RCI Industries - Expanding footprint

Extract from the AR -

BUSINESS PERFORMANCE:
The consolidated financial performance for the 12 months ended March 31, 2017, is as follows:
• Total revenue from operations at Rs. 173,483 Lakhs for the year ended March 31, 2017, as
against Rs. 127,019 Lakhs for the corresponding previous period, supported by increase in
volumes and revenues
• EBIDTA at Rs. 5,233 Lakhs for the year ended March 31, 2017, as against Rs. 2,873 Lakhs for
the corresponding previous period, an jump of 182%
• PAT of Rs. 3,583 Lakhs for the year ended March 31, 2017, as against Rs. 1,493 Lakhs for the
corresponding previous period, a jump of 240%
• EPS for the year ended March 31, 2017 was Rs. 26.67 for a face value of Rs. 10 per share

FUTURE PLANS:
Going forward, we will continue to focus on value added segments and sectors such as Defence, Mint,
and Aircraft industry. We will leverage our diversified network and products to further strengthen our
product portfolio. Our Company also plans to manufacture a unique tape (copper and stainless steel) for
industrial applications. This is currently imported.

To Issue up to 6,67,000 (Six Lakh Sixty Seven Thousand) Equity Shares to Mr. Rajeev Gupta,
Promoter of the Company on Preferential basis
The Company is engaged in carrying on business of manufacturing of Copper Wire, Lead Free Solders,
Tin-alloy solders, Copper, Brass, Stainless Steel-Strips/Foils/Coils as well as international & domestic
trading of ferrous and non-ferrous metals used in various electrical and industrial applications.
The Company has purchased the Factory Land and Building admeasuring 7,749 sq. m. under the eauction
from State Bank of India, adjacent to the existing unit “RCI Strips” (a unit of RCI Industries &
Technologies Limited) located in Baddi, Himachal Pradesh with an aim of increasing the total
manufacturing capacity to 24000 MT per annum for the manufacture of Copper and Copper
Alloys/Brass/Strips/Sheets/Foils/Coils/Wires etc and the Company is in the process of installing new and
upgraded plant & machineries leading to increased production and sales turnover. Further, the Company
is also in the process of expansion and modernisation of its existing unit RCI Copper located in Nalagarh.
Hence, the Company is envisaging to expand its manufacturing units via technological upgradations,
purchasing land & building & also by improving the infrastructure of the Company. Therefore, Company
require funds for fulfilling the requirements of expansion & also for various long term working capital
and general corporate purposes. To augment the growth and improve the financial performance of the
Company, the Company has approached Mr. Rajeev Gupta, Promoter of the Company, to infuse fresh
funds in the Company.

Board of Directors at its meeting held on September 2, 2017, after considering the various sources for
sourcing funds for this investment; while at the same time maintaining public shareholding at 25% post
issue, deemed it appropriate to create, issue, offer and allot 6,67,000 Equity Shares of a face value of Rs.
10 each at a minimum price of Rs. 225 (including a premium of Rs. 215) per equity share to Mr. Rajeev
Gupta, Promoter of the Company on Preferential Basis, aggregating upto Rs. 15,00,75,000/- (Rupees
Fifteen Crore Seventy Thousand only).

strong text

RESERVES & SURPLUS
The Company’s reserve & surplus for the financial year ended March 31, 2017 is Rs. 896,516,831 as
compared to the previous year it was 359,344,900.

Future Prospects
The enhanced capacity of 24,000 MT in a manufacturing unit located in Baddi, Himachal Pradesh, is
expected to be operational in FY18. The Company plans to foray into value added segments of defence
and the mint in an endeavor to enhance profitability.
At a sectoral level, there exists tremendous growth potential for copper in India. This will come from
sectors like power, telecom, automobile, railway, defence etc. Reports indicate that the domestic copper
usage will double in India by next decade driven by Government initiatives and increased consumption.
Barring unforeseen circumstances the company is confident of achieving better results in the current year.

RESOURCES AND LIQUIDITY
As on March 31, 2017, the consolidated networth stood at Rs. 147 crore and the consolidated debt was at
Rs. 121 crore.
The cash and cash equivalents at the end of March 31, 2017 were Rs. 52 crore.
The net debt to equity ratio of the Company stood at 0.82 as on March 31, 2017.

RISKS AND CONCERNS
The Company faces the following Risks and Concerns:
Economic Risk
A part of business is substantially dependent on the prevailing global economic conditions. Factors that
may adversely affect the global economy and in turn India’s economic growth, that could affect the
demand for copper and other non ferrous and ferrous metal products

Competition Risk
This risk arises from more players wanting a share in the same pie. Like in most other industries,
opportunity brings with itself competition.

Trade Risk
Our business can be affected by the rise and fall in the levels of price and import of copper in the country.
As per a Bloomberg report, in 2017 alone, 62,000 fewer tones of copper will come to market than
previously expected. Global copper demand may continue to grow at a moderate pace as China, which
accounted for 45% of global demand in 2015, transitions toward an economy driven by domestic
consumer spending rather than government infrastructure investment.

