This is further brought out by their revenue, cash flow and asset concentration as in the table below. It is surprising that such a reputed listed company is not having the Indian auditor verify its Brazilian assets.
|Shree Renuka Sugars 2009-10 Audit Status||INR Million|
|Audited by||Revenue||Cash Flow||Assets|
|Indian Statutory Auditor||12230.06||-2627.94||7050.63|
Though the company does not disclose geographic segments, it seems quite likely that Brazil would make up a sizeable chunk of the overall valuation. Given that, and the geographic separation of Brazil from Indian investors, it may make sense to go for a Brazilian ADR, and appoint a global auditor(Big4/BDO etc) who have presence in both India and Brazil. This will allow
- Better valuation/price discovery for Renuka Sugars via hopefully better informed Brazilian investor base
- The audit opinion to get a better credibility. In my view, the audit opinion(specially based on such partial data) is not that reliable. I'm no fan of global auditing firms but in such circumstances there does not seem an option.
- Also, we should consider using SOTP approach to value Brazilian and Indian arms separately.