Tuesday, February 7, 2012

Cochin Minerals and Rutile - Sellers in exile - initiating coverage

Cochin Minerals and Rutile.(CMP/LTP 148)
Sellers in exile. Initiating coverage.
 Actually I used to hold this stock 2 years ago but exited after weak results.Recently, it again caught my attention after last quarter stupendous results ( Q2 Sep`11). posted in Oct`11 end. And then could not get chance to enter as it rallied from +50% from 80 to 120.
Latest quarter results ( Q3 Dec 2011 FY 2012). YoY Net Revenues up +92%,EBITDA Margin at 41% vs 12%,PAT up +850%.
In past 6 months, its already up 2.4x ( 136%), so should one buy now ? I think Yes. In fact , has good potential to double from even here to 300 in a year`s time. Rationale below.

Even Seq QoQ (vs 3 months ago Q2 Sep`11) : Net Revenues up +55%,EBITDA Margin at 41% vs 29%,PAT up +138%.
Results summary in below table. ( click to zoom)
Past recent quarters results :-

Business and Macro
  • Rutile is raw material that contains as much has 95% Titanium Dioxide TiO2. End user of the white pigment TiO2 is the Paint Industry.
  • Titanium Dioxide Rutile -is the most commonly-used white pigment in the world. More than 4 million tonnes are used annually for a variety of industrial applications like manufacturing of Paint, Rubber, Paper, Detergents, Cosmetics, Printing Inks, Textiles, Plastics among other products.
  • TiO2 usage -China uses less than 1 kilogram per person annually vs 4 kilograms in developed countries.
  • Price of Rutile jumped + 77% percent in 2011 and posted the biggest yearly gain since at least 1997. Such is the unrelenting rise such that even the largest producer of TiO2 Dupont is also facing problem passing on input price hikes. News here
  • Many rutile producers are hiking prices in 2012 by 90%-100% . News here (Sierra Rutile) and here (Iluka Resources)
Valuation
  • At cmp of 148, market cap of 117 crores.
  • On net cash basis , Cochin Minerals and Rutile is debt free. And post Dec 2011, would have net cash of ~ 15 crores. i.e EV of ~100 crores
  • In Mar 2012 ending FY12, all set to post ROE,ROCE of 70%-75%
  • 9m Dec`11 annualized basis ,adjusted for net cash,Cochin Minerals and Rutile is trading at very attractive valuation ratios :
    • PE of 2.5x
    • EV/EBITDA of 1.6x 
    • PSR of 0.46x
  • At 2x upside or 300 target, PE would be 5x, EV/E of 3.2x and PSR of 0.9x
Performance
  • YTD CMaR  +44% vs Sensex +12%
  • 6 months - +136% vs Sensex (-7%)
  • 5 years - +215% vs Sensex +52%
  • 200 DMA of 80 and 50 DMA of 118
Other factors
  • Share price at lifetime / all time highs
  • Results also at lifetime / all time record 
  • In 3 months from Sep`11 to Dec`11,Promoter holding increased by 0.5% to ~55%
  • >75% of sales is exported.
  • Interesting development - On 23 Jan 2012, two Calcutta based brokers - Goldview Financial Services and Ambica Capital Markets bought 5% of the equity from open market @ ~125 per share.
  • Risk- as this a commodity play. One needs to keep eye on when the cycle turns. A general rule of thumb of correction of more than 25-30% could be used an indicator of uptrend reversal.
  • Disclosure - No current holding. Looking to buy.
1  year Chart below

1 comment:

Rage said...

Rutile is mineral made from TOi2. Titanium Oxide.. it is so called as TiO2 Rutile