- In the Q3 of CY2017, RAIN achieved Consolidated Revenue of ₹30.39 Billion; Consolidated Adjusted EBITDA of ₹6.81 Billion; and Consolidated Net Profit of ₹2.46 Billion.
- Current working capital days are very minimal approximately 55 days.
- In spite of the unfavorable foreign exchange impact due to the US Dollar depreciating against the Rupee the performance improved in the 3rd quarter of 2017.
- The company completed 6 key capital projects in the last two years and these projects continue to operate as planned and are contributing to the improved performance.
- At the end of Q3CY2017, the Gross Debt is $1,155 million including $55 million of working capital debt.
- Due to the appreciation of the Euro against the USD, there is an increase in gross debt due to restatement of Euro denominateddebt compared to year-end 2016.
- Due to the additional working capital requirements driven by the increase in sales volumes and quotations of raw materialsthe short term, working capital borrowings increased to $55 million, an increase of $29 million compared to year-end 2016.
- As a result of partial refinancing executed in March 2017, the first maturity date is extended from December 2018 until January 2021 providing the Company ample time to continue exploring options.
- Q3 ended with net debt position of US$ 976 million which is a slight increase compared to net debt as on December 2016; primarily related to the unfavorable Euro vs. USD conversion rate and incurring of debt refinancing costs.
- With US$ 159 million of cash on the balance sheet and unused credit limits of US$ 100 million; the Company is comfortably placed to meet its obligations and continue to make the required investments to meet market demands.
Key Market Factors
- If Trump administration is able to reduce corporate taxes, it should benefit RIL to a great extent.
- Aluminum demand is expected to grow at 5.2% YOY in 2017 with a Cumulated Average Growth Rate of about 3.4% over the five year period from 2016-21.
- There is positive movement in the LME Aluminum price, trending above $2,000 a ton. Also there is steady decline in LME inventory levels.
- There is discussion among western Aluminum majors to re-start idle Smelters in North America and Europe because of:
- 1. The lower LME Inventories and higher Aluminum prices
- 2. Expected environmental regulations impacting Smelting Costs for Chinese Aluminum smelters this winter.
- Fuel Oil prices have increased by 27% compared to Third Quarter 2016.
- Commodities such as Benzene and Ortho-Xylene have followed a similar increasing price trend which has a positive effect on our "Other Carbons Products” revenues and earnings, especially our BTX and Carbon Black products.
- Asian Primary Aluminum Demand is up 14% in YTD Aug-17.
- Few initiatives were taken by National Development and Reform Commission (NDRC) and Ministry of Environmental Protection (MEP) of China for environmental protection which will impact smelting and calcination capacities within China.
- So, CPC producers will be hit more directly and already there is slowing of exports of CPC from China this year, which has driven volumes at our Indian calciner and the region in general.
Carbon business performance
- There was enhanced capacity utilization of the carbon business; cement business was stable while the chemical business was weaker compared Q-o-Q.
- CPC sales volume increased by 32% due to full utilization of India blend strategy, coupled with SO2 scrubber investments over the last few years, which contributed to an increase in capacity utilizations in the US calcination facilities.
- The CTP and Other Carbon Products volumes improved by 11% and 16% respectively, dueto the ramp up at Russian CTP plant Severtar andCarbores 3.
- Revenue from the carbon business in Third Quarter 2017 is ₹ 23.8 Billion which is 45.1% higher than Q3 2016.
- The Carbon business generated an EBITDA of ₹ 6.3 Billion during Q3 2017. This was achieved through the investments in high-quality product lines and aggressive cost cutting initiatives over the last year.
- Capacity utilization is expected to rise substantially. Expected volume this year is about 1.8 million compared to 1.64 million in 2016.
- Planning to aggressively expand calcining capacity is going on which will help to achieve higher volumes at much lower cost of production from early 2019.
Chemical business performance
- Chemical segment volumes were basically flat for the quarterwith 54,000 tons.
