Shree Renuka Sugar posts dismal Q4 numbers

Shree Renuka Sugar has posted dismal Q4 numbers (the company has its year ending in September). It posted a net loss of Rs 615 cr as against net profits of 128 cr for the 4th quarter last year. This was mainly on the back of forex losses, which came in at Rs 569.8 cr. The stock is down 22% at Rs 40.20.

The company has business operations in India and Brazil. Due to a volatile global market, there was a depreciation of the Indian Rupee (by 9.5%) and Brazilian Real (by 18.8%) against the US Dollar, which resulted in huge forex losses of Rs 569.8 cr that affected the company’s bottomline.

Shree Renuka Sugar's net sales (consolidated) declined by 2.84% to Rs 2419 cr on a YoY basis. Higher sales in its Brazilian subsidiaries helped to off-set the lower sales in the Indian business. Its EBIDTA margins (consolidated) improved by 50 bps to 13.6%.

In Q4, the company's Indian standalone business showed a de-growth in revenues by 21% to Rs 1127 cr on a YoY basis, as revenue from the sugar segment declined by 43% to Rs 599 cr. The ethanol segment performed exceptionally well during the quarter, with its revenues increasing by a whopping 362% to Rs 108 cr. This comes mainly due to higher realisations, which increased by 18% on a YoY basis. The net result was seen in its improved EBITDA margins, which increased by 280 bps to 5.4%. 

In its Brazilian business, the company has two subsidiaries, viz. 'Renuka do Brasil' and 'Renuka Vale do Ivai'. Its Q4 sales in Brazil increased by 17% to Rs 9098 cr on a YoY basis, while the EBIDTA margins declined by 500 bps to 23.70%. This is because  the performance of 'Renuka do Brasil' was impacted by a drought-like condition in its operational area, which resulted in a drop in cane yield (down 31%), leading to higher fixed costs during the quarter. However, 'Renuka Vale do Ivai' showed a good operational performance, with a rise in EBIDTA.

Overall, the company has posted weak Q4 numbers. It faced a setback in Sao Paulo, Brazil, where 'Renuka do Brasil' has its operations, and will take some time to recover from it. The Indian sugar business is also highly regulated by government, as the industry in North India is subject to high State Advisory Price (SAP), and the Maharashtra Co-operative Sugar Industry is facing a cash crunch due to lack of profits and net worth following losses accumulated over the last few seasons. 

We expect the sugar stocks to be in pressure for some time. Thus, we, at DSIJ, recommend that our readers avoid this counter.