Initiating Coverage | 1
November
2017
Sector: Metals
Rain Industries
Enduring Tailwinds
Sanjay Jain
- Research Analyst
(SanjayJain@MotilalOswal.com); +91 22 6129 1523
Dhruv Muchhal
- Research Analyst
(Dhruv.Muchhal@MotilalOswal.com); +91 22 6129 1549
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Rain Industries
Contents: Rain Industries - Enduring tailwinds
Enduring tailwinds................................................................................................ 3
Strong tailwinds will last many years .................................................................... 5
Multiple competitive advantages ........................................................................ 11
Company description .......................................................................................... 14
Calcined pet coke – an industry overview ............................................................ 20
Coal tar distillation – an industry overveiw.......................................................... 24
SWOT analysis .................................................................................................... 27
Bull & Bear case
................................................................................................. 28
Financials and Valuations ................................................................................... 29
1 November 2017
2

Rain Industries
BSE Sensex
33,213
S&P CNX
10,335
Initiating Coverage |Rain Industries
Sector: Metals
CMP: INR271
TP: INR362(+33%)
Buy
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Vol m
Free float (%)
Rain Industries (RAIN) is the second largest carbon product supplier to the aluminum
industry. Its carbon segment contributes 80% to consolidated EBITDA. Its chemicals
segment converts coal tar distillates into resins, modifiers, aromatic chemicals,
superplasticizers, etc. It also operates a 3.5mt cement plant in southern India and sells
cement under the
Priya
brand.
RINDL IN
336
257 / 41
37/108/352
91.3
1.4
286.4
286
58.9
Enduring tailwinds
Re-rated, yet attractive
Financial Snapshot (INR b)
Y/E Dec
2016 2017E 2018E
Net Sales
93.2 111.3 132.5
EBITDA
13.5 19.7 23.4
PAT
3.2
6.8
9.5
EPS (INR)
9.6 20.2 28.2
Gr. (%)
1.2 109.7 39.6
BV/Sh (INR)
89.6 107.4 133.2
RoE (%)
10.9 20.5 23.4
RoCE (%)
12.7 17.2 21.1
P/E (x)
28.2 13.4
9.6
P/BV (x)
3.0
2.5
2.0
Shareholding pattern (%)
As On
Sep-17 Jun-17 Sep-16
Promoter
41.1
41.1
41.1
DII
2.9
4.9
11.7
FII
17.6
17.4
17.2
Others
38.4
36.5
29.9
FII Includes depository receipts
RAIN is riding tailwinds, triggered by supply disruption in China, which are driving
margins and volume growth. We expect these tailwinds to last for 2-3 years,
enabling EBITDA/PAT CAGR of 24%/50% over CY16-19.
RAIN has been generating strong FCF and rewarding shareholders with dividends
and buybacks. We believe it will continue to do so.
The stock has been re-rated on change in business dynamics. Yet, our price target
of INR362 indicates 33% upside. We initiate coverage with Buy.
Dual benefit of demand growth and supply shock driving CPC prices
Calcine pet coke (CPC) production is hurt in China after the government’s firm
action in 2017 to contain pollution. As a result, China has turned a net importer
of CPC. Simultaneously, aluminum production is set to grow outside China –
many smelters in North America and Europe are restarting. The dual benefit of
demand growth and supply shock is driving up global CPC prices.
CT pitch market has stabilized on capacity cuts in key markets
CT pitch (CTP) has been oversupplied for many years in RAIN’s key markets due
to declining aluminum production. Consequently, there have been many
shutdowns. Koppers, the largest producer of CTP in the world and a key
competitor, has closed seven plants in the last 2-3 years. This has resulted in
supply correction and improved utilization. The industry is now running at 80-
90% utilization and margins have stabilized. As aluminum production starts to
recover on expected restart of smelters, demand and margins will expand.
Rain Industries
Enduring tailwinds
Investing in high IRR organic growth projects
RAIN has decided to set up a 370ktpa CPC kiln at a capex of USD65m near Vizag
to meet strong growth in demand from Indian smelters. It is also investing
USD17m in debottlenecking of petrochemical feedstock distillation by 200kt in
Europe. Both projects are scheduled for completion by March 2019 and short
payback period of 2-3 years should drive remunerative volume growth.
Value the stock at INR362/share – 33% upside; initiate with Buy
Sanjay Jain
+
91 22 3982 5412
SanjayJain@motilaloswal.com
Please click here for Video Link
After trading at low single digit PE for very long period, RAIN has finally got re-
rated on visibility of margin expansion and growth driven by multiple enduring
tailwinds and multiple competitive advantages. Although stock has run up
sharply, the valuations are still reasonable. We value the stock at INR362/share
– 33% upside, based on SOTP (Exhibit 19). We initiate coverage with a
Buy.
3
1 November 2017

Rain Industries
Exhibit 1: Volumes driven by demand and capex
Carbon - kt
3,129
2,134
3,281
2,153
3,214
2,163
Cement - kt
2,991
2,137
3,096
2,229
Chemical - kt (RHS)
3,123
2,450
3,323
2,625
277
291
2013
317
2014
315
2015
282
2016
250
2017E
260
2018E
330
2019E
Exhibit 2: Margins (EBITDA/t) improving on tailwinds
Carbon - USD/t
Cement - INR/t (RHS)
833
502
202
49 97
2014
48 85
2015
57 109
2016
100 120
2017E
100 120
2018E
450
450
Chemical - USD/t
65 143
2013
Source: MOSL, Company
Source: MOSL, Company
Exhibit 3: P/E bands
P/E (x)
Min (x)
12.0
8.0
4.0
0.0
4.5
3.2
1.1
Avg (x)
+1SD
9.9
Max (x)
-1SD
9.9
Exhibit 4: P/BV bands
P/B (x)
Min (x)
3.0
2.3
1.5
0.8
0.0
0.7
0.3
1.1
0.3
Avg (x)
+1SD
Max (x)
-1SD
2.6
2.0
Source: MOSL, Company
Source: MOSL, Company
EPS
FY18E
59.4
20.3
-15.8
-10.6
22.0
3.8
25.4
20.2
17.5
22.7
12.4
P/E (x)
FY18E FY19E
11.8
12.7
-10.3
-7.4
12.2
24.4
13.1
13.4
16.4
13.9
10.3
10.8
10.4
81.1
-18.6
10.2
21.9
8.3
9.6
13.9
10.7
10.6
EV/EBITDA (x)
FY18E FY19E
7.0
8.2
10.2
38.3
7.0
10.6
8.1
7.8
8.6
8.8
6.5
6.9
7.3
7.0
16.1
6.1
9.6
5.4
6.3
P/B(x)
FY18E FY19E
1.9
2.3
0.5
1.0
1.7
1.7
1.9
2.5
1.7
1.9
0.5
1.0
1.5
1.6
1.7
2.0
Exhibit 5: Valuations are still reasonable
Rating
Steel
Tata Steel
JSW Steel
JSPL
SAIL
Non-Ferrous
Hindalco
Nalco
Vedanta
Rain Ind.*
Mining
Coal India
Hindustan Zinc
NMDC
* CY reporting
Neutral
Buy
Buy
Sell
Buy
Neutral
Buy
Buy
Buy
Neutral
Buy
Price
(INR)
704
258
163
78
267
92
332
271
286
315
128
MCAP
(USD M)
10,534
9,605
2,300
4,959
8,509
3,634
15,165
1,407
27,873
20,540
7,848
FY17
37.9
14.8
-20.9
-6.2
16.2
3.7
15.1
9.6
14.9
19.7
10.0
FY19E
65.2
24.9
2.0
-4.2
26.3
4.2
40.0
28.2
20.7
29.4
12.1
7.4
6.9
6.6
6.3
4.6
3.6
6.5
1.7
1.6
Source: MOSL, Company
Exhibit 6: Stock Performance (1-year)
270
210
150
90
30
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Rain Industries
Sensex - Rebased
1 November 2017
4

