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 2010 2009 2008 2007

Mar 8.60 5.80 8.50 9.60

Jun

Sep

Dec

Average 8.60

6.00 7.80 9.30

8.60 7.50 9.40

6.50 6.10 9.70

6.73 7.48 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 16.2 2010 2 10.4 2009 5 2008 2007 5.51 6.72 Feb 14.8 6 9.63 5.47 7.56 Mar 14.8 6 8.03 7.87 6.72 Apr 13.3 3 8.70 7.81 6.67 8.63 7.75 6.61 9.2 9 7.6 9 5.6 9 11.8 9 8.33 6.45 11.7 2 9.02 7.26 11.6 4 9.77 6.40 11.4 9 10.4 5 5.51 13.5 1 10.4 5 5.51 14.97 9.70 5.51 May Jun Jul Aug Sep Oct Nov Dec

* 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 2010 2009 2008 2007

Jan 46.10 48.79 39.32 44.33

Feb 46.41 49.58 39.74 44.13

Mar 45.45 51.12 40.32 43.94

Apr 44.47 50.02 39.95 42.07

May 45.99 48.60 41.98 40.86

Jun 46.85 47.73 42.85 40.81

Jul

Aug

Sep

Oct

Nov

Dec

48.36 48.34 48.38 46.80 46.61 46.55 42.77 42.97 45.69 48.77 49.20 48.47 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 200910, 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 Andhra Pradesh Bihar Gujarat Haryana Karnataka Maharashtra Punjab Tamil Nadu Uttar Pradesh Others Total 2007/08 Final 13.4 3.4 13.7 6 29 90.8 5.3 21.4 73.2 7.5 263.56 2008/09 Revised 5.9 2.1 10.1 2.3 16.5 45.8 2.4 16 40.6 3.5 145.38 2009/10 Revised 5.5 2.6 12 2 22 63 1.8 12 52 4.1 177 2009/10 Forecast 12 3 14 4 24 74 4 20 65 7 227

Import Trade matrix: Centrifugal Sugar
(Quantities in Raw weight basis) Time Period Imports for: U.S. Others Brazil Thailand Myanmar South Africa U.A.E Total for Others Others not Listed Grand Total 2009 0 U.S. Others 257020 Brazil 0 144260 Thailand 23590 U.A.E 29950 Argentina 18000 Guatemala 278600 0 0 Oct-Sept Units: Metric Tons 2010 0 2376600 375750 79980 22970 17390 2872690 63710

278600 0

2936400
Note: Import figures for 2010 refer to the period Oct, 2009 to Feb 2010.

Industrial Ratio Analysis: Profitability Ratios:
Ratios Gross Margin Operating Margin PBT Net Profit Margin Return on Assets Return on Investment Return on Equity % Ratio 6.54 2.46 2.35 1.70 1.54 2.25 4.61

Liquidity and Solvency Ratios:
Ratio Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio % Ratio 1.68 1.27 48.41 29.84

Management Efficiency Ratios:
Ratio Inventory Turnover Debtors Turnover Asset Turnover % Ratio 1.38 1.96 0.25

Investment Valuation Ratios:
Ratio P/E Ratio Beta Price to Sales Price to Book Price to Tangible Book Price to Cash Flow % Ratio 13.89 0.47 0.3 1.69 1.54 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 byproducts, 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 Market Cap (Rs cr) Beta 52 Week High/Low 6m Avg Volume (000 nos) Face value (Rs) BSE Sansex Nifty Reuters Code Blommberg code sugar 4213 1.11 124/45 11605 1 17570.82 5562.6 SRES.BO SHRS IB

Share Holding Pattern:
Particular Foreign Domestic Non Promoter Corporate Holding Promoters Public & others Total no. of shares(Mn) 157.05 85.18 59.29 254.4 113.88 669.8 % 23.50% 12.70% 8.90% 38.00% 17.10% 100%

