Sugar Shares - Quick Overview
Shree Renuka Sugars
The 51 per cent stake in the Brazilian sugar company’s 10.5-million-tonne capacity is likely to cost around Rs 1,150 crore, down from the earlier bid of Rs 1,530 crore. Operationally, Equipav has been on a strong footing, with two plants located near canecrushing facilities. Moreover, cane supply comes from cultivation of 1,15,000 hectares land, of which two-thirds is farmed by the company, say analysts. For this, Shree Renuka was paying around $115 per tonne of cane crushing capacity, which was atad expensive, considering some of the past deals. The new valuation is around $100 per tonne.
Analysts at HSBC Global Research reckon this as reasonable when compared to the going norm of $77-97 per tonne. Shree Renuka had earlier acquired Vale Do Ivai (VDI) at $77 per tonne. Similarly, Cosan SA acquired Nova America at $80 per tonne in January 2009. However, the company will have to raise debt of around Rs 450 crore (it has Rs 800 crore cash on its books) to fund the acquisition. Analysts estimate the consolidated net debt-to-equity to rise to two times from the present standalone net debt-to-equity of -0.1 times.
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Moreover, with sugar prices crashing, realisations will not remain remunerative and the acquisition may not be earnings accretive in the current year. The trigger, say analysts at HSBC, could be from a possible hedging of sugar prices above 18 cents a pound. This will result in an operating profit of $15 per tonne. The company remains sensitive to sugar prices and a rupee per kilogram change has the potential to impact net earnings by 11 per cent during the current financial year.
source - business standard
Shree Renuka Sugars (updated - 24 Feb 2010)
In less than four months, Shree Renuka Sugars (SRS) has announced its second acquisition. While the first acquisition of Brazilbased VDI was done in November 2009, it has now entered into a definitive agreement with Grupo Equipav to acquire a 50.79 per cent stake in Equipav SA, one of the largest sugar and ethanol producers in Brazil. The total deal value is $329 million (Rs 1,530 crore), which will be funded through internal accruals.
The deal will see Grupo Equipav get about $50 million, while the remaining funds will be used for capacity expansion, working capital and debt repayment. Based on the deal, Equipav’s enterprise value (EV), including debt of $822 million, works out to $1.19 billion (or $113 a tonne). Although the deal looks marginally expensive, there is more than what meets the eye.
For instance, while VDI was acquired at an EV of $77 atonne and some others deals have taken place at about $100 a tonne, analysts say this is a strategic initiative that will enable backward integration for Renuka Sugar’s Indian operations. About 66 per cent of Equipav’s sugarcane requirements are met from its own cultivation undertaken over 115,000 hectares. Valuations look more reasonable if Equipav’s co-gen power capacity of 203 Mw, including 52 Mw exportable power, is considered. Going ahead, Equipav will further increase its sugar crushing capacity from 10.5 million tonnes to 12 million tonnes and co-gen capacity by about 77 Mw.
Overall, analysts suggest that the acquisition is fit for SRS, as it will enhance operational synergies and help scale up its position in the world’s largest sugar market, Brazil. Post-deal, analysts estimate SRS’s operating profits to increase by 45-55 per cent in 2010-11. They have also raised their price target for the stock to Rs 330345. At Rs 180, SRS trades at eight times its estimated earnings for year ending September 2011.
source - BS
Shree Renuka Sugars (updated - 04 June 2010)
The Equipav deal renegotiation will be a positive for Shree Renuka Sugars, as it will pay 25 per cent less for the acquisition. Also, the stress on its balance sheet will be lower now. Moreover, the valuation will become more rational and in line with industry trends.
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