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A Global Niche Carbon Co Disguised as an Indian Mid-Cap on a P/E of 7.5x with 30% Earnings Growth.

Rain Industries Ltd (Rain- $RINDL) is a little known, lightly covered, listed private equity style global specialty niche Carbon and Chemicals business disguised in an Indian mid-cap.

It is one of the largest global producers of Calcined Petroleum Coke (CPC) and Coal Tar Pitch (CTP) in the world with operations spread across North America, Europe, India and Russia.  Rain has long standing relationships with suppliers to source the key raw materials – Green Petroleum Coke (GPC) and Coal Tar and these industries are typically oligopolistic by nature. 

During the past few years, Rain’s profitability was affected primarily due to China overcapacity and lower demand from its end customers (aluminium industry). Nevertheless, Rain took several Major Capex Initiatives including setting up a greenfield distillation unit in Russia securing supply of raw material (coal tar) for its European CTP plants as well as setting up a CPC blending facility in India, which is likely to push volumes and improve margins as the cycle has finally turned for the better. 

While the business has now mostly completed its major capex initiatives, refinanced the majority of its outstanding bonds to 2025 with a lower coupon and longer tenor, the focus turns to Rain deleveraging its balance sheet and the substantial FCF due to the pricing power around the corner from a market that is now structurally short CPC and CTP.

Rain should hit about 18bn INR EBITDA this year and NPAT should grow 27% CAGR over FY16-19. Around 2019 to 2020, Rain have indicated they would look at listing their consolidated Carbon business in the USA, catalysing the large equity upside for all shareholders.

China lobs a grenade into the aluminium supply chain.

Latest Earnings Presentation Link.

Recent Economic Times Article - For Rain Industries, it pours when there's deficit of pet coke, coal tar

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This post first appeared on Smartkarma | Intelligent Investing, please read the originial post: here

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A Global Niche Carbon Co Disguised as an Indian Mid-Cap on a P/E of 7.5x with 30% Earnings Growth.

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