Rain Industries - An oversold de-leveraging play


(PE_Ratio) #258

IDBI Capital initiated coverage on Dec 19, 2016 when the price was Rs54. They gave target price Rs82.
Rain-Industries-IDBI-Capital-IC.pdf (1.3 MB)


(Akshay Kumar) #259

Dont think these reports will help you get 50-200 or 400-2000 , it is your own conviction and disciplined process that will help you get even bigger multi-baggers


(SS64) #260

Thanks @PE_Ratio. It clears many doubts I had on these reports.

Thanks @Akshaykumar.


(PE_Ratio) #261

Here’s a MoneyControl article. Their CY19 EPS projection is 44.2, somewhat similar to what I calculated. So Rain is currently trading at a multiple of 8.6x CY19 earnings.


(Valcyc) #262

I think quarterly eps of Rs11 for CY18 is a bit of a stretch. Rs9-10 is more likely. Couple of factors: 1. Company mentioned on the call that effective tax rate will only reduce by 2-3% from 36% level of 2017 in spite of the large reduction in the US corporate tax rate. 2. It doesn’t appear that cpc spread over gpc will expand any further. Based on these factors, I think CY18 eps could track between Rs36 and 40. Next year (CY19) the Vizag calciner will start up along with the hydrogenated resin project. So, we could see eps head into low 40s assuming the cpc/gpc spread is maintained. I also think chemicals segment earnings will remain at current levels because of high cost of coal tar and competition from petroleum-based chemical substitutes limiting product price increases. So, the earnings growth outside carbon products will be limited to a recovery in cement.

The big question is what should the market pay for 40+ CY19 eps? 9-10x may be reasonable under a peak scenario but if the cycle extends beyond 2019, it should be willing to pay quite a bit more. Also, if the company pays down $150m of the term loan debt with free cash flow that should add almost Rs 30 to the stock. I think the market currently is discounting a decline from current earnings. What is not being factored in is an extension of these levels into 2019 and possibly 2020


(KK) #263

y a PE of just 10? shouldnt it be closer to 15-20?


(Bhavesh) #264

PE may not be be right way to value Rain. It has Cement division running at 50% utilization levels. It should be valued at $80-90/tonne on a replacement cost basis. Carbon Products and Chemicals should be valued on a EV/EBITDA basis.


(Akshay Kumar) #265

(prantheone) #266

One should also take into account the impact of raising price of crude while forecasting the EPS.


(Nolan) #267

Dolly Khanna seems to have added 317400 shares as per latest shareholding taking her previous holding of 2.57% to 2.66% now.
http://www.bseindia.com/corporates/shpSecurities.aspx?scripcd=500339&qtrid=97.00


(sunilgct) #268

BNP Paribas Arbritrage also bought 36 lakhs shares of Rain Industries in Mar 2018.


(Nolan) #269

Arbitrage funds do not base their trades on sentiments/potential of the stock. They play upon volatility. Hence should not be counted.


(sunilgct) #270

A very Nicely documented Annual report .
Suggest to go through whoever is interested.

Takeaways of the Annual Report 2017 of Rain Industries :

  1. REVENUE SPREAD : EUROPE - 4327 Cr :::::::: ASIA - 2873 Cr ::::::::: US - 1668 Cr :::::: NORTH AMERICA - 1220 Cr ::: Others 1360 Cr .: Total Revenue 11448 Cr:

  2. MAJOR PRODUCTS SPREAD : CPC 3727 Cr ::::::::: CPT 2198 Cr :::: Other Carbon Products 2490 Cr :::::::: Resine & Modifiers 1174 Cr :::::::: Cement 968 Cr

  3. REVENUE WORLD WIDE SPLIT : Europe (Incl CIS) 38% :::::::: ASIA 24% :::::: US 15% ::::::::: NORTH AMERICA 11% ::::::: MIDDLE EAST 6% :::::AFRICA 4% ::::: others 2% :::::::::::::

  4. REVENUE SPREAD BY INDUSTRY ::::::::: Aluminum 37% ::::::: Speciality Chemicals 9% :::::::::: Carbon Black 7% ::::::::::: Coatings 5% ::::::::::Construction 14% :::::::::::: Wood Preservatives 4% ::::::::Graphite 6% ::::::::TI02 3% :::::::: Energy 2% ::::::::: Others 13%, which is major part cement. ::::::::::

  5. NET SPREAD OF BUSINESS VERTICALS : Carbon 76% :::::: Chemicals 16% :::::::::::::::::: Cement 8% ::::::::::::::::::::::::::::::::::

  6. SEGMENT WISE REVENUE : CARBON 8632 CR :::: CHEMICALS 1792 CR :::::::: CEMENT 968 CR :::::::::::::::::::::::::::::::::::::