Ratio Analysis: Profitability Ratios:
Sugar Year Operating Profit Margin(%) PBIT (%) Gross Profit Margin(%) Cash Profit Margin(%) Net Profit Margin(%) ROCE(%) Return On Net Worth(%) SY06 12.38 11.29 11.23 7.46 6.44 17.23 24.99 SY07 14.54 11.26 14.33 9.8 6.72 10.44 16.21 SY08 13.31 11.23 11.24 6.34 5.27 12.18 15.08 SY09 16.82 14 14.03 9.15 6.41 12.4 11.55

Liquidity and Solvency Ratios:
Sugar Year Current Ratio Quick Ratio SY06 0.83 1.16 SY07 0.69 1.45 SY08 0.9 1.15 SY09 1.15 0.88

Debt Equity Ratio Long Term Debt Equity Ratio

1.67 1.21

1.96 1.43

1.6 1.22

1.04 0.77

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

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

Per share data (annualised):
Sugar Year  Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs) Sep '06 238.1 23.34 20 93.43 Sep '07 248.1 20.51 20 132.81 Sep '08 2,759.63 3.36 20 22.35 Sep '09 3,169.00 4.53 100 39.24

Trend Analysis:
------------------- In Rs. Cr. -------------------

Sugar Year Sales Turnover Other Income Total Income Total Expenses Operating Profit Gross Profit Interest PBDT Depreciation PBT Tax Net Profit Earnings Per Share Equity Reserves

Sep '07 732. 4 11.5 743. 9 627. 7 104. 7 116. 2 13.3 102. 9 24.9 78 23.6 54.4 21.9 3 24.8 1 304.

Percentage Sep '08 1,815.2 100 0 100 -0.3 1,814.9 100 0 1,596.9 100 0 100 100 100 100 100 100 100 100 100 100 100 218.3 218 67.8 168.4 36.5 131.9 39.2 92.7 3.36 27.6 589.3

Percentage Sep '09 2,234.2 247.8 0 -2.6 5.6 2,239.8 244.0 0 1,871.3 254.4 0 208.5 187.6 509.8 163.7 146.6 169.1 166.1 170.4 15.3 111.2 193.4 362.9 368.5 88.4 280.1 62.5 217.6 74.1 143.5 4.53 31.7 1,211.9

Percentage 305.1 48.7 301.1 298.1 346.6 317.1 664.7 272.2 251.0 279.0 314.0 263.8 20.7 127.8 397.7

7

0

Comparative Financial Performance:
Sugar Year Sales Turnover Other Income Total Income Total Expenses Operating Profit Gross Profit Interest PBDT Depreciation PBT Tax Net Profit Earnings Per Share Equity Reserves ------------------- In Rs. Cr. ------------------6 mths 6 mths Mar Mar '09 Mar '10 % Chg Mar '09 '10 324.1 2.4 326.5 245.3 78.8 81.2 29.2 52 15.5 36.5 12.4 24.1 0.86 28 648.1 1,557.00 44.7 1,601.70 1,267.60 289.4 334.1 16 318.1 19.4 298.7 102.8 195.9 2.92 67 1,773.10 380.4 1,762.5 390.6 416.8 267.3 311.5 -45.2 511.7 25.2 718.4 729.0 712.9 239.5 139.3 173.6 662.4 3.6 666 526.9 135.5 139.1 58.2 80.9 28.9 52 17.8 34.2 1.22 28 648.1 2,810.00 71.4 2,881.40 2,247.10 562.9 634.3 37 597.3 37.4 559.9 169.3 390.6 5.83 67 1,773.10 % Chg

324.2 1883.3 332.6 326.5 315.4 356.0 -36.4 638.3 29.4 976.7 851.1 1042.1 377.9 139.3 173.6

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 1520% 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:
Sugar Year SY'05 SY'06 SY'07 SY'08 SY'09 Dividend Per Share 2 2 2 0.2 1 Total Growth Rate(%) 0 0 0 -90 400 310