Rain Industries
Strong tailwinds will last many years
Initiating with BUY
RAIN is one of the largest carbon product suppliers to the aluminum industry, with a
global capacity of 3.5mt. Its carbon segment includes a 2.1mt CPC capacity and a
1.4mt coal tar distillation capacity, and contributes 80% to consolidated EBITDA. Its
chemical segment converts coal tar distillates (other than CTP) into resins, modifiers,
aromatic chemicals, superplasticizers, etc. It also operates a 3.5mt cement plant in
southern India and sells cement under the
Priya
brand. Many business tailwinds are
driving margins for the company, which will last many years, in our view.
Dual benefit of demand growth and supply shock driving CPC prices
In 2016, global CPC production was about 27.8mt, 73% of which was produced in
China and North America. China was a net exporter, meeting nearly 10% of demand
in the rest of the world.
Exhibit 7: CPC demand and supply by geography in 2016
China and North America
have been key exporters of
CPC, but China has turned
net importer in 2017
9%
10%
13%
15%
S. America
18%
4%
10%
11%
N. America
ME & Africa
Asia
50%
55%
Europe & CIS
China
Demand
Production
Source: Industry
Exhibit 8: While aluminum production declines in China…
3,000
2,000
1,000
0
China production (kt)
growth - % (RHS)
60
40
20
0
-20
Exhibit 9: …but it will grow faster in rest of world
3,000
2,500
2,000
1,500
RoW production (kt)
growth - % (RHS)
10
5
0
-5
-10
Source: MOSL, Bloomberg
Source: MOSL, Bloomberg
CPC production is hurt in China after the government’s firm action to contain
pollution in 2017. This is creating imbalances in the global market, as China has
turned net importer. Simultaneously, aluminum production is set to grow outside
China, which will offset the production cuts (4.5mtpa already shut from NDRC’s
target of 7.6mtpa cuts) within China. Many smelters in North America and Europe
are evaluating restart (for example, Alcoa is restarting 161ktpa pot lines at Warrick
and evaluating Wenatchee restart). The dual benefit of demand growth and supply
shock is driving CPC prices.
1 November 2017
5

Rain Industries
Exhibit 10: CPC prices in USA at Gulf of Mexico (USD/t)
Dual benefit of demand
growth and supply shock is
driving CPC prices
600
500
400
300
200
Source: MOSL
CT pitch market has stabilized on capacity cuts in RAIN’s key markets
Coal tar pitch (CTP) needs to be supplied in liquid form in heated vessels and this
limits its international trade. CTP has been oversupplied for many years in RAIN’s
key markets, Europe and North America, due to declining aluminum production.
Consequently, many capacities have been shut down. Koppers, the largest producer
of CTP in the world and a key competitor, has reduced the number of plants from 11
to four in the last 2-3 years. This has resulted in supply correction and improved
capacity utilization. The industry is now running at 80-90% capacity utilization and
margins are stabilizing. As aluminum production starts to recover on expected
restart of smelters, demand and margins will expand.
Expanding capacity to leverage tailwinds
Capacity of Indian aluminum smelters has increased three fold to 4.1mtpa in the last
10 years. However, the production of aluminum could increase only in the last three
years (FY15-17), as supply of domestic coal improved. Aluminum production is set to
grow further over the next 2-3 years, as smelters improve capacity utilization.
Exhibit 11: Aluminum production in India
4,000
3,000
2,000
1,000
0
817
1,520
+1,120
+919
3,766
2,847
1,727
Source: MOSL
On the other hand, there has been no significant investment in CPC capacity
addition. Domestic CPC production met only 50-60% of the 1.15mt consumption in
FY17. The demand-supply gap is likely to widen further over the next 2-3 years. To
leverage this, RAIN has already set up a 1mtpa blending facility at Vizag, where it is
blending CPC imports from its plants in USA. As smelters restart in North America,
the surplus from USA will shrink. Hence, RAIN has decided to set up a 370ktpa
1 November 2017
6

Rain Industries
vertical kiln at a capex of USD65m at another site in an SEZ near Vizag to meet
incremental local demand. It is likely to be completed by March 2019. GPC is the key
raw material for making CPC. RAIN has a good supply relationship with Sinopec in
China for supply of GPC. On closure of CPC plants in China, Sinopec’s and other
suppliers’ GPC exports from China will increase. RAIN’s overall CPC volumes are
likely to start growing after many years.
RAIN is investing USD17m to debottleneck petrochemical feedstock distillation
facilities in Castrop-Rauxel, Germany and Zelzate, Belgium. This involves installation
of additional balancing equipment and construction of storage facilities and other
infrastructure. The installed capacity will increase by 200ktpa. This will provide
higher volumes of petroleum pitch for specialty binders in graphite applications and
other downstream products for Resins feedstock. The project is likely to be
commissioned by December 2018.
Multiple competitive advantages
Global leader in essential carbon products for the aluminum industry
Longstanding, strategic relationships with global customers
Long-term contracted raw material supply—a key barrier to entry
Leadership in developing new products and alternative inputs
We have discussed these in more detail later in the report.
Free cash flows growing despite jump in working capital
RAIN has always generated strong free cash flows – even in tough market situations,
as it operates its business on conversion basis.
Exhibit 12: Free Cash flows will be increasing
FCF (OCF-Capex-Interest) - INR m
6,769
4,701
527
-68
-1,861
7,979
6,257
2,099
1,628
4,899
2,043
5,558
Note: FCF were affected by INR8b WC increase on acquisition of Ruetgers in 2013
Source: Company
Its strong free cash flows help RAIN to deleverage its balance sheet. Its net
debt/EBITDA ratio has consistently declined except when it acquired Ruetgers in
2013. This trend is likely to continue despite expected increase in working capital
and announced capex.
1 November 2017
7

Rain Industries
Exhibit 13: Financial leverage continue to decline
Debt to Equity (x)
5.0
4.2
2.7
3.0
2.3
2008
2009
2.0
2010
3.9
Reutgers
acquisition
2.2
1.9
2.3
1.4
2011
0.9
2012
2013
2014
2.3
2.3
2.1
1.7
5.6
Debt to EBITDA (x)
4.9
4.7
3.2
2.4
1.9
0.9
2015E 2016E 2017E 2018E 2019E
Source: MOSL
1.3
RAIN has been rewarding its shareholders through buybacks and dividends.
Exhibit 14: RAIN has been always been rewarding share holders
Dividend - INR m
Buyback - INR m
203
236
-733
2008
2009
2010
2011
2012
2013
2014
2015
2016
303
302
138
379
276
440
776
336
405
506
Source: MOSL, Company
Stock getting re-rated; valuations still reasonable
RAIN’s long-term relationships with customers and suppliers, strategic locations of
operations in Europe and North America, and quest to help customers with new
product development allows it to negotiate reasonable margins through the cycles.
P/E re-rating; still attractive
Exhibit 15: P/E Bands
P/E (x)
12.0
9.0
6.0
3.0
0.0
4.5
3.2
1.1
Avg (x)
Max (x)
Min (x)
9.9
+1SD
-1SD
9.9
Source: MOSL, Bloomberg
1 November 2017
8

