Ladies and gentlemen, this is Saranga Pani, General Manager, Corporate Reporting and Investor Relations at Rain Industries Limited. Welcome to the Rain Industries Limited Q&A session for the Q4 of 2023. With me on the call today are Mr. Jagan Reddy Nellore, Vice Chairman of Rain Industries Limited; Mr. Gerard Sweeney, President of Rain Carbon Inc.; and Mr. T. Srinivasa Rao, Chief Financial Officer of Rain Industries Limited. Following the earnings presentation and management commentary that we released on 21 February 2024, we have been receiving questions from certain investors and analysts regarding industry development and status of our expansion projects. Accordingly, Rain management will be addressing those questions in today's call. Before we begin, management would like to mention during this call, we may touch upon forward-looking statements and discuss various topics such as performance, trends, objectives, and strategies. Please be aware that these statements are rooted in our current expectations and may be influenced by potential risks and uncertainties. Certain factors could potentially lead to outcomes differing from those predicted in these forward-looking statements. With that, we will now start the discussion. Gerry, the first question is in regard to our margins. As we mentioned, our results as converter, acknowledging even a one quarter lag effect, shouldn't the margins be stabilized by now? Why didn't we see that in the last quarter? Are we really a converter or is there a change in our business model? Thank you. This is a good question. Yes, we are historically a converter, and both our carbon calcination and distillation businesses run on a margin, managed margin model concept. As we mentioned several times during the upcycle in our business, just because we are a converter and focused on managing our margins, does not mean we are not a cyclical business. We are. We still have cycles to our businesses. As a converter, we strive for a stated margin of $70-90 per metric ton of our product. Our product and raw material prices do vary depending on demand. As such, as a converter, regardless of the pricing cycle, high or low, we strive to manage the business in a margin of $79-90 per ton. This is what provides for our normalized earnings level of $60 to 80 million per quarter. Post-COVID, from early 2021 until the end of 2022, we experienced strong demand that led to escalating pricing throughout the period. As a result, we had higher than usual margins due to the constant run-up of our product prices, far and above our raw material prices. We called that an opportunity margin, where we made margin above our normal $70 to 90 per ton target. As reiterated during calls at that time, it's essential for investors to maintain a realistic perspective regarding our quarterly earnings, particularly in relation to normalized margins. While we have seen margins in some quarters, it is crucial to understand that sustained earnings above normalized margins may not always be the norm, as is the case now. Our commitment to remain steadfast in delivering sustainable growth over the long term, even if it means fluctuations in some quarters. In the H1 of 2023, our markets experienced a significant downturn, primarily triggered by the resurgence of Chinese exports amidst their economic slowdowns. This led to a gradual retreat in prices throughout Q2, with some stabilization observed by mid-year. However, the summer months, particularly the late summer months, saw a further decline in prices, fueled by a reduction, excuse me, fueled by an increase in Chinese exports once again. Since then, the market for our products has witnessed a steep decline, plummeting from previous highs ranging between $900 to 1,400 per ton, depending on the particular product, to current levels hovering around just $400 to 700 per ton. While it would have been ideal for prices to decline steadily during the market's descent, the reality has been a protracted and erratic, very erratic descent. A long downturn has hindered our ability to swiftly recalibrate raw material costs and restore our customary margins. Over the past few quarters, we have been relentlessly tailing product and raw material prices as they fluctuate downwards. Encouragingly, we believe that we have now reached the market's near bottom in Q1, and are hopeful about a return to more conventional earnings in the H1 of this year. However, it's important to acknowledge that we still have to work through some overpriced inventories to attain this goal. The challenging market environment underscores the importance of our adaptability and strategic decision making in navigating through turbulent times. Thanks, Gerry, for the detailed explanation. Moving to the next question. Management mentions a normalized EBITDA of 70 to 90% margin as a converter. So does that mean that this should result in a higher margin percentage realization during the lower pricing periods? Yes, absolutely. You're correct with your question. It's a proven fact that reestablishing our margin percentage will yield a higher realization percentage compared to when we had higher pricing. This historical trend underscores why we prioritize really discussing our business in terms of unit margin rather than percentage margin. Whether our product is priced at $300 a ton or $1,000 per