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Monday, December 03, 2012

Shree Renuka Sugars Ltd: The Scrip is looking Attractive 
The scrip of Shree Renuka Sugars Ltd, looks attractive from the short to medium term perspective due to improved sugar realisation though high debt will continue to remain a fly in the ointment. 
According to a leading financial daily: "Shree Renuka Sugars’ standalone performance in the September quarter was a mixed bag, but reflects the upturn in the sugar cycle. While realisation in the domestic market boosted revenue from the sugar segment, the other business segments such as power, co-generation and trading sales witnessed dip in revenues and profitability". 
Moreover, the domestic as well as Brazilian operations are likely to report better performance in the next one-two quarters, which are yet to factor in on the current price, especially when the Nifty is nearing 6000 mark. 
Domestic sugar prices are expected to remain FIRM, piggybacking on a 11.5% cut in production estimates by the Indian Sugar Mills Association (ISMA); to 23 million tonnes for sugar year 2012-13 (October-September), owing to lower rainfall in key sugar producing states of Maharashtra and Karnataka. The domestic prices saw 25% rise from around Rs.29-30 a kg to Rs.36 a kg during the recently concluded quarter (Q2FY13). 
Sugar prices are still better than last year and are expected to stabilise at current levels of Rs.33 a kg. Further, the absence of sugar exports from India on account of lower domestic sugar production is expected to benefit Shree Renuka Sugars Ltd’s refinery operations, which are expected to run at full capacity over the next two-three quarters, according to a leading Broking House. The refinery operations will get a boost once duty changes proposed by Isma are implemented.
Moreover, the Brazilian subsidiaries (half of consolidated revenues; reported losses last year) have improved operating performance during the quarter on account of higher crushing.
Many analysts, believe that financial performance is likely to improve in the coming quarters, owing to higher realisation in standalone business and better operational performance in Brazil. However, debt concerns still persist. You will get some more inputs on Sugar Stocks if you, CLICK HERE

Also,  the CCEA (Cabinet Committee for Economic Affairs) recently approved the proposal to free ethanol producers to fix the selling price in consultation with the end-user. In addition to the 13 States where ethanol blending is prevalent on a limited scale, the proposal for mandatory 5 per cent ethanol blending has now been extended to other states too. In the event of short supplies, the end-users are now free to import ethanol directly. With this, the ethanol realisation for Indian sugar producers is expected to move in tandem with the international prices.  
 Decontrol, a big positive:
The committee headed by C. Rangarajan has suggested de-control of the sugar industry. If accepted, the current 10 per cent levy obligation (sugar sold at a discounted price) may be removed and sugar trade may be liberalised by freeing import and export. The committee has also suggested abolition of the sugarcane reserve area and a revenue-sharing formula for cane procurement. Under this, farmers will be paid the FRP upfront and a 70 per cent share of the value realised from sugar and other by-products.
If the committee recommendations are implemented, it can lend stability and sustainability to the industry’s profitability, leading to re-rating of sugar stocks. 
Conclusion: Looking at everything we can conclude that, since the core business of the company is doing well (Except some disappointments in the power and Industrial alcohol segments) we can still buy the scrip at the CMP of Rs.31.20 for a short term target of Rs.37--39, in the next few trading sessions. The chart of the company is bullish and also, during the last F & O settlement, both Renuka Sugars & Suzlon Energy were in the ban period as the market-wide position limit had crossed the 95 % mark.