Looking forward to your detailed post on Rain Industries.
Relevant news in case anyone has missed it:
Moody’s downgrades the ratings of Rain CII Carbon LLC to B3 from B2, outlook negative
The rating downgrade might have adverse effect on the ability get the 2018 debt refinanced at a lower rate, which as per their last con call they were planning to conclude in this quarter.
Attended the AGM in Hyd’bad today.
Points I noted down:
- CPC business going to do better
Growth in Aluminium prices may be possible over the quarters
Margin Expansion is seen possible due to leadership
No plans to do more capex
Debt is all in the form of bonds, but they are low interest ones that are hardly 4% interest kind
Plan to double India capacity by 2018, up 60% by 2017.
Cement is the one generating the best cash flows for the sake of dividend.
- CPC business going to do better
New Website of their subsidiary - Rain Carbon
Has good details of their business.
And interesting disclosure about their board members:
Probably the largest calcined pet coke producer in the world - 2.1 MT capacity operating at 80%+ utilization (their competitor Oxbow Carbon has been in the news for the wrong reasons)
And the largest Coal Tar Pitch producer in the world - 1.3 MT capacity operating at 80% + utilization based on last concall. (Their largest competitor - Koppers - effectively shut down most of their regional competitive capacity)
But the key to this company is in its lead in technology and R&D - http://www.raincarbon.com/innovation/overview
Q3CY16 - Cash of USD 145 M
Undrawn revolver of USD 126 M
Gross Debt of USD 1120 M - of which USD 373 M due in December 2018
3.2 MT Debt free Cement Business
Market Cap: 1875 Cr odd
Looking forward to some constructive dialogue in this forum.
IDBI capital has initiated coverage of RIL. Report attached.
.Rain-Industries-IDBI-Capital-IC.pdf (1.3 MB)
IDBI cap is estimating a P/BV of 0.4 in FY18 as against 0.6 in FY15. Does this make their pricing estimates conservative? or is it normal to have such conservative estimates in capital intensive industries, like RAIN.
I’ve found an article about investment rationale behind rain industries
Good Q3 show by Rain ind
Net profit of Rain Industries reported to Rs 22.66 crore in the quarter ended December 2016 as against net loss of Rs 7.55 crore during the previous quarter ended December 2015.
Sales rose 0.42% to Rs 2361.00 crore in the quarter ended December 2016 as against Rs 2351.14 crore during the previous quarter ended December 2015.
For the full year,net profit declined 30.50% to Rs 224.73 crore in the year ended December 2016 as against Rs 323.34 crore during the previous year ended December 2015. Sales declined 8.97% to Rs 9259.67 crore in the year ended December 2016 as against Rs 10171.76 crore during the previous year ended December 2015.
Particulars Quarter Ended Year Ended
Dec. 2016 Dec. 2015 Dec. 2016Dec. 2015
Sales 2361.00 2351.14 9259.67 10171.76
OPM % 17.29 9.29 - 14.62 13.26
PBDT 287.00 189 874.93 832.39
PBT 194.27 1171 528.79 504.57
NP 22.66 -7.55 224.73 323.34
Found an interesting tweet from a seasoned investor:
"2nd level thinking anyone? This is on the dirtiest fuel that we bet on. “Rain"ing-money for some; misery on rest.”
The article is making some good points, regarding the pet coke vs pollution.
disc. invested from lower levels
I think there might be some confusion about the company’s products. The raw material for the company’s Calcining business is green petroleum coke (GPC) which has low sulphur content. The kind of pet coke mentioned in the article is high sulphur pet coke which is used as fuel in industries such as cement.
Here is an excerpt from the company’s website: “Our calciners and distillation facilities take, as raw material, the by-products of other industries which may otherwise be burned as fuel. Instead, our operations convert them into materials (calcined coke and coal tar pitch) essential worldwide to the production of aluminum, the light weight metal of choice for recyclability and in reducing transportation greenhouse gas (GHG) emissions.”
New development on RIL:
Surprised that it hasn’t been disclosed to the exchange or is this news not material enough?