Avg Annual Growth rate (g) = 310/5=62% D1 = D0(1+g) = 1(1+0.62) = 1.62 Ke = (D1/P1)+g = (1.62/87.45)+0.62 = 0.639 P1=52 weeks (High + Low)/2 =87.45 P0 = D1/(Ke-g) = 1.62 / (0.639-0.62) = 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 cogeneration 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 Market Cap (Rs cr) Beta 52 WK High / Low Avg Volume Face value BSE Sensex Nifty Reuters Code Bloomberg Code Sugar 1950 1.45 243/98.80 1462586 1 17570.82 5562.6 BJHN.BO BJH@IN

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

Ratio Analysis: Profitability Ratio:
Sugar Year Operating Profit Margin(%) SY05 24.07 SY06 21.98 SY07 13.18 SY08 15.32 SY09 23.21

PBIT(%) Gross Profit Margin(%) Cash Profit Margin(%) Net Profit Margin(%) ROCE(%) RONW(%)

19.53 23.66 20.58 16.46 16.13 22.86

16.2 22.42 17.29 12.53 11.04 13.94

4.34 10.4 10.68 2.53 3.99 3.18

4.41 4.72 11.38 -2.52 4.35 -3.54

9.85 10.59 8.55 9.06 5.4 6.86

Liquidity and Solvency Ratios:
Sugar Year Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio SY05 0.65 0.74 0.83 0.71 SY06 1.26 1.52 1.1 1 SY07 1.72 1.54 2.02 1.89 SY08 2.46 1.71 2.53 2.52 SY09 2.55 1.9 1.35 1.31

Management Efficiency Ratios:
Sugar Year Inventory Turnover Ratio Debtors Turnover Ratio Asset Turnover Ratio SY05 15.35 36.67 1.28 SY06 12.44 36.4 1.13 SY07 4.57 19.88 0.65 SY08 3.19 23.21 0.58 SY09 2.24 45.24 0.47

Investment Valuation Ratios:
Sugar Year Face Value Dividend Per Share Operating Profit Per Share (Rs) Net Operating Profit Per Share (Rs) Free Reserves Per Share (Rs) Bonus in Equity Capital SY05 1 0.5 17.33 72.01 50.77 45.64 SY06 1 0.6 22.56 102.61 86.52 37.55 SY07 1 0.6 15.92 120.79 91.48 37.55 SY08 1 0.6 19.15 125 85.14 37.55 SY09 1 0.7 21.04 90.63 118.88 30.02

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

Trend Analysis:
------------------- In Rs. Cr. -------------------

Sep '07 Sales Turnover Other Income Total Income Total Expenses Operating Profit Gross Profit Interest PBDT Depreciation PBT Tax 1,713.01 30.65 1,743.66 1,495.21 217.8 248.45 63.73 184.72 146.88 37.84 -7.81

Percentage 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Sep '08 1,794.35 8.52 1,802.87 1,584.33 210.02 218.54 139.44 79.1 187.22 -108.12 -57.95

Percentage 104.75 27.80 103.40 105.96 96.43 87.96 218.80 42.82 127.46 -285.73 742.00

Sep '09 1,780.71 34.18 1,814.89 1,219.60 561.11 595.29 187.08 406.59 202.21 204.38 49.77

Percentage 103.9521 111.5171 104.0851 81.56714 257.6263 239.6015 293.5509 220.1115 137.6702 540.1163 -637.26

Net Profit Earnings Per Share

45.65 3.23

100.00 100.00

-50.17 --

-109.90 ---

154.61 8.74

338.6857 270.5882

Comparative Financial Performance:
------------------- In Rs. Cr. -------------------

Sales Turnover Other Income Total Income Total Expenses Operating Profit Gross Profit Interest PBDT Depreciation PBT Tax Net Profit Earnings Per Share

2Q Mar '09 515.93 -515.93 279.86 236.07 236.07 62.54 173.53 54.72 118.81 37.42 81.39 5.76

2Q Mar '10 631.95 0.08 632.03 488.43 143.52 143.6 65 78.6 46.08 32.52 0.73 31.79 1.66

