Showing posts with label Renuka Sugars. Show all posts
Showing posts with label Renuka Sugars. Show all posts

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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Monday, December 27, 2010

Sugar Sector - Buy on declines

Permission to export sugar will lead to higher realisations and margins, signalling a potential upgrade in earnings.

The share prices of the country's sugar producers, Bajaj Hindusthan, Balrampur Chini and Shree Renuka Sugars, jumped 2-5 per cent on Thursday after the government's move the previous day allowing producers to export half a million tonnes of sugar. The development is positive for sugar companies, considering they can now take advantage of the relatively high international sugar prices

Stocks of sugar companies had outperformed the broader markets from May till October, but took some beating in November as sugar prices (both global and domestic) corrected. Besides, the markets sentiments, too, turned weak. However, sugar prices have been ruling firm since then. And the latest move by the Indian government should provide support to domestic sugar prices, which could narrow the gap with global prices.

Analysts believe the Maharashtra and south India-based sugar mills like EID Parry, Bannari Amman Sugars, Sakthi Sugars and Shree Renuka Sugar (which is also the largest sugar exporter) will benefit from this development, given their operations are near major ports. The UP-based sugar mills will benefit only if the differential between the domestic and international prices remains high.

Nevertheless, analysts believe given that part of the surplus sugar will now move to the international markets, there will be less pressure on the domestic prices which have so far lagged behind global prices. This will prove beneficial for all the companies, which could otherwise have reported losses.

Good timing
According to estimates, the country will have a sugar surplus of about six million tonnes in the sugar season 2010 (the season ends in the month of September) and about seven million tonnes (including the inventory carryover from the current season) in the next year. On the back of this, sugar prices in the domestic market are depressed relative to the international prices. Sugar is trading in the domestic markets at about Rs 29 a kg. This is lower by 15-20 per cent compared with the prices prevailing in the international markets. The international white sugar prices are currently hovering around $767 a tonne or Rs 34.52 a kg based on a dollar-rupee rate of Rs 45.

Margin booster
While it is certain that only a part of the sugar produced will be exported, companies stand to gain from higher realisations. First, the international prices are reasonably high (and likely to remain firm) and secondly, the domestic prices too could inch higher and narrow the gap. Thus, companies could see a healthy improvement in their blended realisations.

Analysts believe most of the companies are sitting on inventories valued at Rs 25-28 a kg. Besides, as the cane prices are lower by about 20-25 per cent this year, the cost of production will also be lower. In addition to the export incentives, the companies are also being given an additional Rs 90 a quintal (90 paise a kg) increase in the price of levy sugar.

Since the companies are required to sell about 10 per cent of their sugar production to the government at a fixed price (which is usually lower than the market price), an increase in levy sugar price (though marginal) should further boost the overall realisations.

Most of the analysts have factored in a sugar realisation of Rs 25-27 a kg for the next two years. However, with these developments, there are chances the companies could report better realisations and, therefore, higher margins leading to further earnings upgrades. Among the sugar producers, analysts have a ‘buy' rating on companies like Shree Renuka Sugars, Balrampur Chini Mills and EID Parry.

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Thursday, December 23, 2010

Sugar Sector Review - Buy Renuka Sugars

Shree Renuka Sugars (SRSL) was up five per cent on Friday on significant spurt in trading volume in both cash and derivatives segment. SRSL having business model of sugar mills in Brazil and refining in India appreciated 18 per cent in six trading sessions on short covering of 6.30 million shares in its December futures.

The market picture chart (MKTP) sourced from Bloomberg is hinting at fresh volume based upside target of around Rs 95 with price opportunity support expected to come around Rs 82. The stock earlier had reacted from its high of Rs 106.90 to Rs 76.55 during recent bloodbath in the mid-cap stocks. The data points suggest that SRSL can easily move up above Rs 100 going ahead.

Likely Triggers: The buzz was on account of review of sugar export policy in January and government's approval of shipments of 500,000 metric tons for the sugar year ending September 2011. Farm Minister Sharad Pawar hinted at completion of procedures for sugar sales outside the country in 10 days and a review of export plans at the end of next month.

Sugar analysts, domestic as well as foreign broking houses have given buy-side call for SRSL with price target of Rs 110-120. Analysts expect a decent 20 per cent growth in revenue and operating margins of around 18-20 per cent in the next two financial years. The earnings per share is expected to be above Rs 10 in each year.

Key drivers for the positive outlook - global raw sugar prices sustaining at over US cent 25/lb and management expectation of a 31 per cent rise in EPS if current sugar price sustain. Sugar prices reached the highest level in almost 30 years last month in New York on concern that shipments from Brazil, the biggest producer, and India, may be too low to meet demand.

Click here to read SECTOR ANALYSIS: Sugar

Bank of America Merrill Lynch analyst expects Brazil mills to have $114 million pre-tax profit in FY11E. If international raw sugar price of US cent 22/lb assumed for FY11E rises to current sugar price of US cent 28/lb then Brazil mills would help improve consolidated FY11E EPS by 31 per cent to Rs 13.4.

Analyst at Motilal Oswal Research expect Renuka do Brazil (formerly Equipav) to earn net profit of Rs 673 crore and Vale Do Ivai SA Acucar E Alcool (VDI) to add another Rs 630 crore in four years between SY10 and SY14. Renuka had invested Rs 1,150 crore to buy Equipav and Rs 409 crore for VDI. Which means, if everything goes well, pay-back will happen by SY2014.

Chart Check: Renuka Sugars after a steep 28 per cent correction post Diwali, has witnessed an extremely volatile movement over the next four weeks. Last week, the stock had apprecaited by 9 per cent to Rs 90. The stock has been taking support around its short-term (20-weeks) moving average for the last four weeks.

The momentum oscillators on the daily charts are in favour of an upmove, however, given the high volatility over the last four weeks, once can expect the volatility to subdise, and the stock behaving in a more subtle manner.

The stock is likely to get considerable support around Rs 86, below which it may test Rs 83. On the up side, the stock is likely to test Rs 94, above which the stock may flare up to Rs 100.

Source : Smartinvestor


Bought to you by

Ingenious Investor
Equity Research Division

Ravina Consulting
Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084

For Free Stock Advise + Ideas
sowmya@ravinaconsulting.com
Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com
Follow us - www.twitter.com/smartinvestor