Rain Industries - An oversold de-leveraging play


(Raj A A) #426

Shareholding info is very important to ascertain the flow of smart money. IMHO, monitoring the investing styles of ace investors incl our VP stalwarts will enable you to expand your horizon to look for ideas which suits your investment style. If you see the past numbers (past is not an indicator for the future ) their mkt cap is less than two times of their EBIDTA , EV to EBIDTA ratio is less than 4.5.

I feel it is compelling to add at this level notwithstanding the bear market and market meltdown.

Discl: I am invested and look to add and hence my view is biased.


(sarmams) #427

Hearing is on Oct 9. While, we can not say what could be the outcome of judgement, we can clearly layout essence of the case. Petcoke is used as an alternate source of fuel (substituting coal) by companies, which is the real source of pollution. And precisely the reason for SC imposing a ban and above media articles.
Companies like Rain, Goa Carbon, Graphite, HEG etc use petcoke as feed stock and not as a fuel. Infact, Rain utilizes advance technology/processes which enables it to use low grade petcoke and does not cause any serious emissions.
And lastly, SC /GoI had already given clearance to GI/HEG to continue to use petcoke as feed stock. Rain uses petcoke to manufacture CPC, which inturn is used by Aluminum industry. So, on 9 Oct, a common hearing to allow companies like Rain. Goa and companies in steel/Aluminium sector to continue to use petcoke as feed stock will be held. Per my understanding and deducing from the previous verdicts, I expect a positive response. I may be wrong.
Disc- invested from lower levels.


(amolk) #428

https://www.spglobal.com/platts/en/market-insights/latest-news/metals/100718-brazils-alunorte-prepares-to-return-alumina-runs-to-50-capacity


(amolk) #429

Availability of Alumina still an issue. It is up 60% in a year. Limited supply is choking the aluminum production.
Issues…

  1. PET coke ban - hopefully will be lifted on 9th
  2. Brazil alumina production cut down
  3. Russell sanction
  4. Alcoa strike - now called off

(Raj A A) #430

SC allows only import of 1.4 MT/year of PET coke for calcining Ind… Would it be sufficient for all the calciners in India? We have to wait for Industry reaction.

#JUSTNOW | SC limits petcoke import by aluminium industry. SC says calciners can import up to 1.4 mn tn/year petcoke: Agencies pic.twitter.com/BGxdcfbSSm

— ET NOW (@ETNOWlive) October 9, 2018

(ashit) #431

As per Annual report Rain industry in India has 1 Mmt bending capacity and 0.3 MT vertical shafts facilities is coming up …
So probably limit of1.4MMT/year is sufficient at present
Please correct me if I am Wrong
Thanks
Ashit


(sumitg04) #432

1.4MMT/year is for the entire calciner industry and not just for RAIN


(Raj A A) #433

As @sumitg04 stated, it is for entire calcine industry. We have to await the briefing from Goa carbon and Rain vis-a-vis their requirement and shortfall and how they are going to manage the shortfall, if any. Keeping fingers crossed.


(sarmams) #434

Have written to the company seeking a clarification on the order. They reverted back saying that, the Court order is yet to be released. They would furnish their views only after reviewing the order. I think, they may release a formal clarification note to the exchanges once they receive the order.


(s) #435

I believe it has debt which needs refinancing. Any body is aware if it is $ denominated ir INR debt. With US rate hardening and INR depreciation… not sure of impact


(ajay81) #436

the debt doesnt needs refinancing till 2024. they had refinanced it last year. Debt is in USD and Euro but please note that their income is also in USA / Europe as plants are located in these countries only


(Rezang La) #437

A few points to note re: the debt…

  1. The cement vertical is debt free (or almost so) – no INR debt
  2. The debt has been taken by Rain Carbon Inc. (the integrated carbon + advanced materials business) and its subsidiaries – this debt is in USD and EUR, and matched against cash flows in the respective currencies. Most of the RCI assets are in Europe and North America
  3. Much of the debt (~ 900 million in USD terms) is due Jan 2025 or later
  4. The average interest rate is 5.3%
  5. The company has the option of prepaying the debt, albeit with a small premium
  6. A much smaller Rain Calcining (as the company was known then) took on more than half-a-billion USD in debt to finance the CII Carbon LBO in 2007
  7. Rain Commodities (as the company was known in 2012) borrowed more than half-a-billion EUR to fund the Rutgers purchase.
  8. The CFO has repeatedly emphasized the “tax shield” aspect of the debt
  9. The company has been hinting at a US listing for almost a decade now – in case they need the cash

My two cents…

IMHO, all this demonstrates two things – they know how to raise / handle / pay down inordinate amounts of debt, in different currencies / geographies, with varying terms, and they would prefer not to dilute equity.

Views requested.

Disc: Invested; views biased.


(Raj A A) #438

Some more light on the Pet coke requirement by the Calcining Industry. Based on this report, which gives the total domestic requirement , SC has allowed the total requirement which is a fair deal for Rain and Goa Carbon. Market has correctly assessed and both the scrips are locked in UC.


(sarmams) #439

Attached article by a Research Analyst gives some clarity on pet coke ban issue. Final verdict, when released by the court, will provide clear picture about how 1.4 MT will be divided among players and what would be the procedure, if a player needs to import higher pet coke (due to capacity expansion etc).


(amolk) #440

Source - Rain-industries release note


(amolk) #441

As per the release notes, 3rd and 4th qtr will be negatively impacted


(ishikaghose) #442

Thank you very much for posting this. I was looking for the release and the court order.


(GSrikan) #443

Some insights on donestic CPC industry.

  1. According to the article, supreme Court put a condition that flue gas desulphurization has be installed. Rain has it installed in US. Article says it is installed in Vizag too.
  2. Domestic GPC available is low grade

Disc: invested


(Rajneesh Sharma) #444

(radireddy) #445

I am sharing a year old, very good analysis on Rain Industries by motilaloswal. It provides a very good, deep insights into rain business.

https://www.motilaloswal.com/site/rreports/HTML/636452147461520802/index.htm