% Chg 22.5 80 22.5 74.5 -39.2 -39.2 3.9 -54.7 -15.8 -72.6 -98.0 -60.9 -71.2

6 mths Mar '09 878.17 -878.17 633.08 245.09 245.09 111.18 133.91 103.17 30.74 5.29 25.45 1.8

6 mths Mar '10 1,261.08 3.23 1,264.31 903.36 357.72 360.95 110.63 250.32 97.12 153.2 36.21 116.99 6.11

% Chg 43.6 323 44.0 42.7 46.0 47.3 -0.5 86.9 -5.9 398.4 584.5 359.7 239.4

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 SY'05 SY'06 SY'07 SY'08 SY'09 Dividend Per Share 0.5 0.6 0.6 0.6 0.7 Total Growth Rate(%) 0 20 0 0 16.7 36.7

Avg Annual Growth rate (g) = 36.7/5=7.34% D1 = D0(1+g) = 0.7(1+0.0734) = 0.75 Ke = (D1/P1)+g =(0.75/170.9)+0.0734 = 0.078 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 P1 = 52 Weeks (High + Low)/2 = 170.9 P0 = D1/(Ke-g) = 0.75/(0.078-0.0734) = 0.75/0.0046 = 163.04 Rs

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

Share Holding Pattern:
Promoters MF/Banks/Indian Fis FII/NRI/OCBs Indian Public/ Others 36.4 32.5 15.1 16

Ratio Analysis: Profitability Ratios:

Sugar Year Operating Profit Margin(%) PBIT Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Net Profit Margin(%) ROCE (%) RONW (%)

SY05 30.02 25.34 27.93 19.88 15.31 23.87 25.43

SY06 24.19 20.67 22.48 18.65 15.16 27.38 32.2

SY07 6.64 0.8 2.85 2.76 -3.01 0.98 -4.84

SY08 22.23 14 14.18 14.63 6.57 9.42 9.57

SY09 26.67 20.17 20.24 19 13.43 16.13 19.28

Liquidity and Solvency Ratios:
Sugar Year Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio SY05 0.84 0.38 0.79 0.41 SY06 0.46 0.58 0.6 0.3 SY07 0.33 0.47 1.49 0.51 SY08 1.02 0.65 1.34 1.11 SY09 1.47 0.7 0.83 0.83

Management Efficiency Ratios:
Sugar Year Inventory Turnover Ratio Debtors Turnover Ratio Asset Turnover Ratio SY05 1.74 31.07 1.05 SY06 9.69 44.57 1.43 SY07 3.2 27.02 0.7 SY08 3.14 30.61 0.61 SY09 5.16 50.84 0.95

Investment Valuation Ratios:
Sugar Year Face Value Mar '05 1 Sep '06 1 Sep '07 1 Sep '08 1 Sep '09 1

Dividend Per Share Operating Profit Per Share (Rs) Net Operating Profit Per Share (Rs) Free Reserves Per Share (Rs) Bonus in Equity Capital

1.6 10.53 35.09 19.02 67.1

3.5 18.72 77.38 34.23 62.67

0 3.68 55.45 32.6 62.67

0.5 12.67 57.01 37.54 60.86

3 17.46 65.44 -0.02 60.57

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

Trend Analysis:
------------------- In Rs. Cr. -------------------

Sugar Year Sales Turnover Other Income Total Income Total Expenses Operating Profit Gross Profit Interest PBDT Depreciation PBT Tax Net Profit Equity Reserves

Sep '07 1,391.72 10.21 1,401.93 1,302.65 89.07 99.28 54.42 44.86 80.22 -35.36 6.48 -41.84 24.82 839.17

% Growth 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Sep '08 1,475.56 2.11 1,477.67 1,148.17 327.39 329.5 89.65 239.85 117.21 122.64 25.61 97.03 25.55 989.35

% Growth 106.02 20.67 105.40 88.14 367.56 331.89 164.74 534.66 146.11 346.83 395.22 231.91 102.94 117.90

