CRISIL maintains valuation grade of 3/5 to Rainbow Papers

CRISIL Research has come out with its report on Rainbow Papers. The research firm has maintained the fundamental grade of 3/5 to the company. CRISIL expects company to benefit post the start of production of higher value products from the new capacity, in its August 16, 2012 report.

Rainbow Papers Ltd’s (Rainbow’s) Q1FY13 results were in line with CRISIL Research’s expectations. Rainbow’s new capacity for value-added paper products is now expected to be operational from Q3FY13-end as the commissioning of the captive 20 MW power plant was delayed by two quarters. Higher trading activity resulted in revenues increasing by 110.7% yo- y to Rs 2,221 mn. Revenues from manufacturing increased 3.5% y-o-y to Rs 1,091 mn. Higher realisation and stable raw material costs helped the EBITDA margin from manufacturing to improve 170 bps y-o-y to 21.7%. Adjusted PAT increased 76.6% y-o-y to Rs 173 mn. We expect Rainbow to benefit post the start of production of higher value products from the new capacity. We maintain the fundamental grade of 3/5.

Higher proportion of writing and printing (W&P) paper sold compared to Q1FY12
Rainbow sold 34,579 MT of paper in Q1FY13; an increase of 0.5% compared to the quantity sold in Q1FY12. Rainbow’s capacity for W&P and newsprint paper is interchangeable. The company produced higher proportion of W&P paper and lesser newsprint compared to Q1FY12.

Engaged in trading activity to establish the market; also building supply line
Rainbow is establishing the export market for its new capacity through its subsidiary in Dubai. It has also built a distribution network to sell the value-added paper products procured from Chinese players. In a bid to strengthen its supply chain and reduce input related uncertainties, Rainbow has also set up a wastepaper collection centre in Dubai.

Debt tied up for new expansion plan
With its capacity expansion from 183,000 tpa to 305,000 tpa nearing completion, the company has announced further expansion plans. Over the next two years, the company plans to incur a capex of Rs 6.3 bn. The company has completed the debt tie-up of Rs 3.7 bn for the proposed expansion. It plans to:

Add a 132,000 tonnes per annum (tpa) plant for manufacturing folding duplex box boards (used in packaging of cosmetics, cigarettes and medicines). This is expected to be commissioned by March 2014.

Upgrade its existing capacity. This will enhance the 305,000 tpa capacity by another 29,700 tpa. The upgrade is expected to be completed by June 2013.

Enter manufacturing of notebooks and copier paper.

Valuations: Current market price is aligned
We continue to use the price-to-earnings ratio to value Rainbow. Based on our revised estimates and multiple, we value Rainbow at Rs 67 per share. At the current market price of Rs 72, our valuation grade is 3/5.

To read the full report click on the attachment

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

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