MOSL: RAIN INDUSTRIES (Buy)-CPC market tailwinds driving strong earnings growth-Raising earnings and target price
​Rain Industries: CPC market tailwinds driving strong earnings growth; Raising earnings and target price; Maintaining Buy
(RINDL IN, Mkt Cap USD1.8b, CMP INR340, TP INR492, 45% Upside, Buy)
- Rain Industries (RAIN) reported very strong earnings growth, driven by structural changes in market dynamics for its carbon business. Consolidated EBITDA increased 49% YoY to INR6.7b, beating our estimate of INR5b by a wide margin, due to both stronger margins (USD118/t v/s est. of USD85) and volumes (475kt v/s est. of 425kt CPC volumes) in the carbon business. Chemical division was affected by fire at one of its plant in Europe, seasonally low demand and higher input prices. Despite lower prices, margins in the cement business improved due to the benefit of waste heat recovery and operational improvements. Adj. PAT rose 29% YoY to INR2.5b. We believe earnings momentum will continue because:
- Average realized price of CPC at USD337/t is still significantly lower than USD500-600/t seen during 2010-11. At that time, the key driver of prices was shortage of key input (GPC). On the other hand, the market is now facing shortage of CPC, while the GPC market is not as tight. Further, RAIN has invested in desulfurization plants and mixers, which allow it to use higher sulfur GPC relative to competitors. Therefore, we believe CPC margins for RAIN will settle at a higher level than the USD120/t achieved in 2011. We are raising estimates for CPC volumes by 3%/8%/2% for CY17E/CY18E/CY19E.
- Similarly, we expect CT Pitch margins to benefit from supply-side correction in its key market and additional demand from aluminum production ramp-up in North America and graphite industry. As the 200kt pet tar distillation expansion project in Europe is on track, we are raising volumes by 9% to 700kt for CY19E.
Rain Industries Limited (RIL) is an India-based company, which is engaged in the business of manufacture and sale of carbon products, chemicals and cement. The Company operates through three segments: Carbon Products, Chemicals and Cement. The Carbon Products segment consists of Calcined Petroleum Coke (CPC), Green Petroleum Coke (GPC), Coal Tar Pitch (CTP), Co-generated Energy and other derivatives of Coal Tar distillation. The Chemicals segment includes the downstream operations of Coal Tar distillation and consists of Resins, Modifiers, Super Plasticizers and other specialty products. The Cement segment includes the manufacture and sale of Cement. The Company markets cement under the Priya Cement segment. The Company's Subsidiaries include Rain Coke Limited, Rain Cements Limited, Renuka Cement Limited, Rain Commodities (USA) Inc., Rain CII Carbon LLC, CII Carbon Corp, RUETGERS Canada Inc. and Handy Chemicals (USA) Ltd.
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