Rain Industries - An oversold de-leveraging play

[amit.wilson]

I agree with @Srinidhi_Adiga. We are still in a wait-and-watch situation.

My brief notes from the Transcript of Management Presentation, 10-May-24.

Medium- to long-term prospects are promising:

1. Carbon segment: Q2-2024, signs of market stabilization >> potential return to normalized margins in the latter half of the year.

2. Announcement of a new, US green-aluminium smelter from CPC and CTP customer, Century Aluminum. First new smelter built in the US in 45 years.

3. Aluminium industry contributed about 38% of consolidated revenues. Expect this to return to its normal range of 45%-50% of revenue next quarter.

4. Increased import quota based on Commission for Air Quality Management (CAQM) ruling. Rain’s quota of Green Petroleum Coke (GPC) import raised from 1.4 to 1.9 million tons per annum.

But short term pain to continue:

• Foresee correction in certain key raw material prices, which will directly impact financial recovery.
• Quota implementation for GPC import at the SEZ plant is pending regulatory steps. Ramp-up expected once clarified.

I have no position in the stock at the moment. Am waiting for the results to catch up with expectations.

Am looking for holes in my understanding. So please feel free to critique. And as always, DYODR.

[mvc7799]

So in a quarter we may see 19 rs of eps for Fy25?

[Srinidhi_Adiga]

I guess their normal earning range will be aprox 250cr PAT and rs 4-5 Eps/ quarter…
benefit of incremental production and its margin advantage is what we need to wait and see.

RAIN anticipates
finally being able to ramp-up the Indian operations to higher capacities,
which would allow us to significantly improve the overall performance.
Part of the import relaxation was to increase the import quota of Green
Petroleum Coke or GPC from 1.4 million tons per annum to 1.9 million
tons per annum.

Such strong words of assurance is rare with rain management, hence we are hopeful they can achieve some good numbers in another 6 months, Once CAQM order is implemented.

[Rahul_Singh_Dhek]

Anyone here has any info or news about Rain Industries.

There was sudden surge in the volumes today(good sign)

I tried to look out for info (if any)

Came across this tweet from yesterday (8th of July)

Tweet

No official announcement from rain industries though.

Appreciate if anyone here as any info regarding this.

Lets see how long it holds 172 levels

[kushal_kapoor]

Hi Rahul, yes he’s right they have officially got the permission/Allocation for importing GPC as per CAQM order in their SEZ plant as well as DTA but regarding the CPC import (for blending and re-exporting to middle east smelters) has been further deferred as they will form a separate committee to reexamine the decision taken by CAQM. Attaching two documents which I came across, let me know what’s your understanding based on these 2 documents (kindly check the date of meeting to understand in a better way).

120.9 (recent/latest meeting on 5th or 6th of July)

DOC-20240602-WA0002.pdf (3.0 MB)

[kushal_kapoor]

@Srinidhi_Adiga Any thoughts on this?

[Srinidhi_Adiga]

thanks for this update…
Its good that immediate relief is granted, but we need to wait for management commentary on how exactly this blending CPC delay will impact, However overall its positive development in this segment for Rain.
I’m not sure why Pabrai exited this stock even while this relief was given by court, But it makes sense to wait for one more year at least in this stock to see the benefits of US rates to be decrease and operational benefits of this increased volume.

[Avigyan_Mitra]

Rain Carbon is investing in a new innovation center in Canada to focus on developing energy storage materials. This strategic move positions the company as a key player in the growing clean energy sector.

[kushal_kapoor]

Highlights of the few positive business updates which will drive their sustainable growth in future, largely the negatives are bottomed out. We Might see positive developments in financials as well starting from first quarter next year from Q1 2025. The latest business update regarding their focus on developing Energy Storage Materials can work as a shift from negative sentiments to positive side for this company. Excited to see how it pans out.

[rahul_janoria]

[navneetsinghvi]

seems a good thing. but can you elaborate?

[thirupumpum]

Looks like the SEZ also got approval:

https://sezindia.gov.in/sites/default/files/notice_board/Scan0583.pdf

Another is from Pg 20 of: https://sezindia.gov.in/sites/default/files/notice_board/Agenda%20of%20122nd%20BoA%20for%20SEZs.pdf - has more details.

[ramesh_vishwa]

86713c55-bfaf-4f4a-a10b-7d88f6540d47.pdf

[nishantsinha15]

Aluminum companies doing well is a big positive for companies like Rain with a lag effect. The cycle might just be turning in favour. And these cyclicals anyways need to be bought in during the most pessimistic times.

