RAIN INDUSTRIES LIMITED

RIL/SEs/2024 May 21, 2024

The General Manager The Manager

Department of Corporate Services Listing Department
BSE Limited National Stock Exchange of India Limited
Phiroze Jeejeebhoy Towers Bandra Kurla Complex
Dalal Street, Fort Bandra East,
Mumbai-400 001 Mumbai – 400 051

Dear Sir/ Madam,

Sub: Transcript of Management Commentary on Un-Audited Financial Results of the

Company (Standalone, Consolidated and Segment) for the First Quarter ended March
31, 2024 – Reg.

Ref : Scrip Code: 500339 (BSE) & Scrip code : RAIN (NSE)

With reference to the above stated subject, please find enclosed herewith the Transcript of
Management Commentary on Un-Audited Financial Results of the Company (Standalone,
Consolidated and Segment) for the First Quarter ended March 31, 2024.

This is for your kind information and record.

Thanking you,

Yours faithfully,
for Rain Industries Limited
Digitally signed by
VENKAT VENKAT RAMANA
RAMANA REDDY SINGIDI
Date: 2024.05.21
REDDY SINGIDI 19:58:38 +05'30'
S. Venkat Ramana Reddy
Company Secretary

Regd. Office: Rain Center Phone : +91 (40) 40401234

34, Srinagar Colony Fax: + 91 (40) 40401214
Hyderabad 500073 Email:secretarial@[Link]
Telangana, India Website: [Link]
CIN:L26942TG1974PLC001693
Good day 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 First quarter of 2024.

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 May 9, 2024, 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 call.

Before we begin, management would like to mention during this call, we

may touch upon forward-looking statements, which encompass diverse
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 by these
forward-looking statements.

With that, we will now start the discussion.

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Sarang

Gerry, the first question is with regard to our Carbon volumes. We have
seen one of the weakest quarters for RAIN in terms of volumes in the
recent past. Can we make up for the lost volume of CPC observed in Q1
in the remaining quarters?

Gerard Sweeney

Thanks, Sarang. The first quarter of 2024 was the lowest in terms of
volumes in the CPC business in the recent past. The delay in shipments
was a combination of several factors. Customers worldwide were
destocking throughout second half into Q1, after carrying extra stocks for
the past couple of years, due to continually rising prices. In essence, the
mentality pivoted to, “Why would I commit to more volume than I
absolutely need right now, when I know, the price is continuing to fall? This
was especially the case in India, where several other factors played into
the market causing smelters to pause on their decision making, further
complicating the situation. Indian smelters were dealing with our Q1 as
their fiscal Q4, which is historically a destocking quarter. Also, the smelters
were waiting for the official ruling of Hon’ble Commission for Air Quality
Management or CAQM that was to be issued under the directives of the
Hon’ble Supreme Court of India. All knew change was coming, but without
a clear understanding of the outcome, buyers were extremely cautious in
committing to volumes. The CAQM order was ultimately released in
February 2024 that has provided better comfort for the industry to move
forward. While this timing and market uncertainty resulted in reduced
sales volume, the surge in aluminum prices—reaching US$2500 and
beyond in April—provides a critical factor for optimism. We anticipate

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stability in volumes during the remainder of the year but do not anticipate
making up these Q1 volumes.

Sarang

Thanks Gerry. The next question is: What is the management view on the
current situation of Chinese side in terms of exports and pricing? Do you
think that situation has bottomed out, or is there a risk, that there is
continued irrational behavior there?

Gerard Sweeney

It is a good question. I want to be clear here. While no one likes that the
Chinese Calciners dropped the market, the market was due for a
correction, and they were not irrational in the way they continually dropped
their prices. The Chinese were caught with roughly 5 million MT of GPC
when the market collapsed. Instead of dealing with it as we have through
NRV adjustments and several quarters of reduced margins, they left that
material in their ports and imported new lower cost GPC and processed
that material. This resulted in an instant reinstatement of margins and
competitive edge. They will need to deal with the high-priced inventories
at some point in the future, but it created a huge arbitrage that we have
been trying to deal with over the last several quarters. This is what renders
this period truly distinctive.

This situation also played out in Europe, where integrated refinery

producers of CPC, simply process their own production of GPC. So, they

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simply take the GPC product at immediate market price, so bear no
exposure from the cost perspective.

