Rain Industries Q3FY17 Concall Summary

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Key Highlights

Rain Commodities Q4CY2016 P&L

Revenue & Sales

  • Consolidated Revenue of Rs 23.6 billion during Q4 2016. Increase of 0.4% as compared to last year
  • Sale of carbon products during Q4 are 883,000 metric tons, a decrease of 5.4% as compared to last year. Average blended realization increased by 5.9% driven by increased sales volume
  • Euro appreciated by 0.7% & US $ appreciated by 2.3% against Indian rupee
  • Chemical sales volume during Q4 are 68000 metric tons a decrease of 4.2% compared to last year. The fall is mainly due to decline in trading volumes. The average blended realization decreased by 1.5%
  • Cement revenue decreased by 7.2% as compared to last year. Decline is mainly due to demonetization

P&L Performance

  • Operating profit margin increased by 10.6% in carbon business due to change in product mix & various cost optimization initiatives. Operating profit margin increased by 7.4% relating to chemical business due to cost optimization. Operating profit margin decreased by 10.6% due to increased cost & lower returns
  • Consolidated Operating profit of Rs 4.1 billion an increase of 86.4% compared to last year
  • Operating profit margin increased to 17.1% as compared to 9.2% last year
  • Consolidated Adjusted Net Profit of Rs 947 million as compared to Net loss of Rs 76 million last year
  • Forex gain of Rs 175 million as compared to Rs 75 million in Q4 2015. Gain is mainly due to appreciation of Russian ruble to US dollar
  • Finance cost decreased by 0.4% compared to last year mainly due to reduced debt
  • Effective tax rate increased due to US federal tax on dividends repatriated to the USA
  • Improvements in margin help in reduction of debt
  • Consolidated EPS of Rs 2.82 as compared to 0.23 last year
  • Additional pension liability recognized in Europe to the tune of Rs 110 crores. In Year 2014 we recognized about 182 crores of incremental pension liability, in 2015 there was a gain of 70 crores & again in 2016 a liability of 110 crores
  • As at December 31, 2016, the Company has a Consolidated Gross Debt of US$ 1,096 million (including Working Capital Debt of US$ 26 million), Cash & Cash Equivalents of US$ 154 million and Net Debt is US$ 942 million

Production & Operations

  • Successfully completed the installation & commissioning of its 3rd Carbores capacity of 17,000 tons per annum in Germany which increases the total carbores capacity to 53,000 tons per annum
  • Russian starter JV has performed very well after starting up in 2016 & have ramped up production to 75% of capacity in 2017
  • Due to growing CPC demand in India & middle east the blend facility was expanded to accommodate 1MM total tons in 2017.
  • CARBORES is specially modified coal tar pitch binder product that is environmentally friendly
  • Benzene quotations remained neutral at an average of $698/ton in Q3 and Q4
  • Capacity utilization is 100% in India & 95% in US
  • Last year a buyback of debt to the tune of $60-70 million from market
  • The company is considering US listing

Corporate Highlights

  • Coal Tar Distillation Plant at Cherepovets, Russia: The company has successfully completed the construction of its fourth Coal Tar Distillation Plant (“CTP Plant”) with a capacity of 300,000 metric tons per annum in Cherepovets, Russia via a Joint Venture with PAO Severstal, Russia. Since commissioning, the CTP Plant has been operating reasonably well and has now stabilized.
  • Waste-Heat Recovery Power Plant in Cement Plant at Kurnool, India: To optimize the cost of electricity in its Cement business, the company has commissioned a 7 megawatt (“MW”) Waste-Heat Recovery Power Plant (“WHR Power Plant”) at its existing Cement Plant in Kurnool, India on September 22, 2016. The WHR Power Plant has stabilized and started delivering the planned savings.
  • Calcined Petroleum Coke Blending Facility at Vishakhapatnam, India: During CY16, the Company has increased the CPC Blending Facility to 1,000,000 metric tons per annum at its calcining plant in Vizag, India. The CPC Blending Facility in Vizag will enable the Company to blend CPC manufactured in Indian Plant with imported CPC to meet the increased demand for CPC from smelters in India and the surrounding regions.
  • Carbores III Reactor at Castrop-Rauxel, Germany: During CY16, the company has successfully completed the installation & commissioning of a third Carbores Reactor of 17000 tons per annum capacity in Germany which increases the existing Carbores capacity to 53,000 tons per annum. Carbores is an environmentally friendly pitch produced through a sophisticated manufacturing process and is currently used by steel manufacturers. This product further diversifies the Company to markets outside of the Aluminum Industry. 
  • Plant Closure at Hanau, Germany: The company has an impregnated wood product manufacturing facility in Hanau, Germany (“Hanau Plant”) that contributed revenues of € 3.10 million and negative operating profit of € 0.46 million during the year ended December 31, 2015. As wood impregnation is not a core business and sales volumes are declining, the Board of Directors of the Company approved the closure of Hanau Plant by March 31, 2017. Consequently, the Company made a provision of ₹ 262 Million for the Plant Closure expenses during the year ended December 31, 2016

Market Watch

  • Aluminum market has improved & the LME aluminum price has settled in the upper $1800 range & for moving towards $2000 level.
  • Fuel oil prices continue to increase from an average of $ 233/ton in Q3 to $ 270/ton in Q4.
  • Fuel Oil is now up 10% during the New Year consistent with crude prices, and Benzene prices are up 30% in Q1 on supply limitations in China.
  • Capex to be around $60 million per annum is required
  • Maximum capacity is somewhere about 2 million tonnes
  • The gap for prices of sulfur & is widened by $10 - $15
  • Chinese production of aluminum has continued to run at record levels, & it is expected to the production will be curtailed. If Chinese production is curtailed India will ramp up to meet the demand. This will help the company