Motilal Oswal Maintains Buy on Shree Renuka Sugars

SHREE RENUKA SUGARS 1QFY11: Cons PAT down 74.5% YoY; Lowering FY11 and FY12 PAT estimates; Maintain Buy

Shree Renuka Sugars' 1QFY11 (FY Oct-Sep) EBITDA stood at Rs3b, a decline of 16.8% YoY and 8% QoQ, EBITDA margins stood at 13.4%.

Key reasons for weak performance: 1) lower sugar price realization from Indian operations, and 2) lower trading and refining profits from the Indian operations.

Consolidated revenues stood at Rs22.5b, up 57.3%YoY, while PAT declined 74.5% YoY to Rs664m.

Key triggers for SRS are: 1) higher than expected realizations from its Brazilian operations, and 2) Government permissions for higher than expected exports.

We believe Shree Renuka Sugars is the best proxy to play the global sugar industry recovery and is a direct play on rising sugar/ethanol prices. Strong cash flow visibility would allow it to de-leverage itself and address concerns regarding its high leverage. We expect the company to post revenue CAGR of 25.8% and net profit CAGR of 11% over FY10-12. The stock trades at 8.3x FY11E EPS of Rs10.4, 1.7x FY11E BV of Rs51.5, and EV of 6.4x FY11E EBITDA. Buy.

Source : Equity Bulls

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