Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shree Renuka Sugars
Weak 1Q; better quarters ahead
Event
Shree Renuka reported 1Q SY11 results with net sales and PAT of Rs22.5bn
and Rs664m. Although reported profit was below our expectation on lower
trading profit, profit from the core sugar business was in line with expectation.
Since 1Q has always been a small contributor to SHRS’s profit, forthcoming
quarters should reflect its earnings potential from the core sugar business. We
maintain our Outperform recommendation with a revised TP of Rs105.
Impact
Domestic sugar business hit by high cost inventory and low realisation.
Although domestic sugar volume was flat YoY, domestic sugar revenue
dipped 10% due to a drop in average realisation (~Rs27/kg). Also, sugar EBIT
declined 60% due to sales of high-cost inventory. Cogeneration and ethanol
revenue declined 24% and 7% due to a ~20% fall in merchant rate (~Rs4/unit)
despite growth in volume and late start of off-take from oil companies (OMCs)
respectively. We forecast that the domestic sugar crushing business will break
even in SY11E at cane cost of ~Rs2.3/kg (12% yields) and average
realisation of Rs27/kg.
Brazil contributed two-thirds of consolidated EBITDA. The key highlight of
the results was the Brazilian operation, which contributed about two-thirds of
EBITDA despite operating for only half of the quarter due to the end of the
season in Brazil. With management guiding for ~11.5mt (2x of domestic)
sugarcane crushing at its Brazilian facilities in SY11E, Brazil should be the
key contributor to its profit this year and our investment thesis on Brazil is
being confirmed.
Trading EBIT declined ~90% and will remain volatile. SHRS’s trading income
and margin are volatile and bring a major swing to its earnings. In 1Q, trading
income declined 30% and margin contracted by 1,700bp to 2.5%. We believe the
trading margin will remain volatile given swings in global sugar prices.
Tight global sugar balance as India shies away from exports. We see
little change in the tight global sugar fundamentals as Indian exports continue
to elude given high domestic food inflation and inter-crop period in Brazil.
However, with mounting sugarcane arrears due to a fall in domestic prices
and as comfort on Indian production emerges, the government may allow
exports in coming months.
Earnings and target price revision
We have cut our FY11E earnings by 10% after 1Q results that were below our
expectation. TP cut from Rs115 to Rs105.
Price catalyst
12-month price target: Rs105.00 based on a Price to Book methodology.
Catalyst: Continued firmness in the sugar price.
Action and recommendation
Outperform maintained. Given favourable global sugar fundamentals and
better realisations and operational efficiency in Brazil, we maintain our
positive view on SHRS. The stock is currently trading at 1.5x FY12E P/BV, a
25% discount to its long-term average.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shree Renuka Sugars
Weak 1Q; better quarters ahead
Event
Shree Renuka reported 1Q SY11 results with net sales and PAT of Rs22.5bn
and Rs664m. Although reported profit was below our expectation on lower
trading profit, profit from the core sugar business was in line with expectation.
Since 1Q has always been a small contributor to SHRS’s profit, forthcoming
quarters should reflect its earnings potential from the core sugar business. We
maintain our Outperform recommendation with a revised TP of Rs105.
Impact
Domestic sugar business hit by high cost inventory and low realisation.
Although domestic sugar volume was flat YoY, domestic sugar revenue
dipped 10% due to a drop in average realisation (~Rs27/kg). Also, sugar EBIT
declined 60% due to sales of high-cost inventory. Cogeneration and ethanol
revenue declined 24% and 7% due to a ~20% fall in merchant rate (~Rs4/unit)
despite growth in volume and late start of off-take from oil companies (OMCs)
respectively. We forecast that the domestic sugar crushing business will break
even in SY11E at cane cost of ~Rs2.3/kg (12% yields) and average
realisation of Rs27/kg.
Brazil contributed two-thirds of consolidated EBITDA. The key highlight of
the results was the Brazilian operation, which contributed about two-thirds of
EBITDA despite operating for only half of the quarter due to the end of the
season in Brazil. With management guiding for ~11.5mt (2x of domestic)
sugarcane crushing at its Brazilian facilities in SY11E, Brazil should be the
key contributor to its profit this year and our investment thesis on Brazil is
being confirmed.
Trading EBIT declined ~90% and will remain volatile. SHRS’s trading income
and margin are volatile and bring a major swing to its earnings. In 1Q, trading
income declined 30% and margin contracted by 1,700bp to 2.5%. We believe the
trading margin will remain volatile given swings in global sugar prices.
Tight global sugar balance as India shies away from exports. We see
little change in the tight global sugar fundamentals as Indian exports continue
to elude given high domestic food inflation and inter-crop period in Brazil.
However, with mounting sugarcane arrears due to a fall in domestic prices
and as comfort on Indian production emerges, the government may allow
exports in coming months.
Earnings and target price revision
We have cut our FY11E earnings by 10% after 1Q results that were below our
expectation. TP cut from Rs115 to Rs105.
Price catalyst
12-month price target: Rs105.00 based on a Price to Book methodology.
Catalyst: Continued firmness in the sugar price.
Action and recommendation
Outperform maintained. Given favourable global sugar fundamentals and
better realisations and operational efficiency in Brazil, we maintain our
positive view on SHRS. The stock is currently trading at 1.5x FY12E P/BV, a
25% discount to its long-term average.
No comments:
Post a Comment