CRISIL maintains fundamental grade of 3/5 to Rainbow Papers

CRISIL Research has come out with its report on Rainbow Papers. According to the research firm, the company is expected to fund the capex of Rs 6,300 mn through debt of Rs 3,800 mn and equity infusion of Rs 730 mn from the promoter. Rest of the capex will be funded through internal accruals.

Rainbow's Q3FY13 results were broadly in line with CRISIL Research's expectations. Revenues increased by 45.3% y-o-y to Rs 2,337 mn due to higher trading activity. Revenues from manufacturing increased 26.8% y-o-y to Rs 1,402 mn with the new capacity (value-added paper products) becoming operational this quarter. EBITDA margin from manufacturing contracted to 17.3% compared to 19% in Q3FY12 due to higher raw material costs and other expenses. Adjusted PAT increased 22.9% y-o-y to Rs 163 mn. Test runs for the captive 20 MW power plant have been completed and will cater to the power requirements of the new capacity from FY14. We maintain the fundamental grade of 3/5. PM-8 became operational in December 2012
Rainbow has successfully commissioned its new capacity (PM-8) of 122,000 tonnes per annum (tpa) in December 2012, earlier than our expectations of mid-FY14; this is in addition to its existing capacity of 183,000 tpa. The company sold ~5,000 tpa paper from the new capacity along with ~35,000 tpa from the existing capacity. Rainbow has established a market for the new capacity through trading in high-margin paper overseas since Q3FY12. This has helped it expand its reach and establish relationships with international customers. Test runs in power plant completed; will cater to PM-8 from FY14
The company has completed the setup and test runs for the 20 MW power plant (in addition to the existing 15 MW power plant), which will cater to the energy requirement of PM-8 as well as the additional 161,700 tpa capacity (132,000 folding duplex board plant and 29,700 mill modernisation project) expected to come up by FY16. Rainbow is expected to fund the capex of Rs 6,300 mn through debt of Rs 3,800 mn and equity infusion of Rs 730 mn from the promoter. Rest of the capex will be funded through internal accruals. Mill modernisation project to commence in H2FY14
Rainbow's mill modernisation project is expected to increase its existing capacity by 29,700 tpa. The new capacity will be utilised for production of notebooks (20,000 tpa) and copier paper (7,500 tpa); this forward integration is expected in H2FY14. We estimate revenues of Rs 300 mn in FY14 and Rs 1,000 mn in FY15 from this high-margin (25-30% EBITDA margin) segment. FY13 earnings estimates and fair value revised upwards
We have marginally raised FY13 earnings estimates as production from PM-8 has commenced earlier than expected. We continue to use the price-to-earnings ratio method to value Rainbow. Based on rolling forward of our valuation to FY15 and revision in the earnings multiple to 8x from 6x, we now value Rainbow at Rs 88 per share. At the current market price of Rs 79, our valuation grade is 4/5. 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. © CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"

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