Rain Industries - An oversold de-leveraging play


(sunilgct) #403

More eloborate explanation on pet coke ban


(sunilgct) #404

Spoke to Rain Management… Regarding Pet coke Ban…
If it is not imported it will affect Aluminium and Steel industry as a whole . The entire domestic production(NALCO/HINDALCO n others ) would come to a still without pet coke . Most of domestic demand is imported from US , this applies to all varieties of Pet Coke.

This ban is applicable from August 17th . Rain has 3 months of inventory with them and i a assume it should be similar for other companies as well. Whichever inventory is in Pipeline till August 17th that will still be allowed apart from the 3 months inventory which is in stock .

So if the BAN has to stay , the industries both Steel(less impact) and Aluminium (No alternative but to import aluminium or anodes which is unlikely)

Now Coming to INDIA vizag operations contributes abt 20-25% OF world CPC production . The revenue from CPC alone is abt 25-30% of total revenue , so in a worst case scenario , we are looking at loss of sales of 12000(cr) .25.25 = 750 crore of sales in a year (assuming 12000 crore annual sales) which is 6% of sales
with 20 % margin from Carbon products …
Ebita could be impacted by 150 crores
so net profit would be impact by 150*.66 (as 34 % is their tax rate) = 99 crores .
Since 2 quarter are already done and there is enough inventory for quarter 3 , the only impact could be on Q4.
So the loss in profits at most would be 99/4 = 25 crores as it will only be reflected Q4 CY18
and
Yearly EPS would be impacted by 2.5% with a very conservative assumption of 1000 Crores profit.
So instead of 32 Rupees EPS(conservative) for CY18 , worst case scenario is we are looking at 31.2 rupees EPS.

Cutting long story short,
In all Likelihood , the ban looks like error of omission to miss out on other industries which use it as a feed stock .


(Balusu Aditya) #405

Not to nit-pick but 3 months from Aug 17th would sustain only till mid November. That leaves around 1.5 months still left in Q3. Cannot ignore that period from the calculations given it is almost half a quarter.


(sunilgct) #406

Rain finacial year is from Jan to Dec


(amolk) #407

Can Aluminum industry not import CPC directly instead of relying on domestic CPC producers?


(sunilgct) #411

CPC is also a form of PET Coke. So as per the current update…they cannot import


([email protected]) #412

Hi Sunil, Thanks for the presentation, have a question on the following slide
image

Can you let me know how the MT realization for this quarter is calculated.
Thanks.


(sunilgct) #413

Divide the Revenue by Sales
13808000/474 = 29131 @ 67.04 $ rate works out to be 435$


(ashit) #414

https://aluminiuminsider.com/the-great-comeback-of-evs/
Interesting article
current projections say that by 2030 aluminium demand from EVs will reach 10 million tonnes, a ten-fold increase on 2017 figures. (Not considering construction sector demand)

CPC demand and aluminium production go hand-in-hand
Thanks
Ashit


(dhiresh17) #415

Indian aluminium production should increase now with rising demand, but pet coke is banned in India.

Overall its a positive news.


(Shivasai) #416

Dear Sunil…

a good logically analysed answer…

however what surprises me is why the market only picking Rain to hammer whereas none of this downside is sen in any other stocks…

i have this feeling is something else is cooking which we all do not know??

hope i am wrong


(GSrikan) #417

Discl: I am new to investing. I have very limited knowledge about investing and also about the industry Rain operates in. There might be mistakes in my write up. I have written this up to put my personal opinion about RAIN’s developements. I believe there is no new information present in this post, which is not already discussed in this forum. Invested & looking to add more. Corrections & Contra views are welcome.

CPC:
It has chinese competition in CPC who can not be taken for granted even during these pollution control crackdown times. That said the Indian chemical companies are commanding premium PEs as clients to Chinese companies are moving to India.
All their new investments in CPC are in india.
-> In the new CPC capacity coming up, they are using Chinese technology, which is vertical shaft (it seems it is literally equivalent to our old method of Oil extraction using rotating Ox) which uses less power consuming and produces denser CPC (this, I believe, might make it competitive to Chinese import prices). I guess this technology is still evolving, which might have caused the delay of 6 months in this CPC capacity expansion. This project is worth $65 mn (500 cr) for capacity of 0.37 mtpa. They keep 100$/ton margin in CPC. At its 80% capacity utilization, they can recover it in 4 yrs (300000 ton * 75 $ = $22.5 mln; Construction period + stabilization period considered for 1 yr).
[Google search yielded this: https://link.springer.com/chapter/10.1007%2F978-3-319-48160-9_157]

-> They are talking about MARPOL 2020 becoming an advantage to RAIN (if enforced), even though it eliminates huge amount of GPC out of global market, as RAIN can use lower quality GPC due to its Sulfur scrubbing technology. My another wild guess is, if Ships start using sulfur scrubbing to meet the 0.5 emission standard, it can sell its sulfur scrubbing patented technology.
-> It is widely predicted that due to MARPOL 2020, the Sour crude price would fall a lot. This benefits RAIN, by bringing down raw material prices for RAIN’s petro chemical business.

