the debt level is high.
the rise in debt is more than the rise in sales which is a clear negative for me.
also as per @hafizul88 the promoter quality is not good.
low promoter holding. high pledging.
issue of warrants is a negative for me. I don’t like warrants.
My question is – if the business is doing well and the profits are real then the debt is increasing.
i am not an expert on sugar but being cyclical a change an uptrend in the cycle will definitely give good returns.
BUT i seriously doubt that the returns will be similar to those as in previous cycle like the one in 2005-06.
The sugar cycle is not purely market based and is severely distorted by the government due to fixing of very high cane prices.
even if there is a sharp rise in sugar price, a part of the cash flow will go in paying off the debts to the farmers. At present the total debt owed by sugar industry is about 12000 Cr +
Also the govt in all likelihood will remove the export subsidy and other incentives given to sugar industry in such case.
The farmers may start demanding higher cane prices which their unions have been doing anyway.
Still since the sugar stocks are quoting at historical lows , the returns can be exciting depending on the jump in the sugar prices.
Disc : Invested in Kesar ent and Triveni eng
I will stay clear from this. I have heard that it is highly politically connected company. Most of the value comes from real estate acquisition at “right time” at “right place”. Supposed to be recipient of huge favours from Cong or non-BJP govts. The core business is going to face tough competition from Starbucks. I have used their vending machines in our offices and it used to be under maintenance every second day. Coffee they serve is ok but snacks menu is avoidable with no clear differentiation. Also, laden with unrelated businesses.
rakesh junjunwala is invested in the name of rare enterprises
Seniors,
Jain Irrigation (De-merger in cards) — I did not see any news about this and please anyone explain what is the impact of demerger.
I have been buying (since the last 2 years) EID Parry and DCM Shriram on dips (and boy, do they dip!!). The attraction is a) Sugar Business in both cases is only 30-40% of their total business b)their other business (Coromandel and Bioseeds, in the case of EID Parry, and Fertilizers, Seeds, Alkali and Plastics in the case of DCM Shriram) are extremely well run and well regarded c)debt levels are quite reasonable.
My logic is (was) that I have no control over sugar prices. However, the history of Sugar Prices has been that every few years, these companies have a real blockbuster year. However, even in bad years, these two companies don’t go into a loss, their debt remains under control, and they give dividends. So there is no risk to survival. Frankly, if sugar prices were to stay at current levels for a couple more years, than Shree Renuka iwill not the only one in deep trouble.
The flip side is that you don’t get as much of a bounce if Sugar Prices go crazy. But that is the price I am willing to pay for Margin of Safety.
Hi Donald,
We missed you at the AGM this time…interaction would have been even better 
Kudos to Ankit and Anant for doing a in-depth and complete job….they continue to surprise with the level of detailing they have gone into.
On your query for revenue drivers – I feel that nothing major would happen till they get USFDA approval. I could see a lot of shift in focus of the company towards formulations going forward (which is a good thing) and getting the same will open up next set of opportunities on which they have been working. They have about 9 months to 1 year by which they should get approvals, any further delay may hamper their pipeline and plans.
Ankit has covered the specific answers above.
Regards,
Ayush
took a look. The promoters have pledged 61% of their holding and it translates to 14% of total holding. Given that the promoters hold only 24% and have pledged 61% of that, IMHO – the valuations won’t be a runaway….
PS – not invested
Since you’re talking about price levels of buying. Let’s take the case of an investor buying Kaveri Seeds on 1st June, 2015 at Rs. 950 after it declared it’s FY15 results. At that point the company has a
4 year revenue and profit CAGR of 48% and 63% respectively. 0 Debt and ROE > 30% with a P/E of 22.
In any sensible investor’s mind this company is not expensive with such great growth and profitability unless you have insider information about the company’s future growth. At best, you’d think if the growth stops, I shouldn’t expect any great upsides. So as the Q1 FY16 results roll in with a PAT of negative 2-3% YOY, that certainly shouldn’t be the end of the world as it was never trading at an exorbitant P/E of 70-80+ !
But you know what – markets think differently and slash this 0 debt company’s Market Cap by half!
Losing 50% of your capital within 4 months of investment may not make a company bad but it would take several years of great results before it matches any other good investments (17-20% CAGR) apart from the emotional stress that the person would go through. And the point is 0 debt doesn’t save the company from huge downsides!