RCF - OFS Note - Ventura

RCF has been successful in revamping its plants at Thal at a cost of Rs 489 crore, which has helped it to increase its urea capacity from 17 lakh MT/yr to 20 MT/yr. The revamped plant have been commissioned and has not only achieved its highest daily utilization rates but has also been successful in reducing energy consumption. The full benefits of revamping are expected to flow in FY14.

With the announcement of the New Investment Policy by the Government, RCF is going ahead with the brownfield urea plant at Thal, Maharashtra. This would involve setting up of a 1.27 million tpa at a capex of Rs 4,113 crore (debt, equity ratio of 2:1). The project has received the clearance from the Board of Directors and is currently awaiting approval from PIB (Public Investment Board) and CCEA, post which it would announce the zero date. The project would take at least 3 years for commissioning from zero date.

For the next five years, RCF has chalked out aggressive capex plans totaling Rs 18,700 crore. These include mega projects like Coal based Urea plant with capacity of 1.3mn mtpa of urea along with industrial chemicals like Nitric Acid at an estimated cost of Rs 7800 crore.

The company is also planning an Ammonia urea complex under JV in Ghana (gas supply already tied up) at a capex of Rs 6,500 crore. However none of these plants are near to zero date and has long gestation period of 3-4 years. Apart from the above projects, RCF is also screening investment opportunities in Canada for securing potash supplies.

At the CMP of Rs 45, RCF is trading at a PE of 8.9x and 7.3x its consensus estimate earnings for FY13 and FY14 respectively. Though company has huge land (700 acres in Mumbai) but any liquidation plan for the same is unlikely in near term. Benefit of latest revamp and favorable policy announcement in urea are the positive triggers for the company in near term.

Source : Equity Bulls

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