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Shree Renuka Sugars – Equipav – A Fair Deal

June 24, 2010

Shree Renuka Sugars (SHRS) will pay USD 250 mn (INR 11.5 bn) to acquire 50.34% stake in Equipav, 25% below INR 15.3 bn quoted in February 2010. Balance stake in the venture is to be held by the founding Equipav Group – the Toledo, Tarallo and Vetorazzo families. At the revised amount, SHRS says that the EV of Equipav comes to USD 1,147 mn, translating into an EV/tonne of USD 109.

The international raw sugar price bottomed out at UScent13.7/lb in early May 2010 after falling by 55% from the Jan2010 peak. The price is already up 20% from the low led by concerns of lower than estimated production in Brazil this year along with the prospect of a production decline next year. The key reason for the supply shortfall in Brazil, in our view, is very dry weather in recent months and
lack of new investment.

Government Policy Key to Sugar Sector – We believe government policy changes will remain key for the sector over the next few months as (1) this year’s crushing is over and (2) we shall see credible estimates for next year’s production only by September 2010, (3) industry sources indicate that sugar traders are still continuing to import and (4) probability of government action has increased post increase in levy price and various press reports indicating that other measures are in the pipeline.

Shree Renuka Sugars is expected to report an EPS as under for FY 11 and FY 12
Kotak – 7.6 and 7.8
BOFA Merrill – 6.95 and 9.04

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