Higher sugar prices & rising production to drive growth
EID parry on consolidated basis increased cane crushing at 65% CAGR over the period FY10-FY12 from 25 lac MT to 69 lac MT. Higher crushing during the said period was on account of addition of cane acreage for cultivation which enabled the company to increase days of operations from 198 in FY10 to 300 days in FY12. Further the company plans to crush 80 lac MT in FY13 and expect rise in crushing at 20-25% per annum. We expect increase in cane crushing at 17% CAGR over FY12-FY14. The company achieved higher sugar production at 53% CAGR over FY10-FY12 due to increased crushing. We expect sugar production to rise at 18% CAGR with recovery rate at little over 10% during FY12-FY14. The outlook for sugar price for FY13 looks to be at Rs 30-35/kg which will help the company post a healthy topline growth with higher volumes and improved realizations. We estimate revenues from sugar to grow at 26% CAGR over FY12-FY14 on account of increasing production coupled with higher realizations during the period.
Integrated plants provide financial stability
EID parry has fully integrated sugar plants with cogeneration and distillery facility. The company has leveraged co-products which has given stability and predictability to the financial performance. The share of profitability from co-products is likely to increase in coming years de-risking the company from sugar cycles. The revenue from sale of alcohol and power has grown at 73% and 32% CAGR over the period FY10-FY12. Our expectation of higher cane crushing leading to increased availability of bagasse and molasses is expected to drive production of its co-products. We expect revenue from alcohol and power to rise at 16% and 10% CAGR respectively over the period FY12-FY14.
Past acquisitions to aid future growth
EID Parry acquired two major companies Sadashiva Sugars and Parrys Sugar Industries during FY10 and FY11 respectively at an investment of Rs 148 crores. Through these ventures, the company entered into Karnataka with 3 sugar plants and Andhra Pradesh with 1 sugar plant. Post acquisition and removal of bottlenecks, EID Parry increased its throughput sugarcane capacity to 36,000 TCD, co-generation capacity to 146 MW and distillery capacity to 230 KLPD. During FY12, SSL and PSIL showed topline growth of 149% and 104% YoY while EBITDA grew at 106% and 582% YoY respectively. Both the companies did post loss on the net profit level due to high interest expenses.
Coromandel International – an ace up the sleeve
Murugappa Group company EID Parry (India) holds 62.69% of Coromandel’s equity. The company is the second largest manufacturer of Phosphatic Fertilizers after IFFCO. Coromandel International, being the largest private phosphatic fertilizer manufacturer in India is key beneficiary of govt’s Nurtrient Based Subsidy (NBS) scheme for non urea fertilizers. The company witnessed 20% YoY increase in revenues, 271bps improvement in margins and 48% rise in net profit for FY11. The impact of higher prices is likely to impact volumes in FY13, however benefits of capacity expansion and resolution of raw material availability is expected to benefit the company during FY14. NBS will yield benefits in terms of margin expansion, reduced working capital and lesser volatility in earnings for EID over a longer period. We have valued Coromandel International on DCF basis giving us a fair value of Rs 352 per share.
Valued at Rs 327 on SOTP basis
The stock is currently trading at a P/E and EV/Ebitda multiple of 8.6x and 4.3x its FY13 earnings respectively. We have a SOTP based target price of Rs 327 giving an upside potential of 45%.
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