From the Q4 2023 concall:
Although we anticipate another quarter or possibly two of
challenges, we are optimistic about returning to our normal earnings range
soon.
(Emphasis mine)
The last time they took advantage of similar down curve they posted rs19 eps… this time they are operationally in better position… lets see 2 more quarters…
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In simple terms you will have 100cr extra being shelled out to interest expenses., ideally they should do 250cr PAT in normal seasons now it may be jus 150cr which means around rs 3 eps.
But sez plant and other operating efficiency which they said will kick in… may boost profits to unseen levels …
And any interest rate reduction in coming year in US may give added boost… hence I think its safe bet from here since it seems worst is behind…
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The second problem is the raw material cost which is hurting the income margin significenly respect to previous years:
Always the price difference is passed on to customers with one or two quarters lag effect., that is what is happening now., when the prices goes up from here which should since it has bottomed out., they will reap the benefits of inventory…they easily maintain 14% plus margin always… check last 10 years data
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As an update on the progress of our ongoing R&D project focused on
Anhydrous Carbon Pellets or ACP, we would like to inform that this
initiative is strategically aimed at meeting the long-term demand for RPC,
essential for manufacturing the ever-increasing demand for CPC from our
valued Aluminium Smelters.
We have received promising feedback from couple of North American
Aluminium Smelters, which has fueled our determination to enhance the
competitiveness of manufacturing ACP. Our efforts are concentrated on
optimizing the conversion cost while utilizing marginal grade RPC for ACP
production, which is essentially high dense raw material. Notably, the
utilization of ACP will not only bolster cost-efficiency but also contribute to
a significant reduction in CO2 emissions, aligning with the sustainability
goals of our Aluminium Smelters.
Moreover, our exploration extends beyond mere substitution. We are
actively investigating diverse applications for ACP and are diligently
pursuing patent protection to safeguard our intellectual property rights.
Once the operations of the ACP Plant in the USA are stabilized, we will
seamlessly transition to advancing the ACP Project in India.
It is important to emphasize that while ACP does not directly contribute to
incremental revenues, its adoption as a substitute for RPC or in CPC
manufacturing processes for use by the Aluminium Smelters underscores
its strategic importance. ACP represents a tangible opportunity for our
partners to not only optimize costs but also demonstrate a commitment to
environmental stewardship. ACP is a transformative journey shaping a
future that is both economically viable and environmentally sustainable.
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Notes from the Transcript of Management Commentary on Annual Audited Financial Results
Margins
- Cyclical business: Product and raw material prices fluctuate based on demand.
- Target margin: Aim for $70-90/ton profit regardless of pricing cycle.
- Normalized earnings: This margin range generates $60-80 million/quarter.
- Post-Covid (2021-2022): Strong demand led to higher than usual margins due to rising product prices.
- Normalized margins: Sustained earnings above $70-90/ton may not be typical.
2023 review
- H1 2023: Significant market downturn due to:
- Resurgence of Chinese exports
- Chinese economic slowdown
- Q2 2023: Gradual price retreat with mid-year stabilization
- Summer 2023: Further price decline driven by:
- Reduced raw material costs
- Increased Chinese exports again
- Current situation: Market prices have plunged:
- Previous highs: $900 - $1400/ton
- Current lows: $400 - $700/ton
- Price decline: Descent has been prolonged and erratic, unlike the market’s gradual ascent.
- Impact: Downturn has hindered ability to restore customary margins.
Outlook
- Positive outlook: Potential for reaching market bottom in Q1 and returning to conventional earnings in H1.
- Challenge: Working through overpriced inventories to achieve this goal.
- Target metric: View business in terms of unit margin rather than percentage margin.
- Whether product is priced at $300 or $1000 per ton, focus is on maintaining normal per ton margin.
- High-value inventory progress: Made significant progress in using up high-value stock from previous year.
- Inventory depletion: Likely to deplete remaining stock by Q1 end.
- Profitability outlook: Positioned for profitability across most products by Q2.
- Challenge: Restore traditional managed margins during Q2.
External challenges
- Supply increase: Imminent capacity additions (10-15%) may disrupt supply-demand balance.
- Long-term outlook: Gradual absorption expected due to:
- Aluminium capacity expansions in India and the Middle East.
- Aligned expansion of CPC and CTP with new customers.
