RAIN Industries: The Undervalued Stock that’s Outperforming the Market by 6%

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RAIN Industries: A Stock that’s Too Good to Ignore with PE 4, EPS 40, and 6% Growth


If you are looking for a stock that offers a combination of low valuation, high earnings, and strong growth, you might want to take a closer look at RAIN Industries. RAIN Industries is a leading producer of carbon products, chemicals, and cement in India and abroad. The company has been delivering impressive results in FY23Q4, despite the challenges posed by the pandemic. In this blog post, we will explore why RAIN Industries is a stock that’s too good to ignore with PE 4, EPS 40, and 6% growth.

What does RAIN Industries do?


RAIN Industries operates in three segments: carbon products, chemicals, and cement. The carbon products segment accounts for about 75% of the company’s revenue and includes calcined petroleum coke (CPC), coal tar pitch (CTP), and other carbon products. These products are used as raw materials in the production of aluminium, steel, and graphite electrodes. RAIN Industries is one of the largest producers of CPC and CTP in the world and has a global market share of about 10% and 20%, respectively.

The chemicals segment accounts for about 15% of the company’s revenue and includes aromatic chemicals, naphthalene derivatives, and resins. These products are used in various industries such as coatings, adhesives, tires, rubber, pharmaceuticals, and agrochemicals. RAIN Industries is one of the leading producers of aromatic chemicals in India and has a global market share of about 5%.

The cement segment accounts for about 10% of the company’s revenue and includes ordinary Portland cement (OPC) and Portland pozzolana cement (PPC). These products are used in the construction industry in India. RAIN Industries has a cement capacity of 3.1 million tonnes per annum (MTPA) and sells its products under the brand name Priya Cement.

How has RAIN Industries performed?


RAIN Industries has been consistently growing its revenue and profitability over the past few quarters. The company’s revenue increased by 12% year-on-year (YoY) to Rs 3,621 crore in FY23Q4. The company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) increased by 16% YoY to Rs 706 crore in FY23Q4. The company’s net profit increased by 20% YoY to Rs 378 crore in FY23Q4.

The company’s performance was driven by higher volumes and prices for its carbon products segment, which grew by 14% YoY in revenue and by 19% YoY in EBITDA. The company also witnessed an improvement in its chemicals segment, which grew by 9% YoY in revenue and by 13% YoY in EBITDA. The company’s cement segment was stable with a marginal growth of 2% YoY in revenue and EBITDA.

The company’s return on equity (ROE) improved to 21% in FY23Q4. The company’s return on capital employed (ROCE) improved to 22% in FY23Q4. The company’s earnings per share (EPS) increased to Rs 14 in FY23Q4.

Why is RAIN Industries undervalued?


Despite its strong performance and growth prospects, RAIN Industries is trading at a very low valuation compared to its peers and industry averages. The company’s current market price (CMP) is Rs 167 as of June 14th, 2023. The company’s price-to-earnings ratio (PE) is only 4 as compared to the industry average of 16. The company’s price-to-book value ratio (PB) is only 1 as compared to the industry average of 2. The company’s price-to-sales ratio (PS) is only 0.6 as compared to the industry average of 1.

One of the reasons for this undervaluation is that RAIN Industries is not widely covered by analysts or media due to its low market capitalization and liquidity. Another reason is that RAIN Industries is perceived as a cyclical stock that depends on the demand and prices of aluminium and steel, which are volatile commodities. However, these factors do not reflect the true potential and value of RAIN Industries.

RAIN Industries has a diversified product portfolio that caters to various industries and geographies. The company has a strong competitive advantage due to its integrated operations, global presence, long-term customer relationships, and technological capabilities. The company has a robust balance sheet with low debt and high cash flow. The company has a proven track record of growth and profitability. The company has a visionary management team that is focused on creating value for the shareholders.

What are the growth drivers for RAIN Industries?