RAIN INDUSTRIES MARCH 2017
PABRAI INVESTMENT FUND 3, LTD 16,254,715
The Pabrai Investment Fund II, LP 12,758,000
Good show by the company .
Mr. Jagan Mohan Reddy’s speech was excellent as usual. The future is bright. 2 white people(USA) also came. One of them was the Global head of Carbon and the other was the logistics head globally and it was his 1st visit to India for an AGM. Both spoke a few words and overall it was a great time there.
They know what they want to do, have a clear plan, management interest is in line with shareholder interest and most of all they will sooner or later be a supply issue in Carbon for making Aluminium and then these guys will put their hand up and raise prices. Stock look cheap. Intrinsic price is 280, but since future is bright can go to 4 digits one day I hope
Its Dolly Khanna’s largest holding now. Stock at all time high already by mid 2017, lets see what it has in store for us.
One of the use of Rain Carbon and Chemical in Automobile
Automobile manufacturers worldwide are increasingly turning to aluminum as the key material in their vehicles and components in order to reduce weight, improve fuel efficiency and reduce emissions. RCI’s Coal Tar Pitch (CTP) and Calcined Petroleum Coke (CPC) products are both essential materials required for the production of primary aluminum.
RCI companies have long been producers and suppliers of carbon black oils for conversion to carbon black used in truck and automobile tires, as well as for mechanical hoses. Our presence extends into the automotive end market with coumarone-indene resins produced in our RÜTGERS facilities, which are added to synthetic rubber formulations to improve their grip and reduce the rolling resistance of high performance tires. These resins, distributed under the brand name NOVARES®, improve the mechanical properties of car tires and contribute to safer and more energy efficient driving – especially under bad weather conditions.
RCI companies also provide components of the binder system necessary to produce advanced carbon-ceramic brake disks which weigh about 50 percent less than traditional brake disks, have better wear resistance, virtually eliminate brake dust emissions, and reduce the weight of the vehicle by up to 20kg, all while significantly improving response.
Our CTPs also are used in a variety of specialty automotive electrical applications. Electric vehicles depend on high performance lithium-ion batteries. In concert with other researchers, RCI group specialists have advanced the use of special pitches in the anode-grade graphite essential to in the manufacture of these batteries.
Carbon brushes used in electric engines utilize binders made from our CTPs, and the copper wire windings found in every electrical engine are insulated with cresol mixtures of which our companies are a leading provider worldwide.
Chemical feedstocks produced at RCI’s RÜTGERS facilities are also contribute to plastics in automobile manufacture. Our pure acetophenone serves as a basic material protecting PVC plastics from heat and ultraviolet light. Our naphthalene is processed into high-performance polymers used for the production of shock absorbers. Naphthalene derivatives ß-naphthol and H-acid contribute to a wide range of dyes used for coloring plastics such as those in the rear lights of cars.
Finally, several RCI company products improve automotive coatings including carbon black pigments for high optical density to ensure intensive colors, while Violet 23 produced from our carbazole increases the gloss and brightness of dark colors.
Another “relatively” undiscovered company in the same category is Goa Carbon. Management came up with extremely bullish guidance (video available at MoneyControl) and they are projecting bigincrease in top line.
I was just checking if aluminium is used in batteries and I found two links useful.
Currently aluminium is not used in car batteries but someday it may be used in car batteries as well as aluminium batteries perform much better and are light weight. Indian government is pushing for electric cars and US is also adopting electric cars. Hope that car batteries start adopting aluminium batteries.
Demand for aluminium is directly proportional to Rain industries products so Rain industries is good for long term if the story plays as expected.
Aluminium as an industry is evergreen. The only problem with commodities is that price tends to be fixed top down. So price an end use customer (of aluminium) is willing to pay based on his cost Base will cap the selling price. Another factor is supply demand. So for a commodity to revive both these factors should be right. Right now, due to supply side constraints Al smelters are ready to pay more for raw materials. Further as you had pointed out growth in demand will trigger price increase.
Rain at this juncture is at an inflection point for both the above factors and should be exit when we see the start of a commodity down cycle or over supply situation. So for 2-3 years, the business will roll.
Disc: Invested at CMP