Rain Industries
The stock languished below INR50/share and at low single-digit P/E for a very long
period (2008-2016) due to lack of investor interest in a low growth stock, poor
understanding of its business, concerns on overseas inorganic growth at high
valuations (v/s RAIN’s multiple), and lack of risk appetite for midcaps. All of these
factors have now changed. Investors’ interest in midcaps is now high. With
disruption in global trade, earnings growth is back on track. As it is already among
the two largest producers of CPC and CTP in the world, and there is little room for
consolidation in its key markets, we do see RAIN actively exploring further inorganic
growth opportunities overseas. On the other hand, organic growth opportunities in
India have arisen. RAIN is investing in a 370kt CPC plant in India and a 200kt
debottlenecking of distillation plant in Europe. These are likely to be completed by
March 2019. The stock has been re-rating and we expect its multiples to sustain.
On EV/EBITDA, valuations
remain reasonable in light
of strong cycle for at least
another 2-3 years
Exhibit 16: EV/EBTIDA bands
7.2
5.9
4.6
3.3
2.0
2.9
EV/EBITDA (x)
Avg (x)
Max (x)
6.8
5.9
4.8
3.7
Min (x)
+1SD
-1SD
6.4
Source: MOSL, Bloomberg
Stronger aluminum prices and production growth in its key market improves its
negotiating power and margins. Although aluminum prices have recovered,
aluminum production has yet to start growing in its key markets, North America and
Europe. Also, competitive intensity has reduced in the CT pitch market after
reduction in capacity by Koppers, the largest producer in world. Crackdown on CPC
producers in China to contain pollution has disturbed world trade, sending prices
higher. These are structural changes in market dynamics. The impact is likely to last
at least 2-3 years till new capacities come up in other parts of the world.
P/BV re-rating…
Exhibit 17: Price to book value ratio (x)
3.0
2.0
1.0
0.0
1.1
0.7
0.3
0.3
P/B (x)
Avg (x)
Max (x)
Min (x)
+1SD
2.6
2.0
-1SD
Source: Bloomberg, MOSL
1 November 2017
9

Rain Industries
…is driven by improvement
in RoE
Exhibit 18: Return on equity
RoE (%)
73.0
55.0
37.0
19.0
1.0
10.9
26.2
22.2
Avg (x)
Max (x)
Min (x)
63.8
Source: MOSL, Bloomberg
Value the stock at INR362/share – 33% upside; initiate with BUY
We expect EBITDA to grow at a CAGR of 24% and PAT at a CAGR of 50% over CY16-
19, driven by (1) 4% volume CAGR and expansion of EBITDA from USD57/t to
USD100/t in the carbon segment, (2) 5-6% volume CAGR and improvement in
margins from USD109/t to USD120/t in the chemical segment. The cement segment
too is likely to see gradual improvement in capacity utilization and margins.
We value the carbon and chemical business at CY19E EV/EBITDA of 6.5x and cement
business at CY19E EV/EBTIDA of 10x (at EV/t of ~USD58 – significant discount to
sector valuations and M&A transactions). Thus, we value the stock at INR362/share
–33% upside. We initiate coverage with a BUY rating.
Exhibit 19: Target price Calculations
Y/E December
Target multiple
Carbon
Chemical
Cement
EBITDA
Carbon
Chemical
Cement
EV/t
Target EV
Net Debt (Rs m)
Residual Market Cap
Target price
11,452
2,072
1,073
42
97,563
64,002
16,900
2,023
790
34
130,902
61,794
69,108
205
20,300
2,028
1,103
49
156,154
56,060
100,094
298
21,600
2,574
1,313
58
170,253
48,450
121,803
362
Source: MOSL
6.5
6.5
9.0
6.5
6.5
10.0
6.5
6.5
10.0
6.5
6.5
10.0
2016
2017E
2018E
2019E
1 November 2017
10

Rain Industries
Multiple competitive advantages
Global leadership in both CPC & CTP I input supply contracts I patents
Global leader in essential carbon products for the aluminum industry
Longstanding strategic relationships with global customers
Long-term contracted raw material supply—a key barrier to entry
Leadership in developing new products and alternative inputs
Global leader in essential carbon products for aluminum industry
RAIN is investing in a 370kt CPC expansion in India, which will increase its capacity to
2.45mtpa and narrow the gap with Oxbow in the CPC business.
Exhibit 20: RAIN is the second largest CPC producer in the world - capacity in ktpa
2777
2075
1493
1076
640
600
560
500
498
400
360
350
311
300
Source: Company, MOSL
CTP is supplied to end customers in liquid form in heated vessels to avoid hardening.
It needs to be produced close to customers. This acts as significant entry barrier
against imports from low cost countries like China. RAIN’s subsidiary, Ruetgers sells
most of its CTP in Europe and North America. The market is highly consolidated and
there is a duopoly with Koppers. With prolong decline in production of aluminum
and demand for CTP in these regions, Koppers has consolidated its business from 11
locations to just 4 locations. This has addressed over-capacity. Now, the industry is
running at 80-90% capacity utilization and margins have recovered.
Exhibit 21: Ruetgers revenue region wise
ROW
7%
Exhibit 22: Market leadership in key CTP markets
Ruetgers
Koppers
Others
N. America
24%
Europe
69%
North Amercia
Source: MOSL, Company
Europe
Source: MOSL, Company
1 November 2017
11

Rain Industries
Longstanding strategic relationships with global customers
CII (1.5mtpa CPC business in USA acquired in 2007) and RÜTGERS (coal tar
distillation in Europe and North America acquired in 2013) derive a majority of
revenues from longstanding global customers. CII and RÜTGERS have a
complementary global aluminum customer base, which includes companies such as
Alcoa, Rio Tinto Alcan, Norsk Hydro ASA, Century Aluminum and Aluminerie
Alouette Inc. Furthermore, both CII and RÜTGERS have maintained relationships
with many of their customers for over 15 years on average. RAIN works closely with
customers to improve existing products and to develop new products and processes
to reduce costs for both. It also leverages its complementary customer bases to
cross-sell its CPC and CTP products. CII and RÜTGERS have established themselves in
their respective markets as reliable and high-quality suppliers and enjoy preferred
supplier status with many industry leaders.
Exhibit 23: Leveraging customer by cross selling
Source: company
Long-term contracted raw material supply—a key barrier to entry
In both the CPC and CTP industries, secure access to raw materials is a key
competitive advantage. In light of tightening in the worldwide supply of traditional
anode-grade GPC and coal tar, and RAIN’s long-term supply contracts and
integration with certain of its key suppliers, we believe it would be difficult for a new
entrant to access a meaningful secure supply of these critical raw material inputs.
RAIN enjoys long-standing relationships with many of its suppliers. It is strategically
located close to key suppliers, and in some cases, has co-located facilities. We
believe that the close proximity of its calcining facilities to suppliers minimizes
freight costs and provides a significant competitive advantage. RAIN has several
long-term supply contracts with an average maturity of over 20 years. In addition, it
has maintained strong relationships with its refining partners regardless of contract
duration, resulting in repeated contract renewals over many years. RAIN’s
relationships with suppliers such as Motiva, Phillips66, Marathon Ashland Petroleum
and Exxon Mobil exceed 20 years and these have provided it access to essential GPC
1 November 2017
12

