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Shree Renuka Sugars Equity Research

HomeCompanyShree Renuka Sugars Equity Research

Date of Research – 21 January 2016

Price – Rs. 11.53

bout the Company

Incorporated in 1995, Shree Renuka Sugars Limited (“Shree Renuka” or the “Company“) together with its subsidiaries operates as a global agribusiness and bio energy Company. The Company operates in 3 segments: Sugar, Ethanol and Power.

Shree Renuka operates seven sugar mills in India with a total crushing capacity of 7.1 Million Tons Per Annum (“MTPA”) or 35,000 Tons of Cane per Day (“TCD”) and two port based sugar refineries with a capacity of 1.7 MTPA. The Company has a significant presence in South Brazil, through 100 % acquisitions of Renuka Vale do Ivai and 59.4 % acquisition of Renuka do Brasil in the year 2010. The Company operates 11 mills globally (4 in South Brazil and 7 in India) with integrated ethanol and power co-generation capacity.

The Company also produces power from bagasse (a by-product of sugar cane) for captive consumption and sale to the state grid in India and Brazil. The Company also manufactures fuel grade ethanol which can be blended with petrol.

The Company has changed its accounting year from October-September to April-March and accordingly the figures for the period under review is for a period of 18 months ended March 31, 2012 and hence not comparable with last year.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 10,357.60 11,546.40 10,087.60 9,823.40 11,944.50 
Expenses 8,852.30 10,623.50 9,657.80 10,141.80 11,574.40  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 1,505.30 922.90 429.80 (318.40) 370.10  
Depreciation 886.80 1,076.10 991.30 763.50 845.50
Finance Costs 868.30 959.10 922.20 964.60 931.80  
Other income 58.20 65.20 46.50 93.10 353.60  
Exceptional items 298.70 631.90 651.40 – 
PBT (490.30) (1,679.00) (2,088.60) (1,953.40) (1,053.60) 
Tax (116.00) (200.00) (275.00) (150.80) (13.90)
Extraordinary items – 
PAT (before Minority Interest and share of Associates) (374.30) (1,479.00) (1,813.60) (1,802.60) (1,039.70) 
Profit/ (loss) attributable to Minority Interest (0.30) (1.00) (0.70) 0.30 – 
Share of profit / (loss) of Associates – 
Consolidated Profit / (Loss) for the year (374.00) (1,478.00) (1,812.90) (1,802.90) (1,039.70) 

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 14.53 7.99 4.26 (3.24) 3.10
Net Profit Margin Ratio (3.61) (12.81) (17.98) (18.35) (8.70)

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 67.13 67.13 67.13 92.88 92.88
Reserves & Surplus 1,721.16 1,392.59 (563.61) (2,435.40) (1,884.87)
Net worth (shareholders funds) 1,788.29 1,459.72 (496.47) (2,342.52) (1,791.99)
Long term borrowings 3,895.24 5,120.83 5,019.71 3,925.24 4,018.61
Current liabilities 1,206.87 8,646.97 8,008.20 9,120.23 11,024.58
Other long term liabilities and provisions 432.83 352.12 416.88 262.14 266.36
Deferred Tax Liabilities 164.81 27.23
Total Liabilities 7,488.04 15,610.13 12,950.59 10,966.66 13,519.44

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 2,830.69 8,696.36 8,001.96 6,040.89 7,447.00
Noncurrent Investments 2,013.49 227.00 164.17 82.42 84.88
Current assets 1,906.07 586.62 3,793.01 3,802.90 4,809.84
Long term advances and other noncurrent assets 737.79 820.56 805.20 685.39 682.90
Total assets 7,488.04 15,610.13 12,950.59 10,966.66 13,519.44

Efficiency Analysis

 
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 32.39 22.87 20.39 27.13 (14.29)
ROE / RONW (1.69) (25.62)

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 10,357.60 11,546.40 10,087.60 9,823.40 11,944.50 
Growth (%) (16.26 %) 11.48 % (12.63 %) (2.62 %) 21.59 % 
PAT (Rs. Cr.) (374.30) (1,479.00) (1,813.60) (1,802.60) (1,039.70)
Growth (%) – 
Earnings Per Share – Basic (Rs. ) (5.57) (22.03) (20.39) (19.41) (11.18)
Earning Per Share – Diluted (Rs. ) (5.57) (22.03) (20.39) (19.41) (11.18)
Price to Earnings – 

Dividend History

Shree Renuka has not declared dividend for the last 3 years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Shree Renuka’s average current ratio over the last 5 financial years has been 0.66 times.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Shree Renuka operates with huge level of debt (and negative net worth).

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Shree Renuka is close to defaulting on their loan obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Shree Renuka reported a promoter holding of 54.47 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 8.14 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

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