Rumo Receives BNDES Finance - Analyst Blog

Brazil-based Cosan Ltd’s (CZZ) indirect subsidiary Rumo Logística S.A. (Rumo) through its subsidiary Cosan Operadora Portuária S.A. secured financing of approximately R$614 million from the Brazilian Development Bank (BNDES). The financial assistance has a term period of up to 12 years and costs a long-term interest rate of (TJLP) + 1.92% p.a.

 

The amount granted will be primarily used for the development of a railway line from Itirapina to the port of Santos, restoration of Rumo‘s port terminals in Santos, and the construction of a logistics terminal in the Itirapina area, in São Paulo state.

 

Cosan Ltd in its preliminary results for the first quarter of fiscal year 2011 reported net revenue of R$3,999.6 million (US$2222 million), an increase of 12.2% year over year. The hike was attributable to higher sugar prices, which more than offset lower sales volume.

 

Rumo (Rumo Logística) revenue in the quarter was reported at R$105.4 million (US$58.6 million), up 168.4% year over year. Rumo revenue represented 2.6% of net sales. The growth was primarily driven by the initiation of the transportation agreement between Rumo and ALL, offset by declines in the loading business.

 

Cosan is slated to release its first quarter results on August 12 after markets close.

 

For fiscal year 2011, management anticipates revenues to 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.

 

We believe Cosan is well positioned to deliver good results yet again for fiscal year 2011 with an expected increase in sugar and ethanol production, driven by favorable weather conditions (higher level of rains) and higher yield of sucrose in the cane. Moreover, joint venture with Shell is expected to be a growth booster.

 

However, high international exposure, customer concentration risks and sensitiveness to currency fluctuations will prove to be detrimental to the company’s financial results. Cosan's prime competitors include Archer Daniels Midland Company (ADM) and Copersucar - Cooperativa de Produtores.

 

We currently maintain our Neutral recommendation on Cosan, supported by Zacks #3 (Hold) Rank.