Rain Calcining - Rs.42.00

Incorporated in 1989, Rain Calcining Ltd (RCL) was promoted by Jaganmohan Reddy and associates, HIE-Rain and AMICOR. Today, it is Asia’s largest and the world’s 5th largest producer of Calcined Petroleum Coke (CPC) catering to 8% of the world's total requirement. CPC produced by calcining Green Petroleum Coke (GPC), is a high purity carbon used largely in the electrolytic smelting process that produces aluminium. CPC is also used in making graphite electrodes for arc furnaces, titanium dioxide, polycarbonate plastics, steel, carbon refractory bricks for blast furnaces and as a material for cathodic protection of pipelines. Presently there are no known viable substitutes for CPC.

Being a 100% EOU, RCL’s manufacturing facility is located on a 42.5-acre site in the Visakhapatnam Port Area and very close to deep water dock where CPC is discharged and export shipments of CPC are loaded. Last year, RCL completed the capacity expansion of its CPC plant from 3,00,000 to 4,80,000 MTPA and has started commercial production from May'05. Incidentally, this capacity expansion has come at a very appropriate time when aluminium smelting capacity is on the rise and CPC prices are ruling high at around US$200 per tonne and expected to rise further to US$ 220 in FY07. In addition, the company operates a 49 MW power plant, form which it partially consumes power and sells the balance to other industrial consumers in Andhra Pradesh. Importantly, RCL has entered into definitive revised agreements with Oxbow for the marketing of CPC and also for supply of raw material viz. GPC. Oxbow is one of the world's largest marketer and distributor of petroleum coke and currently holds 5% equity stake in the company as a foreign promoter. Moreover, RCL along with other leading Kuwait companies is setting up a green field calciner project in Kuwait with a capacity of 3,50,000 MTPA. Post completion, RCL and Oxbow are expected to have exclusive operating/maintenance contract and a CPC marketing contract.

Last fiscal, RCL’s profit took a plunge because of a sharp and sudden run up in sea freight and lower revenue from the power division due to a damaged turbine. Since then, however, things have improved a lot with freight rates remaining low in FY06 and CPC prices shooting up due to strong demand and low supply. Besides, the damaged turbine blade is expected to be replaced by a new one this month when it will regain back its power generation capacity to 49MW from 39MW currently. Taking into consideration these factors, RCL is expected to end FY06 with Sales of Rs.525 cr. and NP of Rs.60 cr. and FY07 with sales of Rs.625 cr. and NP of Rs.80 cr. This will lead to an EPS Rs.5 and Rs.6 respectively. Investors are strongly advised to buy at CMP with a price target of Rs.75 (75% return) in 9~12 months.