My portfolio – Rain Industries ( Mohnish Pabrai )

My portfolio – Rain Industries ( Mohnish Pabrai )


Hello investors, my name is Sagar and in this video we will talk about Rain Industries as you may know . their shares fell from 400 rupees to 150 . So should you buy them now ? in this video, we’ll talk about their business model, financials and about their valuations if you are new to my channel, every Monday I will post analysis videos and on Thursday’s I will give some tips on how to invest in the stock market so, if you do want more videos, don’t forget to subscribe my channel Rain Industries has a market cap of more than 5 000 crores Market cap stands for the value of any company Their CEO is Mr. Jagan Mohan Reddy The company was founded by his father in 70’s and they only used to sell cement but Mr. Jagan Mohan Reddy started his own company with the name of Rain Calcining and in 2007, the cement business and Rain calcining were merged forming Rain Industries they operate in three basic segments : Carbon , chemical and cement but as you can see in the image, the majority of profits come from the carbon segment and that is where we will be focusing the most In their carbon segment, they have 2 products :CPC and CTP. Both of them are used to make aluminium. CPC stands for calcined petroleum coke. But how is this made ? we start with crude oil. This crude oil has some components which are not needed you wouldn’t be able to use this crude oil as fuel because it has certain components which aren’t needed and that’s why crude oil is “transformed” into usable oil. This process is know as refining. one by product of this refining is GPC. GPC stands for green petroleum coke. and CPC can be made from GPC. As we mentioned earlier, CPC is used to make aluminium. so if you want to make 10 tonnes of Aluminium, you need 4 tonnes of CPC but you might be asking, if oil refineries can make GPC , why don’t they make CPC directly? they can’t do it for a simple reason. Rain Industries uses GPC from various sources to make sure their quality of CPC remains perfect. Rain Industries is the second largest player in this carbon segment. I will explain you in a minute why it’s not the largest player Their second carbon product is CTP. This stands for coal tar pitch. In order to make CTP. you start with coal and then transform it into coke. Why transform it ? Because we can make iron and steel from coke. you can use this same coke to make CTP, which we will sue to make aluminium. if you want to make 10 tonnes of aluminium, you need 1 tonne of CTP. so who is the largest player in this market if Rain Industries is second ? if we can say that 100 tonnes of carbon product is being made annually, more than 50 % is made in China that;s simply because the demand of aluminium in China is very high and as we mentioned these products are needed to make aluminium but when you make these products , you create a huge amount of pollution and the Government didn’t like the environmental effects of this production and that’s why they closed many factories in China. Rain Industries directly benefited from this. Rain Industries operates internationally (as you can see in the image). They are able to do that because they have various facilitates in Europe. so why did their shares fall ? because this is related to this segment as we mentioned earlier, you need petroleum coke to make CPC. The Supreme court of India banned companies to import petroleum coke but if they won’t be able to import, how will they make and CPC ? but the ban was lifted later. Let’s talk about their chemical segment. The majority of their profits still come from their carbon segment. they have 4 main products but more than 60% of their revenues comes from 1 product, which is resins. Resins is used in rubber products such as tires the second largest product is superplasticizers. This is used in industrial and agricultural segments. their third product is modifiers. This is used to make oils and coatings and their last product is aromatic chemicals. This is used in various segments such as foodstuff, pharmaceuticals, electric wires the chemical segment has shown growth of 2 – 5 % but a big part of their revenues comes from Europe and they expect decent growth in this segment and their last segment is cement. The company started in the 70’s selling cement but now it doesn’t earn much from this segment. they have 2 facilities in India and that is where they operate. In any cement business, you mainly operate in the city you have the facilities. but the last year it didn’t perform well. As I’m showing in the image, the majority of cement is used in the housing sector. and the last year their performance was not so good because there were some changes in the real estate sector. I will make a separate video on this topic. but they do think, they will learn decent profits in the upcoming years. let’s talk about their numbers, starting with their balance sheet. as you may know, in any balance sheet you can see 2 things. Assets and liabilities Assets stands for anything that will help you earn money in the future such as cash , investments or properties liabilities stands for debt and money you owe to other people let’s imagine a company has 100 crores of assets and 10 crores of liabilities that means they can easily pay their debt and they will still have 90 crores if you removed 10 crores from 100 crores , you are left with 90 crores but in the case of Rain Industries, this number is negative ( 1041 crores). This means they won’t be able to pay back their debt. but this numbers has been decreasing and I will explain later why I’m not worried about this let’s talk about their income or profit/ loss statement. They reported sales of 11 560 crores which is very good compared to 9 615 crores of the previous year but the only thing we care is about the profit. Their profit was 763 crores compared to 290 crores of the previous year this means they have 11 560 crores of sales and 760 crore of profit. This gives them margins of around 7 %. Now we come to their valuations. I always mention if I would buy this company or not as I want to be honest with my followers and in this case, I have invested in this company. but how did I value this company? the first thing I looked was their free cash flows. Free cash flows means the amount of money that would go into my pocket if I was the owner of this company this company had free cash flows of 411 crores. Now you know why I;m not worried for their debt. As they earn so much, they can pay their debt in the following years so is this company cheap or expensive?This company is cheap but I would like to mention that I do expect decent profits but not 300 or 400 % if you did like this video, click the like button , comment and don’t forget to share this with your friends

