Shree Renuka Sugars : Sweet Taste Of Success

The sugar industry in India is a significant agriculture-based industry and Shree Renuka Sugars commands an enviable position in terms of high-quality products and implementation of the right strategies for strengthening its domestic and global footprint. 

Founded in 1998, Shree Renuka Sugars is a global agribusiness and bio-energy corporation. The company is one of the major sugar producers and refiners in the world, as well as the leading sugar manufacturer in India. In India, the company runs seven sugar mills in the states of Karnataka and Maharashtra. To the best extent possible, the mills work together to process sugarcane, create sugar and all its by-products, including ethanol, power and organic manures. For the aim of refining local raw sugar as well as importing and exporting sugar, it runs two port-based sugar refineries. 

Shree Renuka Sugars introduced ‘Madhur’ sugar brand in 2007, which is currently one of the top-selling sugar brands in India. The success of this product is largely attributable to its natural sweetness, sulphur-free processing, consistent quality and advanced production technology. Ethanol is another product that is manufactured as a by-product of the production of sugar and is largely used by the chemical, oil marketing and portable alcohol industries.

Sector Overview

The sugar industry in India is a significant agriculture-based industry. After Brazil, India is the world’s second-largest producer of sugar, and it is also its biggest consumer. However, India would become the world’s largest producer of sugar if substitute sweeteners like ‘gur’ (jaggery) and ‘khandsari’ (a type of raw sugar) are also considered. According to the Department of Food and Public Distribution, the sugar industry has an impact on the rural livelihoods of approximately 50 million sugarcane farmers and 5 lakh workers directly employed in sugar mills. 

The nearly 2.5 crore people who cultivate sugarcane in India profit from the industry as well. Additionally, employment is created in a number of supplementary activities related to transportation, trade servicing of machinery and supply of agricultural inputs. The current value of the Indian sugar industry’s annual output is about `80,000 crore. Organised and unorganised sectors make up the two divisions of the sugar industry. The organised sector includes sugar mills while the unorganised sector involves businesses that make traditional sweeteners like gur and khandsari.

Maharashtra, Gujarat, Uttar Pradesh, Haryana, Tamil Nadu, Punjab and Karnataka are the leading states in India for sugar production. When it comes to sugar imports, the Indian government has strict regulations. It periodically increased the import tax in an effort to discourage this aspect of the sugar trade and encourage exports. A leading sugar organisation in India is the Indian Sugar Mills Association (ISMA). It serves as a bridge between the country’s government and sugar mills, both public and private. 

The main goal is to make sure that through supportive and growth-oriented government policies, the operation and interests of both private and public sugar mills in the nation are safeguarded. The price at which sugar is produced and sold by sugar producers, the amount of sugar that is recovered from sugarcane, the availability of sugar to consumers at a fair price and the payment to growers are all controlled by governmental acts and regulations. What also helps is the fact that many regions have the right kind of weather conditions for the production of sugarcane.

Financial Overview

On a consolidated basis, the company’s financial performance showed a remarkable growth of 134.9 per cent from ₹831.40 crore recorded in Q1FY22, posting total revenue of ₹1,953 crore in Q1FY23. In contrast to the loss of ₹82.10 crore during the same quarter last year, the operating profit recovered effectively and was recorded at ₹69.40 crore. The company reported a comparatively small net loss of ₹113.90 crore in the first quarter of FY23 compared to a major loss of ₹241 crore in the June quarter of last year. 

While the company reported a net loss of ₹136.70 crore for the year ended on March 31, 2022, net sales surged 13.88 per cent to ₹6,432.60 crore on an annual basis. With a market capital of more than ₹10,000 crore, the company has the highest market capitalisation among sugar companies that are publicly traded. A huge percentage of Shree Renuka Sugars is owned by Wilmar Sugar, a subsidiary of Fortune 500 conglomerate Wilmar International. Additionally, Wilmar International and Adani Wilmar are partners in a joint venture in India. 

Thus, as of March 31, 2022, foreign promoters owned a sizable 62.48 per cent of the company. Institutional investors own a total of 12.34 per cent of the company, while non-institutional investors hold 25.18 per cent. The stock’s 52-week high and low are, respectively, ₹63.25 and ₹24.45, and it is currently trading at ₹50 per share. When compared to competitors, it is extremely affordable. The stock has experienced the greatest recovery from its 52-week low and has soared more than 10 per cent over the past month.

Outlook

India’s determination to promote biofuel use has resulted in tremendous growth in ethanol output during the previous five years, which is still ongoing. The demand for ethanol is keeping up and is expected to rise further as the country strives for ‘energy independence’. India has the capacity to manufacture an adequate amount of sugar. The government urged sugar producers in October 2021 to shift excess sugarcane stock into the production of ethanol, which can be combined with petrol and used as fuel in vehicles.

Furthermore, this is an excellent answer to the country’s problem of excess sugar production. Following that, sugar company stocks skyrocketed due to the government’s double incentive for manufacturing ethanol. High petrol prices are hurting consumer budgets. However, it has provided Indian sugar mills with opportunities and a solution to the issue of payment backlog to farmers. Coming back to the company, it was one of the first companies in India’s traditional sugar sector to enter the sugar refining market. The business invented the idea of leasing out sugar producing equipment in India and of operating power projects at other mills on a BOOT basis.

The company has a significant Wilmar parentage owing to Wilmar’s investment of USD 300 million in debt and `2,100 crore in equity. The business is successfully able to boost its revenue levels and is making every effort to cut losses. The company has synchronised its strategies to benefit from its presence in India. For example, sugar can be imported and exported at a low cost thanks to the company’s port-based position. It can easily switch its attention from the home market to exports.

While the Haldia refinery is ideally placed close to sugar deficiency regions in East India and Southeast Asia, Gujarat refinery’s location allows for competitive exports to the Middle East region, which has a severe sugar shortage. As a conclusion, the company has a great opportunity to grow in the near future when considering the promising future prospects for the Indian sugar sector as well as the advantages associated with by-products of the sugar manufacturing process. Therefore, this stock can be a fantastic investment for patient investors. Thus, we recommend HOLD.