Rain Commodities to list CPC business

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Rain Commodities to list CPC business

T Srinivasa Rao, CFO, Rain Commodities, talks to CNBC-TV18 about the company’s plans to list its Calcine Petroleum Coke (CPC) business on the bourses. The segment contributes 80% to revenues and operating margins, he says.

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T Srinivasa Rao, CFO, Rain Commodities , talks to CNBC-TV18 about the company's plans to list its Calcine Petroleum Coke (CPC) business on the bourses. The segment contributes 80% to revenues and operating margins, he says. According to him, Rain Commodities is also the world leader in CPC, enjoying about 10% market share.

Below is the verbatim transcript. Also watch the accompanying video.

Q: You have got a nod to go ahead and list your global CPC business in the US. Can you take us through by when you will go ahead with that? What is the plan and what kind of a ballpark valuation you could be looking at?

A: We are engaged in two businesses: calcine petroleum coke (CPC) and cement. Many investors view us as being engaged only in the cement business. Actually, CPC business contributes about 80% of our revenues and operating margins. We are the world leaders in CPC business enjoying about 10% market share with 2.5 million tonnes capacity spread over US, India and China. We are also one of the low cost producer of CPC across the world with substantial revenues from waste heat recovery. We generate around USD 40 millions of revenues from waste heat recovery annually.

Coming to your specific question about listing of the CPC business, last year, we implemented corporate restructuring. We have consolidated our entire CPC business under a US holding company and we have all the structure is in place to complete an IPO. We are only evaluating for an appropriate opportunity to get the listing done. We expect EBITDA multiple of 6 times on a conservative basis for our CPC business, looking at our stable earnings and world leadership.

Q: Six times EBITDA would give it a valuation in the region of, in the vicinity of what?

A: We have a 2.5 million tones capacity on the board. Currently, we are operating around 2 million tones capacity, about 80% of the capacity utilization. Our sustainable EBITDA margin is about USD 100 a tonne. It should be around 1.2-1.3 million tonnes of enterprise value with a debt of about USD 500 millions. Therefore, about USD 800-900 million in equity valuation can be expected.

Q: USD 800-900 million in terms of valuation, what kind of a revenue currently generating, this particular vertical?

A: It is 2 millions tonnes, almost USD 1 billion of revenue is expected from this business.

Q: How soon would you want to take a decision on that listing and how much equity would you offer in terms of putting up for listing?

A: We are looking at a minor equity dilution may be around 15-20%. If you look at our repayment schedule for the debt, in the next 3 years, we have repayments of about USD 170 million. Our average cost of borrowing, because majority of the debt is dollar denominated, is around 6-6.5 %. The management is not intending to replace the debt with equity, because less than 5% cost of funds is the lowest cost one can expect. We are looking at an M&A opportunity. As soon as that is concluded, we will be going for a listing. We can do listing with a dilution of 22-25%.

Also see: How will competition panel's new M&A norms work for India

Q: What about the cement business? I believe that you were pursuing some inorganic growth opportunities there, what is the scale up like for that business?

A: Right now, our capacity in the cement business is about 3.5 million tonnes. We are not looking at any immediate expansion in the cement business, because cement business is operating around 65-70% capacity utilization. We think that next 2-3 years the capacity utilisations will be sub-optimal. They may reach 85-95% in the two years time. Accordingly, we are not looking at any immediate organic expansion plan.

We did a corporate restructuring, hived-off the cement business into a wholly-owned subsidiary with an idea to merge some other cement companies if the opportunities exist in that business. But right now, there are no opportunities because the prices have stabilized and the margins have improved. From that point of view, there are no immediate opportunities available for acquiring or buying the cement companies.