100 comments

  1. Kya bat Hai sir awesome itna clearly to aaj tak Kisi ne nahi samjhaya YouTube par aaj tak mai bas soch hi raha tha ki ye carbon sector kya kya karti Hai aaj aap ne pure doubt hi clear kardiye keep it up sir bas ese hi explain kijiyega but sir Himadari chemical ke bare mai bhi bataiye NA pleae🙏🙏🙏

  2. Hi nicely explained video but have one query PE is very high so the valuations is not cheap can you explain that as well

  3. My dear Bro.. Awesome explanation.. I am a fan of you now.. Your honest opinion on Valuation is cool. I will keep waiting for your further videos..

  4. Please make a video on SpiceJet airlines should we get on it for next 15 years as a multibagger stock…. I am even employee of SpiceJet

  5. sir me apki video pehli baar dekh raha hun….apne bahut acchi tarah explain kiya hai sir…thank u for giving good information…

  6. Awesome. Best 11 minutes I spent. You have lot of clarity, so you can explain it in simple words, unlike many who use a lot of jargon

  7. Kya ise aaj ki date par agle 3 se 5 salon tak ke liye liya jaa sakata hai. Agar han to stop loss and target kya rakh sakte hai ?

  8. You might have missed one point out. Supreme court has only allowed 1.4 Mt tons of gpc annually. This might not cater future expansion and this might not turn out as a multi bagger. Please advise.

  9. Sagar, can you please carry on analysis of Selan Exploration technologies. They are also planning a buyback. what will be your though on that.

  10. Hi, would like to know how you valued the goodwill of the company. The goodwill right now is way more than the Mcap and Total equity. Isn't that a concern ?

  11. Mujhe doubt hai about the lawsuit on CPC manufacturer companies in foriegn countries. Ye video dekhkar bohot log current situation par buy karenge please explain about this suitation as i do not get time for any analysis i watch your videos and then decide according plz help sir will be really thankful!!!!

  12. Sir your way of explaining is very good,Pls also make a video on UFLEX LTD. As I think there is a lot of potential in this company but not much info. Available about it

  13. Hello Sagar Sir. I am a regular viewer of your channel.. Awesome analysis. Any thoughts on the latest Supreme Court judgment on not increasing the coke import?

  14. Hi Sagar, I invested in RAIN industries share. Share price is continuously falling. Audit result will be declare on 27 Feb. What is the reason of share fall? What u suggest buy/sell/hold for this share now? Plz let me know your opinion. It will help investors like me.

  15. Sir rain industries stock price is now corrected to 105 from 140 but the business and the fundamentals of the stock is still good.
    Should I invest now or not?

  16. bro …i have invested in rain industries at 131…now it is trading at 108…can i average it current price,,or wait for some correction

  17. supreme court restricted to import coke for boilers ( energy) due to high pollution
    But allowed for other processing ( other than burning. ) so may be no proble to Rain industries. Now suprime court allowed to import.
    But I have information that Reliance industries producing petroleum coke- called coke and it self using in its gasification plant. Also reliance purchasing some more quantity for this gasification. So in india coke is shortage. In IndiaAll refineries do not have ocker plants.

  18. Congratulations Sir…Rain is pouring heavily…. Any target for booking profits…?

  19. Sir can there be any problem to this company if there are government regulations like the order of Supreme Court as there is high pollution due to this?

  20. Hi Sagar, can you let me know what price you bought rain industries share? So that I can get an insight about it's approx correct share value for buying.

  21. 5000÷411 = 12.16,
    But you have said in your valuation video that this multiple should be at the most 4

  22. Bought this share for 99… Will this share take Upper circuit in future… It has come down to 87 as of today…?

  23. Hello Sir. How did you find out the cash flow is 411 crore? I couldnt tally that on money control nor could I find it in the financials provided on the website… Would be grateful if you could help me out here. Thanks 🙂

  24. You are too good man. I like your honesty and explanation s about ever stock. I am your one of the great follower. Best of luck

  25. Dr Sagar, what is a good price to enter Rain, in terms of valuation. And Mr. Pabrai's assessment of 26% CAGR is true even today in your view? Best

  26. Sir, do you see any technological change in near term(5 to 10 yrs) for aluminum production as that might can hamper rain industries

Leave a Reply

Your email address will not be published. Required fields are marked *