Equity research report of Shree Renuka Sugar industry

The sugar industry is a capital intensive industry requiring substantial investment of time
and resources in setting up the sugar mills. Shree Renuka Sugars uses a combination of
owned and leased mills for its capacity expansion. Out of its 10 mills, 5 are leased.
Leased mills enable quicker time-to-market and higher profitability as the variable cost
are directly under the control of the management. Shree Renuka Sugars has developed an
expertise in buying or leasing sick mills and then converting them in to profitable units.
In India, the sugar season lasts for 150 days. In order to extend this sugar season, Shree
Renuka Sugars invested in multi-feed sugar refineries. During the season it uses
sugarcane juice to produce sugar and during off season it uses raw sugar. This has
enabled Sugars Renuka Sugars to have doubled the asset utilization rate as that of the
industry peers. The company has a vocational advantage as all its units are located in
Maharashtra and Karnataka where the crushing season lasts longer and where the sugar
yield from the sugarcane is also 10-12% higher than in other parts of India. In these
regions, the sugarcane price is correlated with the sugar price and is protected from sugar
spot price variations. In other sugar producing states the state dictated minimum
procurement price makes the sugar cane prices much more inflexible.

Business and Financial Metrics

From FY04-05 to FY 07-08, sales revenues have grown from Rs 798 crore to Rs 2,129
crore, at average annual rate of over 55%. In the same period, profit after tax grew by a
46% average annual growth rate. In FY06-07, revenue and profit after tax fell by 12.86%
and 31%, respectively, due to a fall in sugar prices by over 35%. With sugar prices
recovering, revenues grew 120% in FY07-08 with profit after tax (PAT) increasing by
61%.The company has a high secured debt to equity ratio. In FY2005, when the company
had it IPO the ratio was reduced from a high of 2.5 to 1.3.In 2007, the ratio increased to
1.84 after SRS assumed more debt for the acquisition of KBK Chem-Engineering Pvt Ltd
and Sarita Sugars.

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Share holding pattern:

The promoters, namely the Murkumbi family, holds a majority of Shree Renuka Sugars
shares with 40.53% ownership; foreign institutional investors (FII) and other institutional
investors own 34.55% of the company. In order to better align the interests of the cane
suppliers and SRS, the company sold its shares to its sugarcane farmers and helped build
a cooperative relationship with them. The farmers own 9% of Shree Renuka Sugar's
equity. This model is unique to this industry and it ensures timely and coordinated supply
of sugarcane. In order to fund the next phase of growth, the company sold 6 million
shares to the promoters on September 11 2008.

Entity Percentage
Promoters(Murkumbi family) 40.53%
FII’s 24.03%
General Public 12.64%
Private corporate Bodies 3.67%
NRI’s/OCB’s 1.94%
Banks Fin.Inst. and Insurance 1.71%
Directors/Employess 1.05%
Others 5.62%

Fundamental analysis of Shree Renuka Sugars

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Economic analysis:
 Shree Renuka Sugars Limited, together with its subsidiaries, manufactures sugar,
energy, ethanol, and biofertilizers in India. It produces EC II grade refined sugar
and sulphurless sugar used for direct consumption in European and African
countries, as well by corporates for industrial usage. The company also produces
power from bagasse, a fibrous by-product resulting in the process of crushing of
sugar cane; and sells power to the state electricity boards. In addition, it produces
alcohol from the molasses, which can be used both for potable purpose and an
industrial chemical, as well as alcohol can be purified to produce fuel grade ethanol
that can be blended with petrol. Further, Shree Renuka Sugars sells residue product
from distillery operations blended with chemicals as bio-fertilizers.

