Maintain HOLD on Shree Renuka Sugars on leverage and complexity concerns - JM Financial Institutional Securities Private Limited

While we like SRSL's diversification strategy (present in Brazil and India, world's largest producing and consuming country respectively), we believe a) global surplus scenario (and therefore weak global sugar prices), b) lower cane crushing volume in India, and c) significant leverage (debt/equity of 5.6x, as of Mar'13) would cap any benefit of new cane pricing policy in Karnataka. We do not see significant de-leveraging in near to medium term, unless SRSL manages to successfully complete sale of cogeneration asset or minority stake in holding company. We value SRSL on 1.1x P/BV basis to arrive at our Sept'14 TP of Rs. 15. Maintain HOLD.

Source : Equity Bulls

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