Rain Industries LtdQ3 FY23Chemicals & Petrochemicals

Rain Industries Ltd

Q3 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 4

Margin

Category 3

Fundraise

Order

Capex

0 of 5 growth signals are positive — mixed outlook.

Revenue guidance

Category 4

→Volume growth has been stagnant or declining over the last 5-7 years due to import restrictions on GPC & CPC into India since October 2018, impacting carbon segment volumes.
→Operating capacity in India is at ~45% due to these restrictions.
→Divestment of Polymers business (2020) and closure of aromatic chemicals production (2022) also contributed to volume reduction.
→Management hopes for relief on petroleum coke import restrictions in India, which could positively impact volumes in 2024.
→Strategic partnerships and focus on lithium-ion battery materials aim to drive growth in advanced segments.
→Focus on research and development of synthetic graphite anode materials for lithium-ion batteries.
→No major new CAPEX projects planned; emphasis remains on debt reduction before pursuing growth capital projects.
→Gradual margin improvement expected in advanced materials with normalization of energy prices.
→Cement business expected to improve with seasonal demand post-monsoon.

Category 3

→Management aims to re-establish margins partially in Q4 2023 after unique market downturn conditions.
→Advanced Materials segment has returned to profitability, with margins expected to normalize by Q1 2024, noting seasonal volume fluctuations.
→Expected improvement in Cement business performance in coming quarters due to lower coal prices and increased construction activity.
→Potential relief on Indian petroleum coke import restrictions could enable higher utilization of Indian CPC plants, boosting volumes in 2024.
→Focus on research and development to expand specialty products for lithium-ion battery anodes, indicating future growth avenues.
→Management prioritizes debt reduction over major growth capital projects near-term to stabilize financials and investor confidence.
→Stabilization and cost-optimization of US ACP plant production anticipated to enhance contributions; Indian ACP plant construction subject to approvals and regulatory outcomes.
→Overall, modest earnings growth potential through operational efficiency, capacity utilization improvements, and new product developments.

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→No new major growth capital projects or fundraising through equity or debt are currently planned.
→The management focus is on debt reduction rather than further capital expenditure or fundraising.
→Recent refinancing involved repayment of $70 million and refinancing costs of about $20 million, with deferred finance costs amortized until 2028-2029.
→Debt reduction target is to lower debt by 15-18% over the next 18 months, mainly through working capital release.
→No plans currently exist for share buybacks; any such decision will require Board approval.
→The company continues to evaluate long-term requirements and strategies for excess funds, considering tax, foreign exchange, and interest rates, but no immediate fundraising plans were disclosed.

→In Q3 2023, there were some delayed shipments impacting profitability.
→The delayed third quarter volumes are expected to be delivered during the fourth quarter.
→These delayed shipments are secondary factors; the main impact on earnings was due to inability to reset raw material costs.
→However, delayed shipments in a retreating market tend to follow a similar pattern.
→Overall, the company expects volumes to be normal for Q4 2023 based on seasonal demand.
→Any slippage from Q3 will not add incremental volume to Q4.
→No specific details on the total current or expected orderbook or pending orders volume were provided.

→No major growth capital projects are currently in the pipeline; focus is on debt reduction over capex in the near term as per Board guidance.
→Previous major growth projects faced various challenges:
→ - Vertical Shaft Calcination Project affected by Indian petroleum coke import restrictions; potential government relaxation may enable higher capacity and meaningful earnings impact.
→ - Hydrogenated Hydro-Carbon Resins plant faced start-up problems and market challenges; production stabilized in Q2 2023 with plans to build customer base and improve performance.
→Management continues strategic partnerships and R&D in next-generation materials, especially synthetic graphite anode materials for Lithium-ion Batteries.
→Planning to provide more details on R&D and strategic plans at an appropriate future time.

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