  7. Retuegrs Severtar Russia Revenues 441 Cr, & 85 Cr N/P. ::

  8. BALANCE SHEET DETAILS :
    Book Value Increased Sharply to 117.26 Vs 94.09 ::::
    Balance Sheet Size 14550 Cr Vs 13079 Cr ::::::
    Capital works in progress 441 Cr ::::::::
    Receivables 1687 Cr Vs 1039 Cr, and Europe had 505 Cr Recviables within this :::::
    Cash & Bank Bal 942 Cr Vs 1043 Cr :::
    Inventory 1999 Cr Vs 1268 Cr :::
    IN DOLLARS : TOTAL ASSESTS $2276 Million ::: NET WORTH $617 Million ::::::
    Gross Debt $1158 Million :::Net Debt 999 Millon :::::
    Net Debt to Equity is 6608 Cr Vs 3944 With 1.68 Ratio :::::::::::::::
    Net Cash from Operating Activties is 868 Cr :::::
    Free cash flows turned negative mainly due to incremental working capital required largely due to higher raw material and product prices in the last quarter of 2017. Rain s working capital to stabilise at around the current level and free cash flow to turn strongly positive from 2018. The strong free cash flow is likely to lead to a reduction in the overall debt.

  9. CONTINGENT LIABILITY
    ABOUT 250 CR VS 190 CR, of which 120 Cr is Tax Disputes, and 130 Cr is Claims against Company, AND Some of the Other Contingent liability Issues Pending are in the 60-80 Cr Ranges wherein Claims For/against are Pending Resolution, mainly in the US with Govt/Contractors

  10. INDIA - GEOGRAPHIC SPREAD : Indian Contribution 2578 Cr : OUTSIDE INDIA 8869 CR :::::

  11. EXPANSION PROJECTS : Currently 4 Expanison Projects in CPC Expansion in Vizag ::::: De-bottlenecking of Petro feed Distilliation in Europe :::::: New Hydrocarbon Plant in Europe ::::::: 4.1 MW Waste Heat Recovery Plant is Undeway and Should be Completed in the Next 12-24 Months. ::::::::
    Rain has de bottled its ctp plants in Belgium and Germany which has increased its capacity by 200000 metric tonnes this plant which be commercial from 2019
    Rain is expanding its Vizag capacity by 374000 tonnes which will be commercial from first quarter of 2019
    Rain is also foraying into advanced carbon material used for EVs and already had a road map at rauxel Germany.
    At the same time they are producing some NOVARES®C 10 which is byproduct of coaltar. One ton of these additives used in performance tyres saves more than 50 tons of fuel per year

**** This is not in annual report but from otehr reads*****
Alcoa and century aluminium are coming with 160000 MT and 150000MT capacity this year. US has around 785000 MT idle capacity THEof aluminium which it can start in one next year


  1. AGM will be on 11.5.2018 at 3Pm in Hyderabad, and Record Date for 50% Dividend FV 2/-, Will be on 4th May. ::::::

And offcourse Rating Upgarde from A- to A.

All augurs well for next 12-18 months . Keep an Eye

Disc:Invested


(RamC) #271

Well documented details. Great effort.
I am still looking for an answer. What if Indian Govt. put restrictions on production of CPC?
How much percentage of CPC produced in India and exported ?


(n.arvind2k) #272

Dolly Khanna increased her holdings from 86,30,115 (2.57 %) to 89,47,515 (2.66 %).

Pabrai Investment Funds hold 2,90,12,715 (8.62 %)

Having said that, one should keep track on quarterly basis. You never know when the tide will turn in different way.


(sunilgct) #273

CPU/CTP prices are trending upwards… Read the reports enclosed in the above tweet .


(Man) #274

Rain Industries: Potential volume disruption can be accommodated; pricing supportive


(PE_Ratio) #275

500 crore expansion project by Rutgers, Germany. Capex to start from May 2018 (when the license is available) and production to start from June 2019.
No official announcement from RAIN yet. It appeared as an article in German newspapers.

Three products that are going to be produced

  1. Carbores Novares C10, a liquid distillate from tars, delivered as industrial waste here and from which mainly car tires are made.
  2. Advanced Carbon Material" for the production of lithium-ion batteries, which are in high demand in the digital age.
  3. White, pollutant-free resin.

The old facilities that were no longer needed in the factory are demolished and this new plan is going to be executed in that same place.

This looks huge. We should get more info from the Q1 con call.


(Rahul B) #276

Hi @sunilgct ,
I have the below queries in the latest AR
The receivables and inventory are very high compared to last year.
Even the net cash flow from operations are half of the last year net cash flow.
Isnt it negative for the company?

Regards,
Rahul


(Akshay Kumar) #277