Dalal Street

We expect the next 2 years to be shortage years, sugarcane farmers are anyways expected to be paid a price much higher than the support prices. So FRP [fair and remunerative price] would not have any impact on our near term earnings.

We build in a sugarcane price of Rs2,100/tonne (FRP=Rs1,300/t; SAP=Rs1,650/t) for the U.P. players, initial media reports suggest that the companies have started the season with a price of Rs1,800/quintal. In any case, given the supply tightness we believe that the mills would be able to pass on higher costs top consumers.

Near Term Weakness on Stocks
We expect continued negative news flow related to farmers agitation against FRP. This is likely to have a negative impact on stocks of the U.P. players Bajaj Hindustan and Balrampur Chinni. Seasonally, sugar prices soften due to higher supplies as sugarcane crushing picks up. This may also lead to weakness in sugar stocks. Domestic sugar prices are trading at close to import parity and 8-10% higher than our SY10-11 estimates, which poses significant upside risks to forecasts.

RIL has made initial cash offer for LYO’s assets, to be considered as an alternative plan under Chapter 11 proceedings which the latter is undergoing. The final offer would be made after due diligence, which then will be decided upon by the creditors vs. the initial reorg plan and other equity financing proposals.

LYO has global leadership position in polyolefins and propylene oxide and is a leading licensor of polyolefin technology and catalysts. The company also has refining capacity of 420 kbpd (~21 MMTPA), with Houston refinery having high complexity (~12)
and generated EBITDA/bbl of US$15/bbl in 1H08

While petchem assets provide size and may be some cost-cutting benefits in the long-term, the US refinery may not provide significant inroads into US apart from operational synergies (crude sourcing, etc.)

Kotak Analyst in a Research Note said,

The impact on RIL’s stock would depend on the valuation of the transaction. We do not see any real synergies between RIL’s current India-centric operations and LB’s operations in Europe and US. Also, the process may be fairly long-drawn and complicated given regulatory and legal issues.

However, RIL is headed by Mukesh Ambani and he definitely has the vision to create Wealth in Long Term.