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Shree Renuka Sugars (SHRS) continued to post losses at core PAT level in
Q5FY12 (loss of INR854mn). While domestic operations showed an
improvement and helped SHRS expand consolidated EBITDA margin by
570bps QoQ, Brazilian operations continued to drag on account of adverse
weather impacting cane availability coupled with a huge debt on the
balance sheet. However, a reversal of forex loss has helped SHRS post a
reported PAT of INR3.4bn. While we maintain our profitability estimates,
we restate our numbers considering the change in the accounting year.
Since the stock price has corrected and come closer to our target price of
INR41, we upgrade our recommendation from ‘REDUCE’ to ‘HOLD’.
Poor profitability continues, forex loss reversal lifts reported PAT
SHRS reported a PAT of INR3.4bn in Q5FY12 owing to the adoption of revised AS 11 and
reversing previous quarters’ forex loss to the tune of INR4.3bn. Adjusted for this, SHRS
posted loss of INR854mn at the core level. While standalone operations improved to an
extent QoQ with the enhanced refinery operations resulting in PBT of INR97mn vis-à-vis
a loss of INR32mn QoQ, the consolidated performance remained poor due to Brazilian
operations sustaining the drag. On consolidated basis, SHRS posted a PBT loss of
INR718mn vis-à-vis (loss of) INR892mn QoQ.
Key highlights
• Management has guided that de-leveraging the Brazilian balance sheet remains its
topmost priority and that cogen assets in Brazil would be sold to reduce some debt.
• Brazilian subsidiaries achieved their cane planting target of 25,181 ha of land. The
management guides for an improvement in cane availability in the 2012-13 season.
Outlook and valuations: Brazil issues endure; upgrade to ‘HOLD’
While Brazilian operations continue to underperform as expected, we believe that
issues over operating performance and debt would persist for Brazilian subsidiaries for
at least another quarter. Some respite might be seen in operations front during June
quarter when the new sugar season starts in Brazil and SHRS tries to deleverage the
balance sheet to an extent by divesting cogen assets. Until then, we would see
persistence of Brazilian concerns. We maintain our profit estimates for SHRS and our
target price of INR41/share based on 6x FY13E EV/EBITDA. Considering that the stock
price is close to our target price currently, we upgrade the stock to ‘HOLD'.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shree Renuka Sugars (SHRS) continued to post losses at core PAT level in
Q5FY12 (loss of INR854mn). While domestic operations showed an
improvement and helped SHRS expand consolidated EBITDA margin by
570bps QoQ, Brazilian operations continued to drag on account of adverse
weather impacting cane availability coupled with a huge debt on the
balance sheet. However, a reversal of forex loss has helped SHRS post a
reported PAT of INR3.4bn. While we maintain our profitability estimates,
we restate our numbers considering the change in the accounting year.
Since the stock price has corrected and come closer to our target price of
INR41, we upgrade our recommendation from ‘REDUCE’ to ‘HOLD’.
Poor profitability continues, forex loss reversal lifts reported PAT
SHRS reported a PAT of INR3.4bn in Q5FY12 owing to the adoption of revised AS 11 and
reversing previous quarters’ forex loss to the tune of INR4.3bn. Adjusted for this, SHRS
posted loss of INR854mn at the core level. While standalone operations improved to an
extent QoQ with the enhanced refinery operations resulting in PBT of INR97mn vis-à-vis
a loss of INR32mn QoQ, the consolidated performance remained poor due to Brazilian
operations sustaining the drag. On consolidated basis, SHRS posted a PBT loss of
INR718mn vis-à-vis (loss of) INR892mn QoQ.
Key highlights
• Management has guided that de-leveraging the Brazilian balance sheet remains its
topmost priority and that cogen assets in Brazil would be sold to reduce some debt.
• Brazilian subsidiaries achieved their cane planting target of 25,181 ha of land. The
management guides for an improvement in cane availability in the 2012-13 season.
Outlook and valuations: Brazil issues endure; upgrade to ‘HOLD’
While Brazilian operations continue to underperform as expected, we believe that
issues over operating performance and debt would persist for Brazilian subsidiaries for
at least another quarter. Some respite might be seen in operations front during June
quarter when the new sugar season starts in Brazil and SHRS tries to deleverage the
balance sheet to an extent by divesting cogen assets. Until then, we would see
persistence of Brazilian concerns. We maintain our profit estimates for SHRS and our
target price of INR41/share based on 6x FY13E EV/EBITDA. Considering that the stock
price is close to our target price currently, we upgrade the stock to ‘HOLD'.
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