Sep '09 1,704.58 1.69 1,706.27 1,251.87 452.71 454.4 96.85 357.55 107.94 249.61 23.1 226.51 25.68 114.94

% Growth 122.4801 16.5524 121.7086 96.10179 508.2632 457.6954 177.9677 797.0352 134.555 -705.911 356.4815 -541.372 103.4649 13.69687

Comparative Financial Performance:
------------------- In Rs. Cr. -------------------

2Q SY 09 Sales Turnover 357.11

2Q SY 10 470.51

% Chg 31.8

6 mths SY09 786.56

6 mths SY10 910

% Chg 15.7

Other Income Total Income Total Expenses Operating Profit Gross Profit Interest PBDT Depreciation PBT Tax Net Profit Earnings Per Share Equity

0.23 357.34 225.95 131.16 131.39 29.93 101.46 26.7 74.76 8.57 66.19 2.59 25.55

0.71 471.22 389.07 81.44 82.15 21.85 60.3 26.52 33.78 6.23 27.55 1.07 25.85

208.7 31.9 72.2 -37.9 -37.5 -27.0 -40.6 -0.7 -54.8 -27.3 -58.4 -58.7 1.2

0.76 787.32 539.67 246.89 247.65 54.86 192.79 54.24 138.55 21.06 117.49 4.6 25.55

2.68 912.68 696.91 213.09 215.77 39.16 176.61 53.4 123.21 19.1 104.11 4.03 25.85

252.6 15.9 29.1 -13.7 -12.9 -28.6 -8.4 -1.5 -11.1 -9.3 -11.4 -12.4 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 SY'05

Dividend Per Share Growth Rate(%)
1.6

0

SY'06 SY'07 SY'08 SY'09

3.5 0 0.5 3

118.75 -100 50 500 568.75

Total

Avg Annual Growth rate (g) = 568.75/5=113.75% D1 = D0(1+g) = 3(1+1.14) = 6.42 Ke = (D1/P1)+g =(6.42/117.2)+1.14 = 1.195 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. P1= 52 weeks (High + Low)/2 = 117.2 P0 = D1/(Ke-g) = 6.42/(1.195-1.14) = 6.42/0.055 = 128.4 Rs

Competitore Analysis: Net Profit in (Cr.):
Company Name Shree Renuka Bajaj Hind Balrampur Chini Bannariamman Andhra Sugar Net Profit 66.35 114.4 79.75 876 125

Earning Per Share :
Company Name Shree Renuka Bajaj Hind Balrampur Chini Bannariamman Andhra Sugar Earning Per Share 7.64 12.86 8.25 125.56 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 Shree Renuka Bajaj Hind Balrampur Chini Bannariamman Andhra Sugar

Book Value (Rs) 39.24 128.62 45.77 484.4 120.25

Equity Dividend (Rs)
Company Name Shree Renuka Bajaj Hind Balrampur Chini Bannariamman Andhra Sugar Equity Dividend (Rs) 1 0.7 3 10 6

P/E Ratio:

Company Name Industry Shree Renuka Bajaj Hind Balrampur Chini Bannariamman Andhra Sugar

P/E Ratio 13.89 8.64 8.71 9.73 7.00 5.06

Quaterly Finacial Performance:
------------------- In Rs. Cr. ------------------Company Name Particular Sales Turnover Other Income Total Income Total Expenses Operating Profit Gross Profit Interest PBDT Depreciation PBT Tax Net Profit Earnings Per Share Equity Shree Renuka Mar '10 1,557.00 44.7 1,601.70 1,267.60 289.4 334.1 16 318.1 19.4 298.7 102.8 195.9 2.92 67 Bajaj Hind Mar '10 631.95 0.08 632.03 488.43 143.52 143.6 65 78.6 46.08 32.52 0.73 31.79 1.66 19.14 Balrampur Chini Mar '10 470.51 0.71 471.22 389.07 81.44 82.15 21.85 60.3 26.52 33.78 6.23 27.55 1.07 25.85

