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| Shree Renuka Sugars: Strategic move |
| Vishal Chhabria / Mumbai Feb 24, 2010, 00:43 IST |
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The acquisition will enhance the company’s operational synergies and help it scale up its position in Brazil.
 In less than four months, Shree Renuka Sugars (SRS) has announced its second acquisition. While the first acquisition of Brazil-based VDI was done in November 2009, it has now entered into a definitive agreement with Grupo Equipav to acquire a 50.79 per cent stake in Equipav SA, one of the largest sugar and ethanol producers in Brazil. The total deal value is $329 million (Rs 1,530 crore), which will be funded through internal accruals.
The deal will see Grupo Equipav get about $50 million, while the remaining funds will be used for capacity expansion, working capital and debt repayment. Based on the deal, Equipav’s enterprise value (EV), including debt of $822 million, works out to $1.19 billion (or $113 a tonne). Although the deal looks marginally expensive, there is more than what meets the eye.
For instance, while VDI was acquired at an EV of $77 a tonne and some others deals have taken place at about $100 a tonne, analysts say this is a strategic initiative that will enable backward integration for Renuka Sugar’s Indian operations. About 66 per cent of Equipav’s sugarcane requirements are met from its own cultivation undertaken over 115,000 hectares. Valuations look more reasonable if Equipav’s co-gen power capacity of 203 Mw, including 52 Mw exportable power, is considered. Going ahead, Equipav will further increase its sugar crushing capacity from 10.5 million tonnes to 12 million tonnes and co-gen capacity by about 77 Mw.
Overall, analysts suggest that the acquisition is fit for SRS, as it will enhance operational synergies and help scale up its position in the world’s largest sugar market, Brazil. Post-deal, analysts estimate SRS’s operating profits to increase by 45-55 per cent in 2010-11. They have also raised their price target for the stock to Rs 330-345. At Rs 180, SRS trades at eight times its estimated earnings for year ending September 2011.
With inputs: Puneet Wadhwa & Jitendra Kumar Gupta
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