good point, in the carbon business or for that matter in B2B it is normal, though, I must admit it is on slightly higher side. Also, biggest client is Alcoa and I dont think they will not pay…
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This is a margin expansion and still lot of scope to increase it further. I would be concerned if the volume does not improve especially when they are at the peak of demand cycle
Even with a conservative net profit of 1100 crores, EPS comes around 32 Rs
DEC 17 results: My Intrepretation… OPM contracted by 84 basis points during Q-O -Q 2016, and current OPM contracted by 184 basis points during Q-O-Q 2017.
Again PBT increased from 166 to 171 Cr (Q-O-Q 2016) .But PBT decreased from 419 to 322 Cr (Q-O-Q 2017)
IMHO this implies there is decelaration in the growth comparing 2016 and 2017 . There is pressure on margin. Experts may comment on this.
This is because of an exceptional item of Rs. 113 crores which corresponds to an early repayment premium and deferred finance cost. If not for that payment the PBT would have been Rs. 434 crores in Q4FY17 vs Rs. 419 crores in Q4FY16.
I think this might be because of some/all of the following:
- Decreased CPC volumes due to delayed shipments. Since the margins on CPC have increased, if not for the delayed shipments, the company might have been able to post higher revenue numbers.
- Decline in Chemicals Trading due to the Company’s decision to reduce low margin trading operations.
Source: rain pres.pdf (1.3 MB)
Considering the reopening of several Aluminium producers and reduction in interest cost going forward, I think the company is in a strong position for 2018.
Disclosure: invested at lower levels
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Very good Q4 EPS 9.13 despite the exceptional item of -113.3cr. But that exceptional item was slightly nullified by one-time impact of US and Belgium tax reforms (83cr). So, that was like, exceptional net loss of 30cr. If we added that 30cr to the bottomline, Q4 EPS would be 10. That’s pretty good EPS growth QOQ (against 7.3rs in Q3).
Management has guided that from this quarter, company will save around 40cr in the interest they pay. That’s additional EPS 1.2rs per quarter. Also, company will save a lot in tax because of the tax cuts in the US and Belgium. That will add additional 0.5 to 1rs EPS per quarter. Just by these two factors, company will generate additional EPS 2rs from this quarter onwards.
So my guess is that from this quarter, EPS should be at least 11. And in four quarters, TTM EPS should be 40 to 45. And with debt reduction and additional CPC capacity coming online in India from 2019, rerating should be on the cards. Future growth prospects intact.
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Thank you for highlighting the points I missed to take note.
Interesting thing to note is that HSCL’s margins are still way ahead of Rain Industries. For Dec quarter, HSCL’s OPM is 24% vs 18% of Rain Inds (as per Screener)
That can be explained by the better product mix that Himadri has. CTP is more profitable than CPC, and they’re the largest CTP player in India. They have also higher carbon black and specialty carbon (including anodes for Li-Ion batteries) share than Rain.
In previous concall, Rain management has indicated they want to get into advanced carbon in a bigger way, but there’s no concrete plans afaik.
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Revised target for Rain Post result.
IDBI Capital Target Price 522
Thanks a lot for sharing the IDBI report. I have three issues
1 I am not clear if the target of Rs 522 is for CY 18 or 19.
2 In Spite of all the good things being talked, why the mutual funds have
been constantly reducing their stake in this stock - Source BSE
3 In spite of great Q4 result and optimistic future, why the selling is so
heavy that it is dragging the stock price down.
Yes. I am being devil’s advocate - and therefore looking for these answers.
Disc : Invested and have a serious interest in the stock.
One more thing which I noticed in the report. The tax percentage has come down 26.9% in CY17 due to US & Belgium tax reforms, However the report still considers 33% in CY18&19. I feel the EPS will further go up due to these tax reforms.
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In view of the hike in tariffs for steel and aluminum by the trump government,what kind of impacts does one foresee for rain industries?
May be the next of growth for Aluminium which in term should drive the growth for Rain products
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My View:
Since Rain have multiple facilities in the US, this hike in tariffs IF Implemented can be big tailwind and will help rain in optimizing the cost which will lead to better cashflows. Also as this is coming at the time when all major US Aluminum manufactures have done the capex and ready for realization. which means more demand for Rain products.
Disc: I am invested and my views may be biased
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While there are multiple drivers to growth, what would be a fair PE multiple- considering that it is a commodity stock.
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Just a generic question: I see that stock price went from 200+ to 400+ just based on recommendations of brokerage reports. Now, when the sentiment is down after the results, I see again the reports are giving good coverage. My question is why can’t these brokerages identify these stocks when price was 50-200?
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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)
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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
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