Rain Industries
supply sources for both traditional and non-traditional anode grade cokes. More
than 90% of RÜTGERS’ coal tar supply is based on longstanding framework contracts
and its relationships with most of its suppliers exceed 10 years. RÜTGERS extended
its coal tar supply base by establishing the Russian JV. The Russian JV will provide
approximately 180kt of additional coal tar supply annually at attractive prices. The
secure access to high quality GPC and coal tar through long-term relationships
provides a relatively stable source of raw materials to serve customers reliably.
Leadership in developing new products and alternative inputs
Industry leader in
proprietary product
development
RAIN is recognized by its customers and suppliers as a leader in research and
product development. CII has published and presented more than 15 technical
papers at leading industry conferences since 2000. CII’s CPC business has led the
industry in development efforts to utilize a wider range of GPC raw materials for use
in aluminum anodes. Alternative raw materials such as shot coke and other non-
traditional anode cokes (“NTAC”) are not only typically priced at a discount to
traditional anode grade coke, but commercial use of NTACs is likely to increase, as
traditional anode grade GPC availability declines. CII developed the patented ICE
technology with Century Aluminum Company; it allows exclusive use of shot coke in
anode blends, where shot coke is a very specific and distinctive type of NTAC. Today,
NTACs are an important GPC source. Anode grade shipments typically contain
around 10% NTACs, which is providing significant raw materials cost savings.
Through selective investment, RÜTGERS has developed flexible production facilities
and processes that allow it to produce high quality CTP and downstream products.
In addition to the flexibility of its facilities and production processes, RÜTGERS’
research and development team focuses on creating innovative products to meet its
customers’ evolving needs and to keep up with industry standards and preferences.
RÜTGERS has filed more than 15 patents and approximately 24 trademarks, most of
which have a remaining maturity of 5-15 years. In particular, RÜTGERS’ CARBORES
technology is an environment-friendly pitch binder, which produces less emission
upon use compared to certain alternative pitch binders and has the potential to be
used in the aluminum industry to improve anode performance and reduce anode
production costs.
1 November 2017
13

