 25% lower than the price
agreed earlier.

Shree Renuka, India’s largest sugar refiner, will acquire a 50.3% stake in Equipav which
has an annual cane crushing capacity of 10.5 million tonne and ownership of 1,15,000
hectares of land. The transaction is expected to close in two weeks.

VALUATION OF SECURITIES:
Dividend Per
Sugar Year Share Growth Rate(%)
SY'05 2 0
SY'06 2 0
SY'07 2 0
SY'08 0.2 -90
SY'09 1 400
Total 310

Avg Annual Growth rate (g) = 310/5=62%

D1 = D0(1+g) P1=52 weeks (High + Low)/2

= 1(1+0.62) =87.45
= 1.62

Ke = (D1/P1)+g P0 = D1/(Ke-g)
= (1.62/87.45)+0.62 = 1.62 / (0.639-0.62)
= 0.639 = 1.62 / 0.019
= 85.26 Rs

Current Market Price C0=66 Rs

Where,
D1= Expected dividend of next year
P1= Average of 52 weeks high- low
Ke= Investors Require Rate of Return
P0= Expected price of Share

Current market price (C0) of the share is lower than Expected price of Share (P0).Here
share price is undervalued so investors are advised to buy the share of the company.
Bajaj Hindusthan Limited:

Introduction:
Bajaj Hindusthan Limited (BHL) was incorporated on 23rd November, 1931 under the
name - The Hindusthan Sugar Mills Limited - on the initiative of Jamnalal Bajaj - a
businessman, confidante, disciple and adopted son of Mahatma Gandhi. He sought
Gandhiji's blessings in this new venture, which, apart from being a sound commercial
proposition would also meet a national need. Till then, there were barely thirty sugar
factories in the country.
The site selected for the first plant was at Golagokarannath, district Lakhimpur Kheri in
the Terai region of Uttar Pradesh (UP), an area rich in sugar cane. The original crushing
capacity of the factory was 400 tons of cane per day (tcd). Subsequently, this capacity
was increased in stages and is currently 13,000 tcd. The distillery Unit at this plant
commenced production during the end of World War II in 1944. In the initial few years,
the major output was in the form of power alcohol as an additive to petrol, which was
then in short supply. The unit was the first to supply alcohol-mixed petrol to the army.

Bajaj Hindusthan (BJH)’s 2QSY2010 results were below market expectations, primarily
due to an increase in cane cost and a higher contribution from levy sales. Total Sales for
the quarter grew 34% to Rs567cr, on the back of strong sugar prices. The Total
Reported PAT declined by 61% to Rs32cr; however, after adjusting for a one-time
exceptional item included in other operating income (pertaining to AS-11 and Forex),
the company posted a loss of Rs15cr in the quarter (against a profit of Rs73cr in
2QSY2009). We have pruned our SY2011E estimates due to the poor 2QSY2010
performance. At the current levels, the stock is trading at fair valuations. Hence, we
maintain our Neutral view on the stock.

The Boards of Directors of Bajaj Hindusthan Ltd.(BHL) and Bajaj Hindusthan Sugar and
Industries Ltd. (BHSIL) approved the merger of BHSIL with BHL. This merger will
strengthen BHL’s position in Indian sugar sector and will enable the company to further
enhance overall shareholder value. BHSIL shareholder will receive one share of BHL for
every five, shares held by them.

Post-merger, Bajaj Hindusthan will have a sugarcane crushing capacity of 1,36,000 tonne
per day, distillery capacity of 800 kilolitres a day and surplus bagasse-based co-
generation capacity of 150mw.
Higher Raw Material costs, Levy sales impact Margins: The Gross Margin for the
quarter declined by 900bp to 37% in 2QSY2010 from 46% 2QSY2009, on the back of
an increase in cane cost and higher contribution from levy sales. BJH incurred a
cost of Rs2,470/tonnes on cane in SY2010, as against Rs1,494/tonnes spent in SY2009,
an increase of 65% yoy. Cane prices increased primarily due to higher demand
from mill operators, as the area under cane cultivation did not increase in tandem
during the season. Hence, due to the shortage of sugar, the government increased the levy
quota sales to 20% (of production) for SY2010 from 10% in SY2009. Levy sugar is being
sold at a fixed price of Rs13.8/kg, which led to an approximate loss of Rs15/kg for the
company during the quarter.