- Expectation: More balanced market in the long term.
CAQM relief and impact
(Commission for Air Quality Management)
- CAQM relief for Calciners: Petroleum coke import restrictions relaxed.
- Increased import limit: Overall limit for Calciners raised from 1.40 to 1.90 million tons per annum.
- Benefits all Calciners in India.
- CAQM increased CPC import limit for Aluminium Smelters:
- From 0.5 million tons to 0.8 million tons (from FY 2025-26 onwards).
- Aligns with India’s increased primary aluminium production.
- Benefit:
- Vertical Shaft Calciner in SEZ can import both RPC and CPC for internal use.
- This helps increase CPC plant capacity utilization.
- Capacity utilization improvement plan:
- Discussions with customers for increased supplies.
- Discussions with suppliers for sourcing more raw materials.
- Logistical planning for higher volume movement.
- Expected outcome:
- Gradual improvement in capacity utilization over the next few quarters.
- Lower per-ton fixed costs due to increased capacity utilization.
- Current CPC plant utilization: 55-60%.
- SEZ plant kiln status:
- 4 out of 6 kilns operating at low capacity.
- 2 remaining kilns have not started due to raw material shortage.
- Action plan:
- Start operations at the remaining 2 kilns in 3-4 months.
- Make logistical arrangements for increased production volume.
Reason for poor performance vis-a-vis competition
- High inventory strategy: High inventory of raw materials in India to:
- Safeguard against supply disruptions and facility shutdowns.
- Ensure uninterrupted operations and meet customer quality requirements.
- Drawback:
- Increased costs due to falling raw material prices impacting high inventory value.
- Operational challenges related to managing large inventory volumes.
- Moving forward, committed to enhancing operational efficiency
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I bought back the sold quantity today at 179. Since CAQM ruling, FOMO is created in me for this stock, though I know it will take 3-4quarters for improved results as told in conference call.
Thats good, i think it will stay at this price level for some quarter. So, it a good point to start accumulate.
Disclaimer - Very closely tracking & not invested
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Ganesh Nicely written, the gist of the working of RIL
One important thing I came across in annual report published today:
In 2023, we achieved a significant milestone in our Carbon segment by completing industrial-scale aluminium smelter trials of our proprietary Anhydrous Carbon Pellets (ACP). These trials involved a shipment comprising 70% CPC and
30% ACP, with the resulting anodes successfully utilised in electrolysis.
We are awaiting final feedback from the trial, quality testing results. Additionally,
we devoted significant effort towards investigating ACP production flowsheet changes to increase production rates. While the upgrade project is currently on
hold due to market challenges, we remain optimistic that the identified optimisations will enable a threefold increase in ACP production rates in the future
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Notes from the Rain Annual Report FY 2023.
- Largest producer of coal tar pitch (CTP) in the world
- 2nd largest producer of calcined petroleum coke (CPC) in the world
- 16 production facilities in seven countries
Calcined petroleum coke (CPC)
- Raw material: Green petroleum coke (GPC) is a byproduct of crude oil refining.
- Mfg process: CPC is produced using rotary-kiln and vertical-shaft technologies in a high- temperature process called calcining, which removes moisture and volatile matter from GPC.
- Use: CPC serves as a crucial raw material for anodes used in primary aluminium production as well as in the steel and titanium dioxide industries.
Coal tar pitch (CTP)
- Raw material: Coal tar is a byproduct of metallurgical coke used in the iron and steel industries.
- Mfg process: CTP is produced by distilling of coal tar, which separates the components based on different boiling points.
- Use: CTP is a critical raw material for anodes used by the aluminium industry, as well as in the graphite and refractory industries.
Cement
- Brand Priya Cement
- Started selling loose cement
Vice Chairman’s statement
- RAIN’s business model converts byproducts into essential raw materials.
- Historically, finished goods prices lead raw material prices, allowing for higher margins during market rises.
- And lower margins seen in falling markets.
- But keeping our margins within a general range as the markets move through cycles.
- Exceptionally long market rise experienced during the 18-month post-COVID (late 2021 to early 2023)
- Led to new market highs and unsustainably strong 2022 performance.
- 2023 saw significant margin decline due to slow drop in raw material prices following a sharper finished product price fall.
- Stabilization of downturn may take over 12 months which is longer than usual.
