Cosan S.A. is a sugar and ethanol empire tracing its roots to the city of Piracicaba in the Brazilian state of São Paulo after its foundation by Italian immigrants in the early 1900s. Today, the company is a massive and vertically integrated processor of sugarcane owning 230 thousand hectares of arable and cultivated land, 23 sugarcane processing plants between mills, refineries and distilleries, control of railways, seaports, bagasse-fired power plants, warehouses and thousands of ethanol filling stations across Brazil. The giant publicly-traded company is the biggest processor of sugarcane the world has comprising at least 20% of Brazilian output alone and amounting to an impressive $ 15 billion of annual sales. Likewise, the company has divided its sizable operations across six divisions including control of a listed railroad company in Brazil known as Rumo Logística Operadora Multimodal S.A., a port terminal operator managing seven seaports in Brazil and handler of sugar, a farmland managing business maintaining plantations of sugarcane, soybeans, corn and cotton nationwide but primarily in the state of São Paulo, a lubricants maker in Brazil with some of its brands and operations purchased from ExxonMobil Corporation, a gas utility enterprise and an ethanol distiller with some 4,700 filling stations throughout Brazil owned jointly with Royal Dutch Shell PLC. Moreover, being controlled and led by prominent Brazilian billionaire Rubens Ometto Silveira Mello, a third generation descendant of one of the founding families, Cosan has grown enormously since its foundation in the 1930s by consolidating part of the heavily fragmented sugar business in Brazil. Accordingly, the sugar industry in Brazil is still fragmented but Cosan stands out as the most powerful in terms of size and efficient in terms of its vertically integrated operations by cultivating, harvesting and processing sugarcane in Brazil with a growing workforce that now numbers approximately 45,000 Brazilian nationals. Altogether, the company has a crushing capacity of over 50 million tons of sugarcane per year.
Furthermore, out of the six divisions Cosan has, the one that happens to be the most promising is the joint-venture with Royal Dutch Shell distilling ethanol known as Raízen S.A. In fact, this unit alone is responsible for an annual output amounting to 2 billion liters of ethanol, 4 million tons of raw sugar servicing business-to-business or B2B customers in Brazil as well as the export market around the globe and the generation of 1.3 gigawatts of electricity from biomass. Overall, the unit is by far the biggest player in ethanol the world has and expected to expand aggressively abroad once other countries join the ethanol frenzy making the switch from depleting fossil fuels which happen to be worse for the environment, endangered in nature and hard to produce.
To conclude, trading in Brazil and here in America as an ADR on the NYSE under the ticker symbol (CZZ), Cosan is not too profitable right now after accounting for its vast operations but in my view the company trades at a discount to its true intrinsic value after taking into consideration the steep upside potential the ethanol business has. Consequently, the company is at a crossroads for anyone wishing to add a battered stock to his or her portfolio while gaining exposure to a big and dynamic emerging country like Brazil.