Good day, ladies and gentlemen. This is Alan Chapple, Director of Corporate Communications at Rain Carbon Incorporated. Welcome to the Rain Industries Limited earnings discussion for the first quarter of 2022. With me on the call today are Mr. Jagan Reddy Nellore, Vice Chairman of Rain Industries Limited, Mr. Gerard Sweeney, President of Rain Carbon Incorporated, and Mr. T. Srinivasa Rao, Chief Financial Officer of Rain Industries Limited. Along with the earnings presentation, we also released management commentary on the morning of May 5, 2022. We have been receiving questions from certain investors and analysts regarding industry developments and the status of our expansion projects. Accordingly, Rain management will be addressing those questions in today's discussion. Before we begin, management would like to mention that some of the statements made in today's discussion may be forward-looking in nature, and they could be affected by certain risks and uncertainties. The company's actual results could differ materially from such forward-looking statements. With that, let's begin. Our first question is for Gerry. Gerry, could you please provide insights about the impact on Rain due to the ongoing conflict between Russia and Ukraine? Thank you, Alan. As mentioned in our fourth quarter earnings presentation, Russia contributes approximately 8% of the group's total revenue. The vast majority of that site sales and raw material procurements are within Russia, so we have seen no material impact to our operations at this time. We are continuing to operate as per the requirements of all applicable law and international sanctions while closely watching to see how the conflict evolves, and if there are any additional sanctions, we will comply with them as needed. Thanks, Gerry. Is Rain dependent upon the cash flows from its Russian operations, and how is management planning to distribute cash from those operations? Our Russian operations are self-sufficient, not dependent on support from other group entities outside of Russia. Similarly, our operations outside of Russia are not dependent on cash flows from our Russian operations to meet their obligations. Prior to the start of the conflict, we were receiving regular dividends from the Russian operations. While the funds are being currently accumulated, we are not expecting any dividends in the near future. We are closely monitoring the situation and complying with all local and international sanctions under the guidance of external counsel. Thanks. Our next question is, with a lot of sanctions already in place and even more expected to come, how is management planning to handle this? Well, the situation is too fluid to really make any specific comments at this time, and it really is literally changing daily. I can assure you that our company is fully compliant with all regulations, and we are continually working with our external advisors to evaluate and comply all evolving regulations. Given the current geopolitical issues and the inflationary environment that we're in, what is your sense on the aluminum market in the United States, India, Europe, and China? Also, how does this translate to the outlook for Rain Industries? Well, worldwide, there's an increased usage of aluminum across various products spanning from automobile to construction to electric or electronic appliances to food and beverages. And certainly, that increased usage is driven by the four markets that were proposed in the question. There's a scope for substantial increase in per capita consumption of aluminum in certain countries, again, in reaction to a cleaner, greener, more responsible and sustainable society that demands it. For example, the per capita consumption of aluminum in India is about 2.5 kgs, excuse me, as compared to a global average of about 11 kgs. Accordingly, we do expect the production of primary aluminum will continue to increase in the near future. Albeit it could be at a lower rate, considering that we're now at a base production capacity of 66-67 million tons of production per year. Even at a lower rate of 2%-3% of increased demand going forward, there'll be an incremental production of 1.5-2 million tons of aluminum per year. We could see, given what's happening globally, a temporary fall in production due to high energy prices, inflationary trends, or pandemic-related disturbances, but the outlook is very positive for the near term. Okay. Thanks, Gerry. Obviously, we were happy to see the rebound in the performance of our Advanced Materials segment during Q1. Can you provide any guidance on how much of the segment's performance can be attributed to the advanced resin now being produced at our new HHCR plant in Germany? And can we expect the segment to continue to perform as it did in the first quarter going forward? Also, during the fourth quarter, energy prices had a significant impact on our margins. However, during Q1, things seem to be back to normal. Can we expect this trend in the future? Yeah. We don't provide product line information due to the sensitivity and competitiveness of our businesses. During the earnings call, we specified that the business was able to overcome certain one-time events in the fourth quarter. Apart from the improved reliability of HHCR operations, our production there is anticipated to grow throughout the year. As far as the energy costs, we did see substantial energy price rises and volatility during the fourth quarter, which impacted us greatly to the tune of probably $25 million. While we've also seen rises in volatility during the first quarter, our efforts to reduce our consumption, look at alternative fuels to natural gas and also change our pricing habits to