Stock Information:
Sector Sugar
Market Cap (Rs cr) 1950
Beta 1.45
52 WK High / Low 243/98.80
Avg Volume 1462586
Face value 1
BSE Sensex 17570.82
Nifty 5562.6
Reuters Code BJHN.BO
Bloomberg Code BJH@IN

Share Holding Pattern (%):

Particular no. of shares(Mn) %
Foreign 32.73 -17.10%
Domestic 20.09 -10.50%
Non Promoter Corporate
Holding 28.97 -15.10%
Promoters 79.97 -41.80%
Public & others 29.6 -15.50%
Total 191.36 -100%

Ratio Analysis:

Profitability Ratio:

Sugar Year SY05 SY06 SY07 SY08 SY09

Operating Profit Margin(%) 24.07 21.98 13.18 15.32 23.21
PBIT(%) 19.53 16.2 4.34 4.41 9.85
Gross Profit Margin(%) 23.66 22.42 10.4 4.72 10.59
Cash Profit Margin(%) 20.58 17.29 10.68 11.38 8.55
Net Profit Margin(%) 16.46 12.53 2.53 -2.52 9.06
ROCE(%) 16.13 11.04 3.99 4.35 5.4
RONW(%) 22.86 13.94 3.18 -3.54 6.86

Liquidity and Solvency Ratios:

Sugar Year SY05 SY06 SY07 SY08 SY09

Current Ratio 0.65 1.26 1.72 2.46 2.55
Quick Ratio 0.74 1.52 1.54 1.71 1.9
Debt Equity Ratio 0.83 1.1 2.02 2.53 1.35
Long Term Debt Equity Ratio 0.71 1 1.89 2.52 1.31
Management Efficiency Ratios:
Sugar Year SY05 SY06 SY07 SY08 SY09
Inventory Turnover Ratio 15.35 12.44 4.57 3.19 2.24
Debtors Turnover Ratio 36.67 36.4 19.88 23.21 45.24
Asset Turnover Ratio 1.28 1.13 0.65 0.58 0.47

Investment Valuation Ratios:

Sugar Year SY05 SY06 SY07 SY08 SY09

Face Value 1 1 1 1 1
Dividend Per Share 0.5 0.6 0.6 0.6 0.7
Operating Profit Per Share (Rs) 17.33 22.56 15.92 19.15 21.04
Net Operating Profit Per Share (Rs) 72.01 102.61 120.79 125 90.63
Free Reserves Per Share (Rs) 50.77 86.52 91.48 85.14 118.88
Bonus in Equity Capital 45.64 37.55 37.55 37.55 30.02
Per share data (annualised)

Sugar Year Sep '06 Sep '07 Sep '08 Sep '09
1,414.0 1,414.0 1,414.0
Shares in issue (lakhs) 7 7 7 1,768.57
Earning Per Share (Rs) 13.5 3.23 -3.37 8.83
Equity Dividend (%) 60 60 60 70
Book Value (Rs) 96.79 101.43 95.12 128.62
Trend Analysis:
------------------- In Rs. Cr. -------------------

Sep '07 Percentage Sep '08 Percentage Sep '09 Percentage

Sales Turnover 1,713.01 100.00 1,794.35 104.75 1,780.71 103.9521

Other Income 30.65 100.00 8.52 27.80 34.18 111.5171

Total Income 1,743.66 100.00 1,802.87 103.40 1,814.89 104.0851

Total Expenses 1,495.21 100.00 1,584.33 105.96 1,219.60 81.56714

Operating Profit 217.8 100.00 210.02 96.43 561.11 257.6263

Gross Profit 248.45 100.00 218.54 87.96 595.29 239.6015

Interest 63.73 100.00 139.44 218.80 187.08 293.5509

PBDT 184.72 100.00 79.1 42.82 406.59 220.1115

Depreciation 146.88 100.00 187.22 127.46 202.21 137.6702

PBT 37.84 100.00 -108.12 -285.73 204.38 540.1163

Tax -7.81 100.00 -57.95 742.00 49.77 -637.26

Net Profit 45.65 100.00 -50.17 -109.90 154.61 338.6857

Earnings Per Share 3.23 100.00 -- --- 8.74 270.5882

Comparative Financial Performance:

