Rain Industries: Q2 CY25 Earnings Call Highlights
Rain Industries: Q2 CY25 Earnings Call Highlights
While challenges remain, RAIN is optimistic about its long-term prospects. Management expects improvement in the latter half of the year with normalization of margins anticipated in Q1 2025.
rain-industries.com | NSE: RAIN
Overall Sentiment
While RAIN Industries Limited experienced continued margin pressure in its Carbon segment during Q2 2024, the call highlights a cautiously optimistic outlook for the company. Management expects improvement in the latter half of the year with normalization of margins anticipated in Q1 2025.
Key Highlights
Improved Earnings: Despite lower overall revenue, EBITDA came in at ₹4.9 billion, marking a positive step towards normalized earnings levels. However, this was primarily due to accelerated shipments, indicating no significant uptick in demand for the remainder of the year.
Carbon Segment
Margin stabilization observed in Q2 2024, driven by a leveling out of price declines and aligning raw material costs with selling prices.
Increased CPC volumes were reported, particularly in India.
Continued downward pressure on CPC pricing, but expected to be offset by further raw material cost reductions.
Positive outlook for CPC demand based on strong aluminum industry forecasts and increased capacity utilization due to favorable regulatory decisions in India.
Distillation operations saw stable product prices amidst increasing supply volume pressure.
Advanced Materials Segment
Continued growth in volumes and profitability, driven by lower natural gas costs and strong demand, particularly for HHCR resins in Europe.
Positive impact of Red Sea shipping disruptions, leading to increased demand for “made-in-Europe” HHCR materials.
Cement Segment
Modest growth observed due to election-related slowdown in construction activity.
Positive outlook for future growth driven by government infrastructure spending and housing schemes, leading to increased demand, particularly in southern India.
Financial Performance
Consolidated net revenue of ₹40.56 billion, down 5.65 billion from the same period in 2023.
Adjusted EBITDA decreased by ₹1.85 billion, mainly due to the Carbon segment.
Gross debt of $970 million, with a net debt to EBITDA ratio of 4.2x, expected to decrease to 3.0x in the coming quarters.
Strong liquidity position with $432 million in cash and undrawn credit facilities.
Management Actions
Implementing cost reduction strategies across all regions to further improve profitability.
Investing in maintenance capital expenditures and plant turnarounds to enhance operational efficiency.
Investment Implications
While the near-term outlook for the Carbon segment remains uncertain, the company's efforts to improve capacity utilization and stabilize margins create a positive outlook for the future.
The strong performance of the Advanced Materials segment and the potential for growth in the Cement segment provide diversification and additional growth opportunities.
The company's commitment to cost management and debt reduction strategies suggest a focus on improving profitability and financial stability.
Overall
Investors should monitor the performance of the Carbon segment closely, particularly the impact of regulatory changes and the recovery of CPC prices. The positive developments in the Advanced Materials and Cement segments offer potential upside, while the company's focus on cost reduction and debt management could lead to improved financial performance and investor confidence.
Rain Industries Limited Q2 2024 Results: FAQs
1. How did Rain Industries Limited perform financially in Q2 2024?
Rain Industries Limited (RIL) reported a consolidated net revenue of ₹40.56 billion in Q2 2024, a decrease from ₹46.21 billion in Q2 2023. This decline was primarily driven by lower revenue in the Carbon and Cement segments. Despite this, there were some positive takeaways, including improved margins in the Carbon segment and strong performance in the Advanced Materials segment.
2. What were the key drivers of the Carbon segment's performance?
The Carbon segment saw revenue decline to ₹27.95 billion in Q2 2024 from ₹33.53 billion in Q2 2023. While sales volume increased, driven by higher CPC volumes (particularly in Asia and the Middle East), this was offset by a 24.1% reduction in average blended realisation due to lower market prices.
Positively, margin pressures began to ease, with EBITDA margin reaching approximately 12-14% compared to 8-10% in Q1 2024. This was due to a levelling out of margin contraction for CPC and CTP and a better alignment of raw material costs with selling prices.
3. What is the outlook for the Carbon segment in the second half of 2024?
RIL expects margin pressures in the Carbon segment to continue easing in the latter half of 2024, with normalisation expected in H1 2025. This will be aided by the recent decision by the Commission for Air Quality Management (CAQM) in India to increase the import quota for green petroleum coke. Additionally, RIL expects to increase CPC volumes in H2 2024, supported by the approval to import green petroleum coke at its SEZ facility in India.
4. How did the Advanced Materials segment perform in Q2 2024?
The Advanced Materials segment recorded another strong quarter, with revenue increasing to ₹9.40 billion in Q2 2024 from ₹8.94 billion in Q2 2023. This was driven by strong HHCR resin sales in Europe, where customers sought alternative suppliers due to shipping disruptions in the Red Sea. Margins remained stable for a second consecutive quarter, and RIL expects this trend to continue in the coming quarters.
5. What is the outlook for the Cement segment?
RIL anticipates cement demand to increase in the coming quarters due to the Indian government's focus on infrastructure spending. This, coupled with efforts to reduce operational expenses, is expected to support margin improvement in the segment.
6. What is RIL's current debt position?
As of June 30, 2024, RIL had a gross debt of US$970 million and a net debt of US$747 million. The net debt to EBITDA ratio stood at 4.2x. RIL expects this ratio to gradually trend towards 3.0x in the coming quarters as performance improves and debt is paid down.
7. What cost reduction strategies is RIL implementing?
RIL has implemented significant cost-reduction strategies across all regions to mitigate the impact of the challenging market conditions. The benefits of these initiatives are expected to materialise in subsequent quarters.
8. What is RIL's overall outlook for the remainder of 2024?
While challenges remain, RIL is optimistic about its long-term prospects. The company is focused on driving volume growth in its Carbon segment, leveraging the strong performance of its Advanced Materials segment, and capitalising on the expected growth in the Indian cement market. RIL is committed to its strategic initiatives and confident in its ability to navigate the current environment and emerge as a stronger and more resilient organisation.
Source: Link to Earning Call Transcripts
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