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Good performance continues, maintain Buy
Rain Commodities Ltd (RCL) reported 4QCY11 results above our expectations,
with revenues of Rs16.2bn (our estimate was Rs15.4bn) and EBITDA of Rs4bn
(our estimate was Rs2.9bn). This was mainly led by higher-than-expected CPC
volumes and profitability. Cement segment reported a weak performance with
an EBITDA of Rs637/ton in 4QCY11.
Given the sustained improvement in CPC segment’s profitability and reduction in
net debt-to-equity ratio, current valuations are attractive. We introduce CY13
estimates for the company. The stock trades at a PER and EV/EBITDA of 2.7x
and 3.3x CY13 estimates respectively. We maintain a Buy rating with a target
price of Rs49.
Key highlights
Company reported revenues of Rs16.2bn in 4QCY11, against our estimate
of Rs15.4bn, up 39.7% YoY. During the quarter, carbon division’s revenues
increased by 44.7% YoY to Rs14.3bn, while cement revenues improved
20.1% YoY to Rs2bn.
RCL’s CPC volumes stood at 0.53mn tons in 4QCY11, ahead of our estimate
of ~0.48mn tons. Along with this, company reported GPC sales volume of
0.13mn tons in the quarter. Cement volumes grew 11% YoY to 0.52mn
tons in 4QCY11.
Due to its ability to pass on higher input cost pressures, RCL reported a
blended EBITDA margin of US$99/ton in the CPC business. Going forward,
we expect profitability to be in the range of US$80-100/ton, given the
pressure on gross margins. We estimate the company would report EBITDA
margins of ~US$80/ton in CY12.
RCL reported cement realisations of Rs3,979/ton in 4QCY11, an increase of
8.3% YoY. On the back of higher cost pressures, mainly from P&F and
freight expenses, EBITDA/ton declined sequentially to Rs637/ton in 4QCY11
from Rs875 in 3QCY11. Going forward, we believe cement prices in South
India shall improve due to peak construction activity during 1HCY12.
The net debt-equity ratio, which stood at 2x at end-CY10, declined to 1.4x
in end-CY11; we assume it would further decline to 0.8x by end-CY13,
mainly due to internal accruals.
Valuation
We have used the sum-of-the-parts (SOTP) method to value the company’s CPC
and cement businesses and introduce CY13 estimates. We value the CPC
business at US$278 per ton, thereby implying 3.6x CY13 EV/EBITDA. The cement
business has been valued at US$60 per ton, implying 3.9x CY13 EV/EBITDA, and
thus arriving at a target price of Rs49, an upside of 30% from the current levels.
We value the CPC business at an EV/ton of US$278 for the capacity of
2.48mn tons. We ascribe a discount of 15% to the acquisition price at which
CII Carbon was acquired, due to the current operating environment.
We value the energy business in India at Rs40mn/MW on 22MW which is
being sold to outside parties.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Good performance continues, maintain Buy
Rain Commodities Ltd (RCL) reported 4QCY11 results above our expectations,
with revenues of Rs16.2bn (our estimate was Rs15.4bn) and EBITDA of Rs4bn
(our estimate was Rs2.9bn). This was mainly led by higher-than-expected CPC
volumes and profitability. Cement segment reported a weak performance with
an EBITDA of Rs637/ton in 4QCY11.
Given the sustained improvement in CPC segment’s profitability and reduction in
net debt-to-equity ratio, current valuations are attractive. We introduce CY13
estimates for the company. The stock trades at a PER and EV/EBITDA of 2.7x
and 3.3x CY13 estimates respectively. We maintain a Buy rating with a target
price of Rs49.
Key highlights
Company reported revenues of Rs16.2bn in 4QCY11, against our estimate
of Rs15.4bn, up 39.7% YoY. During the quarter, carbon division’s revenues
increased by 44.7% YoY to Rs14.3bn, while cement revenues improved
20.1% YoY to Rs2bn.
RCL’s CPC volumes stood at 0.53mn tons in 4QCY11, ahead of our estimate
of ~0.48mn tons. Along with this, company reported GPC sales volume of
0.13mn tons in the quarter. Cement volumes grew 11% YoY to 0.52mn
tons in 4QCY11.
Due to its ability to pass on higher input cost pressures, RCL reported a
blended EBITDA margin of US$99/ton in the CPC business. Going forward,
we expect profitability to be in the range of US$80-100/ton, given the
pressure on gross margins. We estimate the company would report EBITDA
margins of ~US$80/ton in CY12.
RCL reported cement realisations of Rs3,979/ton in 4QCY11, an increase of
8.3% YoY. On the back of higher cost pressures, mainly from P&F and
freight expenses, EBITDA/ton declined sequentially to Rs637/ton in 4QCY11
from Rs875 in 3QCY11. Going forward, we believe cement prices in South
India shall improve due to peak construction activity during 1HCY12.
The net debt-equity ratio, which stood at 2x at end-CY10, declined to 1.4x
in end-CY11; we assume it would further decline to 0.8x by end-CY13,
mainly due to internal accruals.
Valuation
We have used the sum-of-the-parts (SOTP) method to value the company’s CPC
and cement businesses and introduce CY13 estimates. We value the CPC
business at US$278 per ton, thereby implying 3.6x CY13 EV/EBITDA. The cement
business has been valued at US$60 per ton, implying 3.9x CY13 EV/EBITDA, and
thus arriving at a target price of Rs49, an upside of 30% from the current levels.
We value the CPC business at an EV/ton of US$278 for the capacity of
2.48mn tons. We ascribe a discount of 15% to the acquisition price at which
CII Carbon was acquired, due to the current operating environment.
We value the energy business in India at Rs40mn/MW on 22MW which is
being sold to outside parties.
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