Industrial analysis:
 Renuka Sugar Company has a large distillery capacities and after 5% ethanol
blending being mandatory it supplies to oil marketing companies at a rate of 21.5
Rs per liter. Sugar price had declined last year so it is doubtful for further decline.
Even on the way to control inflation if Govt. forces, distilleries earnings are likely
to increase. Cane cost is less in South than North especially UP and this makes a
huge difference in Renuka Sugars than to its peers. Recently company approved
rising up to 200 mn $ via local and overseas share sale. Company is also setting a
700000 tones sugar refinery at Mundra SEZ.

 Year over year, Shree Renuka Sugars Limited has been able to grow revenues from
28.2B to 76.7B. Most impressively, the company has been able to reduce the
percentage of sales devoted to cost of goods sold, SGA expenses and income tax
expenses. All of these improvements led to a bottom line growth from 2.2B to 7.0B.

 The company derives a significant portion of sugar sales from a limited number of
large corporate customers. Six largest clients accounted for almost two-thirds of the

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 company's revenue. Hopefully, the company will be able to keep up its premium
sugar quality and remain the preferred supplier for its clients.

Quarterly Price movement of Shree Renuka Sugars

Performance chart of shree Renuka Sugars

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Ownership pattern of Shree Renuka Sugars

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 Technical analysis of Shree Renuka Sugars

• Following are the technical charts showing the price movement of Shree Renuka
Sugars for the month of Jan. and Feb.,2011

Comment:-
As shown in the graph above of Shree Renuka sugars the price of the company’s stock
keeps on moving upward and downward direction. Starting from Jan.14, 2011, the price
was 87.58 and it touched the lowest point at 82.58 after Jan. 31,2011 and it touched the
highest point at 93.58 after Jan. 7, 2011, post from which the price of the share keeps on
depreciating till 25th Feb,2011.

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Price movement of Shree Renuka Sugars from 20th Jan. 2011 to 25th 2011.

Date O pen P rice

High P ric eLow P ric eClos e P ricWe A P No.of S hares
No. of Trades
Total Turnover
S pread
(RsHigh-Low
.)S pread Clo
20-Jan-11 86 86.65 83.15 85.9 85.48898 1353718 7322 1.16E + 08 3.5 -0.1
21-Jan-11 85.5 86.75 85.2 85.8 86.01883 638796 3742 54948484 1.55 0.3
24-Jan-11 86.5 90.3 85.55 90 88.86014 1769893 8652 1.57E + 08 4.75 3.5
25-Jan-11 90.5 91.25 86.7 88.4 89.62427 1450218 7263 1.3E + 08 4.55 -2.1
27-Jan-11 89.3 89.9 84.9 85.9 87.75326 1464746 5869 1.29E + 08 5 -3.4
28-Jan-11 87 87 83.2 84.35 84.58052 2562697 7145 2.17E + 08 3.8 -2.65
31-Jan-11 83.8 84.6 81.5 82.05 82.88057 1904586 8696 1.58E + 08 3.1 -1.75
1-Feb-11 82.85 85.65 82.05 83.7 83.6187 1663666 8037 1.39E + 08 3.6 0.85
2-Feb-11 84.9 87.15 84.4 86.15 85.81071 1157547 6654 99329925 2.75 1.25
3-Feb-11 87.55 92 86.7 91.25 90.25944 2400482 13483 2.17E + 08 5.3 3.7
4-Feb-11 92 92.4 88.05 88.6 89.17842 1325680 8228 1.18E + 08 4.35 -3.4
7-Feb-11 88.25 93.25 88.25 92.3 91.8634 1896181 11021 1.74E + 08 5 4.05
8-Feb-11 93 93.45 88.25 88.95 90.86778 1278645 7089 1.16E + 08 5.2 -4.05
9-Feb-11 89.25 91.25 86.5 87.55 88.9591 1869949 9498 1.66E + 08 4.75 -1.7
10-Feb-11 88.1 88.7 82.5 86 85.55079 1324115 7391 1.13E + 08 6.2 -2.1
11-Feb-11 85.8 87 82.6 84.6 84.11777 2309185 12730 1.94E + 08 4.4 -1.2
14-Feb-11 85.5 86.4 82.3 86.1 85.21061 1521136 8209 1.3E + 08 4.1 0.6
15-Feb-11 86.2 87.15 82.55 83.25 84.40685 1288554 7000 1.09E + 08 4.6 -2.95
16-Feb-11 83.25 84 80.1 81 81.30928 1767733 9861 1.44E + 08 3.9 -2.25
17-Feb-11 81.2 83.2 80.55 82.3 82.2629 1627467 9067 1.34E + 08 2.65 1.1
18-Feb-11 82.9 83.3 77.7 78.45 79.86665 2251596 11264 1.8E + 08 5.6 -4.45
21-Feb-11 78.45 80.3 76.85 79.95 78.93189 1827697 9576 1.44E + 08 3.45 1.5
22-Feb-11 79.5 81.8 78.65 81.4 80.77617 1731674 7298 1.4E + 08 3.15 1.9
23-Feb-11 81 81.7 79 79.3 80.287 1060047 5444 85107996 2.7 -1.7
24-Feb-11 79.3 79.3 72 72.65 74.75297 2152284 10399 1.61E + 08 7.3 -6.65
25-Feb-11 73.1 74.1 70.25 70.85 72.03194 1626273 8205 1.17E + 08 3.85 -2.25

