Rain Industries Research Reports By IDBI Capital & Motilal Oswal

Research report by IDBI Capital

Carbon segment spreads on an uptrend

Summary

 Rain Industries reported better than expected Carbon Product segment profitability during Q4CY17, despite weak volumes on delayed shipments; volumes should recover in Q1CY18 though.

 Carbon Products EBITDA/tonne at Rs8,426 (+125.6% YoY, +11.8% QoQ) was ahead of our forecast. Segment EBTIDA grew to Rs6.4 bn (+104.1% YoY, +1.2% QoQ) despite fall in volumes to 0.7 mn tonne (-9.2% YoY, -10.0% QoQ).

 In light of better than expected Carbon Products profitability and anticipated higher spreads for CPC/ CTP, we raise our CY18 margin estimates. We maintain BUY rating with a revised target price of Rs522 (earlier Rs418).

Research Report by Motilal Oswal

Temporary volume delay the only blip in an otherwise strong quarter

Maintain Buy

Rain Industries’ (RAIN) 4QCY17 EBITDA increased 4% QoQ (+58% YoY) to INR6.9b, as higher realization was offset by lower volumes due to timing issues with some dispatches. Adj. PAT increased 37% QoQ to INR3.3b, led by a lower effective tax rate (~21% v/s ~40% in 3QCY17). We note that the INR0.8b exceptional gain from the deferred tax reversal due to US and Belgium tax rate changes was offset by INR1.1b in charges on prepayment of debt.

 Carbon division volumes were down ~10% QoQ to 744kt. CPC realization increased USD78 QoQ to USD415/t and CTP by USD107 QoQ to USD708/t. Division EBITDA/t increased USD15 QoQ to USD133. Management expects to maintain the current margin levels in 1QCY18.

 Chemical division volumes were largely unchanged QoQ at 53kt. EBITDA/t increased by USD20 QoQ to USD58.

 Cement division volumes were largely unchanged QoQ at 509kt. Realization was down 4% QoQ to INR4,173/t. EBITDA/t decreased 3% QoQ to INR515.

 Net debt was unchanged YoY due to an increase in working capital, but should reduce 1QCY18 onward.

 CPC market outlook remains positive, led by growing aluminum demand and limited supply addition. Debt repayment will result in annual interest cost saving of USD25-30m from CY18.

The stock trades at 8.9x P/E and 5.4x EV/EBITDA CY19E. We value RAIN at 6.5x EV/EBITDA CY19E to derive a TP of INR492/share. Maintain Buy