>EID PARRY : sugar prices shoot up over the past one month

EID Parry’s (EID) Q1FY13 revenue and adjusted PAT were in line. EBITDA margin expanded 10.8% even as the adjusted PAT at INR782mn is substantially higher than INR314mn YoY. This was on account of robust volume of sugar and better operating leverage. Moreover, the recent sugar price increase by ~20% over the past one month, owing to demand picking up ahead of the festival season and monsoon concerns, is likely to augur well for EID. Over the last one quarter, EID has closed the discounting gap with Coromandel from 35% in April 2012 to 15% currently. However, owing to the improving sugar segment performance coupled with the likely upside in Coromandel International translating into higher valuation, we remain
positive on the stock. Maintain ‘BUY’.


Revenue, adjusted PAT in line, sugar performance improves
EID posted a consolidated revenue growth of 8.6%, EBITDA margin of 10.8% (up 160 bps YoY and 180 bps QoQ) and adj. PAT of INR782mn (up 149%) in line with the expectation.


The strong growth in profitability is primarily on account of an improved performance in the sugar segment which expanded PBIT margin by 830 bps YoY to 1.1% in Q1FY13.


Key highlights – sugar prices shoot up over the past one month


• While the free sale sugar price for EID was at INR27.5/kg in Q1FY13, sugar price in general has shot up by about 20% over the past one month to INR34/kg currently, owing to concerns over monsoon and an incremental demand coming ahead of the festive season. This is likely to augur well for the profitability of EID.


• EID and its subsidiaries crushed 1.82mn MT cane in Q1FY13 (up 19% YoY) vis-à-vis 1.52mn MT in Q1FY12 and 2.69mn MT in Q4FY12. Sugar sales volume was 0.22mn MT on a consolidated basis during Q1FY13(0.16mn MT YoY), out of which, 94,337 MT was exported. Management guides for ~67,000 MT of exports for Q2FY13.


• Management guides for ~8mn MT cane crushing in FY13 vs 6.9mn MT in FY12.


Outlook and valuations: Attractive; maintain ‘BUY’
Factoring in a higher sugar realization, we have increased our EPS estimates by 6.8% and 4.4% for FY13 and FY14 respectively. EID is currently available at an attractive valuation of 6.9x and 5.8x consolidated P/E for FY13E and FY14E respectively. We maintain ‘BUY’ with a revised target price of INR301/share (INR295 earlier).



Other highlights
• Cane crushing during Q1FY13 was 1.82 mn MT (up 19% YoY) on a consolidated basis; it was 1.64 mn MT (up 27%) on a standalone basis.


• Recovery rate improved to 9.21% from 8.71% on YoY basis.


• EID has sugar inventory of ~0.11 mn MT on a consolidated basis in Q1FY13, priced at INR24.5/kg.


• Average sugar realization for the quarter has been at INR27.4/kg – the free sale sugar realization at INR 27.5/kg, levy at INR 19/kg and export realization at 28.5/kg.


• Management guided that sugar price has moved up sharply over the last one month to INR 34/kg currently as it expects the price to sustain at these levels over the next few months owing to an extended festival season this year. However, according to few media articles, the government is likely to consider various options like having a cap on exports (which were freed in May 2012 and put under OGL), removal of import duty and an increment in allocation of sugar for free market sale. Such measures from the government might have some downward pressure on sugar prices.


• Landed cane cost for EID has been at ~INR2,200/MT; this prices in the cost of production of sugar for the company ~INR26.5/kg at the PBIT level.


• Indian sugar production for SS12 stands at 26mn MT. The country may export ~3 mn MT. For SS13, the current sugar production estimate by ISMA is at 25mn MT with a bit of downward bias, owing to weak monsoon. The management guides for a surplus production in India for SS13, giving it a scope to export 1-2 mn MT.


• During Q1FY13, EID had an ethanol sales volume of 9.2mn litres on a standalone basis and 14.8mn liters on a consolidated basis at an average realisation of INR24.8/litre.


• While distillery production volume has gone up, the company had consciously sold lower quantity, owing to weaker ethanol prices. The ENA price was INR28/KL during Q1FY13, which has gone back to INR33/KL currently.


• Consolidated cogen export at 134.6 mn units was up 12% YoY; average realisation at INR3.5/unit.


• Bio-products division (nutraceuticals and bio-pesticides) has posted a consolidated loss of INR5.7mn vis-à-vis loss of INR10.6mn YoY.


• Silkroad Sugar (the sugar refinery) remains shut owing to gas availability issues. To address this issue, the company is setting up a coal boiler and the refinery is expected to start operating within the next 16-18 months.

RISH TRADER