Shree Renuka Sugars buys Brazilian sugar company for $82mn

Indian companies have gone and acquired companies abroad in several sectors such as software, chemicals, FMCG, metals, engineering. But in the sugar sector, we have not seen any major foray abroad.
Shree Renuka Sugars has become the first sugar player to acquire a company in Brazil, the largest sugar producer and exporter in the world with India being the largest consumer. In recent times, India has relinquished its status as a sugar exporter, and the rising demand has made it an importer.

Brazil’s Vale Do Ivai SA Acucar E Alcool (VDI), the company Shree Renuka Sugars acquired, has a cane crushing capacity of 3.1 million tonne per year in two facilities where it produces sugar and ethanol. Unlike Indian sugar players which need to buy sugarcane from farmers, VDI also grows most of its sugarcane requirements on 18,000 hectares of land on long lease.

VDI also owns storage and loading terminals at Brazilian port Paranagua. Shree Renuka Sugars will pay $82 million (Rs 3.8 billion or Rs 380 crore) for the equity purchase and take over $160 million of the existing debt in the company.

Since VDI’s profitability figures are not available, it cannot be ascertained if the deal is cheap or expensive. However, what is known is that Brazilian sugar makers have been in financial trouble after the global credit crisis, and some deals have happened in the past.

Shree Renuka Sugars’ foray is a step towards broad-basing both supply of raw material and manufacturing facilities.

For Shree Renuka Sugars, funding the purchase will not be a problem. In July 2009, it raised Rs 5 billion by placing shares with qualified institutional buyers.

The market didn’t seem excited about this acquisition as the stock price rose about 2% against the Sensex’s and Nifty’s gains of 2.5% each.

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