Regulatory Risk
If we are unable to obtain required approvals and licenses in a timely manner, our business and operations may be adversely affected. We require certain approvals, licenses, registrations and permissions for operating and expanding capacities at our plants

Liability Risk
This risk refers to our liability arising from any damage to products, equipment, plant & machinery, life
and third parties which may adversely affect our business. The Company attempts to mitigate this risk
through contractual obligations and insurance policies.
Execution Risk
The Company has undertaken number of orders in the last year and several more are in the pipeline.
Order execution is largely dependent upon sourcing of raw materials and timely manufacturing. Any
delay in project implementation can impact revenue and profit for that period. Our implementation
schedules are in line with the plans

Commodity Price Risk/Foreign Exchange Risk and Hedging Activities
The Company is subject to market risk with respect to commodity price fluctuations. The Company
proactively manages these risks through forward booking Inventory management and proactive vendor
development practices.The Company’s payables and receivables are in foreign currency and due to fluctuations in foreign exchange prices, it is subject to foreign exchange risks. The Company has in place a risk management framework for identification and monitoring and mitigation of foreign exchange risks. The company has entered into foreign exchange forward, option and futures contracts to manage its exposure to exchage rate fluctuations, in accordance with its risk management policies.

link to AR - http://rciind.com/yahoo_site_admin/assets/docs/Annual_Report-2016-17.pdf

Your thoughts on this stock would be really helpful

Disclaimer - Invested. Looking to increase holding

3 Likes

Excellent Q2 numbers posted by RCI. On consolidated basis - the Revenue grew ~ 30% (YoY) whereas net profit grew ~ 274%(YoY).

Disc- Invested

Has anybody looked at their cash flow ratios? P&L looks beautiful but company has not been able to generate +ve CFO/FCF.

I understand business needs to invest a lot in wcap but then isn’t that (not generating +ve CFO/FCF) a concern - at the end of the day as investors what matters is cash flows and not accounting profits.

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Does anyone have Management Commentary and con call details ?

Company is generating most of the sales from Indian parent while most of the profits are coming from Dubai subsidiary. Dubai sub is not paying taxes also. It is in DMCC which is a tax free zone but overall the whole arrangement looks strange to me. if company is exporting from India it should pay taxes in India, which is low (relative to consolidated profits).

image

Source: Capitaline

Need to drill down more on this arrangement. Anyone has any idea about why a Dubai subsidiary is needed?

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Well Yogesh if that’s been the case then the new tax law will be a definite concern for the company.

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vat is only on local sales import and export does not attract vat

Today’s outcome of board meeting.

Board has cancelled the preferential issue, instead they come out with “Unsecured zero coupon compulsorily convertible debenture CCD having face value of Rs 900.” What this means? Is it good for retails investor? Preferential issue or CCD, which one is better for us? Kindly educate me.

Disc. Holding.

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Can retail investors subscribe to CCD or preferential shares.

A para from investopedia -
convertible debentures are not quite as cheap as debt to raise capital, but they are cheaper than equity. Investors are willing to accept a lower rate of interest in exchange for the embedded option to convert to common shares. Convertible debentures also allow investors to participate in share price appreciation as debentures are converted into shares. The number of shares received for each debenture is determined at the time of issue and provided in the prospectus. For example, the company can distribute 10 shares of stock for every debenture with a face value of $1,000. This is a 10-to-1 exchange or conversion ratio.

Read more: Convertible Debenture https://www.investopedia.com/terms/c/convertibledebenture.asp#ixzz581eU9btB

I think - It probably points towards promoters confidence in company’s business & company getting the capital at lower interest rate. I may be wrong and other boarders can correct me.

Disc- Invested - 3% of PF

2 Likes

Cancelling of preferential issue is not a good thing.

RCI Industries was steadily growing till 2014. But, what exactly catalysed the tripling of their sales between 2014 and 2017?
And , when a company grows aren’t it’s margins supposed to improve since it can leverage it’s size? It’s margins continue to be dismal ranging between 0.5% to 1%.
A fluctuation in copper prices will wipe out their profits.
Their rapid growth is truly surprising.

RCI_debentures.pdf (470.9 KB)

Under IND AS (new accounting standards) compulsorily convertible debentures will be treated as Equity instead of Financial Liability. So eventual impact on Balance Sheet remain same as in the case of Preferential Issue.

Cancellation of Preferential Issue shouldn’t be seen in negative light if its replaced by Convertible Debentures. It’s just dilution of equity has been postponed from current date to a future date.

4 Likes

Both its facilities are in tax free zones.

RCI came up with Q4 numbers. Compared to previous quarter, there is a decline in revenue. Increasing prices of copper (which is a key raw material) is a key concern in short term. Hopefully, the company would have factored in for potential raw material price increase in its contract with customers.

http://www.moneycontrol.com/stocks/reports/rci-industries-technologies-standalone-consolidated-audited-financial-results-forquarteryear-ended-march-31-2018-11403841.html

Another aspect I am trying to figure out, company is expanding its capacity 10 fold as per the investor presentation (From 2400 MT to 24000 MT); However it is struggling to maintain its sale volume on quarter on quarter basis.

Pls. enlighten if I am missing out any point

Disc - Invested at higher levels.

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