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Financial Analysis of

Shree Renuka Sugars


Ltd
Group 9 – Section B
Company : Highlights
• Narendra Murkumbi & Vidya
Murkumbi
• Incorporated on October 25, 1995 at
Belgaum
• Corporate office – Mumbai
Last 4
• Headquarters – Belgaum
years (Karnataka)
• CAGR revenues – 75%
• CAGR profits – 82%
• Largest sugar refinery and ethanol
producer GMP - Section B - Group 9 2
Business & Products

GMP - Section B - Group 9 3


Industry dynamics: Demand
• Largest consumer
• Per capita consumption low
– 21kgs/year < 37kgs/year (world avg.)
– Gur & Khandsari
– 39% household, 61% industries
• Essential commodity – prices are
regulated by importing sugar and
limiting exports

GMP - Section B - Group 9 4


National production

• 17Mmt in 2009
• UP & MAH most
important
• TN max. yield
• UP max area under
cultivation
• UP – Gur & Khandsari

GMP - Section B - Group 9 5


Sugarcane cyclicality
We are here

Up cycle
2-3 years

Down cycle
4-5 years

GMP - Section B - Group 9 6


Industry dynamics: Supply
• 2nd largest producer after Brazil
• 50 million farmers; 12% rural
population
• Bagasses used for power and ethanol
• Extract used for alcohol too
• Cane prices
2004
fixed
2005
by
2006
govt.
2007 2008 2009
SMP 73.00 74.50 79.50 80.25 81.18 81.18
SAP 95.00 107.00 115.00 125.00 110.00 140.00
Sugar 1,464 1,765 1,870 1,479 1,489 -
prices
GMP - Section B - Group 9 7
Industry dynamics:
Structure
• Millers
– Highly fragmented
– Public, private, co-operative
– Private millers on the rise
– Each mill procures from 18,000 farmers
• Complex transaction
• Quality control an issue
• Farmers
– Majority own 1 to 4 hectares land
– Less than 25% own more than 4
hectares
– Millers unable to develop farmers
– GMP - Section B - Group 9 8
Factors affecting sugar
production

GMP - Section B - Group 9 9


Industry Risks
• Sugarcane and Sugar prices
– SMP/SAP, sugar prices fixed by govt.
• Sugar vs Ethanol
• Bumper harvest
• Climate
• Sugar Imports

GMP - Section B - Group 9 10


Key Indicators of Industry
competition

GMP - Section B - Group 9 11


SRSL: Financial Performance
• Growth in top
line and
bottom line
• Capital
Investment
s in new
plants and
acquisition
s
• Diversified
revenues
to reduce
cyclicality
GMP - Section B - Group 9 12

SRSL: Business Divisions
• Mills located in Maharashtra and Karnataka where
SAP prices lower than UP

Segment 2007 - 08 2008 - 09
Most integrated
– Sugar 7,645 18,616
sugar producer % of total income 38.76% 74.48%

in India Trading 9,102 1,703
resulting in % of total income 46.14% 6.81%

higher Co - generation 1,838 2,955
realization
– per % of total income 9.32% 11.82%
unit of cane Ethanol 1,113 1,686
% of total income 5.64% 6.75%

Others 28 33
– % of total income 0.14% 0.13%
– Total 19,726 24,993

– GMP - Section B - Group 9 13


SRSL: Business Divisions
• Mills located in Maharashtra and Karnataka where
SAP prices lower than UP

M o st i–n te g ra te d
su g a r p ro d u ce r

in In d ia
re su –ltin g in
h ig h –
er
re a liza tio n p e r
u n it o f ca n e

GMP - Section B - Group 9 14


SRSL: Business Model
Raw Sugar
Traded Sugar

Power Cogeneration

Bagasse

Owned Mills and Refineries


Sugar
Domestic Market

Molasses
Distillery
Total Sugar

Cane International Market


Molasses

Leased Mills Sugar Refinery

GMP - Section B - Group 9 15


SRSL: Risk Analysis
Type of Risks Probability
S R S L R isk
Sourcing of Raw Material 0.3
m anagem ent Delay in Capacity expansion 0.5
co m m itte e sh o u ld Rainfall 0.4
fo cu s o n critica l Cane Acreage 0.4
Brazilian Acquisition 0.5
risks
Regulatory Risks 0.2
D e la y in C a p a city Business Cyclicality 0.3
E xp a n sio n Ethanol Blending Program 0.2
Legal Risks 0.1
In te g ra tio n Foreign Trade Policy 0.1
p ro b le m s o f Industry Competition 0.3
B ra zilia n Distillery and Cogeneration 0.2
Dependence of large customers 0.3
a cq u isitio n
Permits and Licenses 0.1
H e d g e risks o f Environmental Regulations 0.05
re d u ce d ca n e Promoter Holding 0.05
a cre a g e and GMP - Section B - Group 9 16
Performance

Manufacturing
Performance
• Cane prices have increased

Operational
Raw materialPerf
• Mfg. labor cost ratio is low –
automation
• Fixed asset turnover ratio has

Fixed Assets Tu
consumption ra
reduced due to new projects
GMP - Section B - Group 9 17
Working Capital
Management
Working Capital
Management
• SRSL enjoys a longer creditor
collection period

Debtors Collecti
• Also maintains low debtor collection
period – an industry standard

GMP - Section B - Group 9 18


Profitability Ratios

Profitability
Operating Profit
Return on Opera
Capital Employe
GMP - Section B - Group 9 19
Capital Structure
Capital Structure 2004-05 2005-06 2006-07 2007-08 2008-09 Trend Graph
Debt-Equity Ratio 2.35 2.67 2.93 2.54 2.03 2.94
Retention Ratio 0.88 0.92 0.91 0.92 0.78 2.95

Interest Coverage Ratio 4.72 4.18 5.18 2.79 3.75 2.84


Degree of Financial
Leverage 1.58 1.78 1.88 2.64 2.23 3.21

• D/E ratio has reduced – issue of new


equity
• Retention ratio reduced – better
dividends
• DFL increased
– Term borrowings for CAPEX programs
and GMP - Section B - Group 9 20
Altman’s Z-score

Altman's Z Score
T1 = Net Working C
• Z-score less than the industry
average
T2 = Retained Earn
• Low Sales/Total Assets
– Sales have not increased in

T3 = Earnings Befo
proportion with total assets
– Increased current assets
GMP - Section B - Group 9 21
SGR Analysis

SGR Analysis
SGR(t+1)
Actual Sales G
GMP - Section B - Group 9 22
Q&A

 THANK
YOU
GMP - Section B - Group 9 23

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