Encouragingly, we have observed a substantial reduction in this arbitrage.

From once towering above $100 per ton, we now predominantly observe
worldwide pricing nearing parity or achieving it outright.

Sarang
Are the issues around the Lake Charles Power Plant outage behind us?

Gerard Sweeney

For clarity’s sake, the unexpected outage in our power plant was caused
by power surge multiple times during a storm locally. It tripped the turbine
causing rather extensive damage, which is taking the better part of 6
months to correct. We anticipate completing the repairs in the coming
months and being back online early in the second half. This event is fully
insurable, but obviously we would prefer to be back online asap.

Sarang

The next question is, can we take it that based on the current market trend,
margins will normalise for second half of 2024. Is that the right
understanding and direction from management?

Gerard Sweeney
We typically refrain from offering explicit guidance on future earnings. I will
however provide some context. We anticipate that unit margins on our
global CPC products will gradually normalize during the second half.

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Sarang
With the blast furnace capacities decreasing worldwide and the EAF
capacities increasing, how is that dynamic playing out for our company?
Is it a net negative or a net positive?

Gerard Sweeney

There are two distinct paths to steel production: Blast Furnaces vs.
Electric Arc Furnaces

Blast Furnaces with their roots tracing back to ancient China, represent
the more traditional approach to steel production. In modern blast
furnaces, coke (or purified coal) plays a pivotal role. It melts iron ore,
yielding pig iron. To refine the steel, oxygen is injected into the furnace.
This process reduces the carbon content and eliminates impurities. While
blast furnaces are effective, they occupy significant space and emit
substantial carbon dioxide. However, they produce excellent quality steel.

Integrated Steel Mills are the mainstay of our coal tar raw material supply.
So here, we are affected by the reduction in output. This is why we have
made significant investment over the last several years to pivot to the use
of alternate tar compounds, bolstering our supply worldwide.

Electric Arc Furnaces or EAFs are a newer incarnation of metallurgical

furnaces, which derive their power from electricity. These furnaces melt
scrap metal and recycled materials by passing electric current through
graphite electrodes. The resulting electric arc generates intense heat,
melting the furnace’s contents. EAFs boast rapid production capabilities

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and typically have the benefit of lower initial cost compared to blast
furnaces.

The rising adoption of electric arc furnaces will drive demand for graphite
electrodes, which rely on coal tar pitch during their manufacturing process.
In summary, the utilization of electric arc furnaces offers distinct
advantages, making them a beneficial choice for RAIN.

Sarang

Our next question is: What is the overall impact of Red Sea crisis on RAIN,
as we have noted in opening remarks that it has both positive and negative
effect on us.

Gerard Sweeney
In regard to the impact of the Red Sea Crisis on us, we have not exactly
quantified the effects precisely. I would say it is an overall positive impact
on us and will outline both the positive and negative aspects.

The positive impact is that the crisis has sparked increased demand for
our Hydrogenated Hydrocarbon Resin or HHCR products in the Advanced
Materials segment. As you may be aware, as a result of our delayed and
then operating reliability issues, we had teething troubles in stabilization
of the operations. This was in a difficult market where Chinese producers
were being aggressive on pricing. Since the Red Sea crisis however,
European and Mediterranean buyers have seen the reliable availability of
our production and are favoring our local products over those from Asia.
During the first quarter, we observed a surge in volumes from this
segment, directly benefiting our top line. Additionally, more normalized

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energy prices after the Russian energy crisis, have allowed us to lower
costs.

On the flip side, we mostly felt reduced demand on our Engineered

products in the Advanced Materials segment due to Red Sea issues.
Likewise, the disruptions in container traffic channels led to lower volumes
for supply into Asia. These products are remarkably high value and critical
to lithium-ion battery production in Asia, as a result they are now finding
them away around these issues because they can absorb the added
container cost. While the Red Sea Crisis has presented both opportunities
and obstacles, our strategic adaptability and resilience will guide us
through these turbulent waters.

Sarang
Can you quantify the expected smelter restarts in Europe and North
America and the timeline for the same?

Gerard Sweeney

At this point, we cannot quantify or put a timeline on smelter restarts or

new builds, as these are dependent on our smelter partners. They
certainly will not affect the demand for this year.

