Cosan Announces Prelim Results - Analyst Blog

Brazil-based Cosan Ltd. (CZZ) announced its preliminary results for the third quarter of fiscal year 2011. Net revenue in the quarter totaled R$4,738.4 million (US$2,787.3 million), up 24.7% year over year.

In the third quarter, CAA (Cosan Açúcar e Álcool) accounted for approximately 35.5% of the net sales with revenue totaling R$1,683.0 million (US$990 million), an increase of 46.8% year over year.

Sugar revenue surged 26.7% to R$931.9 million (US$548.2 million), primarily due to a 7.4% increase in sugar prices and 17.9% hike in sales volume. Ethanol revenue was up 91.5% to R$647.7 million (US$381.0 million) due to a 65% rise in volume and 16.1% increase in prices.

Rumo (Rumo Logística) revenue in the quarter totaled R$113.7 million (US$66.9 million), up 218.5% year over year and accounted for about 2.4% of net sales. The increase was primarily driven by the transportation agreement between Rumo and ALL.

Cosan Combustíveis e Lubrificantes (CCL) revenue was R$3,084.8 million (US$1,814.6 million), a growth of 14.3% year over year and accounted for about 65.1% of net sales. Fuels and Lubes revenue rose by 13.0% and 44.1% year over year, respectively.

Cosan is slated to release its third quarter results on February 9, 2011 after market close. 

For fiscal year 2011, management anticipates that revenues would be in the range of R$16.5 –R$18.5 billion (US$9.1 –US$10.2 billion), EBITDA in the range of R$2.0 – R$2.4 billion (US$1.1 – US$1.3 billion), and capital expenditure in the range of R$1.9 – R$2.3 billion (US$1.0 –US$1.3 billion).

Crushed cane volumes are expected to range within 58 – 62 million tons, sugar volume sold within 4.7 –5.1 million tons, and ethanol volume sold in the range of 2.0 –2.2 million liters.

Cosan Ltd. owns the major shareholding (roughly 62.5%) of Cosan S.A., one of the world's largest producers of sugar and ethanol. We believe Cosan has been growing through acquisitions and other expansion strategies. Moreover, its joint venture with Royal Dutch Shell (RDS.A), a leading energy and petrochemical player, is expected to create better access to ethanol consumer market.

However, the company is highly exposed to the volatility in domestic and international supply and demand. Ethanol pricing is largely affected by changes in supply and demand for gasoline, while highly regulated market and speculation risks influence sugar prices. Besides, customer concentration risks and susceptibility to currency fluctuations impact the company's financial results in adverse conditions. 

Cosan's prime competitors include Archer Daniels Midland Company (ADM) and Copersucar - Cooperativa de Produtores.

 
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