Rainbow Papers completes power plant installation: CRISIL

Rainbow’s Q2FY13 results were broadly in line with CRISIL Research’s expectations. Higher trading activity resulted in revenues increasing by 91.3% y-o-y to Rs 2,167 mn. Revenues from manufacturing declined 1.6% y-o-y to Rs 1,077 mn. Higher other expenses resulted in EBITDA margin from manufacturing to decline to 20.4% compared to 22.2% in Q2FY12. Adjusted PAT increased 65.9% y-o-y to Rs 166 mn. The commissioning of the captive 20 MW power plant has been completed. Accordingly, we expect Rainbow to commence commercial production at its new capacity for value-added paper products by Q3FY13-end. We expect Rainbow to benefit from the production of highervalue products from the new capacity. We maintain the fundamental grade of 3/5.

Low offtake risk for incremental capacity
Rainbow has been trading in high-margin paper overseas since Q3FY12 to establish a market for its new capacity of 122,000 tonnes per annum (tpa) in addition to its existing capacity of 183,000 tpa. The value-added paper products are procured from Chinese players and are sold in the international market through its subsidiary in the Middle-East. The trading activity has helped Rainbow expand its reach and establish relationships with international customers.

Commissioning of power plant completed
The company has completed the setup of its 20 MW power plant (in addition to its existing 15 MW capacity power plant) which will cater to the energy needs of the expanded capacity. We expect commercial production of value-added paper products by Q3FY13-end. Rainbow’s forward integration into stationery products and copier paper is expected to commence post stabilisation of operations from the new capacity.

Issue of warrants
Rainbow’s board has approved the issue of 15 mn convertible warrants (convertible into equivalent equity shares within 18 months from date of allotment) to the promoter group at Rs 81 per share. Post conversion in FY15, the promoter holding will increase to 46.75% from the present holding of 38.5%. The warrant conversion will result in an equity infusion of Rs 1,215 mn. The company plans to use the funds for the Rs 4,800 mn capex in FY14-FY15 towards addition of a 132,000 MT folding duplex board plant.

Valuations: Current market price has downside
We continue to use the price-to-earnings ratio to value Rainbow at Rs 67 per share. At the current market price of Rs 80, our valuation grade is 2/5.

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