Rain Industries Limited – A play on the global aluminum demand
June 26, 2021 | Stock Talk
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Rain Industries Limited is a play on the global aluminum demand.
Rain Industries Limited (RAIN) is a leading vertically integrated producer of carbon, cement, and advanced materials products. The company owns and operates a total of 18 manufacturing facilities that manufacture products for its 3 business segments. These facilities are established across North America, Europe, and Asia.
The sale of its product depends on the overall aluminium production. Aluminium, Construction, Carbon black & Graphite are the major contributors to the overall revenue of the company.
Near decade high aluminium prices - The aluminium LME prices are at high levels since the late 2018 implying higher capacity utilisation for aluminium smelters. The management also guided that ~4 million tonnes of new aluminium capacity is expected to come globally in 2021. Out of this, 3 million tonnes would come in China in the form of new capacities or re-start of idled capacities. This will increase the market opportunity for Rain Industries Ltd. as there would be less exports of CPC from China and CTP to Middle East and South Africa.
Aluminium Capacity Expansion in India – Coal India will set up specific-purpose vehicles (SPVs) for about Rs 38,000-crore the green-field aluminium project, and an about Rs 23,400-crore aluminium smelting unit with state-run National Aluminium Company Ltd (NALCO).
NALCO to invest Rs. 30,000 cr for expansion, diversification in the next 6-7 years - State-run aluminium maker Nalco will invest around Rs 30,000 crore by the financial year 2027-28 on various expansion and diversification plans. With the proposed expansion plans of both coal India and Nalco, the probability of receiving a favorable outcome from the government to Rain for the commencement of new vertical shaft calciner plant becomes higher.
Bullish CPC and CTP Price Trends in 2021 - The Company is witnessing a good demand in CPC and CTP segment. But, one needs to watch the GPC prices too. It wouldn’t be difficult to pass on the increase in price because of the higher LME aluminium prices due to shortage of scrap and primary aluminium in the global market.
Earning upside from completion of Capex - Total Capex of $1 53( INR 1150 cr) million for Hydrogenated Hydro Carbon (HHCR) Resin, Vertical shaft & Anhydrous Carbon Pellets( ACP) Plant The EBIDTA contribution of these plants can reach $50 million on ramping up by end of 2022
Cost cutting measures
Closure of Netherland facility - The Company has closed operations of plant situated at Uithoorn, Netherlands. The division mainly catered to printing ink adhesives, which witnessed slower demand and exhibited eroding profitability.
On 31st Dec, 2020, the company sold two of its subsidiary for Rs. 637 crores. The funds would be utilised for repayment of debt resulting in Rs. 32 crores of interest savings per annum. The management has also guided that no new capex in line for some time, the focus would be on to reduce debt. They also guided on the reduction of overall interest rate from 5.5% to 4% in next one and half year.
Deleveraging - The company has high debt on its book. The management is guiding that no new capex in line for some time, the focus would be on debt reduction.
Cash profit upside in the next 2-3 years
Expected free cash flow in next 2 years
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