Shree Renuka Sugars - Q5FY12 Result update - Centrum

Operationally in-line results, maintain Buy

Shree Renuka Sugars' Q5FY12 operational performance was largely in-line with our expectations with Revenues at Rs20.5bn (vs. est. Rs20.9bn) and EBITDA at Rs3.3bn (vs. est. Rs3.5bn). Consolidated EBITDA margin at 16.2% was 55bps below our estimates of 16.8%. However, the company reported an adjusted loss of Rs673mn against our estimates of profit of Rs533mn primarily due to higher-than-estimated depreciation cost and lower-thanexpected other income. In the standalone business, EBITDA increased 6.8% YoY to Rs1bn due to improvement in profits from co-generation and Ethanol segments. However, higher interest expense (Rs715mn vs. Rs418mn in Q1FY12) and lower other income (Rs5mn vs. Rs101mn in Q1FY12) led to adjusted loss of Rs51mn in the quarter against a profit of Rs304mn in Q1FY12. Recovery rate of Sugar in India in current season is at 11.5% and the management expects the recovery rate to be 12% for the full crushing season. Higher debt remains a concern for the company and the management plans to hive off its co-gen business in Brazil. Though, we expect the company to report losses in FY12E due to lower profits from Brazilian subsidiary as the crop there was impacted by adverse weather and frost, going forward, we expect the profitability to improve in FY13E. We maintain Buy on the stock with target price of Rs46, upside of 13% from CMP. We have factored in our valuation, potential income of Rs13bn through sale of power plants of 295MW (leading energy players have shown interest) in Brazil and any additional revenue through stake sale will further act as a catalyst for the stock.

- Higher depreciation and interest expenses impact consolidated profits: Consolidated EBITDA increased 10.6% YoY to Rs3.3bn and EBITDA margin improved 2.9pp YoY to 16.2%. However, higher depreciation expenses (up 51% YoY) and interest expenses (up 48.3% YoY) led to adjusted loss of Rs673mn against profit of Rs270mn in Q1FY12.

- Improvement in co-gen and Distillery segments' profitability results in higher standalone EBITDA: Standalone revenue of the company declined 36.7% YoY to Rs6,970mn largely due to 46% YoY decline in Sugar segment's revenues. Revenue from Ethanol segment was up 19.6% YoY on account of 14.3% YoY growth in sales volume and 4.3% YoY increase in realization. Improvement in profits from co-gen and Ethanol segments led to 6.8% YoY increase in standalone EBITDA to Rs1bn. However, higher interest expense (Rs715mn vs. Rs418mn in Q1FY12) and lower other income (Rs5mn vs. Rs101mn in Q1FY12) led to adjusted loss of Rs51mn in the quarter against profit of Rs304mn in Q1FY12.

- Strong performance of Renuka Vale do Ivai results in higher EBITDA from Brazil: Higher revenues (up 66.7% YoY) and EBITDA (up 119.9% YoY) of Renuka Vale do Ivai offset lower revenue (down 15.3% YoY) and EBITDA (down 22.9% YoY) of Renuka do Brasil and hence, Brazilian operation reported 11% YoY increase in EBITDA to Rs2.3bn. EBITDA margin from Brazilian operations improved 2.5pp YoY to 25.5%.

- Valuations and Recommendations: The stock is trading at 1.18x FY13E P/BV and 6.6x FY13E EV/EBITDA. We maintain Buy on the stock with a price target of Rs46, upside of 13% from CMP.

Source : Equity Bulls

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