Shree Renuka Sugars’s Lean Period is Only Temporary

Shree Renuka Sugars’s Lean Period is Only Temporary

Shree Renuka Sugars - Latest Results

(in Cr.)
Sep-11
Jun-11
FY09-10
Revenue
1,127.30
1,207.20
5,511.20
Net Profit
-57.3
47.2
410
EPS
-0.85
0.7
6.11
Cash EPS
-0.51
1.03
7.34
OPM %
-1.06
11.01
13.15
NPM %
-5.08
3.91
7.44
Shree Renuka Sugars - Latest Results

Shree Renuka Sugars -Share Price Movement

 
 
 
Weekly H/L
26.75
23.8
Monthly H/L
31
22.8
52 Weeks H/L
96.25
22.8
 
( 7 Jan 11 )
( 19 Dec 11 )
Delivery / Var+ELM %
31.6
22.57
Shree Renuka Sugars -Share Price Movement

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Shree Renuka Sugars’s Lean Period is Only Temporary

Shree Renuka Sugars’s Lean Period is Only Temporary
Shree Renuka Sugars’s Lean Period is Only Temporary | Source

Shree Renuka Sugars’s Lean Period is Only Temporary


Slipping into red for the first time

Shree Renuka Sugars has slipped into red for the quarter ended 30.09.11. Revenue has also dropped. The shares of Shree Renuka Sugars are being traded in the Indian stock markets at Rs.26.55 now (BSE 06.01.12). The shares of the company are available in both NSE and BSE. But the volumes of trading are heavy at around 19 lakh shares. The share price has been reduced to one third of what it was a year back. Investors have burnt not only their fingers but their hands also. There is a saying that misfortune never comes singularly. This seems to be truer with respect to Shree Renuka Sugars. The company is forced to face many adverse factors like adverse government decisions, inclement weather, faltering economic growth, weakening of Indian Rupee against the dollar and a red balance sheet.

Brazil subsidiaries fail due to frost and dry weather

Shree Renuka Sugars experienced its first ever loss since its listing in Q2. The company experienced a foreign exchange loss of Rs.570 crore during Q2. Mainly it was due to the company’s subsidiaries in Brazil which have a debt of $485 million plus trade advances amounting to $117 million. Even if we set aside the foreign exchange losses, the company still sustained losses because of its operational problems. The company’s subsidiary in Brazil called Renuka Do Brasil suffered due to dry weather and frost in Sao Paulo which resulted in reduced yields of sugarcane. It seems to be a mistake on the part of Shree Renuka Sugars to acquire two units in Brazil. This has affected the company’s balance sheet very much. Its debt equity ratio has also gone up from 2.75 to 4.12. Interest expenses have also multiplied by three times.

Indian operations affected due to increase in cane sugar price

Its Indian operations are also not smooth. The Uttar Pradesh Government has raised the price of sugarcane to be paid by the sugar mills with an eye on the farmers’ votes in the coming Assembly elections. Politics has played a spoilsport for many sugar companies in the state. The government of India’s decision to permit exports of one million tonnes of sugar has increased the domestic sugar prices but has depressed the international price of sugar. As the crushing season is about to start, the additional sugar will depress the domestic price also. In order to reduce its high debt, Shree Renuka Sugars is planning to sell its co-generation unit in Brazil. Narendra Murkumbi is the Managing Director of Shree Renuka Sugars.

Brazil subsidiaries helped the company previously

For the nine months period ended 30.06.11, the Brazilian operation contributed to 65% of the company’s bottomline amounting to Rs.186 crore. The Brazilian assets have enabled Shree Renuka Sugars to produce 3.7 million tonnes per annum of sugar as against its close competitor Bajaj Hindustan’s 1.2 million tonnes per annum. Shree Renuka Sugars’s plants enjoy a longer crushing cycle, enjoy higher sugar recovery rates and have greater access to cane. Indian laws do not allow corporate entities to buy land for growing sugarcane. The companies have to source their sugarcane need from the farmers. But in Brazil, the laws are different. Sugar companies are allowed to buy land and grow sugarcane in it. Brazilian weather is also excellent for the cultivation of coffee, sugarcane and other crops. Therefore the basic reasoning and logic of Shree Renuka Sugars to acquire subsidiaries in Brazil was not faulty. That the weather turned adverse and played a spoilsport is the company’s bad luck. But if the weather in Brazil turns favourable next year, the company’s results will also be good. The net loss is only a passing phase in the company’s chequered history.

Morgan Stanley’s downgrade of the company

Morgan Stanley downgraded Shree Renuka Sugars from overweight to equal weight. For the three months period from July to September 2011, the stock outperformed BSE Sensex by 5%. The expected production of sugar in India for the season starting from October 2011 is around 26 million tonnes. This is a 7.5% rise compared to the previous year. There is likely to be a global sugar surplus of around 9 million tonnes for 2011-12. But sugar output is expected to be around 13% less in Brazil owing to weather conditions.

India’s largest sugar refinery

Khandepar Investments, the promoters of Shree Renuka Sugars have pledged around 7.83% of their holding. Shree Renuka Sugars is India’s largest sugar refinery in terms of revenue. The company commissioned a new sugar refinery in the West coast near Kandla Port in July last year. The refinery has a capacity of 3000 tonnes per day and has co-generation capacity of 45 MW. With this refinery, the total refining capacity of Shree Renuka Sugars has gone up to 17 lakhs tonnes per year. In the East coast, Shree Renuka Sugars operates a sugar refinery with capacity of 2000 tonnes per day near Haldia Port. India is world’s top sugar consumer. In 2010-11, India’s estimated sugar production was around 24.2 million tonnes. In 2011-12, the output is expected to increase to 26.5 million tonnes.

Invest for medium and long term

The shares of Shree Renuka Sugars can be purchased at the current price of Rs.26.55 for medium and long term holding for the following reasons:

  • Shree Renuka Sugars is a reputed profit making dividend paying company (only in Q2 for the first time it slipped into loss)
  • The company’s net loss in Q2 is a temporary phenomenon caused by the vagaries of weather and foreign exchange loss. These adversities will not prolong or persist forever. When the wheels of fortune turn, the company will post healthy results once again
  • Shree Renuka Sugars is India’s largest sugar refinery in terms of revenue
  • India is world’s largest sugar consumer
  • The company possesses reputed management

The share price is close to its lowest price in the last one year

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