- RAIN historically faces challenges after strong years.
- Current downturn expected to last 1-2 more quarters.
- Price stabilization for both raw materials and finished goods anticipated.
- Significant operational improvements anticipated across segments following price stabilization.
- RAIN’s India calcination plants previously operated at low capacity due to GPC import restrictions.
- Recent relaxation of GPC and CPC imports by CAQM (Commission for Air Quality Management) allows for increased capacity utilization.
- Expects higher capacity to significantly improve overall performance.
- Increasing demand for CPC in and around India.
Outlook:
-
Carbon Segment:
- Increased capacity utilization due to relaxed GPC import restrictions.
- Positive outlook due to rising demand for primary aluminum in:
- Infrastructure development (emerging economies)
- Lightweight vehicle manufacturing
- Electric vehicles & renewable energy
-
CPC Outlook
- 85% CPC sales comes from primary aluminium smelters
- Despite short-term challenges, the long-term outlook for aluminium remains optimistic.
- Primary aluminium smelting remains the key driver of the world’s CPC and CTP sales.
- Smelter production reached record levels in 2023 despite a challenging economic environment.
- CPC products serve the titanium dioxide (TiO2) industry, primarily used in paints.
- TiO2-related CPC volumes faced challenges due to slowing construction activity, growth is likely as economic outlooks improve.
-
Advanced Materials Segment:
- Economic recovery expected across end-user industries.
- Growing demand for bio-based & eco-friendly product lines.
- Promising future growth in battery anode materials.
-
Cement Segment:
- Cement demand rebounded strongly in 2023, growing by 7 - 8% on a per annum
- Rising infrastructure development & government initiatives.
- Expected Indian cement demand increase to 525 MNTPA in 5 years.
Capacity utilisation
- Carbon: 65%
- Advanced Materials: 75%
- Cement: 80%
Misc
- No planned major capex projects for 2024
- Cash from ops: Rs 3,063 crore
- Rs 1,391 cr of cash freed from inventory reduction
- Cash up from Rs 1,167 cr last year to Rs 1,405 cr
- Trading below book value. But it always has.
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Pabrai has exited Rain Industries completely in March quarter, this time no notification from the co.
An expected move from Pabrai.
Good thing is most of the selling got consumed without much(any) downside on the share price.
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Pabrai India investments did not perform so well, he has exited edelweiss and major chunk of Sunteck also
He is interested in Metallurgical Coal which is needed for steel and iron which are needed to build cities & hence he has invested in American Companies…
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Good commentary from the management today, few highlights
On recent relaxation of those import restrictions:
“RAIN anticipates finally being able to ramp-up the
Indian operations to higher capacities, which would allow us to significantly improve the overall performance”
Regarding the import of GPC and CPC for RAIN’s Special Economic Zone plant:
“cannot begin its ramp-up until that clarity is given. We anticipate those regulations to be issued soon”
On aluminum, its role , demand and growth:
“Trends such as the shift towards electric vehicles, lightweighting in automotive and aerospace industries, and the growth of renewable energy infrastructure are expected to drive demand for primary aluminium in the coming year”
On Advanced material segment:
“In response to these trends, RAIN’s R&D teams continued in 2023 to work on several new and innovative products and materials in the battery space for future launch.”
“Due to an improvement in demand for HHCR,
coupled with our regional customers’ preference to procure larger quantities of HHCR locally, we expect to reach 50% capacity utilization at our German HHCR plant by the end of 2024.”
On reducing Debt:
“The cash flow from our operations, including the release of working capital which accompanies a fail in commodity prices, would be applied to reduce our debt.”
On normalizing fuel and energy cost:
“By combining our Cement segment’s waste-heat power production with our now-further-expanded solar electricity generation, RAIN is making great strides in producing cement with an ever-lower carbon footprint, by using 39% of electricity consumed in manufacturing of Cement from Green
energy sources.”
Further
“We anticipate a positive shift in demand for RAIN products starting in the latter half of 2024”
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Any further SEZ delay will be concerning… time is ticking, as Sanvira coming up with huge plant in Oman. additional to already commissioned plant.
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Eagerly waiting to read your comments on quarterly results @Srinidhi_Adiga @Rahul_Singh_Dhek and @amit.wilson
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Need to wait for another quarter, no much insights from this results…
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