Leveraging the upturn

Bajaj Hindusthan's output, price realisations improve

Bajaj Hindusthan appears to have fully leveraged the current upturn in the sugar industry with the company's profit before tax and extraordinary items expanding 119.5 per cent to Rs 170.48 crore for its year ended September 30, 2005.

Also, for the September quarter, the company grew its profit before tax and extraordinary items by 53.8 per cent to Rs 52.26 crore.

The company's sugar business has seen an improvement both in terms of output and price realisations. Production levels in the last financial year are estimated to have grown 60 per cent, while sugar sales have grown almost 43.4 per cent.

Also, the company's realisations have expanded about 18 per cent on a y-o-y basis to almost Rs 17 per kg (net of excise) in FY05. As a result, the key sugar division has seen segment profits expand almost 105 per cent to Rs 158.85 crore.

The company's distillery business also saw segment profit expand 78.5 per cent to Rs 24.04 crore, and that was due to better realisations for ethanol (sold to oil companies) and alcohol (sold to distillers).

To leverage this growth, the company is expanding the capacity of its distillery division to 800 kilo litres per day. Meanwhile, overall operating profit margin, too, expanded 506 basis points to 22.74 per cent in FY06.

The company is focussing on expanding capacity aggressively - it had earlier announced that its capacity would be enhanced to 95,000 tcd (tonnes crushed per day) by October 2006, from the present 53,000 tcd.

In addition, it has also taken a majority stake in Pratappur Sugar recently, and senior management has emphasised that their priority is to utilise Pratappur's existing capacity of 3,200 tcd to produce about 4.5 lakh sugar bags by September 06.

The stock appears reasonably valued with a discounting of almost 19.5 times trailing earnings.

Mutual funds

Net mutual fund inflows in growth funds (equity funds except ELSS) fell to Rs 655 crore as compared to a total inflow of Rs 9,472 crore in the previous three months, according to AMFI data.

Nevertheless, the total assets under management for the growth category of mutual funds has doubled since January 2005 to Rs 63,937 crore in November 2005 as the market has gone up.

It appears that domestic fund investors have been at variance with the FIIs who have pumped in around Rs 4,448 crore in November.

According to AMFI, one new scheme collected Rs 1,583 crore, otherwise redemptions are higher than sales of existing funds in November. Since the beginning of the current financial year, this has been the trend, except for April and November.

In both months, the market fell over the previous month, and investors bought existing funds with renewed vigour.

Fund investors seem to be getting savvier to buy on dips, and for the mutual fund industry, it could be good news that it is able to attract mature investors who are not afraid to buy when markets are falling. 

SLOWING MUTUAL FUNDS
(Rs cr)	Sales	New fund sales	Redemptions	Net inflows
Apr	3422	739	1266	2895
May	1872	4136	2971	3037
Jun	3655	857	4463	49
Jul	3495	838	3599	734
Aug	3543	3912	4006	3449
Sep	4530	3566	4900	3196
Oct	4246	1000	2419	2827
Nov	3170	1583	4098	655

The other trend emerging from the AMFI data is that liquid funds have seen a fall of Rs 4590 crore in their assets over October. Tighter money situation, expansion plans and better returns elsewhere have seen corporates avoid liquid funds""a trend that will continue in the near future.

Doom Dooma Tea: Win-win deal

Hindustan Lever's plans of divesting its tea plantation business have progressed further with the sale of Doom Dooma Tea Company to McLeod Russel. In May 2005, the Unilever group had divested its stake in loss-making Rossell Industries.

Earlier this year, HLL had taken the decision to exit from the plantation business as there is little synergy between the packaged tea business and the plantation business.

The sale will fetch HLL Rs 69 crore plus net current assets at the end of 2005. Compared to the small profit of Tea Estates unit in Tamil Nadu, which too is on the block, Doom Dooma was making losses at the operating levels.

McLeod Russel is aggressively buying tea estates, and this, no doubt, is a good deal. Earlier, it had acquired the bulk tea division of Eveready and Williamson Tea Assam. With this acquisition, it will get another 3100 hectares with three tea processing units and an output of 6,000 tonnes.

Moreover, these seven tea estates are close to its existing plantations. McLeod will have to work hard on improving labour productivity (Doom Dooma has 6,100 permanent employees) and crop yield. Managing plantations is McLeod's strength, while for HLL it was not a focus area.

The stock market has approved of McLeod's purchase as the stock gained 7.95 per cent to Rs 65. The HLL stock price gained 1.13 per cent to Rs 188.40.