MOSL: RAIN INDUSTRIES (Buy)-Carbon prices and margins continue to improve-Interest and tax rate declining

Rain Industries: Carbon prices and margins continue to improve; Interest and tax rate declining; Maintain Buy

(RINDL IN, Mkt Cap USD2.0b, CMP INR381, TP INR480, 26% Upside, Buy)

Rain Industries' (RAIN) 4QCY17 EBITDA increased 2% QoQ (+58% YoY) to INR6.9b. Prices increased across products, but carbon product dispatches were impacted by shipment delays toward the end of the quarter. Adj. PAT increased 37% QoQ to INR3.3b, led by a lower effective tax rate (~21% v/s ~40% in 3QCY17). Exceptional charges include INR0.8b gain from reversal in deferred tax (due to US and Belgium tax rate changes), offset by INR1.1b toward refinancing and unabsorbed bond amortization charges.

• Carbon - margins improved but shipments delayed: Volumes fell ~10% QoQ to 744kt. CPC realization increased by USD78 QoQ to USD415/t and CTP realization by USD107 to USD708/t. EBITDA/t rose USD15 QoQ to USD133.
• Chemical: Volumes were largely unchanged QoQ at 53kt. Although EBITDA/t increased USD20 QoQ, it was subdued due to a squeeze in spreads.
• Cement - pricing pressure continues: Sales were largely unchanged QoQ at 509kt. Realization declined 4% QoQ to INR4,173/t. EBITDA/t decreased 3% QoQ to INR515.
• USD25-30m savings on refinancing. Net debt increased by INR5b YoY to INR69b due to a massive increase in working capital and appreciation of EUR against INR. Refinancing of ~USD489m debt is likely to save USD25-30m every year.
• Positive outlook: CPC business remains strong on declining exports from China, while CTP is benefitting from consolidation and capacity reduction in its key markets. Chemical business is likely to turnaround in 2HCY18. Tax rate is likely to be 200-300bp lower on a reduction in rates in the US and Belgium.