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Adjusted consol. PAT of Shree Renuka Sugars (SHRS) in Q4FY11 was
significantly below estimates (at loss of INR460mn) owing to a huge
disappointment in Brazilian operations. Heavy forex loss further added to
losses at the reported level. Brazilian operations are likely to be weak for
few more quarters and coupled with high debt levels, the outlook is
negative for SHRS. We lower our FY12E EPS to INR4.2/share (earlier
INR8.5/share) and downgrade the stock from ‘HOLD’ to ‘REDUCE’.
Poor Brazilian operations, huge forex loss dent profitability
SHRS reported loss of INR6,158mn in Q4FY11 owing to huge forex loss of INR5,698mn
(on account of INR and Brazilian real (BRL) depreciating against USD by 9.5% and 18.8%
respectively, impacting the debt in Brazilian subsidiaries). Even after adjusting for forex
losses, the company reported a loss of INR460mn for Q4FY11 largely due to adverse
Brazilian weather conditions that damaged cane yields and the capacity utilization.
EBITDA margin for Q4FY11 came at 10.5%, 340 bps dip YoY.
Key highlights
• SHRS cut its earlier guidance of USD300mn EBITDA from Brazilian subsidiaries for
April 2011‐March 2012 period to USD160mn.
• Weather conditions in Brazil (with attacks of frost and drought‐like conditions)
affected cane yield by ~31% YoY for SHRS (vis‐à‐vis 22% dip for industry), owing to
which SHRS lowered its cane crushing guidance from 10.5 mn MT to 8.3 mn MT.
• Due to INR depreciation against USD, even on a standalone basis, SHRS had a
forex loss of INR728mn. Considering the significant amount of repayment done to
creditors in Q4FY11, we believe that some of this forex loss has been realized.
Outlook and valuations: Challenges galore; downgrade to ‘REDUCE’
Considering the high debt levels coupled with additional capex requirements and
issues on operating performance in Brazilian subsidiaries (which we expect to continue
for at least two more quarters), we see low probability of an improvement in near
future. Moreover, unhedged USD loan exposes the company to the exchange rate risk
in the current volatile environment. Factoring in weak Brazilian operations and higher
interest costs, we lower our FY12E EPS to INR4.2/share. Based on 6x FY13E EV/EBITDA,
we lower our target price to INR41/share (previously INR72/share) and downgrade our
recommendation on the stock to ‘REDUCE’ from ‘HOLD’.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Adjusted consol. PAT of Shree Renuka Sugars (SHRS) in Q4FY11 was
significantly below estimates (at loss of INR460mn) owing to a huge
disappointment in Brazilian operations. Heavy forex loss further added to
losses at the reported level. Brazilian operations are likely to be weak for
few more quarters and coupled with high debt levels, the outlook is
negative for SHRS. We lower our FY12E EPS to INR4.2/share (earlier
INR8.5/share) and downgrade the stock from ‘HOLD’ to ‘REDUCE’.
Poor Brazilian operations, huge forex loss dent profitability
SHRS reported loss of INR6,158mn in Q4FY11 owing to huge forex loss of INR5,698mn
(on account of INR and Brazilian real (BRL) depreciating against USD by 9.5% and 18.8%
respectively, impacting the debt in Brazilian subsidiaries). Even after adjusting for forex
losses, the company reported a loss of INR460mn for Q4FY11 largely due to adverse
Brazilian weather conditions that damaged cane yields and the capacity utilization.
EBITDA margin for Q4FY11 came at 10.5%, 340 bps dip YoY.
Key highlights
• SHRS cut its earlier guidance of USD300mn EBITDA from Brazilian subsidiaries for
April 2011‐March 2012 period to USD160mn.
• Weather conditions in Brazil (with attacks of frost and drought‐like conditions)
affected cane yield by ~31% YoY for SHRS (vis‐à‐vis 22% dip for industry), owing to
which SHRS lowered its cane crushing guidance from 10.5 mn MT to 8.3 mn MT.
• Due to INR depreciation against USD, even on a standalone basis, SHRS had a
forex loss of INR728mn. Considering the significant amount of repayment done to
creditors in Q4FY11, we believe that some of this forex loss has been realized.
Outlook and valuations: Challenges galore; downgrade to ‘REDUCE’
Considering the high debt levels coupled with additional capex requirements and
issues on operating performance in Brazilian subsidiaries (which we expect to continue
for at least two more quarters), we see low probability of an improvement in near
future. Moreover, unhedged USD loan exposes the company to the exchange rate risk
in the current volatile environment. Factoring in weak Brazilian operations and higher
interest costs, we lower our FY12E EPS to INR4.2/share. Based on 6x FY13E EV/EBITDA,
we lower our target price to INR41/share (previously INR72/share) and downgrade our
recommendation on the stock to ‘REDUCE’ from ‘HOLD’.
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