Shares of petrochemical company Rain Industries Ltd. hit an all-time high in intra-day trade, after brokerage house Motilal Oswal initiated coverage on the company.
The company is globally the second largest producer of calcine pet coke and coal tar pitch, which are used in aluminum smelting. CPC production has been hit in China after the government’s firm action in 2017 to contain pollution. As a result, China has turned a net importer of CPC.
The research house feels the dual benefit of demand growth and supply shock is driving up global CPC prices.
The supply disruption in China is driving margin and volume growth for the company, Motilal Oswal said in a report, as it initiated coverage with a ‘buy’ rating and a target price of Rs 362. This is an upside of around 30 percent from the current levels.
The company has outperformed the benchmark index with gains of 407.85 percent as compared to Sensex’s gains of 26.25 percent this year.
Rain is generating a strong free cash flow. Therefore, shareholders are being rewarded with dividends and buybacks and this will continue in future.Motilal Oswal Report
Besides, future investments and strong financials are also positive triggers, the report said.
To meet demand, Rain Industries has decided to set up a calcine petcoke kiln of 370 kilo tonnes per annum with a capital expenditure of $65 million near Visakhapatnam. It is also investing $17 million for “debottlenecking of petrochemical feedstock distillation” by 200 kiloton in Europe. Both these projects will be completed in March 2019.