Blame it on Rio: Shree Renuka debt soars, Brazil unit fails

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Blame it on Rio: Shree Renuka debt soars, Brazil unit fails

Speaking to CNBC-TV18, Narendra Murkumbi, managing director of Shree Renuka Sugars says that the main reason for the underperformance in Q2 is the losses churned out by the Brazilian unit.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See latest News about Shree Renuka See previous management interviews See what other Experts & Brokerages are saying about Shree Renuka Shree Renuka BSE | NSE 30/05/12 Are Mutual Funds betting on Shree Renuka?

Pains are far from over for the sugar industry. The down cycle has started and Shree Renuka is feeling quite the pinch. CLSA downgraded the stock upon negative outlook and the stock has since lost 20%. Speaking to CNBC-TV18, Narendra Murkumbi, managing director of Shree Renuka Sugars says that the main reason for the underperformance is the losses churned out by the Brazilian unit. "Our cane crush number for the year is now expected to be 8.3 million tonne versus 10 million projected earlier," he says. The company is however not revising sales target for the full year on account of new cane plantations in Brazil. 

Below is the edited transcript of the interview. Also watch the accompanying video

Q: The street is quite disappointed with your earnings. Can you take us through what hit you the most? Was it cane shortage in Brazil, I am not talking about forex issues but operationally what was the biggest drag on your performance this quarter?

A: We reported significant problems with yields in our larger Brazilian subsidy and our cane crush number for the year is now expected to be 8.3 million tonne versus 10 million tonne which we were expecting earlier. Renuka in Brazil is particularly making losses. Though it's still making cash profit, but on a PAT basis it's a loss. I think that is the main negative in our performance this quarter.

Q: Your investors are hoping that you will be able to sell off some power plants in Brazil from those operations and actually monetize that to raise some liquidity to support your balance sheet. Do you plan that and how soon can you deleverage?

A: We don't have a liquidity problem. As I said, we are cash flow positive from operations. We need to invest in planting cane etc. Overall, our debt level is high and there is a concern we need to address. So we are looking at all possible alternatives, including a minority stake sale in our Brazilian subsidy or a spinoff of the co-gen assets there which again we have a formal process going on. So either of these, whichever we can do quickly, we would like to do and reduce the debt.

Q: What have you slated in from either options in terms of money that you can raise through the process?

A: I don't want to talk about exact numbers now, but on the cogen spinoff, we have a formal process going on in Brazil at the moment. Bids are due sometime second half or next month, and once we have those firm bids come in, we should be able to give a better idea of what are the numbers.

Q: Would you need to scale down your sales targets significantly because of what's happened with Renuka Brazil primarily?

A: I see prices improving domestically, given the tough situation that the domestic industry is in, especially with the high stated revised price in the cane arrears position building up. So from India, we expect definitely higher revenue, and I think in brazil we have planted much more cane this year than we did in the previous year. That's already being achieved. So for coming year, provided it is normal, I think we should see better yields plus the new cane that we have already planted and that should increase the number that we have there.

Q: To what kind of levels because this is quite a significant pairing down from 10 million to 8.3 million tonne. What kind of targets are you talking about in production in the next season?

A: Well in Brazil, we expect to do 10 million tonne for next year, based on what additional area we have planted.