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Research
Shree Renuka Sugars - Exports boost standalone numbers - Edelweiss
Posted On : 2012-08-21 20:43:33( TIMEZONE : IST )
Shree Renuka Sugars (SHRS) reported only standalone financials for Q1FY13; consolidated financials are likely to be released over the next one month. Standalone adjusted PAT was below estimate at INR214mn, despite revenue and EBITDA coming in line and ahead of expectations, respectively, owing to strong export realization and volumes of sugar. Owing to domestic sugar realisation improving ~20% QoQ, the company's standalone financials are likely to improve. Nevertheless, high debt in Brazilian subsidiaries and concerns on operational improvement in RdB could be an overhang for some more time. Maintain 'HOLD'.
Sugar performance improves in standalone operations
Owing to strong growth in both domestic sugar sales volume (28% YoY) as well as export volume (23% YoY), sugar segment posted robust revenue growth of 39%. Moreover, average export realisation, which was strong at INR35/kg vis-Ã -vis average domestic realisation of INR27/kg during Q1FY13, helped SHRS post PBIT margin of 11.2% (up 580bps YoY). However, due to early completion of crushing in the current sugar season, by-product volumes were lower YoY. Nevertheless, this was offset by the sugar segment and the company posted strong EBITDA growth of 31% YoY. But, steep jump in interest expense to INR114mn (owing to higher debt, higher interest rate) in Q1FY13 vis-Ã -vis INR51mn YoY resulted in core PAT declining 58% YoY.
Steep hike of 20% in sugar price in past one month
- While average sugar realisation for SHRS was at INR27/kg in Q1FY13, it has shot up about 20% over the past one month to INR33/kg currently due to concerns over monsoon and an incremental demand coming ahead of the festive season. This is likely to augur well for the company's standalone operations' profitability.
- Management maintained 9mn MT cane crushing in Brazilian subsidiaries in FY13 vis-Ã -vis 8.3mn MT in FY12 and indicated strong possibility of increasing this guidance when it announces Q1FY13 consolidated financials.
Outlook and valuations: Debt concerns persist; maintain 'HOLD'
While SHRS' operational performance is likely to improve in standalone operations over the next two quarters owing to higher realisation and in Brazilian operations due to better cane availability expectation, debt concerns persist. Based on 6x FY13E EV/EBITDA, we have a target price of INR28 and maintain 'HOLD'.