ton, our focus remains on maintaining our normal margin ton per second-- our, our normal margin per ton. This approach ensures that we remain resilient and adaptable to market fluctuations, and ultimately safeguard our profitability by aligning our raw material costs. Thanks, Gerry. Our next question is whether we still have some high-value inventory carrying over from the last few quarters, or are we doing those by the end of 2024, 2023? Also, can we expect contributions from the delayed and deferred shipments in Q4 in the coming months? Thank you. This allows me to explain more clearly what has been happening during this prolonged fall in product prices. We have made considerable progress in utilizing our high-valued inventories from the previous year. While we do not have precise figures to provide, it is likely that we will complete the remaining stocks by the end of Q1, positioning us for better profitability across most products by Q2. However, our focus remains on restoring our traditional margin, managed margins, as we navigate through this inventory clearance phase, presenting a challenge we are eager to tackle in Q2. Rest assured, we are fully committed to achieving this goal as swiftly as possible and returning to our more normalized margins and therefore, profitability. Okay. The next question is, in opening remarks, it was mentioned about some additional CPC and CTP capacity to be introduced in India and elsewhere. Is it possible to quantify the upcoming capacities and mention the regions in which these capacities are likely to come up? Will this negatively impact the demand supply scenario for both the products? In the short term, in the next year or so, the imminent capacity additions constitute roughly 10%-15% of the existing capacity in the region, which may pose some challenges to the demand/supply equilibrium for both products. However, looking ahead over the next couple of years, we anticipate a gradual absorption of this incremental production, with the demand arising from the aluminum capacity expansions in India and the Middle East. These expansions of CPC and CTP are poised to align really with new customer expansions, fostering a more balanced market landscape. At present, beyond these forthcoming expansions, there are no further confirmed plans that come to our attention. This forecast underscores a strategic approach to navigating market dynamics, maintaining a vigilant eye on potential opportunities for growth. Okay, moving to our next question. What are the capacity utilizations for both carbon and advanced materials in FY 2023, and what we can expect in 2024? Our carbon segment operated in the range of 65%-70% during 2023. Our advanced materials segment operated at capacity utilization of 75%. As we navigate through the ebbs and flows of our industry, it's important to acknowledge the seasonal variations that impact our operations, particularly with certain products. Historically, we have observed lower demand from our seasonal offerings during the fall and winter months, aligning with the fourth and first quarters, respectively, of our earnings cycle. While we cannot pinpoint exact targets for plant utilization in 2024, we are optimistic about the trajectory ahead. We anticipate improved capacity utilizations in our CPC plant, as well as we progress throughout the year, given the recent relief granted by the Honorable Commission for Air Quality Management, CAQM, from petroleum coke import restrictions in India. Also, given the disruption to global shipping due to recent hostilities in the Red Sea, we are hopeful our advanced materials segment will continue to benefit from the higher demand we are currently experiencing throughout this year. Our next question is relating to advanced material segment. Europe has seen an exodus of major players from the chemical industry, as well as closure of aluminum smelters. Will this have had any impact on Rain's customer and supplier base? It is true that the European chemical industry has seen a major impact over the last several years. This is mainly due to oversupply in the region. In most cases, we are or were not direct competitors with large players like DuPont, BASF, and others in the marketplace in Europe. They made huge volumes of fairly stock chemicals in a standard grade. We're a more niche player, making specific chemical compounds for our customer base. The only impact we are seeing specific to this consolidation of major players is on the side of some raw material supplied to us. We are comfortable with our position, though, and our placement in the market long term. ... Okay. So next question is, are there any segment products within advanced material business that are facing structural headwinds, and they need to be reviewed from the business viability perspective going forward? A good question. In the volatile landscape of advanced materials, challenges are commonplace, particularly with fierce competition from Asian players. However, our strategic niche in Europe, specializing in custom compounds on a local scale, affords us resilience amidst these headwinds. While growth may be tempered, our focus remains on adding substantial value to our downstream needs, ensuring stability and sustainability in the long term. Okay, continuing our question on the advanced materials segment. We have seen that the