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Shree Renuka Sugars (SHRS)
Sugar
Brazilian business disappoints on margins. SHRS 1QFY12 results were below
estimates on account of lower-than-estimated EBITDA margins at 28% in the Brazilian
business while the standalone numbers were in line. While VDI reported EBITDA
margins at 48% (in line), Renuka do Brazil (RDB) EBITDA margins at 23% were lower
than estimates. RDB margins should improve in the future as the current quarter was
impacted by - (1) one-third of sugar volumes were sold at lower rates due to legacy
hedging contracts and (2) sugar recovery was lower at 11.4% versus normalized levels
of 13%. BUY with a target price of Rs75 at 6.5X March2013E EBITDA.
Below estimates – lower than estimated EBITDA margins in Renuka do Brazil
SHRS reported 3QFY11 consolidated revenue at Rs22.4 bn (+12% yoy; +21.7% qoq); 13% higher
than our estimates. Reported EBITDA at Rs4.32 bn (+166% yoy; +55%qoq) was ~8% lower than
our estimates. Reported PAT at Rs1.87 bn was boosted by Rs1.25 bn of other income most of
which (Rs1.04 bn) was due to translation benefits on debt denominated in Real for appreciation in
the currency. Brazilian business reported subdued EBITDA margins at ~28.5% led by Renuka do
Brazil which reported EBITDA margin at 23%, which was much lower than 48% reported by VDI.
Management attributed the same to: (1) Lower-than-usual sugar recovery at 11.4% in RDB versus
normalized recovery of 13% which led to the costs being apportioned over lower quantity of
sugar. This should normalize to 13% for the year going forward, and (2) 45,000 tons of sugar was
sold at legacy contract rate of ~16 cents per lbs (lower than market price).This was the last tranche
of the legacy contracts. Going forward, EBITDA margins should improve in RDB.
Sugarcane crushing estimates downgraded substantially
The management has lowered estimates for the sugarcane to be crushed in Brazil from April 2011
to March 2012 to ~11 mn tons which is ~15% lower than our estimates at 13 mn tons (April
2011 to March 2012) as yields (tons per Ha) are lower by 12% as compared to the last year due to:
(1) poor quality of the crop due to lower replanting rates in the past, and (2) there has been
adverse weather in the center-south region of Brazil (frost) which has affected the crop.
Changing our estimates marginally; BUY with a target price of Rs75
We have changed our estimates of operating income marginally to account for lower crushing and
higher realizations in Brazil. We have adjusted FY2011 PAT for higher other income (increased by
Rs2.3 bn on account of forex gains in the past three quarters). We have also increased interest
expense (higher interest rates). Our EBITDA estimate for the Brazilian business at US$290 mn (April
2011 to March 2012) is lower than the management guidance of US$300 mn for the same.
Conference call highlights
India business
The company has commissioned second refinery at Kandla with a capacity of 3,000 tons
per day. The refinery business is running at low capacity utilizations as of now due to
delay in the arrival of raw sugar shipments from Brazil on account of port congestion. The
current contracts of raw sugar should ensure reasonable profitability (EBITDA at US$40-
45 per ton) till September of this year.
The company is estimating production of sugar in the next sugar year (September fiscal
year) at 26 mn tons which would be ~8% higher than current year.
The company expects government approval for fresh exports of 0.5 mn tons shortly. For
the next year the company expects a higher export quota of 3 mn tons of sugar to be
allowed in tranches from November 2011 onwards.
Working capital is down by Rs4 bn qoq in India.
Brazilian business
The company has sold 157,000 tons of sugar and 94 mn lit of ethanol, in 3QFY11. Free
market selling price (excluding sales on account of legacy contract) for sugar was 25.6 US
cents per lbs.
Recent rise in the price of sugar has allowed the company to hedge almost 40% of next
years (April 2012 to March 2013) production with a floor price of 24 and cap price of US
cents 30 per lbs.
The company has paused capacity expansions for the meanwhile due to lower availability
of sugarcane on account of recent production downgrades.
Anhydrous ethanol price in raw sugar equivalent terms is US cents 24 per lbs as of now
which would lend strong support in case the sugar prices were to correct from the
current levels of US cents 28 per lbs.