Rain Industries
Company description
Only player with global leadership in both CPC and CTP
Rain Industries (RAIN) is one of the largest carbon product suppliers to the
aluminum industry, with a global capacity of 3.5mt. Its carbon segment includes
2.1mt CPC capacity and 1.4mt coal tar distillation capacity. Its chemical segment
converts coal tar distillates (other than CTP) into resins, modifiers, aromatic
chemicals, superplasticizers, etc. It also operates a 3.5mt cement plant in southern
India and sells cement under the
Priya
brand.
Exhibit 24: Revenue segment wise in 2016
Cement
10%
Chemical
19%
Carbon
71%
Exhibit 25: EBITDA segment wise in 2016
Cement
7%
Chemical
14%
Carbon
79%
Source: Company
Source: Company
Carbon business segment
RAIN began its business with is first 300kt CPC kiln in 1998 at Visakhapatnam (Vizag)
in India. It added another kiln of 300kt in 2005 at the same location. Although
capacity has doubled to 600kt, it is constrained to produce only 500kt due to limit
set by pollution control departments. In 2007, it acquired CII (the second largest
calciner at that point of time) with total capacity of 1.9mtpa at an enterprise value
(EV) of USD619m, thus increasing its total capacity to 2.5mtpa. A 420kt CPC capacity
at Moundsville, West Virginia was shut down to avoid large investment to meet new
environmental norms while the demand was weak.
Exhibit 26: Revenue distribution by products in 2016
Other carbon
products, energy,
GPC trading
40%
CPC
39%
CTP
21%
Source: Company
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Rain Industries
Exhibit 27: Timeline
Source: Company
Calcined petroleum coke (CPC)
RAIN’s CPC facilities are spread across the USA and India. Three of the US CPC
facilities are strategically located adjacent to an oil refinery. At one of these
locations, it also supplies steam to the refinery. It owns three vessel loading
terminals at the Chalmette, Gramercy and Lake Charles facilities. Its Visakhapatnam
facility enjoys logistical benefits, as it is a port city.
Exhibit 28: CPC plants
Location
Lake Charles, Louisiana
Robinson, Illinois
Chalmette, Louisiana
Gramercy, Louisiana
Norco, Louisiana
Purvis, Mississippi
Moundsville, West Virginia
ZXTTCL, China
Visakhapatnam, India
Subtotal
Project
SEZ, Vizag
Total
ktpa
400
315
230
230
230
70
420
20
600
2,095
370
2,465
Commission Co-generation
1979
1958
1968
1972
1965
1959
1957-2015
1998
yes
No
Yes
Yes
Yes
No
no
No
Yes
118MW
15MW
133MW
Number of
kilns
2
2
1
1
1
1
2
1
2
Remarks
mothballed
2019Q1
1
Vertical Shaft
Source: Company
CPC is a product derived through calcination of green petroleum coke (GPC), which
is a by-product in the oil refining industry. GPC is processed and converted into
anode grade coke, which is used in aluminum smelting process. Every ton of
aluminum requires 400kg of CPC. There is no other economic alternate to CPC in
aluminum-making.
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Rain Industries
RAIN derives more than 90% of its CPC revenues from sale of anode grade CPC to
aluminum producers. Its customers are located throughout the world. In particular,
the Group derives a significant portion of revenues from North America, South
America, Middle East, South Africa, India and Europe.
RAIN has made the following investments to improve operating performance:
Waste heat recovery power generation plants to improve margins
Flue gas desulfurization in Chalmette, Louisiana, USA during December 2015
1mtpa CPC blending at Vizag, AP during December 2016
Key business drivers
Global aluminium production growth
Production of green petroleum coke by oil refineries
Coal tar pitch (CTP)
RAIN has a 1.06mt coal tar distillation capacity, which it entered through the
acquisition of Ruetgers in beginning of 2013 (second largest coal tar distiller in the
world) at an EV of EUR702m. CT pitch is a critical input in aluminum smelting, used
primarily to make carbon anodes. It is also used in the steel industry in carbon
electrodes for electric arc furnace. Every ton of aluminum consumes ~100kg of CTP.
CTP is produced from coal tar, a by-product of metallurgical coke ovens in the steel
industry. Coal tar distillation yields 48% CTP, 40% aromatic oils and 12% napthalene
oil. These by-products are supplied to the downstream chemical business, reported
as a separate division.
Exhibit 29: Coal Tar Distillation Capacity
Location
Castrop-Rauxel, Germany
Duisburg, Germany
Zelzate, Belgium
Uithoorn, The Netherlands
Hamilton, Canada
Candiac, Canada
Cherepovets, Russia
JV
Kedzierzyn-Kozle, Poland
Subtotal
Project
Europe debottlenecking
Total
ktpa
500
300
260
300
1,360
200
1,560
yes
Petro-feedstock
Source: Company
Distillation
yes
no
yes
no
yes
no
yes
no
Chemical/downstream
yes
Resin
yes
Resin
no
superplasticizer
no
Soft pitch production
Since the acquisition of Reutgers, RAIN has made the following investments to
enhance production, improve product mix and sweat assets.
300kt coal tar distillation in Russia during February 2016
7MW waste heat recovery power plant in its cement plant at Kurnool, AP, India
during September 2016
17kt CARBORES III reactor in Castrop-Rauxel, Germany during December 2016
Debottlenecked coal tar distillation plant at Hamilton, Canada, thus increasing
capacity by 23kt to 263kt during June 2017 to meet growing demand.
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Rain Industries
RAIN has recently added a 300kt coal tar distillation project along with Severstal in
Russia. It has a 65% stake in the project. Raw material (coal tar) would be supplied
by Severstal steel plants, thus ensuring raw material availability. This project was
commissioned in 2016.
RAIN is investing USD17m in debottlenecking of petrochemical feedstock distillation
facilities in Castrop–Rauxel, Germany and Zelzate, Belgium. This involves installation
of additional balancing equipment and construction of storage facilities and other
infrastructure. The installed capacity will increase by 200ktpa. This will provide
higher volumes of petroleum pitch for specialty binders in graphite applications and
other downstream products for resin feedstock. The project is likely to be
commissioned by December 2018.
Key business drivers
Global aluminum production growth and steel electric arc furnace route
production growth
Availability of coal tar from steel plants; this is driven by growth in steel
production through the blast furnace route
Chemicals
RAIN produces chemicals in two parallel production streams. One stream is derived
from the downstream refining of primary coal tar distillates and the other from
petroleum derivatives such as C9 and C10 fractions as raw material. The chemicals
produced include: resins, modifiers, aromatic chemicals and superplasticizers.
Production of RAIN's chemicals depends on the coal tar distillation process and on
the proximity to petroleum refineries and availability of suitable-quality petroleum
derivatives like C9 and C10. These chemicals are used in a variety of end-markets
including paints, coatings, construction, plastics, paper, tyres, rail ties, insulation and
foam. About 18.4% of the consolidated revenue for 2016 was from this segment.
The chemicals business can be classified broadly into three sub-product categories:
1. Resins and modifiers
RAIN produces aromatic hydrocarbon resins that are based on either coal tar
distillates or petrochemical raw materials. Coal tar distillate-based resins are
produced from the downstream refining of the carboindene that RAIN produces
internally. Petrochemical-based resins are produced from C9 aromatic resin oil and
several other petrochemical raw materials procured from third-party suppliers. RAIN
also produces modifiers from the downstream refining of naphthalene and other
inputs procured externally.
It sells coal tar and petrochemical-based resins under the brands, Novares®
(customized resins with softening points up to 170
o
C) and Multires® (low cost
resins). Coal tar-based resins are used primarily for applications in coatings, rubber
tires and other end-user rubber products. Petrochemical-based resins are used
primarily for applications in adhesives and printing inks. RAIN produces resins with
different chemical compositions and softening points, which allows resins to have
different hardening and adhesive properties depending on the intended application
and customer specification. RAIN produces specialty resins – it is the only
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Rain Industries
commercial-scale producer in Europe of coal tar-based resins for rubber tire
applications in electric cars. RAIN also sells by-products of the resins production
process under the brands, Novaboost® and Novadest® for applications in petroleum
products.
RAIN sells modifiers under the brand names KMC® and RUETASOLV®. KMC®
modifiers are used for carbonless copy papers, carrier and insulation oils, and
flooring production. RUETASOLV® modifiers are used for epoxy-based coatings,
which are highly resistant to extreme temperatures and chemical stresses as well as
to extreme dry or wet conditions.
In addition, RAIN offers various services to its customers of resins and modifiers,
which include technical advice, customized production, research and development,
and technical knowhow. RAIN has a dedicated product development and
applications group team that works closely with customers to tailor the quality and
grade of resins and modifiers to meet their specific application needs.
RAIN has achieved success in several innovative products developed by its in-house
Product Development and Application group. Some examples are: (a) coal tar-based
resins used for rubber tire applications in electric car, (b) family of colorless water-
white resins used in color sensitive adhesive applications such as tape and book
bindings, and (c) new generation eco-friendly resins, such as those with water-
miscibility to be used in novel waterborne coatings and adhesive formulations with
reduced volatile organic emissions.
2. Aromatic chemicals
Aromatic chemicals comprise of a wide range of phenolics such as Phenol, O-Cresol,
M/P-Cresol and Xylenol. RAIN also produces and sells Anthracene, Carbazole,
Acetophenone and 3.5-Xylenol. Phenolics are produced from the downstream
refining of carbolic oil that RAIN internally distills from coal tar, as well as carbolic oil
and other raw materials purchased from third parties. Anthracene and Carbazole
are produced from the downstream refining of anthracene oil that RAIN internally
distills from coal tar. Acetophenone and 3.5-Xylenol are produced from
petrochemical-based raw materials purchased from third parties. RAIN also
produces Carboindene from the downstream refining of carbolic oil for use as a raw
material in coal tar-based resins. Aromatic chemical products, certain of which can
be custom mixed to meet exacting customer specifications, are used as precursors
for several end-user products. For example, phenolics are used for applications in
leather treatment, electric wire enamels, and food and pharmaceutical applications.
Carbozole is an important constituent for the high-performance pigment violet,
PV23, which is used in textiles, printing inks and plastics.
3. Superplasticizers
Superplasticizers are specialty polymers produced from the downstream refining,
polymerization and purification of naphthalene oil and naphthalene produced
internally, as well as several raw materials purchased from third-party suppliers.
Superplasticizers products are a class of polymer-based dispersant materials,
principally used as in-process aides in the manufacture of products such as concrete
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Rain Industries
and gypsum, as well as a variety of other industrial and agricultural applications.
High-performance superplasticizers provide end-users with meaningful reductions in
their process water demand, which serves to enhance properties such as strength,
elasticity, flow, spreading, permeability, latex coalescence, wetting, color-fastness,
resistance to wear and useful life. RAIN produces a range of differentiated
naphthalene (''PNS'') and melamine (''PMS'') superplasticizers in both liquid and
powder form, as well as carboxylate (''PCE'') dispersants in liquid form.
Cement operations
RAIN operates a 3.5mt cement plant in Andhra Pradesh, southern India. It sells
mainly to retail customers in Andhra Pradesh, Karnataka and Tamil Nadu under the
brand name, Priya Cement.
The company recently invested INR700m on a waste heat recovery system in the
cement plant to improve its captive power generation potential and reduce reliance
on costly grid-based power.
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Rain Industries
Calcined pet coke – an industry overview
CPC demand increasing; no shortage of raw material
CPC is produced from GPC, a porous black solid that is a by-product of the crude
refining process, through a process known as "calcining". This process removes
moisture and volatile matter from GPC at a very high temperature. CPC is produced
in two primary forms:
Anode Grade CPC (for use in the aluminum smelting process), and
Industrial Grade CPC (for use in the manufacturing of Titanium Dioxide and
other industrial applications).
Anode Grade CPC represents approximately 85% of global CPC production and
Industrial Grade CPC represents the remaining 15%. For every metric ton of primary
aluminum produced, approximately 0.4 metric tons of CPC is consumed.
85% of CPC is consumed by
aluminum smelters
Exhibit 30: CPC by end use
Aluminum (west)
Aluminum (China)
6
3
6
3
Aluminum (Europe)
TiO2
recarburizer
Needle (Petroleum based)
Others
Source: Industry
47
3
32
Global CPC production for 2016 was about 27.8mt, 73% of which was produced in
China and North America. China continues to play a dominant role in the CPC
industry. CPC production is hurt in China after the government’s firm action to
contain pollution in 2017. This is creating imbalances in the global market, as more
than 5% of global supply of nearly 10% of demand outside China is unmet, as China
has turned importer of CPC.
China and North America
are key exporter of CPC
Exhibit 31: CPC demand and supply by geography in 2016
9%
10%
13%
15%
18%
4%
10%
11%
S. America
N. America
ME & Africa
Asia
50%
55%
Europe & CIS
China
Demand
Production
Source: Industry
As per recent industry estimates, demand is expected to grow at a CAGR of 2.3% to
approximately 30.5mt by 2020, driven by growth in aluminum production.
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Rain Industries
Right quality GPC supply is the key
GPC has several different structural forms, commonly referred to as needle coke,
sponge coke, and shot coke. Crude oil quality plays a major role in determining
which of these is produced, although coker operation can also play a role.
Needle coke is a premium product with very low S and impurity levels and a highly
layered or anisotropic structure. It has a low coefficient of thermal expansion (CTE <
2.0 × 10−6/K), making it the material of choice for the production of graphite