advanced material business was a disappointment in H2 of 2023. Though not as a subject of impairment, the continued loss margins despite plant reopening is a cause of concern. What is the roadmap to go to the higher EBITDA for this product group? While the advanced materials segment faced challenges in the H2 of 2023 due to plummeting product prices, we have successfully navigated through this phase and anticipate brighter prospects ahead. Our strategic restructuring initiatives and the reduction of major capacities in Europe are poised to bolster our historic margins and position us for sustained growth in the future. Okay. And how was the capacity utilization of the HHCR plant for the last six months, and what is the expected utilization for 2024? Yeah. With regard to an update on the HHCR plant, we're currently operating at about 30%-40% capacity. Two major suppliers permanently closing their European operations and the ongoing Red Sea shipping crisis, our customers are reassessing their procurement strategies. To ensure a steady supply, they're increasingly considering the local sources, in other words, us. This strategic shift is resulting in an uptick in sales demand, underscoring the resilience of the HHCR business. As we navigate these challenges, we remain optimistic about our trajectory, buoyed by the prospect of continued improvement alongside broader economic recovery. Okay. Moving to the next question. What is the expected CapEx for 2024? The expected CapEx for 2024 should be in the range of $75 to 80 million, including our turnaround costs. This is our normal level of CapEx without any major projects. Okay. Thank you, Gerry. Now we have a few questions for Mr. Jagan. The first question is relating to the recent CAQM order. Have we got the full import freedom for our new vertical shaft SEZ plant? And can we import RPC as well as CPC for kilning? And when can we expect the announcement of SEZ unit commissioning to the full capacity? And considering the restart of the second kilning in the, which was closed in the, GPS plant. And with the latest CAQM orders, can we expect the capacity to be utilized above 90%, if yes, how soon? Thanks, Sarang. We are pleased with the relief granted by the Honorable Commission for Air Quality Management of CAQM, to relax the import restrictions. The overall limit for import of RPC by calciners was increased from 1.4 million tons per annum to 1.9 million tons per annum. All calciners in India would benefit from such increase in limit, importing into, importing RPC into India. Further, CAQM has also increased the limit for import of CPC by limiting smelters from 0.5 million tons to 0.8 million tons for the financial year 2025, 2026 onwards, considering the incremental production of primary aluminum in India. Consider our vertical shaft calciner set up in the special economic zone, eligible to import both RPC and CPC, but used within the SEZ. These measures could help us to increase the capacity utilization of our CPC plants. We already initiated various steps for ramping up capacity utilization, including discussing both with our customers for supplies and with the suppliers for sourcing, incremental sourcing of raw materials. We also need to make logistical planning to source higher volume of raw materials and supply higher volume of finished products to aluminum. There will be gradual improvement in capacity utilization over the next few quarters. The increased capacity utilization would certainly lower the per ton costs. Thanks, Jagan. Moving on to the next question. This query is regarding comparing Rain underperformance in its carbon segment versus the competitors in India. We have noted that competitors' results are not impacted as much as the profitability impacted on Rain in the recent past. Why our operating margins are less than competitors in India in carbon segment in the last few quarters? Our performance is not comparable to other players in the industry, primarily because we operate on a global scale. Operations and plants strategically positioned across the continents. It's crucial to acknowledge that the market dynamics in India significantly differ from those in other parts of the world. In the past, we proactively maintained higher inventory levels of various raw material in India to safeguard against potential disruptions in RTP supply, resulting in lower allocation. This was essential to ensure uninterrupted facility operations in the event of lower allocation or delay in import allocations, and to meet quality specifications demanded by our valued customers. However, this approach, while necessary, had its drawbacks, particularly when faced with fluctuating raw material prices. The elevated inventory volumes frustrated the impact of falling raw material prices, resulting in increased costs and operational challenges. However, our strategic approach includes increased capitalization and optimized import limits, empowers us with operational agility in sourcing raw materials. Going forward, we are committed to enhancing our operational efficiency and flexibility, leveraging our global presence and optimizing our supply chain. By doing so, we aim to mitigate risk, drive down costs, and further strengthen our position in the industry. Okay, moving on to the next question. We have not heard any update on any of the new areas