------------------- In Rs. Cr. -------------------

2Q Mar 2Q Mar 6 mths 6 mths

'09 '10 % Chg Mar '09 Mar '10 % Chg
Sales Turnover 515.93 631.95 22.5 878.17 1,261.08 43.6
Other Income -- 0.08 80 -- 3.23 323
Total Income 515.93 632.03 22.5 878.17 1,264.31 44.0
Total Expenses 279.86 488.43 74.5 633.08 903.36 42.7
Operating Profit 236.07 143.52 -39.2 245.09 357.72 46.0
Gross Profit 236.07 143.6 -39.2 245.09 360.95 47.3
Interest 62.54 65 3.9 111.18 110.63 -0.5
PBDT 173.53 78.6 -54.7 133.91 250.32 86.9
Depreciation 54.72 46.08 -15.8 103.17 97.12 -5.9
PBT 118.81 32.52 -72.6 30.74 153.2 398.4
Tax 37.42 0.73 -98.0 5.29 36.21 584.5
Net Profit 81.39 31.79 -60.9 25.45 116.99 359.7
Earnings Per Share 5.76 1.66 -71.2 1.8 6.11 239.4

The company’s Gross Margin fell by a substantial 900bp to 37% in 2QSY2010

(from 46% in 2QSY2009). Margins were hit due to the increase in cane costs and a
higher contribution of levy sales. BJH incurred a cost of Rs2, 470/ tonne of cane in
SY2010, as against Rs1,494/tonne in SY2009, an increase of 65% yoy. Cane prices
were driven by high demand from the mill operators, as sugar prices kept increasing,
while the area under cane cultivation remained flat during the season. The levy quota
(sales to PDS) increased to 20% in SY2010, from 10% in SY2009, due to the shortage in
sugar production. Levy sugar is being sold at a fixed price of Rs13.8/kg, which led to a
loss of Rs15/kg for the company during 2QSY2010.

Developments: BJH has decided to hive-off its power venture into an SPV, where
it plans to hold a minimum 26% stake. We believe that the sharp correction in sugar
prices has led the management to reconsider its power venture plan, one that would entail
a huge investment. As per disclosed plans, BJH was planning to set up a 450MW thermal
power plant on land adjacent to its sugar mill. This would have entailed investment of
roughly Rs1, 800cr (Rs4cr/MW). The power venture would have put additional pressure
on the company’s balance sheet and cash flow.

VALUATION OF SECURITIES:
Sugar Year Dividend Per Share Growth Rate(%)
SY'05 0.5 0
SY'06 0.6 20
SY'07 0.6 0
SY'08 0.6 0
SY'09 0.7 16.7
Total 36.7

Avg Annual Growth rate (g) = 36.7/5=7.34%

D1 = D0(1+g) P1 = 52 Weeks (High + Low)/2

= 0.7(1+0.0734) = 170.9
= 0.75

Ke = (D1/P1)+g P0 = D1/(Ke-g)
=(0.75/170.9)+0.0734 = 0.75/(0.078-0.0734)
= 0.078 = 0.75/0.0046
= 163.04 Rs

Current Market Price C0=112.00 Rs

Where,
D1= Expected dividend of next year
P1= Average of 52 weeks high- low
Ke= Investors Require Rate of Return
P0= Expected price of Share

Current market price (C0) of the share is lower than Expected price of Share (P0).Here
share price is undervalued so investors are advised to buy the share of the company.

Balrampur Chini Mills:

Balrampur Chini Mills (BRCM) is the second largest integrated player in the Indian
Sugar Sector. The company has 10 sugar plants spread across Uttar Pradesh (UP), with
aggregate sugarcane crushing capacity of 73,500 tonnes crushed per day (TCD),
Distillery capacity of 42 Kilolitre Per Day (KLPD) and around 180MW power capacity.