electrodes used in steel-producing electric arc furnaces. Needle coke is produced
from highly aromatic feedstock such as decant or slurry oil produced in a fluid
catalytic cracker.
Sponge coke is the
preferred structure for
anode
Sponge coke is the preferred structure for anode production and CTEs are typically
in the range of 3.5–4.8
× 10−6/K. It has a mixed optical texture with a wide range of
domain sizes. The open porosity in sponge coke allows good pitch penetration
during mixing, and a mechanically strong, interlocking structure develops after
anode baking. Shot coke has a characteristic spherical particle shape and a dense,
highly isotropic texture, sometimes referred to as a granular texture. Shot coke has
a high CTE (>5.5) and typically higher levels of sulfur and trace metal impurities,
particularly V and Ni. It is formed from crudes with high levels of resins and
asphaltenes, which are large molecular weight precursors.
All GPC has residual volatile matter (VM) when it is cut from the drum. The VM level
is dependent on the coking severity, but typical ranges are 9–14%.
China and USA are key anode grade GPC suppliers
Over 130 oil refineries worldwide produce and sell GPC in varying forms and
qualities. Generally, the sale of GPC does not constitute a material portion of oil
refineries' revenues.
Exhibit 32: Pet coke supply (only 25% is usable in CPC)
Russia, 2%
RoW, 13%
Mexico,
2%
Spain, 3%
Venezuela
, 4% Brazil, 4%
India, 10%
China,
15%
Source: Industry
Exhibit 33: Anode grade Green Pet Coke supply
CIS, E.
Europe,
USA, 20% 7%
RoW, 15%
USA, 47%
China,
58%
Source: Industry
The price of GPC varies depending on the quality and the market in which it will be
used. The price of GPC is largely driven by prevailing demand and supply conditions.
A refinery typically realizes higher prices for Anode Grade GPC that is used in
production of Anode Grade CPC than Non-Anode/ Industrial Grade GPC that is used
in production of Industrial Grade CPC. As the quality of GPC (whether Anode Grade
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Rain Industries
or Industrial Grade) cannot be controlled by a refinery, the manufacturers of CPC
blend various grades of GPC and CPC, to meet the stringent quality specifications of
aluminum smelters.
Availability of low-Sulfur GPC and quality changes
Access to a reliable supply
of low sulfur (S), low metal
GPC has become more
challenging
The greatest change to have impacted the CPC industry in recent times is availability
of suitable quality GPC. Over the last 10-15 years, gaining access to a reliable supply
of low sulfur (S), low metals GPC has become more challenging, and the industry no
longer enjoys a ready supply relative to the demand from the calcining and
aluminum industries due to changes in crude oil quality and refining economics.
Most of the world’s newly constructed refineries are configured to process heavy,
sour crude oils that sell at a significant discount compared with light, sweet crudes.
Many existing refineries, particularly in the US, have made capital investments to
allow the processing of more heavy, sour crudes like those from Canada. These
changes have directly impacted the quality and volume of GPC produced. The
general trend has been an increase in trace metals like V and Ni and an increase in S
levels. The production of low S sponge coke (<2.5%) in the United States has
decreased by approximately 50% over the last 10-15 years. In many other parts of
the of the world, including China, most of the growth in new GPC production is coke
with higher S and metals levels and more isotropic textures. Price gaps from grade
“A” (1.2% S) grade to grade “D” (~5% S) have sharply widened after 2010.
Exhibit 34: Historical GPC prices grade wise
Price gaps from grade “A”
(1.2% S) grade to grade “D”
(~5% S) have sharply
widened after 2010
Supply of low sulfur GPC is
declining and premium has
shot up
Source: Company
Rise of shale oil production
has impacted quality of GPC
due to substitution of sweet
crude
A more recent development beginning to impact GPC quality in the United States is
the growth of shale oil production. Shale oil is a light, sweet crude oil with a low
specific gravity and low sulfur level. Given the declining supply of low S, low metals
GPC in the United States, shale oil would initially seem to be good news for the
production of low S GPC. The experience thus far has been the opposite because
shale oil contains very little “bottoms” (higher molecular weight hydrocarbons), and
therefore, makes very little coke.
Refineries using shale oil are using it as part of a crude blend to take advantage of its
lower S and lower specific gravity by blending it with heavier, higher S crude oils.
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Rain Industries
Demand for CPC is bound to
increase outside China,
while Chinese export of CPC
is declining; this augurs well
for the margin outlook for
CPC producers outside
China
Despite concerns, the industry did not experience any sustained shortages until
around 2007, just before the global financial crisis (GFC). Both GPC and CPC were in
short supply at that time and prices increased rapidly. The GFC quickly changed that
due to smelter closures and curtailments, which reduced the demand for CPC. The
market tightened again in the 2010–2012 period, but continued smelter
curtailments in the West in 2013 and 2014 have moderated the demand for CPC
outside China. This situation is now changing, as China has started shutting smelters
to address the issue of pollution. Demand for CPC is bound to increase outside
China, while Chinese export of CPC declining. This augurs well for the margin
outlook for CPC producers outside China.
Exhibit 35: CPC prices in USA at Gulf of Mexico (USD/t)
600
500
400
300
200
Source: MOSL
There is no shortage of GPC;
rather, it is a matter of the
industry continuing to use
what is available
The aluminum industry continues to adapt well to changes in CPC quality such as
higher V and S levels and more isotropic textures, and many smelters have pursued
a strategy of relaxing specifications to procure lower cost CPC. In 2014, the world
produced ~125mt of GPC, and only about 25% of this was used by calciners for
production of CPC for aluminum and other industries. There is no shortage of GPC;
rather, it is a matter of the industry continuing to use what is available.
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Rain Industries
Coal tar distillation – an industry overveiw
CT pitch and various chemicals
Coal tar is the main raw material in the coal tar distillation process. The coal tar
distillation process can be categorized into two stages: (i) primary coal tar distillation
business ("primary distillation"), and (ii) downstream processing of select products
of primary distillation into co-generated refined products ("downstream").
CTP is produced during primary distillation of coal tar
CTP yield is 48% of coal tar
input
Primary distillation products co-generated are coal tar pitch (CTP; about 48% of tar
distilled), naphthalene oil (about 12%), and aromatic oils (about 40%). With a
distillation yield of 48%, CTP is the main end-product in the coal tar distillation
business, and therefore, crucial for its growth. While the consumption of CTP in the
rest of the world has shrunk, consumption of CTP in Asia (including China and
Middle East) and Europe has increased by 5.5% and 2.4%, respectively due to
increase in production of aluminum.
Global demand for CTP aggregated to ~6.7mt in 2016. This is expected to grow to
~8mt by 2020, representing a CAGR of +4.3%. Global production of CTP was ~6.8mt
in 2016 and is expected to grow to~8.1mt by 2020, representing a CAGR of +4.6%.
Geographically, CTP production is led by China, followed by Europe and Asia/
Australasia, with an aggregate share of 92% in 2016. These are the only regions with
surplus production. Europe will maintain positive surplus through 2020, with a CAGR
of +18.6%. The surplus production over demand for CTP in China is expected to
decline on drive to cut down pollution in China. However, CTP is a local market,
because it needs to be transported in heated vessels to avoid hardening. Recent
shut down by Koppers has corrected the market.
Demand growth outlook is
robust
Aluminum smelters and
graphite electrode
producers are key market
Exhibit 36: Application of CT Pitch
others, 9%
Graphite
Electrode, 11%
Aluminum, 80%
Source: MOSL, Company
Eighty percent of the world's CTP production is primarily used to produce carbon
anodes for the aluminum smelting process. For every metric ton of primary
aluminum, ~0.1 mt of CTP is consumed. Therefore, production of primary aluminum
is one of the most important determinants of demand for CTP. The second-largest
CTP end-users, consuming ~11% of global production are graphite electrode
producers. Graphite electrodes are used for electric arc furnace (EAF) steel-making.
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Rain Industries
Other products in tar distillation
Naphthalene, as a chemical intermediate, is mainly used as a precursor to other
chemicals or as a solvent for chemical reaction. It is used in the production of
dispersants, in the construction industry, and as superplasticizer to produce
concrete and gypsum. Demand for naphthalene is correlated with the building
materials industry. Naphthalene is also used in the production of Phthalic Anhydride
as a substitute for Ortho-xyleneas, as it is more cost-effective. Phthalic Anhydride is
used in the manufacturing of plastics, polyester resins and alkyd resins. Additionally,
phthalate esters made from Phthalic Anhydride are used as plasticizers in the
production of several PVC products.
Aromatic oils, such as Creosote Oil and Carbon Black Oil, are sold to a variety of
industries. Creosote Oil is used by the wood treatment industry for the
impregnation of wood. Carbon Black Oil is primarily used by the rubber and
automobile tyre industries.
Chemicals – downstream
After industrial processing, the downstream products made from Naphthalene and
Aromatic Oils such as Phthalic Anhydride, Toluene, etc form indispensable
constituents of many articles of daily life. For example, they are used in the leather,
construction, car tyres, and pharmaceutical industries as key raw materials.
Exhibit 37: Downstream products have higher margins
Basic
Aromatics
BTX / PA
Superplas-
ticizer
Aromatic
Chemicals
Resins
& Modifiers
Source: Industry
The chemical industry is in the process of gradual recovery after a setback caused by
recession. Global chemical production increase of 2.2% in 2016 was slightly lower
than the increase of 2.7% during 2015. The US reached an annual growth rate of
0.9%, Western Europe of 1.0% and Central/Eastern Europe of 4.2%. The growth in
demand for chemicals primarily depends on the manufacturing sector, and
correlates with GDP. After a global annual GDP growth of 3% in 2016, annual growth
is projected to be 3.3% in 2017 and 3.6% in 2018, in particular led by Asia (especially
China and India) and North America. With improving economic prospects, in
particular through the development of the manufacturing sector, global annual
growth in chemicals is projected to be 2.9% in 2017 and 3.3% in 2018. The strongest
effects will originate from the developing nations of Asia-Pacific, Africa and the
Middle East.
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Rain Industries
Raw material supply
What is coal tar?
Coal tar is a liquid by-product derived from the conversion of coal into metallurgical
coke. During this conversion process, approximately 80% of the coal volume is
processed into metallurgical coke. Metallurgical coke is used as an important
reducing agent and energy source in blast furnaces to produce pig iron and steel.
Consequently, the supply of coal tar is correlated to pig iron production, which, in
turn, is driven by steel production. Asia (including 61% from China) contributes
approximately 78% of total global pig iron production and Europe contributes about
6% of total global pig iron production.
Every metric ton of metallurgical coke produced yields on an average 0.04 metric
tons of coal tar. As per industry estimates, global coal tar supply will increase from
22.6mt in 2016 to 23.1mt 2020 – a CAGR of +0.6%.
Supply linked to pig iron
production
Coal tar supply to increase
at modest 0.6% CAGR
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Rain Industries
SWOT analysis
Global leader in essential carbon products for
aluminum industry
Longstanding strategic relationships with global
customers
Long-term contracted raw material supply—a key
barrier to entry
Strength
Volatile commodity market
Exposure to various currencies (USD, EUR, Ruble,
INR)
Weaknesses
Rising global demand for aluminum to drive demand
for RINDL key products
Aluminum production growth returning to ex-China,
key markets served by RINDL
Opportunities
Change in global refining production patterns or
crude oil specifications impacting GPC availability at
RINDL’s locations
Stricter environment norms
Threats
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Rain Industries
Bull & Bear case
Bull Case
We assume a USD50/t higher realization on CPC, CTP and other carbon products
if the supply shocks were to intensify and aluminum demand growth in RINDL’s
key markets were to be better than expected.
EBITDA margins are expected to be higher by USD25/t over the base case, as we
expect some part of the price increase would be offset by increase in raw
material prices.
This results in EBITDA upgrade of 22%/21% to INR29b/31b in CY18/19E over the
base case. PAT would be upgraded by 37%/35% to INR13b/15b in CY18/19E.
We also expect the EV/EBITDA multiple to re-rate to 8x (base case is 6.5x) on
sustainability of the structural changes in the industry driving strong cash flow
generation and growth opportunities.
Based on the above assumptions, the bull case target price is INR615/sh.
Bear Case
We expect margins on carbon products to be lower by USD10/t (to USD90/t) on
risk of raw material cost inflation.
We do not expect risk to product prices given strong demand growth potential
and supply shocks.
This results in EBITDA cut of 9%/8% to INR21b/23b for CY18/19E over the base
case assumptions. PAT would be cut by 15%/14% to INR8b/9b in CY18/19E.
We also expect EV/EBITDA multiple to de-rate to 5x,
Based on the above assumptions, the bear case target price is INR214/sh.
Exhibit 38: Scenario Analysis
2017
111
20
7
20.2
20.5
17.2
13.4
7.8
2.5
Bear case
2018
133
21
8
24.0
20.3
18.9
11.3
7.0
2.1
2019
146
23
9
27.6
19.5
20.2
9.8
6.1
1.8
5.0
214
2017
111
20
7
20.2
20.5
17.2
13.4
7.8
2.5
Base case
2018
133
23
9
28.2
23.4
21.1
9.6
6.3
2.0
2019
146
25
11
32.1
21.7
22.2
8.5
5.5
1.7
6.5
362
2017
111
20
7
20.2
20.5
17.2
13.4
7.8
2.5
Bull case
2018
143
29
13
38.7
30.8
26.5
7.0
5.1
1.9
2019
157
31
15
43.2
26.3
26.9
6.3
4.3
1.5
8.0
615
Revenue - INR b
EBITDA - INR b
PAT - INR b
EPS - INR
RoE - %
RoCE - %
PE - x
EV/EBITDA - x
P/BV - x
Target multiple - x
Target price - INR/sh
1 November 2017
28

