Conference Call      
          Shree Renuka Sugars
Robust margins in renewable segment would provide stability to the overall earnings going forward


Shree Renuka Sugars announced the results for the quarter ended September 2011 and recently held a conference call to discuss the results and its future growth strategies.

Key takeaways of the call are:
Consolidated Net Sales decreased by 2.9% to Rs 2419.30 crore for the quarter ended September 2011 on account of lower utilization of refineries despite the higher sales realized in Brazil on the back of higher realization of sugar and ethanol.
It posted a consolidated net loss of Rs 615.90 crore for the quarter ended September 2011 as against net profit of Rs 128.10 crore in corresponding previous quarter. The loss was on account of huge Rs 569.80 forex loss mainly due to depreciation of Brazilian Real (R$) versus USD.
Renuka do Brasil (RDB) net sales (including other income) were higher by 12.8% to Rs 688.30 crore for the quarter ended September 2011, compared to the previous quarter. The company, however, posted net loss of Rs 611.60 crore as against net profit of Rs 47.10 crore in the previous quarter on account of huge forex loss due to depreciation of Brazilian Real (R$) versus USD. RDB holds closing sugar stocks of about 568,000 tonnes and ethanol stocks of 60,000 tonnes.
Renuka Vale do Ivai (RVDI) net sales (including other income) were higher 32.7% to Rs 221.40 crore for the quarter ended September 2011, compared to the previous quarter. However, it posted net loss of Rs 28.40 crore as against net profit of Rs 22.90 crore in the previous quarter.
The margins from Brazil subsidiary were affected by lower yields on account of adverse weather (frost) leading to higher cost per ton of cane. Yield per ha dropped to as low as 20 tons per ha toward the end of the quarter versus normalized levels ranging between 60 and 70 tons per ha. The company expects 65 tonnes per ha for the next season.
The profitability in renewable segments on consolidated basis improved for the quarter ended September 2011 on the back of higher raw material supply as a result of strong cane crushing season in India. Margins improved in ethanol segment due to higher availability of raw material.
Its Closing stock of white sugar is at 151225 MT in India as of September 2011 and Raw Sugar is 29853 MT. In addition, Molasses is at 137612 MT and Ethanol is at 18944 KL. The export price of white sugar is in between Rs 32-33 per quintal.
Sugar Sales were lower by 44% to 220908 MT for the quarter ended September 2011, on the back of 59.6% fall in the domestic sales to 131907 MT. However, Exports increased by 30.7% to 89001 MT during the quarter ended September 2011.
Ethanol sales witnessed sharp surge by 290.7% to 37319 KL for the quarter ended September 2011. However, Co generation business sales declined by 65.5% to 19 million units for the same period.
The average realization for Sugar Sold is higher by 11% Rs. 29.60/kg for the quarter ended September 2011. The Ethanol realizations rose by 18.4% to 29.14 per litre and Power per unit was down by 1.4% to Rs 3.48 for the same period.
It has started crushing in Karnataka and buying sugarcane at Rs2,400 per ton.
In Brazil, sugar sold was about 1,89,000 tonnes at an average rate of 26 cents per pound.
The quarter under review was off-season for cane crushing in India. However, The cane yields in Brazil were affected by around 20%-25%.
The cane crushed was 50% higher to 2.3 million tonnes compared to the 1.5 million tonnes crushed last year. The company expects to maintain 10.5 million tonnes of capacity.
Coming to sugar production, the company witnessed higher recovery (ATR) of 138 kg/tonne from Brazil operations in September 2011 quarter, compared to 116 kg/tonne in June 2011 quarter.
During the quarter, the company diverted higher juice (62%) towards sugar production, as the price of sugar is higher as compared to ethanol during the quarter. It also capitalized on higher flexibility to produce maximum ethanol to take advantage of higher ethanol prices during June 2011 in its Brazilian subsidiaries Renuka do Brasil and Renuka Vale do Ivai.
Coming to co-gen segment, the power exports in India were lower on YoY basis due to end of season in India. On QoQ basis, lower power exports in India complemented by strong volumes from Brazilian subsidiaries.
It feels that robust margins in renewable segment would provide stability to the overall earnings in the coming quarters. The company expects to increase in refinery volumes with the stabilization of production at Gujarat Refinery and effective risk mitigation strategies.
The company is optimistic that ongoing operational improvements in Brazil would improve consolidated margins and production costs per pound. Also observed that the increased proportion of owned cane that is expected to be used in Brazil would enable margins expansion. The company also feels that higher asset utilization in the coming quarters will lead to spreading of fixed costs over larger base.
As on date, it has already planted (incremental) 16,900 ha of new cane in Brazil. It expects to plant 22,000 ha of cane by March 2012.
The company has already paid USD 35 million towards increase its stake in RDB to ~59% and expects to pay the next tranche of USD85 million would be paid before March 2012.