Change in estimates
We have adjusted our estimates marginally at the operating level to factor lower crushing
(10.5 mn tons versus 13 mn tons earlier). We have increased our realization assumptions to
US cents 19.6, 23.1 and 23.5 versus US cents 19.4, 22.9 and 23.5 per lbs earlier, for
FY2011E, FY2012E and FY2013E, respectively. We have also increased our ethanol price
assumptions by 10% to 1, 1.05 and 1.10 BRL per lit for FY2011E, FY2012E and FY2013E,
respectively. Our PAT estimate for FY2011 shows a large change on account of increase in
other income estimates by Rs2.3 bn. Other than that we have increased interest expense by
modeling higher interest rate
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shree Renuka Sugars (SHRS)
Sugar
Brazilian business disappoints on margins. SHRS 1QFY12 results were below
estimates on account of lower-than-estimated EBITDA margins at 28% in the Brazilian
business while the standalone numbers were in line. While VDI reported EBITDA
margins at 48% (in line), Renuka do Brazil (RDB) EBITDA margins at 23% were lower
than estimates. RDB margins should improve in the future as the current quarter was
impacted by - (1) one-third of sugar volumes were sold at lower rates due to legacy
hedging contracts and (2) sugar recovery was lower at 11.4% versus normalized levels
of 13%. BUY with a target price of Rs75 at 6.5X March2013E EBITDA.
Below estimates – lower than estimated EBITDA margins in Renuka do Brazil
SHRS reported 3QFY11 consolidated revenue at Rs22.4 bn (+12% yoy; +21.7% qoq); 13% higher
than our estimates. Reported EBITDA at Rs4.32 bn (+166% yoy; +55%qoq) was ~8% lower than
our estimates. Reported PAT at Rs1.87 bn was boosted by Rs1.25 bn of other income most of
which (Rs1.04 bn) was due to translation benefits on debt denominated in Real for appreciation in
the currency. Brazilian business reported subdued EBITDA margins at ~28.5% led by Renuka do
Brazil which reported EBITDA margin at 23%, which was much lower than 48% reported by VDI.
Management attributed the same to: (1) Lower-than-usual sugar recovery at 11.4% in RDB versus
normalized recovery of 13% which led to the costs being apportioned over lower quantity of
sugar. This should normalize to 13% for the year going forward, and (2) 45,000 tons of sugar was
sold at legacy contract rate of ~16 cents per lbs (lower than market price).This was the last tranche
of the legacy contracts. Going forward, EBITDA margins should improve in RDB.
Sugarcane crushing estimates downgraded substantially
The management has lowered estimates for the sugarcane to be crushed in Brazil from April 2011
to March 2012 to ~11 mn tons which is ~15% lower than our estimates at 13 mn tons (April
2011 to March 2012) as yields (tons per Ha) are lower by 12% as compared to the last year due to:
(1) poor quality of the crop due to lower replanting rates in the past, and (2) there has been
adverse weather in the center-south region of Brazil (frost) which has affected the crop.
Changing our estimates marginally; BUY with a target price of Rs75
We have changed our estimates of operating income marginally to account for lower crushing and
higher realizations in Brazil. We have adjusted FY2011 PAT for higher other income (increased by
Rs2.3 bn on account of forex gains in the past three quarters). We have also increased interest
expense (higher interest rates). Our EBITDA estimate for the Brazilian business at US$290 mn (April
2011 to March 2012) is lower than the management guidance of US$300 mn for the same.
Conference call highlights
India business
The company has commissioned second refinery at Kandla with a capacity of 3,000 tons
per day. The refinery business is running at low capacity utilizations as of now due to
delay in the arrival of raw sugar shipments from Brazil on account of port congestion. The
current contracts of raw sugar should ensure reasonable profitability (EBITDA at US$40-
45 per ton) till September of this year.
The company is estimating production of sugar in the next sugar year (September fiscal
year) at 26 mn tons which would be ~8% higher than current year.
The company expects government approval for fresh exports of 0.5 mn tons shortly. For
the next year the company expects a higher export quota of 3 mn tons of sugar to be
allowed in tranches from November 2011 onwards.
Working capital is down by Rs4 bn qoq in India.
Brazilian business
The company has sold 157,000 tons of sugar and 94 mn lit of ethanol, in 3QFY11. Free
market selling price (excluding sales on account of legacy contract) for sugar was 25.6 US
cents per lbs.
Recent rise in the price of sugar has allowed the company to hedge almost 40% of next
years (April 2012 to March 2013) production with a floor price of 24 and cap price of US
cents 30 per lbs.
The company has paused capacity expansions for the meanwhile due to lower availability
of sugarcane on account of recent production downgrades.
Anhydrous ethanol price in raw sugar equivalent terms is US cents 24 per lbs as of now
which would lend strong support in case the sugar prices were to correct from the
current levels of US cents 28 per lbs.
Change in estimates
We have adjusted our estimates marginally at the operating level to factor lower crushing
(10.5 mn tons versus 13 mn tons earlier). We have increased our realization assumptions to
US cents 19.6, 23.1 and 23.5 versus US cents 19.4, 22.9 and 23.5 per lbs earlier, for
FY2011E, FY2012E and FY2013E, respectively. We have also increased our ethanol price
assumptions by 10% to 1, 1.05 and 1.10 BRL per lit for FY2011E, FY2012E and FY2013E,
respectively. Our PAT estimate for FY2011 shows a large change on account of increase in
other income estimates by Rs2.3 bn. Other than that we have increased interest expense by
modeling higher interest rate
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