Nitin asks about ~ Tide Water Oil yet solid at Rs 6750 while Shree Renuka Sugars at Rs 25+ has disappointed greatly and eroded by 70% with continuing micro and macro industry woes

Nitin  asks about ~ Tide Water Oil (TWO) at Rs 6750 and Shree Renuka Sugars (SRS)at Rs 25+ at subdued Sensex and Nifty levels of sub 16200 and 4900 respectively 

My Views on these two Scrips are contrasting….. TWO continues to be solid despite some margin stress,while SRS has disappointed greatly and eroded by 70% with continuing micro and macro industry woes and struggles to service high Debt and regain significant lost ground  in the share price

TWO @ Rs 6750 (FV Rs 10)

http://www.bseindia.com/xml-data/corpfiling/AttachLive/Tide_Water_Oil_(India)_Ltd_300512_Rst.pdf

Standalone Networth at March 31,2012 is Rs 308 crs with Equity low at Rs 87 lakhs (FV Rs 10) giving a Book of @ Rs 3500 per share and thus a P/BV just below 2…Has no Bonus History but has just announced doubling of Dividend from last year => Rs 120/ share  => 1200% => 1.77% yeild…will involve Rs 10.45 crs and this is  yet below 20% of PAT payout

Standalone PAT has dropped yoy from Rs 64 crs to Rs 59 crs as Cost of raw materials consumed has moved sharply up to 69% of Net Sales from 63%….Though Selling & Marketing Costs have shown a significant decline it is largely offset by the jump in other expenses

Nearly all of the Networth  =>Rs 292 crs is the Capital Deployed in the Core Business of Oil and Grease,leaving little scope for Other Income Generation through Investments …Standalone EPS has dropped yoy to Rs 678  (consolidated is yet lower at Rs 665 after considering two Veedol subs) from Rs 736….Price Earning Multiples hover around 10

Market Cap is @ Rs 600 crs while Net FY 12 Sales were @ Rs 800 crs

The 52 Week Share Price range is Rs 8540 and Rs 5676

Government PSU Andrew Yule holds 228390 shares of TWO =>26.22% of the Equity => worth @ Rs 150 crs at CMP of Rs 6750…A few years ago Andrew Yule had approached the Government to allow it to sell the TWO Stake to help it recover….it then withdrew this request as it began to recover in it’s operations and was able to raise funds  without resorting to the sales of TWO Shares

There are @ 12500 TWO Shareholders,but none is a FII…Apart from Andrew Yule,the other significant holdings are with LIC (4.22%),United Insurance (10.04%) and a few Body Corporates  like Victory Retail Marketing (4.61%) and Standard Greases & Specialities (23.24%,that’s higher than even Andrew Yule Holding))…TWO Employee Welfare Trust holds 2.57% with a current value of @ Rs 15 crs => half of annual Employee benefit expenses of @ Rs 30 crs

I Would Categorise TWO as a Scrip Watch  rather than Scrip Select at Rs 6750 with a good probability of becoming a Select if Operations improve or if Share Price falls further towards Rs 5000 making it a more compelling valuation  …of course,if one has it then one should continue to Hold it

SRS @ Rs 25+ (FV Rs 1)

To say the Least,SRS has disappointed in FY 12….It has dropped from a 52 week high of Rs 76 to a low of Rs 23 and continues to hover around the Low….Last year I had pinned great hopes on the Promoter Narendra Murukumbi’s vision and operational abilities…I took him at face value when he boasted big things …..his Brazilian Acquisitions and  Operations were to be the game changer with higher productivity at lower costs and a different harvesting season….the excitement turned to despair as the Brazilian Production was much lower than targeted and boasted about…Murkumbi blamed it on Cultural Differences  &  Managerial Quality Issues….The Brazilian Companies were funded by Huge Forex Debt… Operational Issues and the depreciating Rupee has created a huge Challenge to service this Debt….The Markets have eroded the Share by over 70% to new Lows in the last year….to compound the problems ,India is now experiencing a sugar glut situation from one of scarcity  just a year or two ago…Sugar Companies are pressuring the government to widen the Export Window for exporting higher volumes at better price realisations overseas…Cost of Production is @ Rs 33/kg while local realisations are @ Rs 28/kg + @ Rs 1.50 for by products….yet leaving a gap….Losses are inevitable 

It’s going to take awhile and a lot of luck too for a turnaround in both micros and macros for SRS to recover lost ground on the bourses….Having learnt a lesson I now refuse to take Murkumbi at Face Value again !….The Debt Risk is weighing heavily and has bared it’s fangs viciously….SRS needs serious restructuring of it’s finances…needs to reduce debt considerably ~ both in nature and amount…it needs to rethink and move away from forex debt exposure,especially when forex operations  are finding it difficult to service it

If you’re holding SRS,you have little choice but to continue to do so,given the sizeable erosion already….Given the current micros and macros ,I will not recommend increasing exposure to it and averaging it for the long term at current lows of Rs 25 or to even initiate any fresh buying in it

Sugar’s not going to be Sweet for awhile yet !    

Nitin, hope we are on the same wavelength on TWO and SRS….Cheers !