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• The chart below shows the result, ratios and ownerships of different competitors
of Shree Renuka Sugars:

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 Conclusion and Comment

 Shree Renuka Sugars is the new smart kid in the block. It has all the makings of a
world-class sugar company. The company is selling rich (as it should be).It will not
be surprising if the company keeps on innovating and delivering on its promises.

 There is a continuous declining in the price movement of the company. The stock
price of Shree Renuka Sugars shows a declining trend till second quarter i.e. April
2010 but it showed an upward trend for the next two quarter i.e. July 2010 and Oct.
2010 and again it started declining in the fifth quarter i.e. Jan. 2011.

 Shree Renuka Sugar, at the current price of 77.85 is very close to its bottom. We can
expect further reduction of about 10-20%. The company looks pretty attractive at this
price with a great management team in place. The team can dream big and has the
wherewithal to realize it.

Annexure
Balance sheet of Shree Renuka Sugars:-

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 Sep ' 09 Sep ' 08 Sep ' 07 Sep ' 06 Sep ' 05
Sources of funds
Owner's fund
Equity share capital 31.69 27.60 24.81 23.81 20.00
Share application money 20.59 23.09 6.26 - -
Preference share capital - - - - -
Reserves & surplus 1,211.92 589.26 304.68 198.63 43.72
Loan funds
Secured loans 1,257.99 827.58 621.09 354.44 83.87
Unsecured loans 41.53 159.76 25.91 16.69 2.39
Total 2,563.71 1,627.29 982.74 593.57 149.98
Uses of funds
Fixed assets
Gross block 1,406.62 778.87 631.37 162.96 140.32
Less : revaluation reserve - - - - -
Less : accumulated depreciation 149.76 87.72 69.06 43.60 34.82
Net block 1,256.86 691.16 562.30 119.35 105.50
Capital work-in-progress 242.31 513.95 207.73 331.29 7.62
Investments 105.99 150.57 16.76 0.55 0.55
Net current assets
Current assets, loans & advances 2,070.73 572.04 355.75 266.18 220.65
Less : current liabilities & provisions 1,113.85 302.04 161.92 131.37 184.41
Total net current assets 956.88 270.00 193.84 134.81 36.24
Miscellaneous expenses not written 1.67 1.61 2.11 7.58 0.07
Total 2,563.71 1,627.29 982.74 593.57 149.98
Notes:
Book value of unquoted investments 95.39 119.93 16.10 - 0.55
Market value of quoted investments 15.71 27.69 - - -
Contingent liabilities 389.00 44.50 148.50 192.37 18.41
Number of equity sharesoutstanding (Lacs) 3169.00 2759.63 248.10 238.10 200.00

