Motilal Oswal Rain Comm 22022012

8/2/2019 Motilal Oswal Rain Comm 22022012

1/6Pavas Pethia ([email protected]); Tel: +91 22 3982 5413Sanjay Jain ([email protected]); Tel: +91 22 3982 5412

Rain CommoditiesCMP: INR38 TP: INR75 BuyBSE SENSEX S&P CNX

18,429 5,607

Bloomberg RCOL IN

Equity Shares (m) 349.5

52-Week Range (INR) 42/25

1,6,12 Rel. Perf. (%) 11/20/21

M.Cap. (INR b) 13.3

M.Cap. (USD b) 0.3

Consolidated

22 February 2012

4QCY11 Results Update | Sector: Metals

Rain Commodities 4QCY11 consolidated Adj PAT grew 17% YoY to INR 1.8b (v/s est INR1.2b) on higher CPC sales

and better operating margins. Net sales grew 25% QoQ to INR16.2b (v/s est INR14.8b) boosted by higher sales

tonnage of CPC (up 18% QoQ) and better blended realization (up 2% QoQ) in carbon business (CPC and GPC).

Other expenditure was inflated due to forex loss of INR294m on USD denominated working capital loans.

EBITDA grew 54% QoQ to INR3,677m on superior performance from carbon business. Calculated carbon

blended realization increased 2% QoQ and calculated carbon EBITDA per ton increased 41% QoQ to USD107/

ton. Carbon margins continue to hold on to superior levels and remain immune to aluminium price declines

and production cuts.

Cement realization was up 1% QoQ but EBITDA per ton declined 22% QoQ to INR682 due to cost pressure on

inputs.

CY11 gross debt at USD709m (USD625m term debt, USD84m working capital debt) is at the same level as CY10.

Cash equivalents stand at USD167m.

RCOL raised dividend by~20% to INR1.1/share (CY10 dividend INR0.92/share).

It has completed 85% of its proposed buyback of INR350m with maximum price of INR41/share.

We are upgrading CY12 EPS estimate by 20% to INR17.1 as carbon business is expected to continue delivering

superior margins. Stock valuations are compelling with CY12E P/E of 2x and EV/EBITDA of 3x. Maintain Buy

with target price of INR75 (SOTP).


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Rain Commodities

222 February 2012

Carbon business continues to deliver superior margins; blended carbon

realization up 2% QoQ

Net sales grew 25% QoQ to INR16.2b (v/s est INR14.8b) boosted by higher sales

tonnage of CPC (up 18% QoQ) and better blended realization (up 2% QoQ) in

carbon business (CPC and GPC).

Company sold 533kt (up18% QoQ) of CPC and 523kt (down 3% QoQ) of cement in

4QCY11. Blended realization for carbon business increased 2% QoQ to USD429 per ton

while cement realization increased 1% QoQ to INR199 per 50kg bag.

Calculated carbon EBITDA per ton increased 41% QoQ to USD107.

Cement EBITDA/ton declined 22% QoQ to INR682 due to cost pressure on inputs.

85% buyback complete; USD7m high cost debt repaid in 4QCY11

RCOL has completed 85% of its proposed buyback of INR350m with maximum

price of INR41/share.

CY11 gross debt stands at USD709m including USD84m of working capital loan. The

company repaid USD17m of high interest (11.125%) term loan at first call option in4QCY11. 5% call premium resulted in higher interest and finance charges for the

current quarter.

CY12 EPS upgraded 20% as carbon business margins are expected to remain

strong

Cement demand scenario in South India continues to remain subdued. RCOL

continues to operate its cement capacity at lower levels to support margins.

However margins were low at INR682/ton in 4QCY11 due to high input cost. We

expect margins to improve slightly from current levels as pace of capacity addition

slows down in South India. RCOL carbon realization and margins remains strong and immune to aluminium

price decline and production cuts. RCOL benefits from its long-term relationship

with GPC suppliers in tight supply market. 3 out of its 7 seven facilities in US are

next to oil refineries. As carbon business margins remain resilient we are upgrading

CY12 EPS by 20% to INR17.1.