monthly and put in adjusters have really helped us drive and overcome that impact that we've seen. Okay. Thanks, Gerry. Our next few questions are for Jagan. First, can you address the reasons for shutting down one of the rotary kilns at the Vizag plant? Also, what is kiln's capacity, and can you provide any details about the expected loss in EBITDA due to this? Thank you, Alan. As mentioned in the earnings call, due to the reduced allocation to RAIN by the DGFT authorities of imported GPC to the existing plant compared to last year, we were forced to shut down one of our two rotary kilns in Vizag. This was not an easy decision, but one that we were forced to take to ensure the longevity of both the existing rotary kilns and new vertical shaft kiln plants. We continue to work with the Indian authorities to secure a GPC allocation specific to the new calciner, but until then, we will need to allocate the tonnage. Thanks, Jagan. Next, investors are wondering why there has not been an update on our follow-up with DGFT for enhancing our GPC import limits. During the last few quarters, we've said that we expect that the situation will be resolved within the next few months. What is the alternative plan if we don't hear from the authorities? Are we planning to shut down the second kiln at Vizag in the near future or continue with one rotary kiln and then also run the new vertical shaft calciner? While the matter is sub judice, at the same time, we are also continuing to pursue with the government authorities to get the approval for importing GPC and CPC by our new SEZ plant, which is the most environmentally friendly calciner plant in the world, with implementation of various sustainability measures, including ammonia scrubbing that recovers more than 98% of sulfur dioxide and generates clean energy through recovery of waste heat and also produces ammonium sulfate that can be used as fertilizer. While the company is continuously following up the matter, the same is not yet resolved. We are continuing to procure GPC from domestic sources to the extent available to partially offset the GPC shortfall. The vertical shaft kiln is operating at a reduced capacity by processing domestic GPC and by carrying out job work for converting the GPC into CPC. This overall has resulted in partial shutdown of the rotary kiln plant. Okay. Thanks, Jagan. The next question is how much power revenue are we losing due to the shutdown of one kiln at the Vizag plant? The company has a cogeneration facility with an energy generation capacity of approximately 40 MW at our Vizag domestic tariff area plant. After our internal consumption of energy, we make up to anywhere between $14 million-$15 million in revenue from the sale of this clean energy per annum in Vizag. With the shutdown of one of its kilns, we might lose up to 50% of the energy revenue from that plant. Okay. Thanks, Jagan. Could you shed some light on Gerry's comments during the earnings call regarding a shipment of calcined ACP to one of the major aluminum smelters? In addition, are we seeing any benefit in the conversion factor and yield? What is the additional cost to make ACP from GPC? We are in the initial stage of producing calcining and trialing ACP on a commercial scale and are waiting for feedback from major aluminum customers. As such, we cannot comment at this point of time on the costs and benefits of this new material. However, as we have mentioned before, we expect that a blend of GPC and ACP will result in an improved conversion factor in our operation and increased density compared to traditional calcined GPC. Okay. Sticking with ACP, what is the status of the project in India? Referring to your comments in the previous call, do we have the ability to use low-quality GPC to produce ACP? If that's the case, should the completion of ACP plant in India be a priority since the ACP could be used as a feedstock of the vertical shaft calciner, which would allow some of the GPC being toll calcined at shaft plant to stay in Vizag so that we could restart the second kiln? Once the ACP technology is refined at the existing plant in the U.S., we will then be able to focus on the Indian facility. We want to use the lessons learned in the U.S. to ensure that the plant in India is built to operate to the best of our abilities. Additionally, this will give us time to work with the major smelters to receive their feedback on this new material as well. We can complete the construction of the ACP plant in about six months from the time the technology is refined and the go-ahead to commence construction is received for the construction of the India ACP plant. Okay. Finally, one last question about ACP. What is the expected revenue contribution from the plants in the United States and India during calendar year 2022? There'll be no revenue from ACP plant as it'll be a cost center, and the entire ACP produced will be used as raw material internally. However, it should result in an overall reduction of raw material costs for the calcination business. Okay, thanks, Jagan. Gerry, our next question is for you. Contrary to initial estimates, the Chinese economy continues to be disrupted by the pandemic and markets remain turbulent. In this light, and from the comments in our previous conference call, are Chinese aluminum capacities and GPC demand impacting our operations? What is the current situation, and what do we see going forward? Thanks, Alan. That's a good question. The Chinese economy, while disrupted certainly with the lockdowns that they've seen, and a resurgence in COVID, really to this point has not had any material impact on our markets. With the exception of our petroleum resins and carbon resins distribution