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Sugar
Global prices move northwards
Global sugar prices remained subdued in April - May, 2011 on back
of improved production in Thailand (second largest exporter).
However, prices surged from 21 cents/lb to 28 cents/lb in June, 2011
on back of ~21% decline in sugar production in Brazil led by higher
diversion (almost 57-59% towards ethanol and lower recovery rates
(12% compared to 12.3%). We believe sugar production in Brazil
would increase during its peak crushing time (July-October) but will
not exceed last year’s production. Hence, this would limit the
downside in global sugar prices. Shree Renuka Sugar’s presence in
Brazil would result in higher consolidated margins for the company.
High by-product volumes to lead to improvement in earnings
With higher availability of sugarcane, by-product volumes in the
June quarter would improve significantly. We believe higher
realisations from ethanol (~| 27/litre) and power (~| 4/unit) would
lead to higher earnings in the June quarter for millers.
Further 5 lakh tonnes of exports being allowed
Government has allowed Indian mills to export further 0.5 million
tonnes (MT) in June 2011 under the open general licence (OGL). It
had allowed 1.2 MT under advance licence scheme (AGL) in October
2010 and 0.5 MT under OGL in April 2011. We believe 2.2 MT of
outgo of sugar would lead inventory levels to fall to~ 4-5 MT in
September 2011, which would drive domestic prices to ~| 30/kg.
Company Specific View
Company Remarks
Balrampur
Chini
We estimate sugar sales volume will be lower at ~1.5 lakh tonnes with an
improvement in realisations to ~|28.7/kg. Moreover, led by higher sales volume
from distillery, estimated at ~22,400 kl (~88% higher YoY) and higher realisations at
| 27/litre, we expect revenues to witness a marginal improvement of ~6% YoY
Bajaj
Hindustan
We expect the company to sell 3.0 lakh tonnes of sugar at average realisations of |
28.7 per kg. With increasing volumes of by-products and strong distillery realisations
remaining at | 27 per kg and power realisations at | 4.1 per kg, we expect margins
to improve from 25.3% in Q2SY11 to 26.3% in Q3SY11
Dhampur
Sugar
Lower sales volumes of sugar at ~1.05 lakh tonnes at an average realisation of ~|
28.5/kg would keep revenue growth in Q1FY12 capped. However, lower cane cost
and higher realisations from ethanol would drive the margins back to black,
simultaneously improving the earnings for the company
Shree Renuka
Sugars
In Indian operations, we expect the company to witness 2.4 lakh tonnes of volume
with average realisations of |27.6 per kg. However, in Brazil, we expect the company
to sell ~2.9 lakh tonnes at an average realisations of 24 cents/lb
Source: Company, ICICIdirect.com Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sugar
Global prices move northwards
Global sugar prices remained subdued in April - May, 2011 on back
of improved production in Thailand (second largest exporter).
However, prices surged from 21 cents/lb to 28 cents/lb in June, 2011
on back of ~21% decline in sugar production in Brazil led by higher
diversion (almost 57-59% towards ethanol and lower recovery rates
(12% compared to 12.3%). We believe sugar production in Brazil
would increase during its peak crushing time (July-October) but will
not exceed last year’s production. Hence, this would limit the
downside in global sugar prices. Shree Renuka Sugar’s presence in
Brazil would result in higher consolidated margins for the company.
High by-product volumes to lead to improvement in earnings
With higher availability of sugarcane, by-product volumes in the
June quarter would improve significantly. We believe higher
realisations from ethanol (~| 27/litre) and power (~| 4/unit) would
lead to higher earnings in the June quarter for millers.
Further 5 lakh tonnes of exports being allowed
Government has allowed Indian mills to export further 0.5 million
tonnes (MT) in June 2011 under the open general licence (OGL). It
had allowed 1.2 MT under advance licence scheme (AGL) in October
2010 and 0.5 MT under OGL in April 2011. We believe 2.2 MT of
outgo of sugar would lead inventory levels to fall to~ 4-5 MT in
September 2011, which would drive domestic prices to ~| 30/kg.
Company Specific View
Company Remarks
Balrampur
Chini
We estimate sugar sales volume will be lower at ~1.5 lakh tonnes with an
improvement in realisations to ~|28.7/kg. Moreover, led by higher sales volume
from distillery, estimated at ~22,400 kl (~88% higher YoY) and higher realisations at
| 27/litre, we expect revenues to witness a marginal improvement of ~6% YoY
Bajaj
Hindustan
We expect the company to sell 3.0 lakh tonnes of sugar at average realisations of |
28.7 per kg. With increasing volumes of by-products and strong distillery realisations
remaining at | 27 per kg and power realisations at | 4.1 per kg, we expect margins
to improve from 25.3% in Q2SY11 to 26.3% in Q3SY11
Dhampur
Sugar
Lower sales volumes of sugar at ~1.05 lakh tonnes at an average realisation of ~|
28.5/kg would keep revenue growth in Q1FY12 capped. However, lower cane cost
and higher realisations from ethanol would drive the margins back to black,
simultaneously improving the earnings for the company
Shree Renuka
Sugars
In Indian operations, we expect the company to witness 2.4 lakh tonnes of volume
with average realisations of |27.6 per kg. However, in Brazil, we expect the company
to sell ~2.9 lakh tonnes at an average realisations of 24 cents/lb
Source: Company, ICICIdirect.com Research
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