Al profitable → companies restart their mills/increase production to reap in profits → Demand for CPC etc shoots up → Margin improvement + Sales improvement for Rain.

Disclosure : Biased. Almost a 15% position in Rain which I plan to take up to 20% in this year.

[mvc7799]

will this benifit Rain industries?
China cancels export tax rebates for aluminium

Nalco, Hindalco, Vedanta shares rise up to 9% as China cancels export tax...

[nishantsinha15]

Yes. If I remember correctly, in one of the concalls they had mentioned that they don’t supply for Aluminium industries in China.
This news means producers outside China will benefit. This has a positive effect on Rain.

[kushal_kapoor]

Rain Industries Key Triggers

US business is expected to key benefit from Make in USA & anti China Rhetoric on EVs .

CTP margins to improve going forward & has potential to reach historic levels in next few quarters

Spreads are working in positive manner

Inventories losses should come down substantially.

Company has some strategic advantage in Tar distillation business which will help them to gain market share with higher margins.

Graphite prices has recovered & should be beneficial (Latest news from China that they have stopped exporting Flake Graphite & Synthetic Graphite which is widely used in EV & lithium battery materials, Synthetic Graphite is manufactured by the primary raw materials for synthetic graphite are:

• Carbon carrier: A pure carbon carrier, such as coal from crude oil
• Pitch: A binder, such as coal tar pitch or petroleum pitch (Rain industries has big capacity for CTP to supply in North America where Graphite manufactures are located for America) this can be a big trigger for Rain Industries.
• CPC: CPC is used in many industries, including the production of synthetic graphite, aluminum anodes, and graphite electrodes (Rain will be big beneficiary).

since last quarter, Aluminum prices have recovered & seeing good traction due to recent move from China to cut export rebate for Aluminum this could trigger more manufacturing in America which will eventually create more demand for Rain industries products both CPC & CTP

Energy storage business in Canada is BIG opportunity. Rain industries Advanced material division will be big beneficiary as America will look to move for alternate from China (as they have curbed exports of important raw materials required for EV battery & Energy storage)

The primary goal of the R&D centre is to test and develop RAIN’s LIONCOAT® thermoplastic precursor products, which improve the electrochemical performance of battery anode materials.

Additionally, the facility will work on creating and commercializing new energy storage materials, including those made from natural and synthetic graphite and silicon-carbon composites for lithium-ion batteries.

Disc: invested at lower levels & can be biased.

[Amit_Agarwal1]

Shareholding pattern update for Rain Industries.

General Public(retail Investors) share in total shareholding reduced by about 0.63% which has been absorbed by ICICI mutual fund and “Unknown” FIIs. The No. of retail shareholders is now at 6 qtr low,indicating that many people have given up on this stock. In my opinion one of the 3 options can lead to possible rerating of the stock- Debt reduction/IPO of Rain Carbon in USA/Improvemnet in profitability and not posting any quarterly loss in Q4.

[Rahul_Singh_Dhek]

Curious case of Rain Industries !
What am I doing ?

I am a retail investor with recurring income every month.
I am loving the way RainInd price is trading.
The longer it stays in the consolidation zone the more I get to accumulate and technically the breakout gonna be more berserk.

Bought it every-time it fell to 150 zone.
Buying it every month now for last few months
(Previously such systematic buying has worked for me for ITC and Laurus labs, might or might not work with Rain. No recommendation or advice here )

Now the important part , how is the business gonna turn in coming quarters , when will Rain start showing profits ?

Taking about my expectations about Q4 numbers

Rain continues to focus on bringing down the debt , another 50$ M was planned to be paid by 1 April 2025.

I am expecting Rain to report losses again.

Though cement sector is posting good numbers but Rain’s cement sector might not post similar results, this was mentioned by them after Q3 results.

CPC prices are trending higher during the Jan month in China, this will reflect in March numbers

CPC prices were a bit higher for Dec quarter as well compared to Sep quarter. This might or might/might not reflect in Q4 numbers.

All in all, expect usual and normal quarter. No surprises there.

Now what can work for Rain in next couple of years

Yesterday’s announcement about setting up facility in AP SEZ zone is a strategic move considering its location.