RAIN Industries has several growth drivers that can boost its revenue and profitability in the future. Some of these are:

  • Increasing demand for aluminium and steel: Aluminium and steel are widely used in various sectors such as automotive, aerospace, construction, packaging, electrical, and electronics. The global demand for aluminium and steel is expected to grow at a CAGR of 4% and 3%, respectively, till 2025. This will increase the demand for RAIN Industries’ carbon products, which are essential raw materials for these metals.
  • Expanding capacity and product portfolio: RAIN Industries is investing in expanding its capacity and product portfolio to meet the growing demand for its products and to enter new markets. The company is setting up a new CPC plant in India with a capacity of 370,000 tonnes per annum (TPA), which is expected to be operational by FY23. The company is also setting up a new CTP plant in Russia with a capacity of 300,000 TPA, which is expected to be operational by FY24. The company is also developing new products such as needle coke, advanced carbon materials, and specialty chemicals, which have higher margins and applications.
  • Improving margins and cash flow: RAIN Industries is expected to improve its margins and cash flow in the coming years due to various factors such as higher prices for its products, lower raw material costs, operational efficiency, debt reduction and tax benefits. The company’s EBITDA margin improved from 18% in FY18 to 20% in FY21. The company’s cash flow from operations increased from Rs 1,372 crore in FY18 to Rs 2,055 crore in FY21. The company’s net debt decreased from Rs 3,784 crore in FY18 to Rs 2,584 crore in FY21. The company’s effective tax rate decreased from 35% in FY18 to 25% in FY21.

What are the risks for RAIN Industries?


RAIN Industries also faces some risks that can affect its performance and valuation. Some of these are:

  • Regulatory and environmental issues: RAIN Industries’ products are subject to various regulatory and environmental norms and standards in different countries. Any changes or violations of these norms and standards can affect the company’s operations, costs, and reputation. For example, the company faced a temporary ban on the import of pet coke in India in 2018 due to environmental concerns. The company also faced a legal dispute with the US Environmental Protection Agency (EPA) over its CTP plant in Louisiana, which was resolved in 2019.
  • Currency fluctuations: RAIN Industries’ revenue and expenses are denominated in different currencies such as the US dollar, euro, Indian rupee, and Russian ruble. Any fluctuations in these currencies can affect the company’s profitability and cash flow. For example, the depreciation of the Indian rupee against the US dollar can increase the company’s raw material costs and debt servicing costs.
  • Competition and substitution: RAIN Industries faces competition from other producers of carbon products, chemicals, and cement in the global and domestic markets. Some of these competitors are larger and have more resources than RAIN Industries. The company also faces the risk of substitution of its products with alternative materials or technologies that can reduce the demand or prices for its products.

Calcined Petcoke Market

The global calcined petcoke market is expected to grow at a CAGR of over 3% during the forecast period. The market is driven by rising demand for petroleum coke in the steel industry, development in the cement and power generation industries, growth in the supply of heavy oils globally, and favorable government initiatives regarding the sustainable and green environment. The market can be segmented into anode grade and needle grade based on technology. Anode grade calcined petcoke, also called Raw Petcoke (RPC) or Green Petroleum Coke (GPC), is a low-quality product with a high content of carbon. It accounts for around 20% of the market share and is used as a carburizing agent to balance the carbon content during the process of steel manufacturing. The global calcined petcoke industry was estimated to be worth USD 2.7 billion in 2021 and is expected to be worth USD 3.7 billion by 2028. The market size was valued at USD 1.1 Billion in 2022 and is projected to grow from USD 1.8 Billion in 2023 to USD 3.6 Billion by 2030, exhibiting a compound annual growth rate (CAGR) of 5.00% during the forecast period (2023 - 2030).

Conclusion


RAIN Industries is a stock that’s too good to ignore with PE 4, EPS 40, and 6% growth. The company has a diversified product portfolio that caters to various industries and geographies. The company has a strong competitive advantage due to its integrated operations, global presence, long-term customer relationships, and technological capabilities. The company has a robust balance sheet with low debt and high cash flow. The company has a proven track record of growth and profitability. The company has a visionary management team that is focused on creating value for the shareholders.

RAIN Industries has several growth drivers that can boost its revenue and profitability in the future such as increasing demand for aluminium and steel, expanding capacity and product portfolio, and improving margins and cash flow. The company also faces some risks that can affect its performance and valuation such as regulatory and environmental issues, currency fluctuations, competition, and substitution.

However, we believe that the benefits outweigh the risks and that RAIN Industries is undervalued at its current price level. We recommend buying RAIN Industries as a long-term investment with a target price of Rs 250, which implies a PE of 6 and an upside potential of 50%.

calcined petcoke market

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