Sarang

Our next question is on Advanced Materials segment: Can you provide

more details regarding the engineered products segment? Is the demand

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back to where it was some quarters ago? Are we planning any capacity
increase in that segment?

Gerard Sweeney
In our recent earnings presentation, we highlighted the performance of
our Engineered product segment. Notably, this segment outperformed Q4
in terms of volumes, but is not completely back on volumes to last year.
We observed an uptick in both our Carbores and Petrores products,
despite the Red Sea over the past quarters. There remains room for
improvement though, in pricing. While it has remained relatively flat over
the last 1-2 quarters, we are actively working to enhance it further.

On the positive side, our HHCR capacity utilization is showing signs of

improvement across successive quarters now. We anticipate this trend to
continue as the European Economy gradually normalizes. Factors such
as lower inflation rates and reduced energy costs contribute to our
optimism. Consequently, we expect increased demand for these products,
leading to improved capacity utilization.

Sarang

Thank you, Gerry. We now have a few questions for Jagan. The first
question is relating to the India CPC business. What is the status
regarding the ramp up of the Indian CPC plant? Are we seeing the benefit
from the CAQM order as expected in February 2024. Can we expect
additional volumes starting from Q2 itself?

Page 8 of 18
Jagan Nellore

Thanks, Sarang. To start with, we received the CAQM order in mid-

February 2024 with increase in the allocation limits of GPC to calciners
from existing 1.4 million tonnes to 1.9 million tonnes from fiscal year
beginning April 2024 onwards. This will benefit the DTA plant which was
operating at approximately 50% capacity for the past few years. We have
already witnessed this in the preliminary allocation by DGFT for FY 2024-
25 during April 2024. However, the second part of the order regarding the
approval for allocation for the SEZ Unit, it is still under implementation
stage where certain approvals from authorities are in progress, and we
expect the process to get completed at the earliest. Once the CAQM
Order passed under the directions of the Hon’ble Supreme Court of India
is implemented, we can see the increase in volumes from the India
business.

Sarang

Thanks Jagan. Moving on to the next question, With the ramp up of HHCR
in Germany and SEZ in India, how are we managing the cash
requirements - both for working capital and stabilisation cost for these
plants.

Jagan Nellore

We have made all necessary preparations to ramp up production at both

plants - HHCR in Germany and SEZ CPC plant in India. Currently, we are
awaiting the required approvals for the SEZ Plant in India and anticipating
a surge in demand for HHCR in Germany. Fortunately, we do not foresee

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any significant investments needed to stabilize these new facilities.
Additionally, due to the recent decrease in raw material and finished
goods prices, our existing working capital should be sufficient for meeting
the incremental funding requirements.

Sarang

Moving on to the next question, what the capex is planned for 2024.

Jagan Nellore

Over the past couple of years, our management and Board have
maintained a cautious approach when it comes to major capital
expenditures. As you may have observed, there have been minimal new
capital outlays during this period, despite several proposals being in the
pipeline. Our primary objective remains debt reduction in the near future.

However, it is essential to emphasize that maintaining our existing plants

requires ongoing maintenance capital expenditures. Approximately US
$70-75 million per annum is allocated for this purpose. This investment
ensures the smooth operation and longevity of our facilities.

Sarang

Moving on to the next question, we are expecting a 50% capacity

utilisation in our HHCR facility by the end of the year. What is stopping us
from ramping the capacity faster? Is it mainly to do with the stability of the
plant or is it more of a demand issue?

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Jagan Nellore

As previously discussed, HHCR products are high-quality and

environmentally friendly that meet the requirements of our diverse
clientele across various industries. However, it is essential to
acknowledge that HHCR is an energy-intensive product, and cost-
effective production remains a critical goal.

Over the past two years, we have grappled with a significant challenge:
the soaring energy prices. This surge has directly impacted our plant’s
operational capacity. Notably, some of our competitors in the European
region have either permanently or temporarily shut down their plants due
to the same energy-related concerns.

But there is good news on the horizon. Energy prices are gradually
returning to pre-spike levels, and recent developments—such as the Red
Sea crisis—have led to increased demand. As a result, we are
strategically ramping up our plant’s capacity to 50% for the time being.
Our long-term plan involves a gradual production increase to 70-80%, all
while carefully navigating the volatile market dynamics.