in that country. Again, that's been more logistic-oriented with our warehouses and not had a material impact on us in any real way. If it persists, it certainly could have more of an impact, the materiality of which is hard to say, but it more revolves around those products and perhaps if it affects some of their refining activities in the long run. Really, we'll have to see. As I said, a minimal effect to this point, and going forward, if they continue or worsen, we could see some impact, but I don't see it having a major impact on us. Okay. Thanks, Gerry. Turning now to the cement business. Jagan, the next question is for you. Although the volumes and realizations have improved, margins are not seeing the same improvement. What is the main driver impacting the margins? With increase in crude and coal prices around the world, the cost of power and fuel have increased substantially for the cement operations. With the increase in cost of diesel, both inward freight for moving coal to the cement plants and outward freight for distributing cement for the cement plants to dealers across South India have increased. Despite increase in realizations, the operating margin has declined due to the higher increase in cost of power, fuel, and freight. Okay, thanks. Investors are also wondering, are there any plans for expansion or acquisitions in the cement business? There is nothing in the pipeline in the near future. Okay. We also have a question wondering about the synergies between the cement business and our other two business segments. Specifically, are there any long-term plans to hive off the cement business so that there's better valuation accrual for the carbon and advanced material businesses? The Indian calcination business supplies power from its cogeneration facilities to the cement plants. In addition, GPCs procured and shipped together are required for the cement and Indian calcination businesses to achieve economies of scale. Cement business does provide stable earnings when there is increased volatility for the carbon business. Hence, there are no plans to hive off cement business at this point of time. Okay. Thanks, Jagan. Moving on. Are we facing any issues at our plants due to the power cuts in Andhra Pradesh in India? We have three manufacturing units in Andhra Pradesh. Our two calcination plants should be self-sufficient with in-house power generated from our process waste heat, which is used to run the plant. Our cement plant in Kurnool is partially supported with self-generated energy from its own solar power plant, its own waste heat recovery system, as well as electricity supplied to it from our calcination plant. However, we do still depend on, for a certain portion of the power from grids, and because of the power cuts, we have seen some impact on the operations at Kurnool. Okay, thanks. Thanks, Jagan. Srinivas, the next few questions are for you. First, during the last few quarters, management has said that the company is planning to reduce debt now that our major capital projects have been completed. However, there's not been any major debt reduction during the past year. Can you shed some light on management's plan for the next one to two years? Thank you, Alan. As you have noted, we have utilized more than $150 million on working capital requirements in the last 12-18 months due to substantial increase in the prices of all our products, raw materials, and finished products, and in addition, the increase in the operating costs related to energy and general inflation. We would like to reduce the outstanding debt of the company and are watching for opportunities to do this. As you might have seen, we have purchased about $11 million worth of senior secured notes that are due in 2025. Okay, thanks, Srinivas. What are the company's- We- I'm sorry. Go on. I'm sorry. Go on. We'll continue to watch and balance debt reduction against increased working capital requirements in the current environment. Okay, thanks, Srinivas. What are the company's plans regarding refinancing of our debt? With the current volatility and increasing interest rates in the high-yield debt market, our plans are on hold for now. The long-term debt of the company does not become due until January 2025, so we have sufficient time to wait to refinance our debt. Further, the call premium on our bonds will reduce to zero from 1.8% on April 1, 2023. We will be watching the market closely to ensure the optimal timing for a refinancing. Okay, thanks. Given the recent inflationary trend, investors are curious to know what the replacement cost might be for the $225 million that we've invested in our major capital projects. Could you provide an estimate of how much we might have saved in CapEx by embarking on these projects before the inflationary conditions kicked in? While this is a difficult question to address, the cost of steel and other equipment, including construction material, have increased by more than 50% since we last embarked on our expansion projects. Moreover, due to the supply chain disruptions, there is an inordinate delay or undue delay in delivery of new equipment required for the projects. Hence, the timing of our expansion projects was apt. Okay, thanks. Our next question is for Jagan. We once initiated a discussion about a possible listing on the U.S. market, but it was soon put on hold indefinitely. Might we see that process resume given the current circumstances and the buoyant markets? Currently, we are focusing on achieving contributions from our major investments and reducing the debt, so we cannot comment on that topic, and we follow the board recommendations on this issue. Okay, thanks, Jagan. Another investor would like to