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Wednesday, June 10, 2009

Shree Renuka Sugars Ltd:-Future prospects and outlook

Scripscan:Shree Renuka Sugars Ltd
cmp:140
Traded in:Nse-bse

Story:Incorporated in 1995, SRSL is today India?s fifth-largest sugar company with a capacity of 29,000 tonnes of crushing per day (tcd) and is likely to end the year October ?07-September ?08 with sugar production of 6.7 lakh tonnes. It is also India?s largest ethanol producer, which is increasingly being blended with petrol. The company currently has six units in Karnataka and Maharashtra. Nearly 30% of its production capacity is leased, while the rest is owned.SRSL is an integrated player with distillery capacity of 450 kilolitres per day (kl/day) and power generation capacity of 129 megawatts (mw). The company recently expanded its capacity in the ethanol and power businesses, which should help to increase its volumes and margins.It has also diversified into the sugar refining segment and is setting up two port-based refineries at Haldia and Mundra with capacities of 2,000 tonnes per day (tpd) each and one 2,000 tpd integrated refinery in Karnataka.The company has also undertaken some acquisitions in the recent past. It acquired Ratnaprabha Sugars ? which has a 1,250-tcd sugar plant and a 30 kl/day distillery ? for about Rs 24 crore. It has also acquired 67% stake in KBK Engineering, which specialises in distillery construction.The uptrend in the sugar cycle is likely to benefit SRSL as the company derives most of its revenue from sale of sugar. Further, its location in South India gives it the advantage of lower sugarcane cost than its competitors in the northern states, which have to pay higher prices due to government regulations.SRSL has embarked upon a major expansion plan with an investment plan of more than Rs 500 crore, to be completed in the next two years. This includes plans to increase the crushing capacity at two of its plants from the existing 10,000 tcd to 16,000 tcd by June 09. Further, its new 2,000 tpd sugar refinery is coming up at Mundra SEZ at a cost of Rs 350 crore by March 10. At the same time, the company will also augment its power generation capacity to 164 mw by October 09.To tap the ethanol market, SRSL has signed a memorandum of understanding (MoU) with Hindustan Petroleum Corp (HPCL) to set up an integrated sugar plant with associated facilities for production of ethanol in Maharashtra. The company?s 450 kl/day new distillery project may come up in FY10. This proposed expansion through the joint venture (JV) will cater to the huge market for ethanol and HPCL?s requirement for 10% blending with petrol.In the power business, the company will utilise only 45% of the total generated power for captive consumption, while the rest will be sold in the open market. Thus, the power business alone can generate revenues of Rs 100 crore annually. This is assuming 35% capacity utilisation corresponding to the crushing season and sale price of Rs 4/unit.The current boom in sugar prices is expected to improve margins for the company?s sugar business. At the same time, SRSL?s increasing focus on the non-sugar businesses such as power, ethanol and distilleries will act as a catalyst for its growth. Although the share of the non-sugar businesses is currently small, these segments are likely to improve their contribution to the company?s topline and reduce the fluctuation in its revenues, arising due to sugar price fluctuation.Shree Renuka Sugars has outperformed its peers in revenue and profit growth. Its focus on non-sugar businesses will give it a further leg-up. The stock"s a good long-term bet.A great buy at dips.

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