Stock valuations are compelling with CY12E P/E of 2x and EV/EBITDA of 3x. Maintain

Buy with target price of INR75 (SOTP).

Blended Carbon EBITDA (USD/ton) remains strong Cement margin (INR/ton) declining on cost pressure

Source: Company/MOSL


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Rain Commodities

322 February 2012

Company description

Rain Commodities (RCOL) is one of the largest calciners

in the world, with a capacity of 2.5mtpa. Its CPC capacity

is located in North America (1.89mtpa), India (0.6mtpa)

and China (0.02mtpa). It has cogeneration capacity of

125MW. It also has cement operations (3.5mtpa) in South

India, which contribute 19% of its overall revenue.

Key investment arguments

Increasing aluminum production is leading to strong

demand for calcined petroleum coke (CPC).

Difficulty in raw material sourcing acts as an entry

barrier.

Strong cash flows to help deleverage balance sheet;

expect D/E to decline to 0.6x in CY13.

Cement scenario in South India to improve as pace

of capacity addition slows down.

Key investment risks

RCOL derives ~90% of its CPC revenue from sales of

carbon anode to aluminum smelters. The aluminum

industry is cyclical in nature, with demand-supply

governed by a variety of factors, especially the

economic wellbeing of the world as a whole.

With its current D/E at 1.4x and significant debt

service obligations in the next couple of years, RCOL

Comparative valuations

Rain Tata Adhunik

commodities Sponge Metaliks

P/E (x) FY12E 2.0 4.5 6.8

FY13E 2.2 6.0 3.6

P/BV (x) FY12E 0.6 0.9 0.7

FY13E 0.5 0.8 0.6

EV/Sales (x) FY12E 0.8 0.4 1.5

FY13E 0.7 0.4 1.0

EV/EBITDA (x) FY12E 3.2 1.8 5.7

FY13E 3.1 2.1 3.8

Shareholding pattern (%)

Dec-11 Sep-11 Dec-10

Promoter 42.9 42.5 42.5

Domestic Inst 18.5 18.0 17.0

Foreign 15.8 16.4 17.9

Others 22.8 23.2 22.7

Rain Commodities: an investment profile

Stock performance (1 year)

EPS: MOSL forecast v/s consensus (INR)

MOSL Consensus Variation

Forecast Forecast (%)

CY12 17.1 - -

CY13 17.3 - -

Target price and recommendation

Current Target Upside Reco.

Price (INR) Price (INR) (%)

38 75 97.4 Buy

will be financially constrained in case of a major

downturn in the aluminum industry.

Recent developments

The Board has declared dividend of INR1.1/share i.e.

55% of the face value.

Valuation and view

Stock valuations are compelling with CY12E P/E of 2x

and EV/EBITDA of 3x. Maintain Buy with target price

of INR75 (SOTP).

Sector view

CPC realization remains strong despite concerns of

slowdown in Europe. With the current growth rate

in aluminium production, additional 5.5mtpa of CPC

will be required by CY15, which will continue to

safeguard CPC margins. We do not expect any

downward pressure on margins in the near future

on account of supply-demand mismatch in the

industry.

Cement demand scenario in South India continues

to be subdued. However margins and realizations

are expected to improve gradually as pace of

capacity addition slows down in South India.

22

27

32

37

42

Feb-11 May-11 Aug-11 Nov-11 Feb-12

Rain Commodities Sensex - Rebas ed

Rain Commodities follows calendar year reporting. Read FY12/

FY13 as CY11/CY12


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Rain Commodities

422 February 2012

Financials and Valuation


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Rain Commodities

522 February 2012

N O T E S


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DDii sscc lloossuu rreeoo ffIInntt eerreess tt SS tt aa tteemmeenntt RRaaii nnCC oommmmoo ddii tt iieess1. Analyst ownership of the stock No

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Motilal Oswal Rain Comm 22022012

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