Profit loss account

Sep ' 09 Sep ' 08 Sep ' 07 Sep ' 06 Sep ' 05
Income
Operating income 2,234.22 1,757.75 798.06 857.21 666.51
Expenses

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 Sep ' 09 Sep ' 08 Sep ' 07 Sep ' 06 Sep ' 05
Material consumed 1,659.65 1,303.97 515.06 604.84 516.10
Manufacturing expenses 79.14 72.04 98.07 75.80 46.77
Personnel expenses 51.44 37.35 25.37 13.77 9.19
Selling expenses 31.50 72.28 22.07 43.18 14.88
Adminstrative expenses 36.53 38.00 21.37 13.49 9.32
Expenses capitalised - - - - -
Cost of sales 1,858.26 1,523.64 681.94 751.08 596.26
Operating profit 375.95 234.10 116.11 106.13 70.25
Other recurring income 4.63 0.71 11.49 5.01 2.30
Adjusted PBDIT 380.59 234.81 127.60 111.14 72.55
Financial expenses 101.44 84.06 24.64 26.58 15.36
Depreciation 62.46 36.48 24.92 8.78 8.00
Other write offs - - - 0.06 0.05
Adjusted PBT 216.69 114.27 78.05 75.72 49.14
Tax charges 74.14 39.15 23.56 18.28 8.28
Adjusted PAT 142.55 75.12 54.49 57.43 40.86
Non recurring items 0.96 -0.57 -0.06 -1.16 -0.12
Other non cash adjustments - 18.24 - -0.69 -7.27
Reported net profit 143.51 92.79 54.43 55.58 33.46
Earnigs before appropriation 212.02 125.47 92.65 73.65 34.37
Equity dividend 31.69 5.96 4.96 4.76 4.77
Preference dividend - - 3.55 - 0.01
Dividend tax 5.39 1.01 1.45 0.67 0.67
Retained earnings 174.94 118.51 82.69 68.22 28.91

Cash flow
Sep ' 09 Sep ' 08 Sep ' 07 Sep ' 06 Sep ' 05
Profit before tax 217.65 113.70 77.99 74.55 49.02
Net cashflow-operating activity -212.56 83.26 53.83 -56.90 72.69
Net cash used in investing activity -311.11 -584.94 -354.92 -346.10 -24.74
Netcash used in fin. activity 720.56 484.39 314.60 357.46 -17.44

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 Sep ' 09 Sep ' 08 Sep ' 07 Sep ' 06 Sep ' 05
Net inc/dec in cash and equivlnt 196.90 -17.29 13.51 -45.54 30.51
Cash and equivalnt begin of year 13.39 30.67 17.17 62.70 32.19
Cash and equivalnt end of year 210.28 13.39 30.67 17.17 62.70

Capital structure

Paid Up
From To Class Of Authorized Issued Paid Up Paid Up
Face
Year Year Share Capital Capital Shares (No.’s) Capital
Value
Equity
2008 2009 35.00 31.69 316900000 1 31.69
Share
Equity
2007 2008 35.00 27.60 275963160 1 27.60
Share
Equity
2006 2007 35.00 24.81 24809649 10 24.81
Share
Equity
2005 2006 35.00 23.81 23809649 10 23.81
Share
Equity
2004 2005 35.00 20.00 20000000 10 20.00
Share
Equity
2003 2004 35.00 14.71 14707200 10 14.71
Share
Equity
2002 2003 20.00 13.43 13302700 10 13.30
Share
Equity
2001 2002 20.00 12.76 12756000 10 12.76
Share

Dividend

Year Month Dividend (%)

2010 Sep 100
2009 Sep 100
2008 Nov 20
2007 Nov 20
2006 Nov 20
2005 Nov 20

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 Bibliography

 Moneycontrol.com

 Money.rediff.com

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 Businessweek.com

 Company’s annual report

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