Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shree Renuka Sugars Ltd. — Brazil benefits to
kick in soon
Country Overview
Management banking on robust global sugar cycle
During recent investor meetings, Renuka’s MD guided for robust earnings over the
next three years, led by higher sugar prices. The company is well placed to benefit
from this cycle, owing to its sugarcane field in Brazil and refineries in India. In the
medium term, Renuka will focus on reducing debt. We expect the stock to re-rate
following the earnings recovery beginning in the current quarter. Buy.
Global sugar and ethanol price to rise on tight supply
Sugar prices globally have mostly remained above US$20/lb since Jun2009, even
though they have been quite volatile. This is substantially higher than median price of
US$10/lb during 1995-Jun2009 period. Renuka management expects the price to
remain high, owing to sluggish new capacity creation in Brazil, where it takes 4-5
years to build new factories. Sugar fundamentals are also boosted by the rising
prospect of sugarcane demand for making ethanol as a substitute for gasoline.
Stronger earnings from the current quarter after a year
The return of the crushing season in Brazil and a recovery of refining margins are
likely to drive stronger earnings beginning in the Jun2011 quarter. Renuka Brazil
expects to sell sugar at least at US$23.5/lb in the current season, compared to
US$18/lb in the previous season, which was the first season of the Brazil mills
being under Renuka management.
Valuation attractive on earnings and on replacement cost
Renuka is currently trading at an EV/EBITDA of 5x FY12e, which is attractive
compared to its median EV/EBITDA of 6.5x. The company’s current EV, at
Rs121bn, is at a 12% discount to its replacement cost. Our FY12e EBITDA is
22% higher than consensus, owing to the assumption of a higher global sugar
price, at US$24/lb. Renuka’s profit should increase by 2% for every 1% rise in
sugar prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shree Renuka Sugars Ltd. — Brazil benefits to
kick in soon
Country Overview
Management banking on robust global sugar cycle
During recent investor meetings, Renuka’s MD guided for robust earnings over the
next three years, led by higher sugar prices. The company is well placed to benefit
from this cycle, owing to its sugarcane field in Brazil and refineries in India. In the
medium term, Renuka will focus on reducing debt. We expect the stock to re-rate
following the earnings recovery beginning in the current quarter. Buy.
Global sugar and ethanol price to rise on tight supply
Sugar prices globally have mostly remained above US$20/lb since Jun2009, even
though they have been quite volatile. This is substantially higher than median price of
US$10/lb during 1995-Jun2009 period. Renuka management expects the price to
remain high, owing to sluggish new capacity creation in Brazil, where it takes 4-5
years to build new factories. Sugar fundamentals are also boosted by the rising
prospect of sugarcane demand for making ethanol as a substitute for gasoline.
Stronger earnings from the current quarter after a year
The return of the crushing season in Brazil and a recovery of refining margins are
likely to drive stronger earnings beginning in the Jun2011 quarter. Renuka Brazil
expects to sell sugar at least at US$23.5/lb in the current season, compared to
US$18/lb in the previous season, which was the first season of the Brazil mills
being under Renuka management.
Valuation attractive on earnings and on replacement cost
Renuka is currently trading at an EV/EBITDA of 5x FY12e, which is attractive
compared to its median EV/EBITDA of 6.5x. The company’s current EV, at
Rs121bn, is at a 12% discount to its replacement cost. Our FY12e EBITDA is
22% higher than consensus, owing to the assumption of a higher global sugar
price, at US$24/lb. Renuka’s profit should increase by 2% for every 1% rise in
sugar prices.
No comments:
Post a Comment