we embarked upon few years back, which include vertical farming. Any progress on them, and any new plans to install solar power plant, which got slapped long back, given that we have surplus land in place now? We continued with our green power initiative of solar power plants for captive consumption within our cement plant. We have aggregate capacity of 19 megawatts in our cement business, and combined with our waste heat recovery power plant at both our cement plants, we generate about 50% of our electrical consumption capacity within the company from renewable sources. Our immediate target is to implement the global CPC blending project as soon as possible. We had worked on such global CPC plan until 2018, July 2018, actual introduction of import restrictions in India. We have to make commercial, operational, and logistical changes to increase the capacity utilization of CPC plants over the next few years. Okay. Moving on to the next question. We have a couple of questions on the ACP project. We have developed the ACP through R&D back in 2018, and to develop that product. In the last management commentary, it was mentioned that the product is in testing by vendors. Now, with RTP restrictions relaxed, what is the future plan with on our ACP plans? Are we going ahead with them or reviewing them? Please confirm whether management expects significant contribution from that product in 2024. And to understand whether the blending of CCP and CPC are supplementary, is that correct? If so, will we still continue with ACP CapEx plans in India? If yes, when is that expected and how much CapEx is needed for that? As an update on the progress of our ongoing R&D project focused on Anhydrous Carbon Pellets, or ACP, we would like to inform that this initiative is strategically aimed at meeting the long-term demand for RTP, essentially for manufacturing the ever-increasing demand for CPC from our valued aluminum centers. We have received promising feedback from a couple of North American vendors, which has fueled our determination to enhance the competitiveness of manufacturing ACP. Our efforts are now concentrated on optimizing the conversion cost while increasing marginal grade RTP per ACP production, which is essentially a high-density raw material. Notably, utilization of ACP will not only boost the cost efficiency, but also contributes to a significant reduction in carbon dioxide emissions, aligning with the sustainability goals of our aluminum strategies. Moreover, our exploration extends beyond mere substitution. We're actively investigating diverse applications for ACP that detect personally protection, safeguard, or intellectual property rights. Once the operations of the ACP plant in the U.S. are stabilized, we'll seamlessly transition to advancing the ACP project in India. It is important to emphasize that while ACP does not directly contribute to incremental revenues, its adoption as a substitute for RTP or in the CPC manufacturing are used by aluminum centers just boasts its strategic importance. ACP presents a tangible opportunity for our partners to not only optimize costs, but also demonstrate commitment to environmental stewardship. ACP is a transformative journey, shaping a future that is both economically viable and environmentally sustainable. Thank you. Moving on to the next question: How do you see the cement business performing in the next few quarters? Cement demand is expected to surge across South India, fueled by a multitude of factors that promise to drive sustained growth in the industry. In recent times, the region has witnessed an unparalleled momentum in infrastructure development, created by visionary governmental initiatives. From ambitious road networks to transformative urban regeneration projects, these endeavors have not only accelerated the economic progress, but also propelled the demand for demand. Moreover, the burgeoning construction of residential dwellings, both in the bustling urban centers and the increasing rural landscapes, has contributed significantly to the escalating demand.... cement products. This trend underscores the robustness of our market and the enduring need for quality building materials to cater to the evolving needs of our communities. As we look ahead to the promising prospects of calendar year 2024, our projections indicate the continuation of this remarkable volume growth strategy. team remains steadfast in our commitment to meeting this increasing demand, ensuring seamless supply chain and unwavering quality standards to sustain our market leadership. Furthermore, amidst the global economic landscape, we are pleased to report the price of critical inputs, such as coal and fuel; the critical input remains stable and well within control. This scenario not only bolsters our operational efficiency, but also plays a part in the resilience of our cement business, especially considering that almost 40% of the energy required for the cement plant operations comes from captive renewable energy sources. Thanks, Jagan. Our final set of questions are for Srinivas. Capacity utilization going to improve in coming quarters? Will working capital requirements will delay our debt reduction plan in next year? Do we still plan to reduce the debt by at least 15%-20% over the next 18 months? And noted that $50 million debt is expected to be repaid in