know if we still have pending capital expenditures related to the hydrogenated carbon or the HHCR plant and the vertical shaft calciner. We are expecting only minimal spending on our expansion projects in the current year, with $20 million-$30 million to cover the pending expansion projects, including expansion of our solar power plant in our cement segment and our continued work to ramp up new vertical shaft calciner in India. Okay, thanks. Srinivas, our next question is for you. With regard to taxes, it was noted that during the fourth quarter of 2021 there was a one-time reversal of deferred tax assets amounting to INR 3,777 million due to increased operational costs in Germany. Coming into Q1 2022, the ETR still looks on the higher side, approximately 36%. Can you shed some light on this? During Q4 of 2021, due to a substantial increase in the operating costs driven by high natural gas prices, we incurred tax losses in Germany. As per the accounting standards, we needed to reassess the recoverability of the deferred tax assets that were created in the books based on the estimated scheduled reversal of deferred tax liabilities and projected future taxable income. Due to the tax losses, which is a negative evidence, accounting standards required us to de-recognize the deferred tax assets until further developments come into force. Due to this reason, although we estimate, we estimated that, there will be taxable profits in future in Germany, that is only a management estimate and not a foolproof evidence. We reversed the deferred tax assets already recognized in the books as of December 31, 2021. We continued with the same stand taken for the year-end in the current March 2022 quarter also, as the reporting period gap is about only two months. We continue to reassess the position in the upcoming quarters and accordingly take the necessary actions as and when required. At a broad level, we can say that our consolidated effective tax rate for the group should be less than 30% going forward. Okay. Thanks, Srinivas. With an increase in raw material prices and other operating costs, how are we managing the working capital requirements in the near future? Is there any requirement of additional funds or loans to be taken to run our businesses? As you rightly pointed it out, due to the increase in the raw material prices, freight rates, and energy costs, most of the funds are currently infused into working capital requirements in the past, in the last three to four quarters. As we commented in the earnings call, we have used about $85 million during the first quarter of 2022 for the working capital requirements and expect that the trend might continue in near term. We are seeing new elevated levels of both CPC and GPC prices, and the same trend is happening with regard to our distillation business in coal tar and coal tar pitch. To address this and considering the increased requirement of working capital with continued increase in raw material prices, during February 2022, we increased our global revolver from $150 million - $200 million and also extended the maturity until October 2024. This should help us in utilization of limits and managing the working capital requirements at the current and the near future levels. Okay. Thanks, Srinivas. Our final question is for Gerry. With the new high levels for LME prices, sale prices, and raw material prices, can you provide some color on the current price trends for both, CPC and GPC, as well as coal tar and coal tar pitch? What does that trend look like in the near future? And can we expect even higher levels? Conversely, do we expect any market correction or downfall? Thanks, Alan. No doubt we've seen a lot of volatility in oil commodities, but particular to the LME, we saw it cross $4,000 a metric ton in March and as late as yesterday saw it retreat below $3,000 a metric ton. We have seen volatility really just demonstrating the strong demand for the product. Even at $3,000, it's very strong price. Likewise in our finished product sales prices as well as our raw material prices, we've seen soaring prices due to demand. In some of these areas, even record prices. We've been very pleased with our ability to outstrip this volatility and protect our margin, even find some opportunity margin, due to you know advanced purchases of raw materials to get ourselves ahead of the curve. We're very comfortable with the current situation and believe that we're still well-placed in the second quarter from both a you know GPC, CPC, and coal tar, coal tar pitch perspective. Looking at the near future, it's difficult in the second half of the year to exactly predict what might happen. Prices could go to higher levels with continued strong demand. With the effects settling on the European war, as well as the disruptions that are being caused by COVID lockdowns in China, we do expect things to be leveling off. We think the propensity for prices is probably flat to downward during the second half of the year. When we address the question of a market correction or downfall, while we have seen these in the past, we really see that vulnerability much more tied really to you know, oil and natural gas, the natural gas markets. We really don't see any factors due to very strong demand at this point that for the remainder of this year, that we would see any market corrections or any swift downfall in prices for our products. Again, that's something we'll have to watch. Regional disruption could really change things, but at this point, we're very comfortable with where we are. Great. Thank you, Gerry. Thanks to Jag and Srinivas. Ladies and gentlemen, this concludes Rain's Management Q&A session for the March quarter of 2022.