As you are aware, balancing supply and demand are crucial. We aim to
avoid situations where excessive inventory outpaces demand, adversely
affecting pricing. Moreover, the preference of the European players to
source locally rather than from China bodes well for our stability and
sustained demand growth. Our commitment to quality, efficiency, and
adaptability positions us well for the future.

Page 11 of 18
Sarang

Moving on to the next question, can you provide some guidance on the
improvement/performance of Cement EBITDA in 2024

Jagan Nellore

As we analyze the current trends and future prospects, we discover a

landscape shaped by both challenges and opportunities for the Indian
Cement Industry, which is on an upward trajectory. According to a recent
Crisil report, we can expect moderate growth of 4-6% in the fiscal year
2024-25. However, this growth comes against the backdrop of a high base
set by the previous three fiscal years. Rising raw material costs pose a
challenge that the industry must navigate.

Encouragingly, power and fuel costs for the cement sector are projected
to decrease by 13-15% in the current fiscal year. This reduction is
attributed to softening coal prices. Such cost optimization measures are
crucial for sustaining growth and profitability. Adding to this, as mentioned
in our earnings presentation, our expanded solar electricity generation to
the existing waste-heat power generation, will not only reduce the carbon
footprint but also reduce our overall cost of production.

India’s cement industry is gearing up for expansion. Over the next five
fiscal years, it aims to augment its capacity by a staggering 150-160
million tonnes per annum. This strategic move is fueled by the anticipation
of increased demand from the infrastructure and housing sectors.

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Currently, the industry has a manufacturing capacity of 595 million tonnes
per annum. Notably, approximately 119 million tonnes per annum were
added in the previous five fiscal years, reflecting the industry’s
commitment to growth.

The demand for cement is poised to surge in the current fiscal year due
to the government’s unwavering focus on two critical areas: Affordable
Housing and Infrastructure Development. Despite the positive outlook, we
must acknowledge the realities. Incremental supply and intense
competition have led to lower realizations. In the near term, we will need
to navigate these challenges while capitalizing on growth opportunities
that will have an impact on the EBITDA.

Sarang

Thanks Jagan. Our final set of questions are for Srinivas.

With US $50 million SSN due in April 2025 (becoming short-term in

nature), what is the plan/source from the management in repaying the
debt. Also, can you provide some guidance on overall debt reduction by
management over the next 1-2 years.

Srinivasa Rao

Thanks, Sarang. We are sitting with a liquidity position of US$ 473 million
as at the quarter end March 2024 which include cash balance of
approximately US$ 240 million and balance relating to the undrawn credit
facilities. As mentioned in the earlier calls, we are moving from the high
price market to the downfall cycle which will benefit us from the working
capital release point of view and increase in the cash inflows. The US$ 50

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million note is due in April 2025 which is the lowest cost debt in our entire
capital structure. We are vigilant about the same and are confident in
repaying the same on the due date, without making any incremental
borrowing. Just to add, during our refinancing in August 2023, we have
reduced the overall debt by around US$ 130 million ($80 million of long-
term debt and $50 million of short-term debt). Post refinancing, we have
repaid approximately Euro 10 million of Term loan B in Germany in the
fourth quarter of 2023. In addition, we also repaid Euro 33 million in April
2024 totaling to reduction of approximately Euro 43 million till date post
refinancing the overall debt.

Sarang

On page 11 of the investor presentation, our cash outflow from financing

activities is Indian Rupees 521 Crore. With our interest payment being
Indian Rupees 235 Crore and debt repayment of Indian Rupees 8 Crore,
what relates to the remaining outgoing?

Srinivasa Rao

Just to clarify in detail, the interest expense of Indian Rupees 235 Crore
in the income statement is based on accrual basis whereas in the cash
flow statement, the outflow of interest payment is based on actual cash
movement, which can be higher or lower than accrual. In the current
quarter, there was an interest payment/outflow of Indian Rupees 345
Crore in the financing activities as the interest was due for payment on
half-yearly basis on the Senior Secured Notes in US (in March and
September). Apart from that, there was interest on lease liabilities

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payment amounting to Indian Rupees 25 Crore during the quarter and
repayment of non-current borrowing amounting to Indian Rupees 8 Crore.

