Bajaj Hindustan Ltd.,

1. Bajaj Hindustan Ltd., We recommend Buy with a price target of 400. Buying level : 230. Target : 310 – 400. The scrip has broken the major resistance at 225 and closed for 2 days and if closes above the level On weekly basis will move to the respective target.

2. Company Outlook Company Description Bajaj Hindusthan Limited (BHL), a Shishir Bajaj promoted company headquartered at Mumbai, is India’s largest and the world’s leading sugar and ethanol producer. Having a huge presence in western and central cane-rich UP belt and now foraying into eastern UP, BHL is likely to have a pan- UP presence with ~ 30% market share. Its manufacturing facilities are spread across UP and currently it has sugar capacity of 1, 00,000 TCD. In addition, it also has 320 KLPD distillery capacities scalable to 800 KLPD by SS08, and 90 MW of saleable power by SS07. Post expansion, the BHL group is expected to have 14 operating mills across UP. The Indian giant is also looking for inorganic growth in the South American market, particularly Brazil, to tap opportunities coming from the fuel market.

3. Valuation Summary Investment Theme At sugar capacity in excess of 1, 00,000 TCD and likely sugar production of 1.3 MMT in SS07, in an unfavorable macro environment, BHL is likely to face tough times ahead. Though the scale of the business touches new highs in the context of domestic capacities, we are uncomfortable on an ‘expanding capacity’-based business model, especially in the backdrop of a not-so-bright underlying commodity scenario. BHL trades at a significant premium to peers, which, in our opinion, is unwarranted, given that inherent equity dilution risk and increasing debt levels to fund its expansion plans is likely to keep returns ratios depressed in the medium term. Further, we are yet to see significant de-risking through co-products in BHL despite strong capacity ramp-up and believe that stock valuations do not leave any margin of safety for investors. In the absence of any near term triggers leading to improvement in sugar realisation/prices, raw material costs likely to move northwards in a very competitive environment, and a stretched balance sheet.

4. Key Risks Key risks to Investment theme Dramatic improvement in sugar realisations in short to medium term in the Domestic market or the International market. Being an agrarian commodity driven by Natural forces any medium term adverse climatic changes could affect cane availability. Any subsidy/government incentive could help bail our sugar companies which have not been factored into our estimates.

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