14 May 2013
1QCY13 Results Update | Sector:
Metals
Rain Commodities
BSE Sensex
19,692
Bloomberg
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
S&P CNX
5,980
RCOL IN
341.7
16.4/0.3
51/31
-8/19/8
CMP: INR48
TP: INR57
Buy
Financials & Valuation (INR b)
Y/E Dec
Sales
EBITDA
NP
Adj. EPS (INR)
EPS Gr(%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuation
P/E (x)
P/BV
EV/EBITDA (x)
Div. Yield (%)
2.9
0.6
3.5
2.3
4.3
0.6
5.5
2.3
3.2
0.5
4.8
2.3
2012 2013E 2014E
53.6
11.1
5.7
16.7
-12.2
74.7
22.3
10.0
9.5
111.1
13.8
3.8
11.1
-33.5
82.9
13.4
9.7
11.5
116.9
15.2
5.2
15.2
37.0
96.8
15.7
11.5
8.4
Rain Commodities' (RCOL) 1QCY13 consolidated EBITDA was INR3.5b (below
est.). Consolidated EBITDA was boosted by insurance proceeds of INR343m
for damage of CPC storage at Gramercy facility of RCC, which was damaged by
a lightning strike in 2QCY12. Prior period results are not comparable as current
quarter numbers contained financials from Rutgers operations too.
All three major business segments (CPC, CT Pitch and Cement) witnessed
margin pressure in the current quarter. CPC realizations declined by USD30-
35/ton, while major raw material GPC prices remained firm due to tightness
in the market. Aluminum prices are at their three-year low levels, which is
exerting pressure on CPC realizations. CPC volumes declined 11% YoY to 457kt.
Total carbon sales (CPC, pet coke and Coal Tar derivatives) were at 794kt. Coal
Tar Pitch (CTP) business was affected due to lower realization on account of
lower crude oil prices and subdued aluminum market. CTP and derivatives
sales were at 259kt, while chemical sales were 75kt.
Cement realization was down by INR8/bag to INR184/bag. However, EBITDA/
ton for cement business improved by INR50/t QoQ to INR173/t, below its long
term average of ~INR800/t. RCOL is looking to market its products in neighboring
Odisha market where prices are 25-30% higher than Andhra Pradesh.
Net debt as on March 31, 2013 was USD1,173m, while gross debt was USD1.33b.
Cash and cash equivalent was USD161m as the debt raised for Rutgers
acquisition was deployed in January.
Management stated that they will return ~10% of profits every year to
shareholders either through buyback or dividend route.
US listing of Carbon business is not expected soon as there is no immediate
requirement for funds. It may look for listing in the next one to two years after
operations are stabilized, with more clarity on financials, post acquisition.
We estimate lower margins for both CPC and CT Pitch business. Thus, we cut
CY14E EPS by 21% to INR15.2/share. The stock trades at 4.8x CY14E EV/EBITDA,
post Rutgers acquisition basis. Maintain
Buy.
Pavas Pethia
(Pavas.Pethia@MotilalOswal.com); +9122 39825413
Sanjay Jain
(SanjayJain@MotilalOswal.com); +9122 39825412
Investors are advised to refer through disclosures made at the end of the Research Report.
1

Rain Commodities
Rain Commodities: an investment profile
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. In January 2013 it acquired Rutgers, the Europe-
based CT pitch manufacturer, making it the second
largest producer of CT pitch.
Subdued aluminum prices could further exert
pressure on carbon products realization.
Recent developments
The Board of Directors have approved change of
name of the Company from Rain Commodities
Limited to Rain Industries Limited subject to
shareholders approval.
Valuation and view
Key investment arguments
Increasing aluminum production is leading to strong
demand for calcined petroleum coke (CPC) and CT
Pitch business.
Difficulty in raw material sourcing acts as an entry
barrier for competition.
Strong cash flows will help to deleverage balance
sheet.
The stock trades at 4.8x CY14E EV/EBITDA, post
Rutgers acquisition basis. Maintain
Buy.
Sector view
Carbon products business is witnessing pressure on
realization due to lower LME prices. However, raw
material prices have not declined similarly, thus
exerting pressure on margins. We expect margins
for its carbon product business to improve gradually.
Cement demand scenario in South India continues
to be subdued. However, margins and realizations
are expected to improve gradually as the pace of
capacity addition slows down in South India.
Key investment risks
Limited volume growth opportunity as raw material
availability, especially in CPC business, remains a
concern.
Comparative valuations
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
Rain Comm.
4.3
3.2
0.6
0.5
0.7
0.6
5.5
4.8
HNDL
5.1
5.4
0.9
0.8
0.7
0.7
6.2
5.7
Nalco
11.4
10.4
0.7
0.7
0.8
0.6
4.5
3.4
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
11.1
15.2
Consensus
Forecast
17.9
17.9
Variation
(%)
-38.0
-15.1
FY14
FY15
Target Price and Recommendation
Current
Price (INR)
48
Target
Price (INR)
57
Upside
(%)
18.8
Reco.
Buy
Stock performance (1 year)
Shareholding pattern (%)
Mar-13
Promoter
Domestic Inst
Foreign
Others
14 May 2013
44.7
15.0
20.6
19.7
Dec-12
44.0
15.1
19.7
21.2
Mar-12
43.7
15.6
17.8
22.9
2

Rain Commodities
Financials and Valuations
14 May 2013
3

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Rain Commodities
Yes
No
No
No
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