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Shree Renuka Sugars (SHRS)
Sugar
Brazilian business disappoints. SHRS 4QFY11 consolidated results were below
estimates as RDB (59% sub) reported decline in EBITDA margins. Lower yields (per ha)
on account of adverse weather led to higher-than-estimated cane cost and operating
expenses. Consolidated net debt has remained constant (versus March 2011) as
working capital reduced only by Rs3 bn in the India business. We would like to see
improvement in debt levels for a positive view. Downgrade to REDUCE (earlier BUY);
revised target price of Rs55 (earlier Rs75) at 6.5X March 2013E EBITDA (unchanged).
Brazilian business disappoints
SHRS reported 4QFY11 consolidated sales at Rs23.4 bn (-5.1% yoy; +4.2% qoq). Reported
4QFY11 EBITDA at Rs2.4 bn (-29% yoy; -44% qoq) was 50% lower versus our estimate of Rs4.75
bn. The negative surprise was led by the Brazilian subsidiary (RDB) which reported a large decline
in EBITDA margins qoq (17% in 4QFY11 versus 34% in 3QFY11). Margin decline was due to
higher-than-estimated cane cost and operating costs (per ton) as cane yields fell by 31% yoy on
account of adverse weather (frost) and costs were apportioned over lower quantity of cane. VDI
(100% subsidiary) reported in-line results.
Standalone business also reported below-estimate results (EBITDA at Rs519 mn) led by lower
profitability in the co-gen and ethanol segment. Realization in the co-gen segment dropped (qoq)
to Rs3.5 per unit from Rs6.4 in 3QFY11. Ethanol segment margins dropped qoq (despite higher
realization) on account of higher per-unit expense due to operating expense being apportioned
over lower volume in an off-peak quarter.
Net debt has remained flat in 2HFY11 adjusting for currency depreciation
Net debt of the company (consolidated) has remained broadly flat (Rs83 bn in 4QFY11 versus Rs82
bn in March 2011) adjusting for depreciation of Real. Net debt has remained flat in the standalone
business in 2HFY11 at Rs33.6 bn. Reduction in current assets (Rs11 bn) in the standalone business
in 2HFY11 has gone primarily to reducing current liabilities (Rs7.8 bn) and to financing incremental
investment in RDB (US$30 mn) and capex of Rs1.6 bn. Working capital has reduced only by Rs3 bn
even as the sugar season ended in September.
Downgrading to REDUCE (BUY earlier); target price of Rs55 (Rs75 earlier)
We have reduced our earning estimates for FY2012E and FY2013E led by lowering of earning
estimates in RDB and higher debt. Company has consistently disappointed in the Brazilian business
in the last couple of quarters. Net debt has shown no improvement in 2HFY11. We would like to
see improvement in net debt and operating results for a positive view on the company.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Shree Renuka Sugars (SHRS)
Sugar
Brazilian business disappoints. SHRS 4QFY11 consolidated results were below
estimates as RDB (59% sub) reported decline in EBITDA margins. Lower yields (per ha)
on account of adverse weather led to higher-than-estimated cane cost and operating
expenses. Consolidated net debt has remained constant (versus March 2011) as
working capital reduced only by Rs3 bn in the India business. We would like to see
improvement in debt levels for a positive view. Downgrade to REDUCE (earlier BUY);
revised target price of Rs55 (earlier Rs75) at 6.5X March 2013E EBITDA (unchanged).
Brazilian business disappoints
SHRS reported 4QFY11 consolidated sales at Rs23.4 bn (-5.1% yoy; +4.2% qoq). Reported
4QFY11 EBITDA at Rs2.4 bn (-29% yoy; -44% qoq) was 50% lower versus our estimate of Rs4.75
bn. The negative surprise was led by the Brazilian subsidiary (RDB) which reported a large decline
in EBITDA margins qoq (17% in 4QFY11 versus 34% in 3QFY11). Margin decline was due to
higher-than-estimated cane cost and operating costs (per ton) as cane yields fell by 31% yoy on
account of adverse weather (frost) and costs were apportioned over lower quantity of cane. VDI
(100% subsidiary) reported in-line results.
Standalone business also reported below-estimate results (EBITDA at Rs519 mn) led by lower
profitability in the co-gen and ethanol segment. Realization in the co-gen segment dropped (qoq)
to Rs3.5 per unit from Rs6.4 in 3QFY11. Ethanol segment margins dropped qoq (despite higher
realization) on account of higher per-unit expense due to operating expense being apportioned
over lower volume in an off-peak quarter.
Net debt has remained flat in 2HFY11 adjusting for currency depreciation
Net debt of the company (consolidated) has remained broadly flat (Rs83 bn in 4QFY11 versus Rs82
bn in March 2011) adjusting for depreciation of Real. Net debt has remained flat in the standalone
business in 2HFY11 at Rs33.6 bn. Reduction in current assets (Rs11 bn) in the standalone business
in 2HFY11 has gone primarily to reducing current liabilities (Rs7.8 bn) and to financing incremental
investment in RDB (US$30 mn) and capex of Rs1.6 bn. Working capital has reduced only by Rs3 bn
even as the sugar season ended in September.
Downgrading to REDUCE (BUY earlier); target price of Rs55 (Rs75 earlier)
We have reduced our earning estimates for FY2012E and FY2013E led by lowering of earning
estimates in RDB and higher debt. Company has consistently disappointed in the Brazilian business
in the last couple of quarters. Net debt has shown no improvement in 2HFY11. We would like to
see improvement in net debt and operating results for a positive view on the company.
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