FCCB conversion by Sakthi sugar (Rs 95 crore profit)

Issue of share worth Rs 10 and get Rs 200 worth of debt extinguished. What does this mean? It means a neat profit of Rs 190 per share. My calculations say they have issued about 50 lac shares which would take the issued number of shares to about 4 crores. This also means that Sakthi sugar has made a profit of Rs 190 X 50 lac shares = Rs 95 crores as profit. Depending on the accounting policy chosen Sakthi sugar may decide to show it in the P&L or its share premium account. But I hope you will agree with me that it is indeed a profit.


I would not comment any further on the sugar cycle because the jury is out on that one. It time now to just watch and see how it pans out. However we do have Rs 95 crores as profit (whether shown in P&L or not is a separate issue).

What is also does is reduce the debt by Rs 100 crores. So the debt should stand at Rs 1000 crores.

Now I have seen a lot of comments as to why the investors did such a transaction with Sakthi sugar. But no one seems to be looking at the benefits that Sakthi sugar got ou of this transaction. Who cares if Goldman Sachs lost money.

Now if this is what is the harbinger for the future then it should be great for Sakthi sugar. This is because in 2006 it had issued FCCBs for $50 million or Rs 250 crores. Out of that Rs 100 crores has been converted and if the rest of it is also converted in the same manner then there is likely to be another profit of approx Rs 143 crores and debt reduction of Rs 150 crores. This then takes the debt down to Rs 850 crores.

Assuming an average EBITDA (free cash flow) of Rs 140 crores (which may vary to a degree of Rs 40 crores plus or minus) the entire debt could be paid off in about 7 years.

And amidst all this what we are forgetting is that the debt which was taken up wasnt burnt in a bonfire. Yes, some of it was lost through operations but a lot of it was invested in places like Europe in the Auto ancilliary business. All of us seems to have forgotten the Europe bit. There is still a lot of assets which could be liquidated and that could reduce the debt.

And by the way I am reasonably sure that Sakthi sugar is going to post a profit of atleast Rs 50 to 55 crores for quarter ended December 09.

So its time now for all of us to wait for the results and for me to wait for your comments.