The main businesses were manufacturing wall tile, floor tile and bath ware reflecting the traditional line of business. But the much beautiful pace and colour has been added through aluminium extrusions, plantations, packaging, paints and financial services businesses.
The group has experienced a remarkable compounded annual revenue growth of 40% for the last five years especially after the acquisition of Dhammika Perera and later on adopted unrelated diversification strategy. This strategy has helped the company to nullify the impact of declining profits in the manufacturing and selling of tile products but to introduce a robust growth channel on a sustainable basis.
The company now gradually expanding its business demographics beyond the shores and penetrating oversees markets including Australia. The overseas sales has grown from a 4% of total sales in 2014 to 6% of total sales in 2015 and the company hopes to make this ratio to 10% by 2016.
The company generates a significant ROE of 22.5% for 9months ending 31st December 2015 while the ROME @ CMP 22.2%. Given the significant revenue and profit growth the same-like ROE & ROME reveals the fact that RCL stock @ current price levels not reflecting its true profitability.
RCL is currently trading at a PE multiple of 4x based on the forecasted FY PAT attributable to equity holders of Rs3,335mn for 2015/16 FY. The stock was trading at an average PE of 6.8x during the period 2013/14 and 2014/15. If the stock valued at a PE of 6.8x the stock should trade @ 204.7. Therefore I am of the opinion that RCL carries a significant upside potential in medium-term @ the current price of 119.90.