A greenfield sugar project having a capacity of 7000 TCD was set up at Akbarpur, Distt.
Ambedkarnagar, U.P. that was commissioned in November 2005. A bagasse based co-
generation power plant with a capacity of 18 MW was also installed at Akbarpur. The
crushing capacity was subsequently expanded to 7,500 TCD.

A new greenfield integrated sugar complex has been set up at Mankapur, Dist. Gonda,
Eastern U.P. with a capacity of 8000 TCD sugar plant, 34 MW co-generation power
plant, 100 KLPD distillery and 20 MT Organic Manure facility.

BCML acquired an integrated sugar unit having a sugar plant of 7500 TCD and co-
generation power plant of 12MW situated at Rauzagaon, District Barabanki, U.P. from
Dhampur Sugar Mills Ltd. in March 2006 in an all cash deal of Rs. 182 crores. The
crushing capacity has been subsequently expanded to 5000 TCD and cogen facility to
25.75 MW through modernization scheme.

A new greenfield integrated sugar complex has been set up at Kumbhi, Dist. Lakhimpur,
Kheri, U.P. with the capacity of 8,000 TCD sugar plant and 20 MW co-generation power
plant. The plant began operations in April 2007.

A greenfield integrated sugar complex has been set up at Gularia, Dist. Lakhimpur,
Kheri, U.P. having sugar cane crushing of 8,000 TCD and co-generation power plant
capacity of 31.3 MW.

BCML has acquired a 53.96% stake in the equity capital of Indo Gulf Industries Ltd.
(IGIL). BCML has taken over the management of IGIL after receiving of the approval
from SEBI and completion of the open offer. IGIL has a sugar unit having crushing
capacity of 3000 TCD at Maizapur in Eastern U.P.

Stock Info:

Sector sugar
Market Cap (Rs cr) 2823
Beta 0.8
52 Week High/Low 167/42
Avg Daily Volume 1256107
face value(Rs) 1
BSE Sansex 16972
Nifty 5080
Reuters Code BACH.BO
Blommberg code BRCM@IN

Share Holding Pattern:

Promoters 36.4
MF/Banks/Indian Fis 32.5
FII/NRI/OCBs 15.1
Indian Public/ Others 16

Ratio Analysis:

Profitability Ratios:
 Sugar Year SY05 SY06 SY07 SY08 SY09
Operating Profit
Margin(%) 30.02 24.19 6.64 22.23 26.67
PBIT Margin(%) 25.34 20.67 0.8 14 20.17
Gross Profit Margin(%) 27.93 22.48 2.85 14.18 20.24
Cash Profit Margin(%) 19.88 18.65 2.76 14.63 19
Net Profit Margin(%) 15.31 15.16 -3.01 6.57 13.43
ROCE (%) 23.87 27.38 0.98 9.42 16.13
RONW (%) 25.43 32.2 -4.84 9.57 19.28

Liquidity and Solvency Ratios:

Sugar Year SY05 SY06 SY07 SY08 SY09

Current Ratio 0.84 0.46 0.33 1.02 1.47
Quick Ratio 0.38 0.58 0.47 0.65 0.7
Debt Equity Ratio 0.79 0.6 1.49 1.34 0.83
Long Term Debt Equity
Ratio 0.41 0.3 0.51 1.11 0.83
Management Efficiency Ratios:
Sugar Year SY05 SY06 SY07 SY08 SY09
Inventory Turnover
Ratio 1.74 9.69 3.2 3.14 5.16
Debtors Turnover Ratio 31.07 44.57 27.02 30.61 50.84
Asset Turnover Ratio 1.05 1.43 0.7 0.61 0.95

Investment Valuation Ratios:

Sugar Year Mar '05 Sep '06 Sep '07 Sep '08 Sep '09
Face Value 1 1 1 1 1
 Dividend Per Share 1.6 3.5 0 0.5 3
Operating Profit Per Share (Rs) 10.53 18.72 3.68 12.67 17.46
Net Operating Profit Per Share
(Rs) 35.09 77.38 55.45 57.01 65.44
Free Reserves Per Share (Rs) 19.02 34.23 32.6 37.54 -0.02
Bonus in Equity Capital 67.1 62.67 62.67 60.86 60.57