- Chemicals had revenues of ₹ 4.42 billion in the Third Quarter 2017, 9.7% higher than Q3 FY16.
- Operating profit is ₹ 0.13 Billion.
- The performance of the Chemicals Business was impacted (i.e. huge drop in EBITDA margin) in Q3 2017 due to following reasons:
- 1. A small fire incident at Uithoorn, Netherlands facility impacting production
- 2. Prolonged outage of Anthracene/Carbazol production in Germany.
- 3. Many companies that RIL supplies to are small entities and this is kind of a seasonal business. So, they take break over the summer.
- 4. Some elements of course from a feedstock perspective is also playing as some of the petroleum prices are moving upwards.
Cement business performance
- There was an increase in volumes in certain markets such as Andhra Pradesh, Telangana, Tamil Nadu, and decrease in volumes in other markets such as Karnataka, Odisha and Maharashtra.
- Overall Sales volumes increased by 4.8% and sales realizations decreased by 13.6%.
- The revenue was ₹ 2.19 Billion which is 9.5% lower compared to Q3 FY16.
- Adjusted EBITDA was ₹ 0.27 Billion which is 59.2% higher compared to Q3 FY16.
- Initiatives towards reducing costs of cement production:
- 1. Installation of the Waste Heat recovery power plant at Kurnool facility which is enabling the plant to produce approximately 7MW of electricity from the waste gases generated in the manufacturing process.
- 2. Cooler up-gradation in Nalgonda Plant at a cost of ₹ 156 million to achieve energy efficiency.
- Cement demand would continue throughout the year due to infrastructure and housing projects.
- Hurricane in Texas did create some issues for power plant at Lake Charles location and the power plant actually had to be shut down for almost 45 days.
- Recently, there is good amount of demand for the green petroleum coke so the cost has basically increased.
- But due to the use of lower cost and exotic raw materials, RIL was able to actually control the cost of raw materials compared to the competitions.
- CPC requires longer time for price differentials to move to markets. This has to do with longer logistical lines while for the CTP there is a quicker dynamic of transferring changes in the material to the end products. Hence it seems price movement of CTP is better.
- Buying high sulfur raw material for cokes could save $40-$50.
- Although many customers do take high sulfur cokes, it is not possible to completely replace lower sulfur cokes with higher sulfur cokes as ability to process higher sulfur cokes is itself an issue without sulfur dioxide scrubbers.
- Cost optimization is approximately equivalent to about 7-8%this year.
- Due to weaker market in the last 5 years, there was a lot of rationalization of both calcining as well as distillation assets over that time.
- For next 5 years, positive cycle for aluminum would mean positive cycle for carbon to be used for aluminum production. So there is an optimistic view given RIL produces the two main carbon inputs to the Aluminum industry.
- As long as there is aluminum production growth worldwide in the next 5 years, bullish price trends can be expected for carbon products.
- In the near future, the company is expected to shed at least 5% of logistics cost due to continuation of rationalization of costs.
- Essentially, business through cost rationalization and new projects executed are the driving force behind better margins (~$100) along with stronger demand for CPC.
- Also, there are barriers to entry and it is not easy to ramp up production on the carbon side in order to delude a positive market situation. So, $100 may become new normal marginand less chance of falling back to traditional margin level.
- Recent rapid progression of price of CPC is driven really by tightness of availability in Asia. Same type of progression is seen on CTP products.
- GPC prices have moved up but not as precisely and distinctly as CTP due to overall tightness of coal tar coming from the steel industry.
- GPC prices; however are anticipated to move in the New Year.
- In a tight market situation, higher prices are negotiated for spot pricing than quarterly pricing but very few producers buy CPC on any spot price.
- Although price realizations have not approached the levels of 2011 as in 2011 there was a tight GPC market scenario. So, current tight market of CPC, CTP must continue to reach margin levels of 2011.