AP is going to build oil refinery , Rain might get raw material at cheaper rates.
Rain can also cater to the demands of all the upcoming new industries there.
JSW was looking for new aluminium plant in Andhra(not sure if it’s final)
Rain’s location near the port helps in less shipping cost and less transport cost.

Indian plant should start working in full capacity sooner.

Rain is starting to develop EV materials so ready to cater this industry as well.

Institutions are buying.

But
Rupee is declining, Rain might have to pay more in debt(correct me if I am wrong)
How do rain generate more cash and pay its debts?

Will Rain do IPO for US subsidiary?
Will Rain sell the cement business (tailwinds in the cement sector , can sell it in good valuations)
Can we see margin expansions in upcoming quarter ? (And add to more cash?)

I dont know much, I am not following markets actively , I havent read about Rain much recently .
I will be active in the market post March 3rd week, so might have better inputs then.

This post is bit naive, half baked, written in rush.
Apologies for that.

I will definitely try to add more concrete and price datasets from next time.

Rest I believe in buying stocks and businesses that no one wants to buy(sort of contra bet)
There are numerous pieces of Rain scattered here and there , no one knows when these pieces will come together and also no one knows how big monsters can they create if they meet someday

Happy investing

[nishantsinha15]

I was discussing various aspects of the tarriff question with chatGPT and Claude. Here is some of the conclusion.
tldr : Tarriffs should be net positive atleast in the short to medium term for the company.

I understand your request and will approach this analysis with a more direct and rational lens. The aim is to clearly assess the impact of the tariffs on Rain Industries from a purely business-centric and economic perspective.

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Key Assumption:

Rain Industries primarily supplies calcined petroleum coke (CPC) and coal tar pitch (CTP), both of which are critical inputs in the aluminum and steel industries. These industries are cyclical, and tariffs can shift demand dynamics, pricing power, and cost structures in ways that could actually benefit commodity producers like Rain Industries in certain circumstances.

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Immediate Impact (0-3 months)

1. Short-term Pricing Power Boost for U.S. Steel and Aluminum Producers:

   • The introduction of new 25% tariffs on top of existing steel and aluminum tariffs creates a protective shield for U.S. domestic steel and aluminum producers. This effectively reduces the competition from cheaper imports. Domestic producers in the U.S. may enjoy higher pricing power, allowing them to raise prices with reduced foreign competition.
   • As these domestic producers (Rain’s key customers) start benefiting from the price floor created by tariffs, their profit margins could temporarily improve. This can boost short-term demand for CPC and CTP as the production of aluminum and steel increases domestically. The marginal boost in demand from these protected industries should positively impact Rain Industries in the immediate term.

2. Stockpiling and Short-Term Demand Surge:

   • U.S. aluminum and steel producers may engage in stockpiling raw materials like CPC and CTP ahead of full tariff implementation or retaliatory measures by other countries. This creates a temporary surge in demand for Rain’s products, as domestic smelters and steelmakers may look to secure raw materials at pre-tariff prices.
   • This could lead to higher sales volume for Rain Industries in the immediate term, as orders increase before the full effect of tariffs is felt.

3. Higher Margins on Domestic Sales:

   • Rain could benefit from increased pricing power in the U.S. market as demand from steel and aluminum producers grows, allowing them to charge higher prices. Even though tariffs may cause broader cost increases, U.S. producers will pass these costs down the supply chain, meaning Rain may not feel much pressure on margins in the short term.

   Immediate Conclusion:
   In the very short term, Rain Industries benefits from an uptick in demand and possibly increased prices from U.S. steel and aluminum producers due to their increased competitiveness against foreign suppliers, thus improving sales volume and margins.

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Short-Term Impact (3-6 months)

1. Continued Uplift in Demand for CPC and CTP:

   • As domestic steel and aluminum production in the U.S. ramps up to meet the demand left by reduced imports, the demand for CPC and CTP should remain elevated. Tariffs generally create a more favorable environment for domestic production, which bodes well for Rain as its U.S. clients benefit from reduced foreign competition.
   • The downstream sectors that depend on U.S.-produced steel and aluminum (e.g., construction, automotive) may experience price increases, but demand should remain stable for a period before any negative effects (like demand destruction) take hold. Rain will ride this wave of increased production capacity utilization.

2. Pricing Stability in Raw Materials:

   • The global supply of green petroleum coke (GPC) is not immediately affected by tariffs on steel and aluminum, and Rain’s input costs should remain relatively stable. Therefore, any price increase in Rain’s products (CPC/CTP) will directly improve margins.
   • Tariffs also make domestic production of CPC and CTP more attractive, as imported alternatives (if any) face additional duties, keeping Rain’s pricing competitive.