Per share data (annualised):

Sugar Year Sep '06 Sep '07 Sep '08 Sep '09
2,481.5 2,481.5 2,555.3
Shares in issue (lakhs) 5 5 6 2,567.55
Earning Per Share (Rs) 11.75 -1.69 3.8 8.82
Equity Dividend (%) 350 0 50 300
Book Value (Rs) 36.5 34.82 39.72 45.77
Trend Analysis:
------------------- In Rs. Cr. -------------------
 % %
Sugar Year Sep '07 Growth Sep '08 Growth Sep '09 % Growth

Sales Turnover 1,391.72 100.00 1,475.56 106.02 1,704.58 122.4801

Other Income 10.21 100.00 2.11 20.67 1.69 16.5524

Total Income 1,401.93 100.00 1,477.67 105.40 1,706.27 121.7086

Total Expenses 1,302.65 100.00 1,148.17 88.14 1,251.87 96.10179

Operating
Profit 89.07 100.00 327.39 367.56 452.71 508.2632

Gross Profit 99.28 100.00 329.5 331.89 454.4 457.6954

Interest 54.42 100.00 89.65 164.74 96.85 177.9677

PBDT 44.86 100.00 239.85 534.66 357.55 797.0352

Depreciation 80.22 100.00 117.21 146.11 107.94 134.555

-
PBT -35.36 100.00 122.64 346.83 249.61 -705.911

Tax 6.48 100.00 25.61 395.22 23.1 356.4815

-
Net Profit -41.84 100.00 97.03 231.91 226.51 -541.372

Equity 24.82 100.00 25.55 102.94 25.68 103.4649

Reserves 839.17 100.00 989.35 117.90 114.94 13.69687

Comparative Financial Performance:
------------------- In Rs. Cr. -------------------
2Q SY 2Q SY 6 mths 6 mths
09 10 % Chg SY09 SY10 % Chg

Sales Turnover 357.11 470.51 31.8 786.56 910 15.7

 Other Income 0.23 0.71 208.7 0.76 2.68 252.6

Total Income 357.34 471.22 31.9 787.32 912.68 15.9

Total Expenses 225.95 389.07 72.2 539.67 696.91 29.1

Operating
Profit 131.16 81.44 -37.9 246.89 213.09 -13.7

Gross Profit 131.39 82.15 -37.5 247.65 215.77 -12.9

Interest 29.93 21.85 -27.0 54.86 39.16 -28.6

PBDT 101.46 60.3 -40.6 192.79 176.61 -8.4

Depreciation 26.7 26.52 -0.7 54.24 53.4 -1.5

PBT 74.76 33.78 -54.8 138.55 123.21 -11.1

Tax 8.57 6.23 -27.3 21.06 19.1 -9.3

Net Profit 66.19 27.55 -58.4 117.49 104.11 -11.4

Earnings Per
Share 2.59 1.07 -58.7 4.6 4.03 -12.4

Equity 25.55 25.85 1.2 25.55 25.85 1.2

During SY2007-09, BRCM registered modest 11.9% CAGR in Revenues to Rs1,747.1cr

from Rs1,394.8cr. The company ended the period with Net Profit of Rs209.1cr
compared to Loss of Rs50.5cr in SY2007, primarily on account of the forced government
ban on sugar Exports. The Export ban had resulted in the company's sugar realization
crashing as there was oversupply in the domestic market.

In 2Q of SY 10 the total sales were increased by 31.8%, it has been 470.51 than that of
357.11 in 2Q of SY 09.But the net profit is decreased by 58.40% ,the Net Profit was
27.55 in this quarter than that of 66.19 of 2Q of SY09, this all is due to increase in Raw
material(i.e. cost of sugar canes due to less production of sugar cane in country) cost.
Going ahead, we expect BRCM to crush 5.1mn tonnes of cane in SY2010E, yielding
0.6mn tonne of sugar respectively, in the mentioned years. BRCM also has a raw sugar
import contract for 85,000 tonnes, which will be processed and sold in SY2010E.