Rain Industries
Financials and Valuations
Income Statement
Y/E Dec
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
2012
53,614
-4.9
11,090
20.7
1,200
9,891
2,076
665
-1,651
6,828
2,180
31.9
71
4,577
6,229
-6.2
2012
683
24,833
25,517
69,268
4,118
99,024
44,290
7,096
37,194
5,866
16
64,476
9,850
5,649
46,657
2,320
8,528
8,528
0
55,948
99,024
2013
117,443
119.1
14,978
12.8
3,568
11,410
5,933
566
-1,809
4,235
367
8.7
10
3,845
5,654
-9.2
2013
673
31,560
32,233
82,905
4,721
120,275
150,718
58,095
92,623
2,721
76
50,845
20,002
15,371
8,512
6,961
25,989
25,989
0
24,856
120,275
2014
119,370
1.6
12,220
10.2
3,470
8,750
6,079
369
-2,464
577
-121
-20.9
-189
885
3,349
-40.8
2014
673
28,785
29,458
76,726
4,225
110,625
148,683
61,565
87,118
2,691
68
45,675
15,337
13,712
8,995
7,630
24,926
24,926
0
20,748
110,625
2015
102,185
-14.4
13,492
13.2
3,278
10,213
5,763
499
35
4,984
1,962
39.4
-217
3,233
3,198
-4.5
2015
673
28,702
29,375
75,957
3,844
109,200
150,241
64,843
85,398
4,108
59
43,665
16,210
11,968
8,605
6,882
24,030
24,030
0
19,635
109,200
2016
93,164
-8.8
13,537
14.5
3,461
10,076
5,867
704
-996
3,918
1,648
42.1
69
2,242
3,238
1.2
2016
673
29,471
30,144
74,493
2,833
108,185
157,425
68,304
89,121
2,352
99
38,707
12,678
10,637
10,491
4,901
22,094
22,094
0
16,613
108,185
2017E
111,303
19.5
19,713
17.7
4,947
14,766
5,974
1,148
-670
9,271
2,975
32.1
176
6,120
6,790
109.7
2017E
673
35,454
36,126
71,493
2,833
111,168
158,925
73,251
85,674
5,705
99
44,390
16,515
13,274
9,699
4,901
24,699
24,699
0
19,690
111,168
2018E
132,546
19.1
23,430
17.7
4,822
18,608
(INR Million)
2019E
146,067
10.2
25,486
17.4
5,009
20,477
5,944
1,152
0
13,815
4,170
30.2
168
9,477
9,477
39.6
2018E
673
44,123
44,796
67,493
2,833
115,838
166,894
78,073
88,821
2,471
99
50,697
18,940
15,423
11,434
4,901
26,250
26,250
0
24,447
115,838
5,940
1,158
0
15,695
4,748
30.3
167
10,780
10,780
13.7
2019E
673
54,096
54,769
63,493
2,833
121,810
172,944
83,082
89,862
1,171
99
58,393
21,398
17,050
15,043
4,901
27,714
27,714
0
30,679
121,810
Balance Sheet
Y/E Dec
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
(INR Million)
1 November 2017
29

