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Saturday, March 29, 2008

Multi Bagger: Rain Commodities

Recommended Price Rs 154.75
 
S.P.Tulsian's Multibagger Recommendation
 
Rain Commodities has recently restructured its business by bringing in Cement and Calcined Petroleum Coke (CPC) business under its fold. The cement capacity of 1.50 Million TPA would rise to 3.16 million TPA by June 08 while CPC capacity is 2.44 Million TPA and is the world's largest producer of CPC.

The company acquired CII of USA on 19-07-07 manufacturing 1.84 Million TPA of CPC with manufacturing facilities in Illinois, Louisiana, Missisipi and West Virginia for a cash purchase price of $ 595 million. CPC is a raw-material used in the production of aluminium and titanium dioxide and its raw-material is Green Petroleum Coke.

The merger of all the business took place from 1st April 07 and the company changed its accounting year to end on 31st December, every year. Hence, accounts for 9 months ended 31st December 07 were approved by the Board recently with business of CII, USA incorporated w.e.f. 19-07-07, from the date of its acquisition by the company.

For 9 months ending 31-12-07 the total income of the company was at Rs 1,634 crores with PBT of Rs 85.57 crores and PAT of Rs 77.56 crores on equity of Rs 32.10 crores. Dividend of 28% was declared for the period ended 31-12-07. This amounts to annualized dividend of 37.33%.

The results for 9 months above, includes gain of Rs 102.55 crores, being profit on sale of investment in GLC Carbon and financial and legal cost of Rs 134.18 crores for acquisition of Rain CII Carbon LLC. Hence, net extraordinary expenses of Rs 31.64 crores, brought down net profit to Rs 45.92 crores for the period.

The present equity of the company is Rs 32.10 crores, of which, 40% is held by the promoters while 8% by Mutual Funds and FIIs and 52% by Public. Of this 52%, Citicorp is holding 14.95% stake.

On 11-03-08, 35 lakh warrants were converted into 35 lakh shares at Rs 200 per share, issued to the promoters, due to which paid-up equity rose to Rs 35.60 crores.

Due to restructuring and other one time costs and gain, the results of period ended 31-12-07 are not truly reflecting the working of the company. On an annualized basis, 2.4 million tonne CPC can give a topline of Rs 2,400 crores, while 3.14 million cement can give a topline in excess of Rs 1,000 crores. This could result into a PAT in excess of Rs 350 crores, thus resulting into an EPS of close to Rs.100 per share.

Though new cement capacity of 1.50 million tonne would be operational from May 08, this would get reflected into the working for part of CY 08. For the year ended 31-12-08, the company is most likely to post an EPS of close to Rs 80 and dividend is likely to exceed 50% for the year.

Rain Commodities is presently ruling at Rs 154.75 which discounts its expected CY 08 earning by less than 2 times. CPC has huge demand by aluminium manufacturers in India and China, thus putting the company into an advantageous position. It has potential to give a return of 100% in the next 18 - 21 months, with virtually no risk of fall from the present levels. A safe and excellent bet at Rs 154.75 in this market.
 
 
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