Andhra Bannariamman Sugar Mar Dec '09 '10 248.36 0.4 248.75 167.93 80.43 80.83 0.85 79.98 8.36 71.62 13.8 57.82 50.54 11.44 133.39 0.09 133.49 101.17 32.22 32.31 4.39 27.92 8.81 19.11 6.5 12.61 4.65 27.11

Balance Sheet:
Company Name  Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deferred Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs) ------------------- in Rs. Cr. ------------------Shree Bajaj Balrampur Renuka Hind Chini Bannariamman Sep '09 Sep '09 Sep '09 Mar '09 31.69 31.69 20.59 0 1,211.92 0 1,264.20 1,257.99 41.53 1,299.52 2,563.72 1,406.62 149.76 1,256.86 242.31 105.99 1,002.32 104.27 7.06 1,113.65 753.86 203.22 2,070.73 0 1,013.44 100.41 1,113.85 956.88 1.67 2,563.71 389 39.24 17.69 17.69 18.9 0 2,257.08 0 2,293.67 1,956.73 1,118.42 3,075.15 5,368.82 3,407.48 774.98 2,632.50 131.28 549.11 800.45 28.57 77.53 906.55 2,289.26 34.83 3,230.64 0 987.28 187.42 1,174.70 2,055.94 0 5,368.83 155.84 128.62 25.68 25.68 0 0 1,149.58 0 1,175.26 972.03 0 972.03 2,147.29 1,770.10 0 1,770.10 6.66 126.57 343.43 17.1 32.97 393.5 369.14 0 762.64 0 417.12 102.1 519.22 243.42 0.53 2,147.28 49.14 45.77 11.44 11.44 0 0 542.7 0 554.14 197.39 47.78 245.17 799.31 735.32 292.07 443.25 90.31 4.4 287.58 69.55 5.11 362.24 143.47 0.39 506.1 0 177.1 67.64 244.74 261.36 0 799.32 156.87 484.4 Andhra Sugar Mar '09 27.11 27.11 0 0 298.86 0 325.97 179.27 134.37 313.64 639.61 711.89 265.62 446.27 32.42 74.09 195.87 57.56 8.32 261.75 104.52 1.42 367.69 0 202.49 78.37 280.86 86.83 0 639.61 5.82 120.25

Profit & Loss account:

------------------- in Rs. Cr. -------------------

Company Name 

Shree Renuka Sep '09

Bajaj Hind Sep '09 1,662.0 3 59.2 1,602.8 3 193.39 -156.55 1,639.6 7

Balramp ur Chini Sep '09

Bannariamm an Mar '09

Andhr a Sugar Mar '09

Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax 2,320.6 4 86.43 2,234.2 1 5.59 581.51 2,821.3 1 2,241.1 5 31.31 51.44 47.84 55.18 12.86 2,439.7 8 375.94 381.53 101.44 280.09 62.46 217.63 0 217.63 74.14 143.51 198.62 0 31.69 5.39 1,771.02 90.87 1,680.15 6.23 -283.17 1,403.21 732.01 21.19 710.82 1.19 -26.46 685.55 648.67 46.16 602.51 0.36 -46.37 556.5

852.22 14.98 120.83 14.93 31.67 39.63 1,074.2 6 372.02 565.41 295.06 270.35 202.21 68.14 136.23 204.37 49.77 156.24 222.04 0 12.38 2.1

763.38 0 95.5 80.02 0.06 9.83 948.79 448.19 454.42 96.85 357.57 107.94 249.63 13.91 263.54 37.01 226.51 185.42 0 77.03 13.09

366.47 50.2 29.56 25.11 35.39 1.85 508.58 175.78 176.97 10.49 166.48 34.08 132.4 -0.52 131.88 12.07 119.83 142.12 1.66 11.44 2.23

241.39 75.52 52.23 19.71 28.75 5.16 422.76 133.38 133.74 32.24 101.5 33.42 68.08 0.33 68.41 23.01 45.28 181.37 0 16.26 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.

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