Rain Commodities - From strength to strength - Motilal Oswal

Rutgers acquisition to add significant value; Demonstrated ability to deleverage; Valuation attractive

- In January 2013, Rain Commodities Ltd (RCOL) completed the acquisition of Europe-based coal tar distiller Rutgers for a gross enterprise value of Euro702m. We believe the acquisition will add significant value to RCOL's business due to the following reasons:

- Post acquisition, RCOL's product diversification to improve; no product will contribute more than 37% to revenues.

- Potential synergies on complimentary nature of CPC and CT pitch.

- Rutgers business operating performance has been robust despite challenging business environment. EBITDA posted a CAGR of 14% over CY09-12.

- Severstal JV to result in additional supply of coal tar to European operations. This will take care of ~28% of European operations' coal tar needs, thus mitigating the effect of declining European supplies.

- Acquisition to result in EPS accretion of 13% and 16% in CY13E and CY14E respectively.

- RCOL has demonstrated the ability to sustain large acquisitions; CII acquisition added significant value.

- RCOL saw a net debt reduction of USD305m in the last five years; USD400m of equity value generation went unnoticed.

- Net debt/EBITDA at comfortable levels of 3.5x; major debt repayment to start only in 2018.

- RCOL trades at 3.8x CY14E EV/EBITDA. Valuation multiple are much below its peers; US listing will further rerate the stock.

Source : Equity Bulls

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