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Shree Renuka Sugars -Low sugar margins in Brazil hit bottomline…
Shree Renuka Sugars reported dismal Q3SY10 results with the net profit
declining 43.5% to | 66. 4 crore from | 117.4 crore in Q4FY10 as domestic
sugar prices remained muted and on low realisation from Renuka do Brasil.
Sugar realisations for Renuka do Brasil remained low at ~16 cents/lb as the
company entered into long contracts of sugar much earlier at low prices.
Net sales increased 57.5% from | 1427.0 crore to | 2247.0 crore led by the
increased volumes after the addition of Brazilian subsidiaries. EBITDA
margins dipped to 13.4% due to lower realisation from India as well as
Brazil. Interest cost increased drastically from | 29.4 crore to | 116.5 crore
due to large debt on Brazilian subsidiaries books. Depreciation provisioning
increased from | 19.5 crore to | 168 crore after the acquisitions in Brazil.
Operational highlights
Sugar volumes from Indian operations declined 5.7% from 2,99,219 tonnes
to 2,82,048 tonnes. The company exported 1,12,025 tonnes of sugar at |
30.6 per kg while 1,70,023 tonnes were sold domestically at | 26.5 per kg.
Distillery volumes remained flat at 13,664 kilolitres with average realisations
of 27.7 per litre. In the power segment, the company sold 10.8 million units
compared to 8.0 million tonnes in the corresponding quarter. The
realisation was | 3.8 per unit compared to | 4.9 per unit as merchant prices
dipped in the quarter.
Valuation
At the current price of | 80, the stock is trading at 14.8x its SY11E EPS of |
5.4 and 9.9x its SY12E EPS of | 8.1. Despite the surge in global sugar prices
above 30 cents/lb, the company was unable to scale up its margins as it
entered into sugar contracts at low prices. We believe revenues from
Brazilian subsidiaries in Q2SY11 would remain dismal as the company sold
its entire sugar inventories. Simultaneously, earnings from Indian
operations would also remain subdued due to lower realisations. However,
we believe the company’s strategy to hedge against sugar prices would
create a cushion in a volatile price scenario and fetch higher realisation in
the second half of the year. We remain positive on the stock and value it at
11x its FY12 EPS of | 8.1 with a target price of | 89.1
Revising Estimates
Given the low global sugar realisation due to long-term contracts at low
prices and almost zero inventory levels with Renuka do Brasil, we believe
Q2SY11 would remain subdued for the company. Simultaneously, earnings
for SY11 would be impacted adversely. Subsequently, we have revised our
estimates for SY11 and SY12
Brazilian Operations
The company reported a mere | 5.4 crore of earnings for Renuka do Brasil
due to lower realisations of ~16 cents/lb and interest cost on the high debt
of | 4046 crore on the books. However, VDI posted 11.8% net profit
margins as realisations for the company were 20 cents/lb. We believe
Q2SY11 would be subdued for the company due to very low sales of sugar
in the quarter. Sugar realisations in Brazil would remain at 24 cents/lb in
2011 as the company has hedged its realisations against volatile sugar
prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shree Renuka Sugars -Low sugar margins in Brazil hit bottomline…
Shree Renuka Sugars reported dismal Q3SY10 results with the net profit
declining 43.5% to | 66. 4 crore from | 117.4 crore in Q4FY10 as domestic
sugar prices remained muted and on low realisation from Renuka do Brasil.
Sugar realisations for Renuka do Brasil remained low at ~16 cents/lb as the
company entered into long contracts of sugar much earlier at low prices.
Net sales increased 57.5% from | 1427.0 crore to | 2247.0 crore led by the
increased volumes after the addition of Brazilian subsidiaries. EBITDA
margins dipped to 13.4% due to lower realisation from India as well as
Brazil. Interest cost increased drastically from | 29.4 crore to | 116.5 crore
due to large debt on Brazilian subsidiaries books. Depreciation provisioning
increased from | 19.5 crore to | 168 crore after the acquisitions in Brazil.
Operational highlights
Sugar volumes from Indian operations declined 5.7% from 2,99,219 tonnes
to 2,82,048 tonnes. The company exported 1,12,025 tonnes of sugar at |
30.6 per kg while 1,70,023 tonnes were sold domestically at | 26.5 per kg.
Distillery volumes remained flat at 13,664 kilolitres with average realisations
of 27.7 per litre. In the power segment, the company sold 10.8 million units
compared to 8.0 million tonnes in the corresponding quarter. The
realisation was | 3.8 per unit compared to | 4.9 per unit as merchant prices
dipped in the quarter.
Valuation
At the current price of | 80, the stock is trading at 14.8x its SY11E EPS of |
5.4 and 9.9x its SY12E EPS of | 8.1. Despite the surge in global sugar prices
above 30 cents/lb, the company was unable to scale up its margins as it
entered into sugar contracts at low prices. We believe revenues from
Brazilian subsidiaries in Q2SY11 would remain dismal as the company sold
its entire sugar inventories. Simultaneously, earnings from Indian
operations would also remain subdued due to lower realisations. However,
we believe the company’s strategy to hedge against sugar prices would
create a cushion in a volatile price scenario and fetch higher realisation in
the second half of the year. We remain positive on the stock and value it at
11x its FY12 EPS of | 8.1 with a target price of | 89.1
Revising Estimates
Given the low global sugar realisation due to long-term contracts at low
prices and almost zero inventory levels with Renuka do Brasil, we believe
Q2SY11 would remain subdued for the company. Simultaneously, earnings
for SY11 would be impacted adversely. Subsequently, we have revised our
estimates for SY11 and SY12
Brazilian Operations
The company reported a mere | 5.4 crore of earnings for Renuka do Brasil
due to lower realisations of ~16 cents/lb and interest cost on the high debt
of | 4046 crore on the books. However, VDI posted 11.8% net profit
margins as realisations for the company were 20 cents/lb. We believe
Q2SY11 would be subdued for the company due to very low sales of sugar
in the quarter. Sugar realisations in Brazil would remain at 24 cents/lb in
2011 as the company has hedged its realisations against volatile sugar
prices.
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