Meanwhile, the company's Distillery Realisations are expected to remain buoyant

following low availability of cane in the country resulting in a supply crunch. Hence, we
estimate the company's Distillery Division to record Revenue CAGR of 22% over
SY2009-10E to Rs200.5cr. With regards to the Power Division, the UP Power Grid has
allowed the sugar mills to operate the biogases-based boilers on coal also. Hence, many
sugar mills are converting boilers to dual feedstock.

However, on account of lower capacity and higher coal cost, blended Profitability is
likely to suffer. Hence, while expected Power Division Revenues to register significant
CAGR of around 87%, EBITDA growth is expected to slacken and register CAGR of
67% over SY2009-10E. Overall, we expect BRCM's Sales and PAT to post a CAGR of
36% and 38% over SY2009-10E, respectively.

VALUATION OF SECURITIES:

Sugar Year Dividend Per Share Growth Rate(%)

SY'05 1.6 0
SY'06 3.5 118.75
SY'07 0 -100
SY'08 0.5 50
SY'09 3 500
Total 568.75

Avg Annual Growth rate (g) = 568.75/5=113.75%

D1 = D0(1+g) P1= 52 weeks (High + Low)/2

= 3(1+1.14) = 117.2
= 6.42

Ke = (D1/P1)+g P0 = D1/(Ke-g)
=(6.42/117.2)+1.14 = 6.42/(1.195-1.14)
= 1.195 = 6.42/0.055
= 128.4 Rs

Current Market Price C0=80.25 Rs

Where,
D1= Expected dividend of next year
P1= Average of 52 weeks high- low
Ke= Investors Require Rate of Return
P0= Expected price of Share

Current market price (C0) of the share is lower than Expected price of Share (P0).Here
share price is undervalued so investors are advised to buy the share of the company.

Competitore Analysis:

Net Profit in (Cr.):

Company Name Net Profit

Shree Renuka 66.35
Bajaj Hind 114.4
Balrampur Chini 79.75
Bannariamman 876
Andhra Sugar 125
Earning Per Share :

Company Name Earning Per Share

Shree Renuka 7.64
Bajaj Hind 12.86
Balrampur Chini 8.25
Bannariamman 125.56
Andhra Sugar 24.66

Earning Per Share

140
120
100
80
60
40
20
0
Shree Renuka Bajaj Hind Balrampur Chini Bannariamman Andhra Sugar
Book Value (Rs)

Company Name Book Value (Rs)

Shree Renuka 39.24
Bajaj Hind 128.62
Balrampur Chini 45.77
Bannariamman 484.4
Andhra Sugar 120.25

Equity Dividend (Rs)

Company Name Equity Dividend (Rs)

Shree Renuka 1
Bajaj Hind 0.7
Balrampur Chini 3
Bannariamman 10
Andhra Sugar 6
P/E Ratio:

Company Name P/E Ratio

Industry 13.89
Shree Renuka 8.64
Bajaj Hind 8.71
Balrampur Chini 9.73
Bannariamman 7.00
Andhra Sugar 5.06
Quaterly Finacial Performance:
------------------- In Rs. Cr. -------------------
Shree Bajaj Balrampur Andhra
Company Name Renuka Hind Chini Bannariamman Sugar
Mar
Particular Mar '10 Mar '10 Mar '10 Dec '09 '10
Sales Turnover 1,557.00 631.95 470.51 248.36 133.39
Other Income 44.7 0.08 0.71 0.4 0.09
Total Income 1,601.70 632.03 471.22 248.75 133.49
Total Expenses 1,267.60 488.43 389.07 167.93 101.17
Operating Profit 289.4 143.52 81.44 80.43 32.22
Gross Profit 334.1 143.6 82.15 80.83 32.31
Interest 16 65 21.85 0.85 4.39
PBDT 318.1 78.6 60.3 79.98 27.92
Depreciation 19.4 46.08 26.52 8.36 8.81
PBT 298.7 32.52 33.78 71.62 19.11
Tax 102.8 0.73 6.23 13.8 6.5
Net Profit 195.9 31.79 27.55 57.82 12.61
Earnings Per Share 2.92 1.66 1.07 50.54 4.65
Equity 67 19.14 25.85 11.44 27.11
Balance Sheet:
------------------- in Rs. Cr. -------------------
Shree Bajaj Balrampur Andhra
Company Name  Renuka Hind Chini Bannariamman Sugar
Sep '09 Sep '09 Sep '09 Mar '09 Mar '09
Sources Of Funds
Total Share Capital 31.69 17.69 25.68 11.44 27.11
Equity Share Capital 31.69 17.69 25.68 11.44 27.11
Share Application
Money 20.59 18.9 0 0 0
Preference Share
Capital 0 0 0 0 0
Reserves 1,211.92 2,257.08 1,149.58 542.7 298.86
Revaluation Reserves 0 0 0 0 0
Networth 1,264.20 2,293.67 1,175.26 554.14 325.97
Secured Loans 1,257.99 1,956.73 972.03 197.39 179.27
Unsecured Loans 41.53 1,118.42 0 47.78 134.37
Total Debt 1,299.52 3,075.15 972.03 245.17 313.64
Total Liabilities 2,563.72 5,368.82 2,147.29 799.31 639.61
Application Of Funds
Gross Block 1,406.62 3,407.48 1,770.10 735.32 711.89
Less: Accum.
Depreciation 149.76 774.98 0 292.07 265.62
Net Block 1,256.86 2,632.50 1,770.10 443.25 446.27
Capital Work in
Progress 242.31 131.28 6.66 90.31 32.42
Investments 105.99 549.11 126.57 4.4 74.09
Inventories 1,002.32 800.45 343.43 287.58 195.87
Sundry Debtors 104.27 28.57 17.1 69.55 57.56
Cash and Bank Balance 7.06 77.53 32.97 5.11 8.32
Total Current Assets 1,113.65 906.55 393.5 362.24 261.75
Loans and Advances 753.86 2,289.26 369.14 143.47 104.52
Fixed Deposits 203.22 34.83 0 0.39 1.42
Total CA, Loans &
Advances 2,070.73 3,230.64 762.64 506.1 367.69
Deferred Credit 0 0 0 0 0
Current Liabilities 1,013.44 987.28 417.12 177.1 202.49
Provisions 100.41 187.42 102.1 67.64 78.37
Total CL & Provisions 1,113.85 1,174.70 519.22 244.74 280.86
Net Current Assets 956.88 2,055.94 243.42 261.36 86.83
Miscellaneous Expenses 1.67 0 0.53 0 0
Total Assets 2,563.71 5,368.83 2,147.28 799.32 639.61
Contingent Liabilities 389 155.84 49.14 156.87 5.82
Book Value (Rs) 39.24 128.62 45.77 484.4 120.25

Profit & Loss account:

 ------------------- in Rs. Cr. -------------------
Andhr
Shree Bajaj Balramp Bannariamm a
Company Name  Renuka Hind ur Chini an Sugar
Mar
Sep '09 Sep '09 Sep '09 Mar '09 '09
Income
2,320.6 1,662.0
Sales Turnover 4 3 1,771.02 732.01 648.67
Excise Duty 86.43 59.2 90.87 21.19 46.16
2,234.2 1,602.8
Net Sales 1 3 1,680.15 710.82 602.51
Other Income 5.59 193.39 6.23 1.19 0.36
Stock Adjustments 581.51 -156.55 -283.17 -26.46 -46.37
2,821.3 1,639.6
Total Income 1 7 1,403.21 685.55 556.5
Expenditure
2,241.1
Raw Materials 5 852.22 763.38 366.47 241.39
Power & Fuel Cost 31.31 14.98 0 50.2 75.52
Employee Cost 51.44 120.83 95.5 29.56 52.23
Other Manufacturing
Expenses 47.84 14.93 80.02 25.11 19.71
Selling and Admin
Expenses 55.18 31.67 0.06 35.39 28.75
Miscellaneous Expenses 12.86 39.63 9.83 1.85 5.16
2,439.7 1,074.2
Total Expenses 8 6 948.79 508.58 422.76
Operating Profit 375.94 372.02 448.19 175.78 133.38
PBDIT 381.53 565.41 454.42 176.97 133.74
Interest 101.44 295.06 96.85 10.49 32.24
PBDT 280.09 270.35 357.57 166.48 101.5
Depreciation 62.46 202.21 107.94 34.08 33.42
Profit Before Tax 217.63 68.14 249.63 132.4 68.08
Extra-ordinary items 0 136.23 13.91 -0.52 0.33
PBT (Post Extra-ord
Items) 217.63 204.37 263.54 131.88 68.41
Tax 74.14 49.77 37.01 12.07 23.01
Reported Net Profit 143.51 156.24 226.51 119.83 45.28
Total Value Addition 198.62 222.04 185.42 142.12 181.37
Preference Dividend 0 0 0 1.66 0
Equity Dividend 31.69 12.38 77.03 11.44 16.26
Corporate Dividend Tax 5.39 2.1 13.09 2.23 2.43
Limitation of the Project
1. As the data available to me has been taken from the secondary sources (like
internet). It is not sure that collected data are accurate and complete.
2. Because of the time limitation, it may be possible that some important data are
left out.
3. The data, which are very useful for the fundamental analysis are lacking in this
Project or contract that, are still in negotiation or any kind of deal that is in
process. Here that is ignored.
4. Due to lack of experience and knowledge of the Sugar industry it can’t be said
that the projection has been made totally correct and accurate.
5. Production of sugar depends on the Monsoon, prediction that can not be done
accurately.
6. As the time available was very less, so fundamental analysis has been done only
of five companies. This may led to misinterpretation of the industry.
7. Today’s stock market is totally running on the investors perception so the
conclusion derived on the basis if fundamental analysis would not viable in long
run.

SUGGESTIONS FOR INVESTORS

 Sugar sector have lots of room to grow; so invest in theses type of
industries helps the investors at long time.
 Buy shares of reputed companies backed by top class management.
 Do not invest in inactive shares generally it is difficult to encash them.
 Before investing we should undertake a deeps study on the net sales, net
profits in relations to equity capital employed & should attempt to forecast
for the coming years.
 From the company point of view, the company should allow the investors
to take part in board of directors meeting & gives maximum dividend to
the shareholders.
 Do not over pay for growth.
 Do not invest in unlisted shares.
 The investors should become cautious while investing for very long time.
 The investors should analyze the price movement.
 Economic performance is greatly affected to the performance of the
industries of the country, so investors should know economic performance
of the country while investing.
 Before investing in any company, this is required to implement all the data
& financial results & also decision him self.
 If they follow the market trends then they can deliver high returns & also
they should have reduced the risks.
Conclusion:

On the basis of data collected and analyzed the sugar industry is showing great growth
future, so investors can make good money in sugar sector in long-term perspective. After
analysis of financial statements, ratios, management and future plans of different
company’s of sugar sector the stock that have good P/E ratio and are not overvalued and
can give better returns than that of others are Shree Renuka Sugar Limited and
Bannariamman sugar limited.

Shree Renuka Sugar limited has shown great performance in past few years, in terms of
profitability, growth rate and returns. It P/E Ratio of company is well below the industry
P/E ratio ie 8.64 against 13.89 of industry P/E Ratio, this shows that company stocks are
not a costly stock as compare to it returns. The new acquisition deal of Brazilian
company Equipav SA Acucar e Alcool of Equipav group at 24% less than previous quote
is sing of good management, this deal is very much profitable form companies point of
view and will make the company among top producers of sugar in world market.

Bannari amman sugar limited is highly diversified and profitable company in sugar sector
the ratio’s support the decision of investment in this stock, company’s EPS in high
among all other in this sector (Only with in companies analysed), and the P/E ratio is also
less 7.00 against 13.89 of industry P/E ratio.

The long-term outlook is extremely bullish for sugar.