Rain Industries
Financials and Valuations
Ratios
Y/E Dec
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2012
18.2
21.7
74.7
1.1
7.1
2013
16.8
27.4
95.8
1.0
13.7
2014
10.0
20.3
87.6
1.0
10.0
2015
9.5
19.3
87.3
1.0
12.7
4.0
2.0
0.4
0.8
5.9
2.6
26.9
14.2
0.5
38
67
41
0.9
2012
11,090
98
3,651
-819
0
14,020
-5,284
8,736
0
1,338
-3,946
-276
30,993
-2,479
-440
27,798
37,872
8,294
46,657
19.7
11.8
1.0
48
62
39
2.3
2013
14,978
-5
-7,954
-927
0
6,091
-3,654
2,438
0
-37,262
-40,916
-203
212
-4,299
-776
-5,066
-39,890
46,657
8,512
10.9
9.4
1.1
42
47
31
2.3
2014
12,220
-1,925
4,340
-1,722
0
12,913
-3,903
9,010
0
303
-3,599
0
-1,670
-6,911
-336
-8,917
396
8,512
8,995
10.9
11.2
0.9
43
58
37
2.3
2015
13,492
1,045
-587
-1,567
0
12,382
-4,987
7,395
0
505
-4,482
0
-1,782
-5,767
-405
-7,954
-54
8,995
8,605
2016
9.6
19.9
89.6
1.0
15.6
5.7
2.8
0.6
0.9
6.1
1.8
10.9
12.7
0.9
42
50
31
2.1
2016
13,537
-1,069
4,454
-3,037
0
13,885
-3,086
10,799
0
178
-2,908
0
-2,492
-5,900
-506
-8,898
2,079
8,605
10,491
2017E
20.2
34.9
107.4
2.0
11.9
13.4
7.8
2.5
1.4
7.8
0.7
20.5
17.2
1.0
44
54
34
1.7
2017E
19,713
0
-3,868
-2,975
0
12,870
-4,853
8,017
0
1,148
-3,705
0
-3,000
-5,974
-807
-9,781
-616
10,491
9,699
2018E
28.2
42.5
133.2
2.0
8.5
9.6
6.4
2.0
1.1
6.3
0.7
23.4
21.1
1.1
42
52
33
1.3
2018E
23,430
0
-3,023
-4,170
0
16,237
-4,735
11,502
0
1,152
-3,583
0
-4,000
-5,944
-807
-10,752
1,902
9,699
11,434
2019E
32.1
46.9
162.8
2.0
7.5
8.5
5.8
1.7
1.0
5.5
0.7
21.7
22.2
1.2
43
53
34
0.9
2019E
25,486
0
-2,622
-4,748
0
18,116
-4,750
13,366
0
1,158
-3,592
0
-4,000
-5,940
-807
-10,747
3,776
11,434
15,043
Cash Flow Statement
Y/E Dec
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
(INR Million)
1 November 2017
30

REPORT GALLERY
RECENT INITIATING COVERAGE REPORTS
Rs

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Rain Industries
Disclosure of Interest Statement
Analyst ownership of the stock
Rain Industries
No
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1 November 2017
32