Cement, calcined petroleum coke and specialty chemicals maker Rain Industries share price touched a fresh record high of Rs 373.90, rising as much as 10 percent on Thursday post stellar earnings performance.
With maintaining buy call on the stock, Motilal Oswal said it has raised target price to Rs 492 (from Rs 362 per share) following increase in EBITDA (earnings before interest, tax, depreciation and amortisation) estimates and carbon margins.
It has raised estimates for carbon margins from USD 100 per tonne to USD 120 per tonne. As a result, consolidated EBITDA has increased by 17/22/21 percent for CY17/CY18/CY19, it added.
Rain Industries reported very strong earnings growth, driven by structural changes in market dynamics for its carbon business. Consolidated EBITDA increased 49 percent YoY to Rs 673 crore, beating Motilal Oswal's estimate of Rs 500 crore by a wide margin, due to both stronger margins (USD 118 per tonne versus estimate of USD 85 per tonne) and volumes (475kt versus estimate of 425kt CPC volumes) in the carbon business.
Chemical division was affected by fire at one of its plant in Europe, seasonally low demand and higher input prices. Despite lower prices, margins in the cement business improved due to the benefit of waste heat recovery and operational improvements.
Profit during the quarter grew by 93.3 percent year-on-year to Rs 253.4 crore and revenue increased 36.5 percent to Rs 3,050.8 crore.
Motilal Oswal said the market is now facing shortage of calcined petroleum coke (CPC), while the GPC (green petroleum coke - the key input) market is not as tight. Further, Rain has invested in desulfurisation plants and mixers, which allow it to use higher sulfur GPC relative to competitors.
Therefore, the research house believes CPC margins for Rain will settle at a higher level than the USD 120 per tonne achieved in 2011. "We are raising estimates for CPC volumes by 3/8/2 percent for CY17/CY18/CY19," it said.
Similarly, the brokerage firm expects coal tar pitch margins to benefit from supply-side correction in its key market and additional demand from aluminum production ramp-up in North America and graphite industry.
As the 200kt pet tar distillation expansion project in Europe is on track, we are raising volumes by 9 percent to 700kt for CY19," Motilal Oswal said.
At 10:06 hours IST, the stock price was quoting at Rs 367.00, up Rs 27.05, or 7.96 percent on the BSE.