Broking house, Edelweiss Research has maintained reduce rating on Sakthi Sugars .
Edelweiss Research report on Sakthi Sugars:
Sakthi Sugars' (STSG's) Q3FY07 results were in-line with our estimates. Consolidated revenues were down 7% Y-o-Y to INR 2.5 bn, as sugar segment (that contributed ~58% to consolidated revenues), reported a 24% de-growth Y-o-Y. Consolidated net earnings were down 71% Y-o-Y at INR 98 mn for Q3FY07, translating into EPS of INR 3.1. Although the sugar realisations have cracked ~10% over the quarter, STSG reported positive margin on the sugar segment. However, in the backdrop of a bleak outlook for the sugar sector, earnings decline will strain an already levered balance sheet. This makes us maintain our "REDUCE" recommendation on STSG.
Asset valuation expensive; balance sheet concerns to persist: On our revised consolidated EPS of INR 13 and INR 42 in FY07E and FY08E, the stock trades at P/E of 7.1x and 2.2x, respectively. However, the stock looks expensive on EV to replacement cost of 1.2x, which is on the higher side compared with peers. As earnings decline, lower operating cash flows will further strain a highly levered balance sheet. With no near term visibility of micro and macro triggers, we find STSG's pending export obligation of 0.2 MMT risky and decretive from an earnings perspective. We maintain our 'Reduce' rating on the stock.