CTP:
The Steel, aluminium, chemcal manufacturing is shifting to low cost manufacturing destinations like India, china etc from Europe & US. This is bad for their CTP business in long run.
More than Rain, Its European & US competitors like Koppers might be finding it hard to survive, which is a positive thing.

Cement:
With 42 Cr investment (Change of technology), they are expanding the capacity to 2.79 mtpa from 2.03 mtpa.
7MW waste heat recovery plant construction is started which will be entirely used in house leading to power savings.

Chemicals:
I think lot of companies market their chemical under a brand name. But these revenues should fall between pure commodity to pure retail. They sell their chemicals under brand names: CARBORES, NOVARES & PETRORES,

Advanced Material:
They brought in a 30 years experienced guy from BASF, who worked in Electrical battery segment to head the Advanced material division. This shows management intent to focus on this sunrise sector which might enjoy long +ve cycle.
They are investing $65mln for Hydrogenated white water resins. According to management, there is good demand for these due to environmental regulations.

Other factors:
->They have recently completed (not sure how recent) functional integration of its various geographies using SAP, making it easier to manage and be more efficient.
-> Though temporary in nature, the Chinese winter shutdowns & pollution reduction measures would benefit reduction CPC exported out of China to India, middle east etc. Even temporary gains like these benefit RAIN as it has debt.
-> Partial amount of Aluminium capacity shifting to US due to tariffs, would benefit Rain in small way
-> Supreme court ruling (hanging knife) & stock trade restrictions are keeping the price low (my belief; can’t underestimate the supreme court though; occasionally they deliver irrational judgments) providing good buying opportunity.

Seems good overall. The valuations at 5.5 PE (though peak earnings; but does not include big depreciation) are still low. If aluminium cycle lasts another 4 or 5 yrs (if more aluminium in Aluminium in electric vehicle theme plays out), RAIN may turn out to be very good investment.


(Shivasai) #418

Thanks for posting such a fantastic report… for a layman like me…

regards


(Prashant Negi) #419

Hi,
I doubt ship’s will start installing sulphur scrubbbing tech. At present US , Europe region ship’s are burning low sulphur. Ship’s prefer expensive low sulphur bunker than scrubbing tech.
Reason
The regulation for ship’s are very strict in ports with heavy fine including loss of freight to owners, if they fail to comply the regulation.
Owner don’t rely on technology, if an option for expensive oil is available.
I am in shipping so got some fair idea of owner’s thinking.
Rgds
Prashant


(GSrikan) #420

Discl: I have read only couple of article on MARPOL 2020 and have very very limited knowledge on sour & sweet crude dynamics.

Thanks for your opinion. I mentioned it precisely to invite expert opinions on MARPOL implications.

The author’s writing articles on MARPOL 2020 imply same opinion as you mentioned. Although, it is all market dynamics which will come into play. The sour crude price is kind of expected to go down as some of its demand would shift to gas, sweeter crude etc. When the price comes down significantly, people would find ways to use it (which has again the opposite effect of bringing the price back up to certain extant). One of the least likely scenario is, the ships would use the scrubber technology to use the cheap sour crude. I don’t know whether the scrubbing technology RAIN patented can be used for ships or not. Even though, it is least likely to happen, we can track this point of view, since its a massive opportunity, if ships adopt the technology use and RAIN’s technology can be used for this purpose.

Discl: Invested


(shreyas mudkavi) #421

Hello,
How did u calculate the intrinsic value to be 280 inr per share ?


(Rezang La) #422

ITAStompel.pdf (415.7 KB)

Presentation on the European coal tar scene, made earlier this month at the International Tar Association conference. Useful independent view on Rain’s CTP assets – especially it’s ability to offer a “full-package” of electrodes to the Aluminium industry.

Disc: Invested; views biased.


(Raj A A) #423

Rain Ind Q2 FY19 Shareholding.

Ace Investors have increased the stake from last Qtr. Mutual funds have decreased their holding

https://www.bseindia.com/corporates/shpPublicShareholder.aspx?scripcd=500339&qtrid=99.00&QtrName=September%202018


(gneop84) #424

Sorry , but i could not decipher who was increase the stake. Could you explicit state it ? Thanks for doing so.


(Growth_without Debt) #425

Cloning is very dangerous unless you know your limitation and wealth to absorb short-term shock. Investors who invested by cloning Monish Pabrai at @400 level, have lost significant wealth unless he/she has stomach to absorb this bear market shock

Any latest update on following news story -

Goa Carbon says if SC doesn’t lift pet coke ban, it would be ‘disastrous’ for company ( I think it is disastrous for retail investors who bought at pick)