RAK Ceramics CEO Sees No Slowdown in U.A.E; Plans India IPO to Build Plant

Ras Al Khaimah Ceramics, the world’s biggest maker of ceramic tiles, is producing bidets, sinks and bathtubs at a maximum capacity in the United Arab Emirates even as Dubai’s construction boom falters, an official said.

“There is no major slowdown for us in the U.A.E.,” Chief Executive Officer Khater Massaad said in a telephone interview yesterday. “We are fully booked and producing at full capacity.”

The company’s first-half profit rose almost 2 percent to 147.8 million dirhams ($40 million), the manufacturer said on Aug. 12. Dubai’s construction boom petered off in 2008 after banks tightened lending and speculators fled the market. Builders in the emirate have delayed or canceled projects worth about $330 billion, Dubai-based market researcher Proleads estimated.

RAK Ceramics, based in Ras Al Khaimah, one of the seven sheikhdoms that make up the U.A.E., is among the cheapest companies on Abu Dhabi’s benchmark index even after climbing 19 percent this year compared with an 8.2 percent decline in Abu Dhabi’s benchmark stock index. ING Investment Management (Dubai) Ltd., which owns a 1 percent stake in the company, says that RAK Ceramics still offers “value.”

“They are deleveraging and increasing their profitability and they are unlocking value in their subsidiaries by listing them in other countries,” Yazan Abdeen, who helps oversee $50 million at ING, said in an interview in Dubai. “It is a true treasure chest.” The company was the world’s top ceramic-tile manufacturer by value in 2009, according to Ceramic World Review.

Trailing Earnings

With annual sales of more than $1 billion, RAK Ceramics may expand in India and raise about $50 million through a share sale of its South Asian unit to build a new plant in the country, Massaad said. The company raised a similar amount through an initial public offering of RAK Ceramics Bangladesh Ltd. earlier this year.

The stock is trading at 4.4 times trailing earnings in Abu Dhabi, a 59 percent discount to the ADX General Index, making it cheaper than about 90 percent of the companies in the benchmark gauge, according to data compiled by Bloomberg. RAK Ceramics closed up 0.6 percent at 1.6 dirhams yesterday.

Still, “liquidity is extremely low on RAK Ceramics,” said Marwan Shurrab, assistant fund manager and chief trader at Gulfmena Alternative Investments Ltd. in Dubai. “It’s attractive on valuation numbers and ratios, but does not have the investor base to make it an active player in the market.”

RAK Ceramics has 643 million dirhams in loans due in 2011 and 275 million dirhams due in 2014, Bloomberg data show. The company is reducing its debt and may start paying a dividend next year making it an “appealing investment,” Abdeen said.

‘Few Entrants’

The Bangladeshi share sale received bids for 20 times the offered amount. RAK Ceramics has risen 17 percent since the June 13 listing of the Bangladeshi unit, giving the parent a market value of $294 million. RAK Ceramics has units in 12 countries including Germany and China.

“There are few entrants coming into the ceramics industry globally and RAK Ceramics doesn’t have local competitors,” said Hettish Kumar, senior financial analyst at Global Investment House KSCC in Kuwait. About 30 percent of the company’s contracts are from the U.A.E., making it vulnerable to the property slowdown in the country, said Kumar, who has a “buy” recommendation on the stock.

To contact the reporter on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net;

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