Rain Commodities' rise from a troubled legacy

Hyderabad-based Rain Commodities Ltd’s Rs 5,000-crore acquisition of Belgian chemicals maker Rutgers NV brought both the company and its managing director, N Jagan Mohan Reddy, into the limelight, something he has never been comfortable with.

While Reddy has always kept himself away from the public, the company, listed on BSE, also maintains a low profile like a privately held entity. Even analysts find it difficult to interact with the management, say observers.

This unusually low-profile nature often makes people in the industry nervous, sometimes suspicious, about the company in understanding the phenomenal success of Reddy, who is a second generation entrepreneur of a family that comes with the legacy of a troubled business.

By the time he took over the reins of Priyadarshini Cements Ltd from his father N Radha Krishna Reddy in 2003, the company had already undergone a lifetime of troubles. Priyadarshini had even gone to the board for industrial and financial reconstruction in 1992. After reopening, it again went through a bad patch before shutting operations for almost a year after 2003.

Things started looking up slightly only after Priyadarshini set up a 55-Megawatt cogeneration power plant that also helped it build the balance sheet. Rising cement prices, too, gave a much-needed boost to the company. But it continued to battle with huge piles of debts until Reddy brought in fresh funds on the strength of Rain Calcining Ltd, which he founded in 1989.

US banking giant Citigroup, which had already invested in loss-making Priyadarshini, is said to have helped Reddy in undertaking a complex process of corporate restructuring, involving multiple mergers, that finally led to the formation of a single merged entity — Rain Commodities Ltd — in 2006.

Soon after the merger, Reddy hit the headlines by announcing a Rs 2,440-crore all-cash deal for the acquisition of the US-based CII Carbon Llc, which catapulted the company into the second largest producer of calcined petroleum coke (CPC) globally.

“May be we don’t know if he is taking the path that led L N Mittal to build a steel empire. Or we don’t know if it is going the Satyam way, as we know little about the dynamics of his business,” said a chief executive officer of a city-based company on condition of anonymity.

City-based Satyam Computers Ltd (now Mahindra Satyam) had plunged into a deep crisis in 2009 January when its founder and then chairman B Ramalinga Raju confessed to fudging the software company’s accounts.

The financial strength for Rain’s latest acquisition of coal tar pitch producer Rutgers comes from its US subsidiary CII Carbon. This (cash reserves) is due to the robust financial position of the US-subsidiary as it has been leading the CPC business, says Srinivasa Rao, chief financial officer of Rain Commodities.

Both CPC and coal tar pitch are used in the manufacture of aluminium. CPC is also used in steel making.

According to Rao, Rain Commodities has been making good profits for the last four years on the back of the profitability of the CPC business. For every Rs 400 crore profits in a quarter, CPC contributes Rs 300 crore and the cement business accounts for Rs 100 crore.

Eighty per cent of the CPC capacity comes from its US-subsidiary. Of the total production, Rain Commodities sells almost 90 per cent of the CPC globally, while India accounts for just 10 per cent of its sales, he says. Rain Commodities operates a 3-million-tonne (mt) installed capacity in cement and a 2.5-mt capacity in CPC.

The company’s share today closed trade 4.48 per cent lower at Rs 39.40 on BSE, while the benchmark Sensex shed 0.44 per cent to end at 18,710.02.