Rain Commodities - 1QCY13 Results Update - Motilal Oswal

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.

Source : Equity Bulls

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