3. Export Opportunities to Other Regions:

   • The global aluminum and steel trade could shift, and non-U.S. regions like China, Europe, and India may see increased production to supply markets traditionally catered to by U.S. producers. Rain Industries, with its global footprint, could explore increasing its supply to these regions, mitigating any negative effects from a potential U.S. demand plateau.

   Short-Term Conclusion:
   Over this period, Rain Industries continues to benefit from the favorable conditions for U.S. aluminum and steel production. Its products remain in high demand, both domestically and internationally, while margins improve. The competitive protection offered by tariffs boosts its U.S. customers, who can raise production and pass costs downstream.

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Medium-Term Impact (6-12 months)

1. Demand Saturation or Plateau:

   • After the initial surge in demand and price adjustments, domestic steel and aluminum producers may begin to reach a production plateau. As tariffs take hold, the market could start to see diminishing returns on the benefits for U.S. producers, especially if end-user industries (construction, automotive) face demand destruction due to higher material prices. This may cause a slight reduction in demand for CPC and CTP from U.S. producers.

2. Global Shifts in Demand and Trade Diversion:

   • While U.S. steel and aluminum industries stabilize, other countries (e.g., China, India) will have ramped up their own production to meet global demand. Rain can capitalize on export opportunities to these markets, effectively mitigating any slowdown in U.S. demand. Global demand for aluminum and steel should still remain solid, especially with large infrastructure projects in countries like China and India, which will continue to need CPC and CTP.

3. Environmental Regulations and Industry Adjustments:

   • U.S. steel and aluminum producers may eventually face environmental regulations and emission constraints, especially with increasing scrutiny on carbon-based materials. Rain may need to adapt to more stringent environmental standards, which could raise compliance costs or shift demand toward greener alternatives. However, traditional producers will still rely on CPC and CTP for some time, giving Rain a medium-term window to capitalize.

4. Tariff Retaliation and Trade Wars:

   • Should countries retaliate by imposing tariffs on U.S. goods (e.g., EU, China), the global trade environment could suffer, reducing overall economic growth and thus slowing the demand for industrial commodities like aluminum and steel. This would eventually trickle down to Rain, with lower overall demand for its carbon products. But in the medium term, other regions unaffected by the trade war could compensate for the decline in U.S. demand.

   Medium-Term Conclusion:
   Rain Industries could see demand plateau in the U.S. after the initial benefits of tariffs wear off, but global demand and trade rebalancing should support sales, especially in emerging markets. This period will test Rain’s ability to diversify customer base while maintaining its competitive position in supplying CPC and CTP.

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Long-Term Impact (12 months and beyond)

1. U.S. Production Adjustments:

   • Over time, domestic steel and aluminum producers will likely fully adjust to the new trade environment, with potential market saturation. This may lead to cost-cutting measures or efficiency improvements. Rain’s sales to these industries could stabilize at lower levels than in the peak post-tariff period, but cyclical demand will return with future infrastructure investments and economic recoveries.

2. Globalization and Supply Chain Shifts:

   • Global markets may adjust to tariff-induced changes, with some regions emerging as new production hubs for aluminum and steel. Rain’s ability to pivot toward these regions will determine its long-term growth. Countries like China and India, with large infrastructure demands, will likely drive the bulk of future growth.

3. Technological and Environmental Shifts:

   • In the longer term, green initiatives and technological advancements may gradually reduce reliance on carbon-based inputs like CPC and CTP, especially as industries transition to cleaner energy sources. Rain will need to invest in innovation and adapt its product portfolio to include greener alternatives.

   Long-Term Conclusion:
   In the long run, Rain Industries will experience the cyclical nature of its industry. The tariff-induced benefits will diminish, but global opportunities and diversified demand will sustain growth. Adapting to new environmental standards and innovating will be key to maintaining relevance in the evolving industrial landscape.

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Final Rational Analysis:

From an extremely rational viewpoint, tariffs benefit Rain Industries in the short and medium term. The immediate protectionist measures create a favorable environment for U.S. producers, which are Rain’s key customers, driving demand for CPC and CTP. In the longer term, global trade shifts and a pivot to new markets will be crucial for sustaining growth, with cyclical demand ensuring that Rain remains a player in the industry.