Rain Industries Limited (RAIN) is one of the world’s leading producers of calcined petroleum coke, coal tar pitch and other high-quality basic and specialty chemicals. The group continues to grow through capacity expansions, and mergers and acquisitions across the world. RAIN operates in three key business verticals: carbon, chemicals and cement. The latest results from Rain Industries smells a turnaround story. Here are the details we collated from various public forums to strengthen our case.

Rain Industries has below 3 major segments and this is how it performed in last quarter

Carbon sales volumes during Q4 CY20 were 641 thousand metric tonnes, a decrease of 4.2% compared to 669 thousand metric tonnes in Q4 CY19. The decrease in volumes was primarily driven by lost CPC sales due to Hurricane Laura and reduced demand due to smelter closures. During Q4 CY20, the average blended realisation decreased by ~8.5%, which was offset to some extent by the appreciation of USD and EURO against Indian Rupee by ~3.6% and ~11.5% respectively. Overall, due to the aforesaid reasons, revenue from the Carbon segment decreased by ~12.3% in Q4 CY20 as compared to Q4 CY19.

Advanced Materials sales volumes during Q4 CY20 were 99 thousand metric tonnes, an increase of 7.6% as compared to 92 thousand metric tonnes in Q4 CY19. The increase in volumes was driven by improved demand from Asian markets after recovery from COVID-19 and improved demand from construction industries coupled with higher throughput based on improved raw material availability. During Q4 CY20, the average blended realisation decreased by ~10.5% driven by changes in customer mix and a fall in oil-related prices, which was offset to some extent by the appreciation of EURO against Indian Rupee by ~11.5%. Due to the aforesaid reasons, revenue from the Advanced Materials segment decreased by ~3.7% during Q4 CY20 as compared to Q4 CY19.

Cement revenue increased by 31.9% compared to Q4 CY19 due to an increase in realisations by 21.2% along with an increase in volumes by 8.8% as compared to Q4 CY19.

“In the last 3+ years that we have owned Rain, I have seen Jagan Reddy (Rain’s Managing Director ) make one smart decision after another. In fact, I have never seen Jagan make even one dumb decision. He has made very large capital allocation calls over the last 12+ years and they have been flawless. It is a remarkable record. He is a dream manager. Rain is being valued these days at $560 million.

A bad year for the company would mean floor earnings of perhaps $100 million. A good year may produce more than $250 million in after-tax profit. Perhaps average earnings will be $150 million. However, we have to add to that Jagan’s magic with reinvesting earnings at a high ROE. In that scenario, “floor earnings” may very well be $200 million in a few years.”

Mohnish Pabrai, Major Shareholder
Major Points – February Concall
  1. No major capex plan for the following 4-5 years.
  2. Getting great requests for their items from the end clients.
  3. Limit use will increment from 60% at present to 90% in current FY.
  4. Storm costs added to accounting report of FY finishing Dec 2020, hope to be repaid by the insurance agency in current FY.
  5. Edges of their items have expanded in this FY.
  6. Courts decision may go in close vicinity to 3-4 months for cpc items boycott. Ideally in support of organization.
  7. Germany plant will be operational in this FY.
    All the plants in India will be operational in this FY.
  8. Will zero in on paying off the obligation yet not forcefully.
  9. R and D office will center and concoct items which will produce less carbon.
  10. Getting awesome orders and reaction for their as of late protected item.
  11. No arrangement to obtain any new organization.
  12. Stressing factor is rising crude material expense.
Capex and Debt Repayment Plans

During the year ended December 31, 2020, the Company incurred capital expenditures of US$ 146 million, including expansion CAPEX for the hydrogenated hydrocarbon resins project in Castrop-Rauxel, Germany, vertical-shaft kiln project in Vizag, India, mini solar power plants at cement plants in Kodad and Kurnool, India and other maintenance projects across all locations.

If you look at our debt, we have $1 billion, but our net debt now, I think, in December ’20, it’s only about $800 million plus. So our target is to reduce in the next few years because, as we said, we don’t have any major CapEx. Like Gerry was mentioning earlier, in the last several years, almost — I would say, almost 7, 8 years, we were continuously investing on CapEx, and we want to bring down that. And so we should have improved cash flow, both from our normal cash flow as well as these new projects that are actually going to — basically also should throw up some cash. So based on that, we do expect to reduce our debt.

And I cannot comment on how much exactly we can say, but we do expect that it should come down. Our target debt-to-EBITDA ratio should be to be well below 2.5, is our target to be as soon as possible. And also, we want to bring down our average interest rate to about to 4%, which we are hopeful that we can do it in the next 1.5 years

Jagan Mohan Reddy Nellore, Rain Industries Limited

With the existing Cash and cash equivalents and undrawn working-capital loan facilities, the Company is well placed to fund CAPEX projects and meet debt-servicing obligations in the near-term. The major debt repayments are scheduled to start in January 2025.

Rain Industries Monthly Chart
Summary

We are in the cusp of a commodity cycle and if market supports, Rain Industries can double from the current level of Rs 160 in a short span of time. Market patterns and charts repeat and repeat and lets wait and see if Rain can give patient investors a money rain!!

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