Rain Industries Q3CY17 Result Review Research Report By IDBI Capital

Strong Carbon segment margins; Outlook positive

Summary

Rain Industries reported significantly better than expected profitability in Q3CY17 results with EBITDA 43.5% above our estimate on the back of stronger than expected profitability in Carbon Products.

Carbon Products EBITDA grew to Rs6.3 bn (+83.3% YoY, +58.3% QoQ). Segment EBTIDA/tonne grew to Rs7,863/tonne (+83.3% YoY, +58.3% QoQ).

In light of significantly better than expected Carbon Products profitability and anticipated higher spreads for CPC/ CTP, we raise our CY17/18 margin estimates.

We maintain our Buy rating on the stock with a revised target price to Rs418.

Key Highlights and Investment Rationale

Carbon Products reports stellar profitability: Carbon Products volumes grew 15.7% YoY to 0.8 mn tonnes. However, the segment profitability surprised us with strong growth in EBTIDA/tonne at Rs7,863/tonne (+52.1% QoQ, +86.2% YoY). Segment EBITDA grew to Rs6,336 mn(+83.3% YoY, +58.3% QoQ).

Chemical segment profitability falls: Chemicals EBITDA fell 70.5% YoY to Rs133 mn on higher costs and some minor Fire accident in the Netherlands plant. Nevertheless, Cement EBITDA increased 58.2% YoY to Rs269 mn on improved cost performance.
Net debt increase slightly: Net debt increased modestly (+2.5% QoQ to $976 mn) due to exchange rate changes and higher working capital needs (higher volumes and product prices).

Raise CY17-18 estimates on improved outlook: CPC and CTP demand has continued to improve in the last six months which is also evident from Carbon Products margin improvement during 9MCY17. We raise our CY17-18 Carbon Products EBITDA estimates sharply for CY17/CY18 on rising demand. With higher spreads, we expect the company’s ROE to be in 24%/26% for CY17/18, respectively. With higher return ratios, we raise our valuation multiples in our SOTP valuation. We raise our target price to Rs418 (previous Rs144); Maintain BUY.