Submitted by: Submitted by lfranza
Views: 249
Words: 5274
Pages: 22
Category: Business and Industry
Date Submitted: 12/06/2012 06:13 AM
1.5x P/E for a World leader with stable cost+ biz, high FCF generation, 24% ROE (this note is priced at close 22 November 2012) Introduction Rain Commodities is an Indian small cap company, listed on both the National Stock Exchange of India and the Bombay Stock Exchange (ISIN INE855B01025, current share price Indian Rupees (Rs) 36.0, current FX Rs/US$ 55.0, number of shares post ongoing buyback 333m, market cap US$ 218m). Through its fully‐ owned, US‐incorporated subsidiary Rain CII Carbon LLC (www.raincii.com) Rain is the world leading producer of CPC (Calcined Petroleum Coke), a carbon product that is an essential feedstock in aluminium making. About 450kg of pre‐baked anode are consumed to produce one tonne of primary aluminium, with no viable alternative technology available. Anodes are typically made of ~85% CPC and ~15% Coal Tar Pitch (CTP). CPC is produced by processing so‐called Green Petroleum Coke (GPC), which is a residue of refining premium, "sweet" crude oil. Basically Rain CII purchases GPC from the refineries and transforms it into CPC, which then sells to the anode manufacturers, which are typically the aluminium makers like Alcoa etc (traditionally aluminium makers tend to buy CPC and CTP and produce anodes in‐house). Rain CII has 9 calcining plants, 7 located in the US, 1 in India, and 1 in China, with a combined capacity of 2.5 million tonnes (Mt) and annual production of 1.9 ‐ 2.0Mt. The CPC story The CPC industry is well tracked by Houston‐based Jacobs Consultancy (www.petcokes.com) and by CRU. Jacobs estimates that approximately 24 million tonnes of CPC were consumed in 2011, of which over 40% in China and ~85% taken up by the aluminium industry (apart from anode/aluminium, CPC is also used in the graphite electrode, steel, titanium dioxide and other carbon consuming industries). Jacobs estimates rated calcining capacity at y/e 2011 to be ~28Mt worldwide, so the industry runs at ~85% utilization. If one ...