Buy Rain Commodities; target of Rs 71: SPA Research

“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.”

“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. 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.”

“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,” says SPA Research report. 

Institutional holding more than 40% in Indian cos

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