April 27, 2012

Result Update - Q1CY12

Rain Commodities Ltd.

Sensex: 17166 CMP: INR 39 Target : INR 71 Pet Coke

RCL reported healthy set of numbers for Q1CY12 on the back of higher carbon sales and better operating margins. While the topline declined by 9.4% QoQ, net profit improved by 2.5% to INR 1847 mn aided by forex gain and improved performance from cement segment. Carbon segment continues to maintain its superlative performance with 8% QoQ volume growth & 81 bps improvement in margins. Its plans of setting up 35 MW waste heat recovery plant by CY12 remains on track. The company has completed 100% of the buyback program (10 mn equity shares of INR 2/share) at an average price of INR 32/share. We maintain our BUY rating on the stock with a target price of INR 71/share.
Carbon Products segment driving growth RCL reported a revenue growth of 8.4% YoY to INR 14562 mn on the back of 7.6% YoY increase in Carbon Products revenues to INR 12248 mn. This superlative performance was aided by 18.6% YoY growth in carbon sales volumes to 701000 tonnes (led by 75% surge in GPC sales volumes). Blended realisations of carbon products segment however declined by 18.4% YoY & 19.4% QoQ to $347/tn. Demand for CPC remains healthy and RCL continues to identify new long-term sources for its GPC supplies worldwide due to its limited availability. CPC EBIDTA/tn to remain between USD$90-100 EBIT of carbon product segment declined by 5.8% YoY to INR 2788 mn led by 18.7% decrease in carbon product EBIDTA/tn to $97. CPC EBIDTA/tn stood at $122 (down 13.5% YoY). Although CPC prices have softened in last couple of quarters (as a result of decline in GPC prices), we expect CPC EBITDA margin to remain in the range of $90-100/tn going forward. Cement segment depicting improved performance Cement turnover improved by 9.1% YoY to INR 2421 mn aided by volume growth of 3.3% YoY to 604000 tonnes & 5.7% increase in realisations to INR 4008/tn. Importantly on QoQ basis RCL reported an impressive volume growth of 15.5%, thereby indicating improving demand scenario in the southern region. EBIDTA/tn too improved significantly by 23.8% to INR 844 on QoQ basis. We expect cement volumes to increase at a CAGR of 7% over CY11-13E.
Shareholding (%)
Promoters FIIs DIIs Others

Expansion plans on track RCL's plans of setting up 35 MW waste heat recovery plant at a cost of $ 69 mn remains on track and is scheduled to commence operations by CY12. The company has incurred a capex of $ 30 mn till date ($ 18 mn in CY11 & $ 12 mn in Q1CY12) and is set to incur the balance in current year. The project is eligible for Government support in the form of tax breaks, capital grants and highest tariff. Deleveraging the balance sheet Gross debt has reduced by $ 30 mn from Q4CY11 to $ 679 mn in Q1CY12 on account of reduction in both term debt (by $ 15 mn to $ 610 mn) and working capital debt (by $ 16 mn to $ 69 mn). Reduction in working capital debt can also be attributed to declining raw material (GPC) prices. As a result, interest expenses too has declined by 13.1% QoQ to INR 582 mn. With existing cash balance of $ 216 mn, RCL is comfortably placed to meet its repayment obligation of $ 134 mn & capex obligation of ~$ 50 mn till Dec 2013. Outlook & Valuation Increasing demand for aluminium, dominant presence in CPC market, supply agreement for GPC and limited GPC availability presents attractive investment opportunity. We feel that the stock will get re-rated with improvement in ratios resulting from deleveraging of balance sheet. Subsequent to decrease in prices of both GPC & CPC in equal proportion, our net profit estimates largely remains unchanged. We continue to maintain our BUY rating on the stock with a target of INR 71/share. At the CMP of INR 37, the stock trades at CY13E P/BV of 0.4x & PE of 2.1x and EV/ EBIDTA of 2.6x its CY13E earnings.
INR mn
500339 RAINCOM RCOL IN RACL.BO 350.45 2 13.58 42.00/25.00 95032 7.65 0.68 Net Sales Growth (%) EBITDAM (%) APAT Growth (%) EPS P/E

Mar-12
43.67 17.82 15.63 22.88

Key Data
BSE Code NSE Code Bloomberg Code Reuters Code

CY10
37455 3.07% 19.76% 2407

CY11
56201 50.05% 23.32% 6641

CY12E
56291 0.16% 22.15% 6027 -9.26% 17.51 2.21 0.56 3.12 1.11 19.98 26.74

CY13E
55434 -1.52% 22.14% 6249 3.69% 18.16 2.13 0.43 2.64 0.65 20.13 22.87

Relative Price Performance

140 120 100 80 60 Nov-11 Dec-11 Apr-11 Aug-11 Sep-11 Feb-12 May-11 Mar-12 Apr-12 Oct-11 Jun-11 Jul-11 Jan-12