The balance amount majorly relating to distribution of dividend to minority

shareholders during the quarter, as mentioned in our unaudited financial
results point 5 in the notes to accounts, which is also classified as
financing cash outflows.

Sarang

Our next question is on the Effective Tax Rate (ETR). What is our
consolidated effective tax rate? Are there ways to optimise our tax outgo?
Last year, our tax outflow was Indian Rupees 344 Crore with our adjusted
profit after tax being Indian Rupees153 Crore?

Srinivasa Rao

This is a good question. Based on the entities / locations, we operate

across globe and the enacted tax rates at respective jurisdictions, our
global effective tax rate (ETR) should be in the range of 30-32%. However,
as we mentioned in earlier earnings calls, we are not recognizing the
deferred tax assets in Germany on the tax attributes like un-claimed
interest expense carry forward and unabsorbed tax losses carry forward
due to the accounting standards restrictions in certain situations. Similar
is the case in US, post the Tax Cuts and Jobs Act in 2017, where there is
limitation in the interest expense allowance, certain deferred tax asset
portion were un-recognised. Also, with few entities in profit with low tax
rate and few entities in losses with high tax rate, will have impact on the
overall ETR for the group.

Page 15 of 18
Sarang

Our next question is during the closing remarks, in the last slide of the
presentation, it was mentioned that the focus for 2024 was cost control.
Also, in the call it was mentioned that some initiatives were taken in this
regard already. Can you elaborate on the same.

Srinivasa Rao

As mentioned by Mr. Jagan during the earnings presentation discussion,

we cannot control the markets, but we can control our costs. During this
down cycle where the prices are falling from the abnormal range, we see
more pressure on the margins and unlike our earlier cycles, which lasted
for 2-3 quarters, we are seeing this for a longer period. During this tough
situation, management is diligently working on various initiatives to reduce
the cost, which we can, by some proactive steps. The measures we have
taken are like consolidating corporate offices, reduction of manpower,
reduction in the travel costs, optimizing the operational performances etc.
We should see the benefit of these in the coming periods.

Sarang

Our next question is, we are sitting with a cash position of approximately
US$ 240 million. What are the management plans in optimizing the same.
Are we generating any treasury income on the same and where is it
reported in the Statement of Profit and Loss? Also, what is the
management strategy in utilizing the same when we are sitting on the high
debt in the books.

Page 16 of 18
Srinivasa Rao

This is a good question. If we see the debt in the Group, it is mostly

residing in US and Germany in the form of Senior Secured Notes and
Term Loan B, respectively. However, the cash balance of US$ 240 million
is in various geographies that we operate including India, US, Germany,
Canada and Belgium. There are tax implications if we want to move the
funds from one geography to other and also considering the maintenance
capex and other working capital requirements, we maintain minimum cash
balance required at each entity. If any excess funds are available, they
are generally invested in fixed deposits on which we earn an interest
income depending on the various geographies. The interest income is
presented in financial line item of “other income” in the Statement of Profit
and Loss. Just to add, we generated an income of Indian Rupees 1,212
million for the year ended December 31, 2023, and Indian Rupees 476
million for the quarter ended March 31, 2024.

Sarang

Our last question for today is, during last quarter there were additional
one-time finance costs that were expensed off. Hence current quarter
finance cost should have been lower by approximately INR 30 crores, but
it was not the case. Any reason? And what would be the steady state
finance cost per quarter?

Page 17 of 18
Srinivasa Rao

We have completed the refinancing in August 2023 and hence there was
a one-time additional impact of Indian Rupees 347 million on account of
charge off of deferred finance cost relating to prior refinancing during Third
quarter of 2023. As the refinancing got completed in mid of Q3, we have
seen partial effect of increase in interest expense during that period.
During fourth quarter of 2023, we have seen the first-time full impact of
increase in interest expense on the overall debt. Hence the interest cost
was Indian Rupees 242 Crores in Q3 and 245 Crores in Q4 of 2023. In
Q1 of 2024, we have interest expense cost of Indian Rupees 235 Crores
which reduced due to partial reduction of Term Loan B to the extent of
Euro 10 million. Based on current position, we expect the interest cost to
continue in the same range and may reduce further in future based on
reduction in overall debt.

Thank you, Srinivas, Jagan and Gerry.

Ladies and gentlemen, this concludes RAIN’s Management Q&A session

for the First quarter of 2024.

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