Shree Renuka’s standalone performance in the September 2012 quarter was a mixed bag. While on one hand, the realisation in the domestic market boosted revenue from the sugar segment, the other business segments such as power, co-generation and trading sales witnessed a dip in revenues and profitability. The industrial alcohol segment also proved to be a drag. As a result, the overall revenue from domestic operations saw a marginal 2.4 per cent uptick year-on-year (y-o-y) to Rs 1,154.4 crore.
Improved volume, realisation
Domestic sugar prices remained firm on the back of a 11.5 per cent cut in production estimates by Indian Sugar Mills Association (ISMA) to 23 million tonnes (MT) for sugar year 2012-13 (October-September) owing to lower rainfall in key sugar producing states of Maharashtra and Karnataka.
The domestic prices saw a 25 per cent rise from around Rs 29 a Kg to Rs 36.3 a kg during the recently concluded quarter. Thus, average realisation for Shree Renuka increased from Rs 30 a Kg in the year ago quarter to Rs 32.50 a Kg in the September 2012 quarter. Volume also increased to 3-lakh tonne during the September’12 quarter against 2-lakh tonne in the previous corresponding period. Sales, therefore, surged to Rs 973.1 crore, up nearly 69 per cent y-o-y.
Sugar trading volume (primarily for exports) declined from Rs 417 crore in the September’11 quarter to Rs 106 crore in September’12 quarter. However, this was understandable looking at good demand and realisations in the country. The distillery sales, too, declined 32.7 per cent to 25,101 kilolitres with average realisation marginally down to Rs 29 a litre. Power sales dipped 63.2 per cent to 7 million kilo watt hours.
Profitability
With improved sugar realisation, the EBIT margin for the segment increased to 9.4 per cent from 2.8 per cent y-o-y. Power segment, however, reported a loss of Rs 20 crore mainly due to higher fuel costs (coal).
In absence of Bagasse (the waste left after crushing sugar cane), the company had to use coal for power production that pushed up costs. Industrial alcohol seeing marginally lower realisation, too, saw subdued margins. However, the sugar segment that saw better margins in turn boosted overall margins. Earnings before interest, depreciation, taxes and amortisation (Ebidta) at Rs 102.4 crore increased 97.3 per cent y-o-y. However, interest costs more than doubled to Rs 146.50 crore eating away the net profit, which came in at Rs 7.7 crore.
Outlook
Sugar prices still remain better than last year and are expected to stabilise at current levels of Rs 33 per kg, as crushing season has started. Further, the 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 the consolidated are yet to be declared, analysts at Edelweiss observe that the 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 per cent higher than the previous quarter and 27 per cent higher than same quarter last year.
They believe that financial performance is likely to improve owing to higher realization in standalone business and better operational performance in Brazil. However, debt concerns still persist. Based on 6xFY13E EV/EBITDA, they have a target price of Rs 28 and maintain ‘HOLD’ rating as they await consolidated numbers for Q2FY13. The consensus target price for the stock as per Bloomberg stands at Rs 33.40 (CMP Rs 31.7).
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