Shares O/S (mn) Face Value Mcap (INR bn) 52 Week H/L 2 Week Avg. Qty, NSE Free Float (INR bn) Beta

-45.77% 175.89% 6.80 5.41 0.93 5.36 2.02 14.79 18.49 19.00 1.54 0.48 2.94 1.39 23.64 37.80

P / BV EV/EBIDTA Net Debt-Equity RoACE (%) RoAE (%)

RCL

Sensex

Rohit Agarwal
rohit.agarwal@spagroupindia.com Ph. No. 91 33 4011 4800 / 4012 6105

Pet Coke
Carbon Products segment driving growth 620000 600000 580000 tonnes UDS/tn 560000 540000 520000 500000 480000 Q1CY11 Q2CY11 Q3CY11 Q4CY11 Q1CY12 Volumes (LHS)
Source: Company, SPA Research

800000 700000 600000 500000 400000 300000 200000 100000 0

500 400 300 200 100 0

Cement segment bouncing back

4500 4000 3500 3000 2500 2000 1500 1000 500 0 EBIDTA Margins

tonnes

Q1CY11

Q2CY11

Q3CY11 Q4CY11 Realisations

Q1CY12 EBIDTA Margins

Volumes (LHS)
Source: Company, SPA Research

Realisations

Consolidated Quarterly Result

Particulars (INR mn) Net Sales Other Operating Income Other Income Total Income Total Expenditure PBIDT PBIDTM Interest PBDT Depreciation PBT Tax PAT Minority Interest After NP APAT PATM EPS Equity Segment Performance Revenue from Operations Cement Carbon Products Less : Inter Segment Revenues Total Segment Revenue EBIT Cement Carbon Products EBITM Cement Carbon Products Operational Performance Sales Volume Cement (tonnes) Carbon Sales (tonnes) Realisations Cement (INR) Carbon Sales (US$) EBIDTA/tonne Cement (INR) Carbon Sales (US$) Q1CY11 13433 2 39 13474 9693 3781 27.85% 517 3264 271 2994 933 2061 42 2019 15.03% 5.70 708.30 13602 2219 11383 169 13433 3471 513 2958 25.52% 23.10% 25.99% Q2CY11 13740 4 42 13785 10353 3432 24.67% 535 2897 280 2617 954 1663 19 1645 11.97% 4.64 708.30 14011 2275 11736 272 13740 3110 509 2601 22.20% 22.36% 22.16% Q3CY11 12953 8 52 13013 10578 2435 18.39% 565 1870 284 1586 487 1099 (77) 1176 9.08% 3.32 708.30 13015 2110 10904 62 12953 2408 384 2024 18.50% 18.21% 18.56% Q4CY11 16076 102 163 16341 12501 3840 22.87% 669 3171 295 2876 1052 1824 22 1802 11.21% 5.16 699.00 16349 2081 14268 273 16076 3382 250 3132 20.69% 12.01% 21.95% Q1CY12 14562 2 414 14978 11058 3920 24.08% 582 3339 294 3045 1229 1816 (31) 1847 12.68% 5.37 688.30 14669 2421 12248 107 14562 3213 425 2788 21.90% 17.54% 22.76% YoY 8.41% -13.64% 955.10% 11.16% 14.07% 3.68% (377 bps) 12.58% 2.28% 8.45% 1.72% 31.75% -11.88% -174.76% -8.52% (235 bps) -5.87% -2.82% 7.84% 9.08% 7.60% -36.89% 8.41% -7.43% -17.17% -5.75% (361 bps) (556 bps) (322 bps) QoQ -9.42% -98.14% 153.43% -8.34% -11.55% 2.09% 121 bps -13.11% 5.30% -0.34% 5.87% 16.81% -0.44% -240.72% 2.51% 148 bps 4.10% -1.53% -10.27% 16.35% -14.16% -60.83% -9.42% -5.00% 69.98% -10.98% 122 bps 553 bps 81 bps

