Shree Renuka- Upside Capped!!!!

I AM BETTING HEAVILY ON THE SUGAR SECTOR...ESPECIALLY ON THE SMALL CAPS...SIMPLE 100% RISE IS ASSURED... ---------------------------- Analysis: Shree Renuka- Upside Capped

While better sugar realizations bode well for the company, the high debt still remains a concern

Ujjval Jauhari / Mumbai Nov 07, 2012, 20:07 IST Shree Renuka September’12 quarter performance on standalone Basis was a mixed Bag. While the Higher Sugar realizations in the Domestic markets boosted the Sugar revenues and its share also increased 53.2% in the year ago quarter to 84.3% in September’12 quarter the other segments as power, co generation and Trading sales saw declining revenues and profitability and hence the revenues from domestic operations could increase marginal 2.4% y-o-y to Rs 1154.4 Crore. The growth would have been better but for decline in trading sales volumes due to lower exports from India.  The smaller Power segment and Industrial Alcohol segment too saw declining sales. Sugar Volumes and realizations drive growth As the Production estimates for sugar year 2012-13 (October-September) by Indian Sugar Mills Association (ISMA) were reduced from initial 26 Million tonnes to 23.0 MT in the back of lower rainfall in key sugar producing states of Maharashtra and Karnataka, the domestic sugar prices went north. The domestic prices saw an upside from around Rs 29 a Kg to Rs 36.3 a kg during the September’12 quarter. Thus average realizations for Shree Renuka increased from Rs 30 a Kg in the year ago quarter to Rs 32.50 a Kg in September quarter. It also sold higher volumes i.e 3 lakh tons of sugar during the September’12 quarter against 2 Lakh tonnes in the year ago quarter. Thus the Sugar segment sales zoomed up to Rs 973.1 crore up almost 69% year on year. Other segments dip Amongst other segments the trading volumes decline from Rs 417 crore in September’11 quarter to Rs 106 crore in September’12 quarter. However this was understandable looking at good demand and realizations in the country leading to lower exports. The distillery sales too declined 32.7% to 25,101 kilo litre with average realizations marginally down to Rs 29 a litre. Power sales too declined 63.2% to 7 million kilo watt Hours. Domestic Sugar sales push profitability With better Sugar realizations the EBIT margins for the segment increased to 9.4% from year ago’s 2.8%. Power segment however reported a loss of Rs 20 crore basically due to higher fuel costs (coal). In absence of Bagasse (the waste left after crushing sugar cane), company had to use coal for power production that pushed up costs. Industrial alcohol seeing marginally lower realizations too saw subdued margins. However the Larger Sugar segment that saw better margins in turn boosted overall margins. EBIDTA at Rs 102.4 crore increased 97.3% y-o-y. However Interest costs more than doubled to Rs 146.50 crore eating away the profits and Net Profits just stood at Rs 7.7 crore. Outlook Sugar prices still remain better than last year and are expected to stabilize at currently levels of Rs. 33.0 per kg as crushing season has started. Further, absence of sugar exports from India on account of lower domestic sugar production is expected to benefit Shree Renuka Sugars’ refinery operations, which are expected to run at full capacity over the next 2-3 quarters observes a Prime Broking report. Though Consolidated are yet to be declared, the analysts at Edelweiss observe that Brazilian subsidiaries have improved operating performance during the quarter on account of higher crushing. Total of 4.6 MT of cane was crushed during the quarter by RDB and VDI which is 139% higher than the previous quarter and 27% higher than same quarter last year. They believe that financial performance is likely to improve owing to higher realization in standalone busines and better operational performance in Brazil. But debt concerns still persist. Based on 6xFY13E EV/EBITDA, they have a target price of Rs 28 and maintain ‘HOLD’, while they await consolidated numbers for Q2FY13. Consensus Target price for the Stock as per Bloomberg stands at Rs 33.40 for stock trading at Rs 32.10 levels. http://www.businessstandard.com/india/news/analysis-shree-renukaupside-capped/195008/on