Sunday, January 9, 2011

Renuka Sugars Buy

CMP (Rs): 96.1

52-week high (Rs)*: 123.6

Market cap (Rs crore): 6,449.5

% change from 52- week high *: -22.25

* Adjusted for corporate actions, split/Bonus. Current market price & market cap as on 23 Dec. Data Source: CMIE Prowess

Perhaps the best-positioned Indian company to ride the quick recovery in the world sugar cycle. The current sugar season’s (Oct ’10-Sep ’11) global surplus has been cut due to weather disruptions in Brazil, India, Russia and Thailand. Global sugar prices remain high, while the announcement of sugar exports has improved domestic prices.

While Renuka’s large (and leveraged) acquisitions in Brazil are likely to bear fruit (if the higher sugar prices persist, notwithstanding some hedges the company had taken), they will do even better in the future.

This will result in strong cash flow over the next two years, thus halving the debt-to-equity ratio for Renuka to 1.2 only.

It’s trading for under eight times 2011-12 earnings, and looks good for a 40-50 % gain from its current market price in a year. Provided the high sugar prices remains.


Source ET

Our Recommendation :

After a recent spike to 120 it is now correcting. Wait for declines to 75 levels and buy. The stock has a potential to go to Rs.150 levels where one can exit.


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