April 2025. How much more is expected to be repaid during the next one year? Thank you, Saran. Our plan to reduce the term debt has not changed, though. There will be incremental need for working capital with increase in sales volume, especially the CPC volume over next few quarters. We will meet such incremental need of working capital, either through working capital loans or from funds released from operations to lower prices for our end products. We have adequate security to repay the balance amount of FY 2025 notes of U.S. USD $50 million due in April 2025. Our focus is to reduce the euro-denominated term loan, both as per the amortization schedule and also to use any surplus cash from the business. Okay, our next question is, What are our strategies to bring down the interest cost? As we completed the refinancing of both our long-term debt, that is U.S. dollar-denominated second lien bonds and euro-denominated first lien bank debt during August 2023, before they become current and extended their maturities to September 2029 and October 2028, respectively. As euro term loan is a floating interest loan, any reduction in EURIBOR will reduce the interest cost. We are optimizing all working capital borrowings to the maximum extent possible, and we will also reduce the amount of long-term debt to reduce the interest cost over the next few years. Okay, moving to the next question. Other expense line item increased significantly in this quarter. What are the main reasons for the increase, and are these temporary or permanent in nature? What is the likely run rate of other expense going forward? Yeah. Other expenses line item includes costs like power and fuel, outward freight, other selling and distribution expenses, repairs and maintenance, consulting, consultancy charges, etcetera. The increase in cost compared to last quarter was around 10%, which, majorly include increase in the power and fuel cost in our cement business with increase in production and sales volume compared to Q3 of 2023. Overall, other expenses line item for the current year was lower than the last year. Okay, moving to the next question: What is the likely cost savings from the initiatives taken by management, such as consolidating corporate office, optimizing operations, etcetera? We are consolidating our corporate offices to optimize administrative expenses. We also initiated the process for reduction of certain workforce to reduce the SG&A cost. The benefit of these cost reduction initiatives will be realized partly during current year, 2024, and fully next year, FY 2025. Okay. The next question is regarding the impairment loss during the quarter. We have overall goodwill on balance sheet of approximately INR 6,000 crore, and we have impaired approximately INR 750 crore. Request you to share the CGU-wise impact. What is the threshold margin for carbon business below which a review is triggered again? With the higher cost of capital, it would have increased due to the increase in debt to 12.5%. The current target operating model of 15% EBITDA for carbon, is it too low comfort, and management should consider aiming for a higher EBITDA target to have a sustainable business? Any clarification on this would be highly appreciated. We have assessed the impairments in all Cash Generating Units and also engaged independent experts to analyze the potential impairment in different CGUs. Both the management estimates as well as the experts' reports were reviewed with auditors and made provision for impairments in the CGUs of carbon calcination and carbon utilization. For the impairment charge in carbon calcination, we have taken the revised business plan, considering the relief granted by the Commission for Air Quality Management from import restrictions in India. We are of the view that with expected normalization of the margins, with the reset of both raw material costs and the finished good prices and increased capacity utilization, the realizable values will be higher than the carrying values, and we will be reassessing them at the end of each period for any indication of further impairment, and we will carry out an in-depth analysis at the end of each financial year. Thank you. Our last question for today's call is regarding management commentary speaks about taking additional time to implement the revised business strategy. Is this pertaining just to the CPC blending strategy or the other parts of the business as well? And what is the likely duration for implementing this new strategy? For the last few quarters, we are operating both of our Indian CPC plants in the range of 55%-65%, 60% capacity utilization. Four out of our six kilns in our new SEZ plants are operating at lower capacity, and the remaining two kilns were not yet started, considering the shortage of raw materials. Now we initiated the steps to start the operations at the remaining two kilns, and the process of startup would take about three to four months to start manufacturing of CPC. We also need to make logistic arrangements to handle higher volumes. Accordingly, there will be a gradual increase in the capacity utilization of CPC plants, even after the relief is granted by the CAQM in mid-February 2024. Thank you, Jerry, Jagan, and Srinivas. Ladies and gentlemen, this concludes Rain's management Q&A session for the fourth quarter of 2023. Thank you.