585000 591000 3793 426 1012 119

584000 610000 3896 430 1010 102

537000 565000 3930 422 875 76

523000 649000 3978 431 682 107

604000 701000 4008 347 844 97

3.25% 18.61% 5.65% -18.39% -16.60% -18.74%

15.49% 8.01% 0.74% -19.42% 23.75% -9.62%

INR/tn

Pet Coke Financials Consolidated

Income StatementY Year End (INR mn) Net Sales Growth (%) Cost of goods sold Employees Cost Other Exp. Total Expenditure EBIDTA (without OI) Growth (%) EBITDA Margin % Depreciation EBIT EBIT Margin % Interest Expenses Other Income EBT Tax Expenses PAT Minority Interest Extraordinary Items APAT Growth (%) APAT Margin (%) CY10 CY11 37455 56201 3.07% 50.05% 19464 30288 1581 1939 788 5790 30056 43095 7399 13106 -17.60% 77.13% 19.76% 23.32% 1157 1129 6242 11977 16.67% 21.31% 1896 2317 281 412 4627 10073 951 3426 3676 6647 (20) (6) (1249) 0 2407 6641 -45.77% 175.89% 6.43% 11.82% CY12E 56291 0.16% 30596 1914 1126 43824 12467 -4.88% 22.15% 1363 11104 19.73% 2280 317 9141 3111 6030 (3) 0 6027 -9.26% 10.71% CY13E 55434 -1.52% 30245 1885 1109 43161 12273 -1.55% 22.14% 1419 10854 19.58% 1873 376 9356 3103 6254 (5) 0 6249 3.69% 11.27% Balance Sheet Year End (INR mn) SOURCES OF FUNDS Share Capital Reserves Total Networth Minority Interest Secured Loans Unsecured Loans Total Debt Total Liabilities APPLICATION OF FUNDS Net Block Capital Work in Progress Investments Total Current Assets Total Current Liabilities Net Current Assets Net Deferred Tax Total Assets 32384 561 16 19391 4404 14987 (2173) 45774 36942 1240 16 29955 6551 23405 (2540) 59063 38739 720 16 23953 5739 18214 (2445) 55244 37820 480 16 26070 5629 20441 (2430) 56326 708 13225 13933 59 29111 2671 31781 45774 699 20510 21209 67 35110 2677 37787 59063 688 23172 23861 70 29110 2204 31314 55244 688 30105 30794 75 23910 1548 25458 56326 CY10 CY11 CY12E CY13E

Key Ratios Year End (INR mn) Per Share Data (INR) Adjusted EPS CEPS DPS BVPS Return Ratios RoACE (%) RoAE (%) Balance Sheet Ratios Net Debt-Equity Ratio Current Ratio Interest Cover Ratio Efficiency Ratios Total asset turnover Inventory Days Debtors Days Creditors Days Valuations P/E P / BV Dividend Yield (%) Market Cap / Sales EV/EBIDTA CY10 6.80 10.62 0.92 39.34 14.79 18.49 2.02 4.40 3.44 0.85 74 49 28 5.41 0.93 2.50 0.35 5.36 CY11 19.00 23.86 1.10 60.68 23.64 37.80 1.39 4.57 5.35 1.07 78 47 28 1.54 0.48 3.75 0.18 2.94 CY12E 17.51 21.75 1.20 69.33 19.98 26.74 1.11 4.17 5.01 0.98 83 46 26 2.21 0.56 3.10 0.24 3.12 CY13E 18.16 22.32 1.30 89.47 20.13 22.87 0.65 4.63 5.99 0.99 83 45 26 2.13 0.43 3.35 0.24 2.64

Cash Flow Year End (INR mn) EBT Depreciation Interest Inc./Dec. in working capital Tax paid Other Income Cash flow from operations (a) Inc./Dec. in investments Change in Fixed Assets Change in CWIP Others Cash flow from investing (b) Inc./Dec. in capital Inc./Dec. in debts Dividend paid Interest paid Others Cash flow from financing (c) Opening cash balance Cash Flow during the year (a+b+c) Closing cash balance CY10 4627 1157 1896 (4400) (702) (281) 2297 291 761 (327) 65 790 0 1469 (352) (1896) (1727) (2505) 3057 582 3639 CY11 10073 1129 2317 (3726) (3223) (412) 6158 0 (5688) (679) 70 (6297) (280) 6006 (384) (2317) 1775 4800 3639 4660 8299 CY12E 9141 1363 2280 1708 (3017) (317) 11159 0 (3160) 520 150 (2490) (320) (6473) (413) (2280) (2672) (12158) 8299 (3490) 4809 CY13E 9356 1419 1873 (1610) (3088) (376) 7575 0 (500) 240 160 (100) 0 (5856) (447) (1873) 1305 (6872) 4809 603 5412

Pet Coke

Sharad Avasthi

Dy Head - Equity Research

sharad.avasthi@spagroupindia.com

Tel.: +91-33-4011 4800

Ext.832

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