In January 2013, Rain Commodities Ltd (RCOL) completed the acquisition of Europe-based coal tar distiller Rutgers for a gross enterprise value of Euro702m. We believe the acquisition will add significant value to Rain Commodities' business due to the following reasons:
Post acquisition, RCOL's product diversification to improve; no product will contribute more than 37% to revenues. Potential synergies on complimentary nature of CPC and CT pitch. Rutgers business operating performance has been robust despite challenging business environment. EBITDA posted a CAGR of 14% over CY09-12. Severstal JV to result in additional supply of coal tar to European operations. This will take care of ~28% of European operations' coal tar needs, thus mitigating the effect of declining European supplies. Acquisition to result in EPS accretion of 13% and 16% in CY13E and CY14E respectively. RCOL has demonstrated the ability to sustain large acquisitions; CII acquisition added significant value. RCOL saw a net debt reduction of USD305m in the last five years; USD400m of equity value generation went unnoticed. Net debt/EBITDA at comfortable levels of 3.5x; major debt repayment to start only in 2018. RCOL trades at 3.8x CY14E EV/EBITDA. Valuation multiple are much below its peers; US listing will further rerate the stock.
OIL & GAS
The brokerage expects ONGC and Oil India to continue to rally on back of diesel reforms and expected natural gas price hike.
On the back of ongoing reforms, we continue our positive stance on upstream (ONGC/OIL) and oil marketing companies (OMCs). BPCL is top pick among OMC's for its E&P upside potential. RIL's new refining/petchem projects likely to add to earnings from end-FY15/FY16, but medium-term outlook on core business remain weak with RoE reaching sub-13%, Neutral. Neutral on GAIL/GSPL due to headwinds on incremental gas. However, domestic gas scarcity augurs well for Petronet LNG.
