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Shree Renuka Sugars Ltd.
Downgrading on delayed
turnaround of Brazil sugar mill
Downgrading to Underperform on disappointing Sep Q
Following significant earning miss in Sep11 quarter owing to cane shortage in
Brazil on account of adverse weather We have cut PO to Rs38 from Ps88 and
rating from Buy to Underperform, driven by cut in EPS for FY12e to a loss of
Rs4.3/sh from a profit of Rs9.5/sh and cut in EPS for FY13e to Rs3.2/sh from
Rs11.6/sh. Subdued sugar price along with higher cost of cane and excess debt
will hurt earnings and stock performance. Please note that Renuka Sugar recently
changed its accounting year to March from September.
Brazil cane shortage impacted Sep 2011 quarter
In the quarter ending Sep11 Renuka Sugar had a loss of Rs6.15bn compared to
our expectation of a loss of Rs105mn owing to shortage of cane in Brazil and FX
loss of Rs5.7bn. EBITDA at Rs2.44bn came in 60% below estimate and EBITDA
margin at 10.5% was significantly below our estimate of 25%. Adverse weather in
Sao Paulo reduced production of RDB by 25% leading to reduced utilization and
hence lower EBITDA margin of 17% while VDI of Parana had 46% margin.
Sugar price to remain subdued and hurt earnings
We expect global raw sugar price to remain at around current level of UScent25
per pound as production surplus of sugar globally will rise by 6mt next one year
compared. Subdued sugar price along with rise in cost of cane in Brazil as well as
India is likely to put margin pressure and hurt earnings.
De-rating could be restrained by deregulation and asset sell
We think valuation in terms of P/B will de-rate to 1.2x, which is its trough valuation
from 1.7x now owing to weak earnings. De-regulation of sugar in India and
proposed sell off of power plants in Brazil could add Rs13bn and limit the derating.
However current net debt to equity of 4x may still remain above 2.5x. We
also change our income rating from same/higher (7) to same lower (8) as we
believe the dividend is not secure over the next year.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shree Renuka Sugars Ltd.
Downgrading on delayed
turnaround of Brazil sugar mill
Downgrading to Underperform on disappointing Sep Q
Following significant earning miss in Sep11 quarter owing to cane shortage in
Brazil on account of adverse weather We have cut PO to Rs38 from Ps88 and
rating from Buy to Underperform, driven by cut in EPS for FY12e to a loss of
Rs4.3/sh from a profit of Rs9.5/sh and cut in EPS for FY13e to Rs3.2/sh from
Rs11.6/sh. Subdued sugar price along with higher cost of cane and excess debt
will hurt earnings and stock performance. Please note that Renuka Sugar recently
changed its accounting year to March from September.
Brazil cane shortage impacted Sep 2011 quarter
In the quarter ending Sep11 Renuka Sugar had a loss of Rs6.15bn compared to
our expectation of a loss of Rs105mn owing to shortage of cane in Brazil and FX
loss of Rs5.7bn. EBITDA at Rs2.44bn came in 60% below estimate and EBITDA
margin at 10.5% was significantly below our estimate of 25%. Adverse weather in
Sao Paulo reduced production of RDB by 25% leading to reduced utilization and
hence lower EBITDA margin of 17% while VDI of Parana had 46% margin.
Sugar price to remain subdued and hurt earnings
We expect global raw sugar price to remain at around current level of UScent25
per pound as production surplus of sugar globally will rise by 6mt next one year
compared. Subdued sugar price along with rise in cost of cane in Brazil as well as
India is likely to put margin pressure and hurt earnings.
De-rating could be restrained by deregulation and asset sell
We think valuation in terms of P/B will de-rate to 1.2x, which is its trough valuation
from 1.7x now owing to weak earnings. De-regulation of sugar in India and
proposed sell off of power plants in Brazil could add Rs13bn and limit the derating.
However current net debt to equity of 4x may still remain above 2.5x. We
also change our income rating from same/higher (7) to same lower (8) as we
believe the dividend is not secure over the next year.
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