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Rain Industries Ltd.

BSE: 500339 Sector: Others
NSE: RAIN ISIN Code: INE855B01025
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VOLUME 190674
52-Week high 475.50
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P/E 213.75
Mkt Cap.(Rs cr) 6,614
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OPEN 196.00
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VOLUME 190674
52-Week high 475.50
52-Week low 98.25
P/E 213.75
Mkt Cap.(Rs cr) 6,614
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Rain Industries Ltd. (RAIN) - Director Report

Company director report

Dear Members

Your Directors have pleasure in presenting the 43rd Annual Report and the AuditedFinancial Statements for the Financial Year ended December 31 2017.

FINANCIAL RESULTS

A) STANDALONE:

The Standalone performance for the Financial Year ended December 31 2017 is asunder:

The financial summary (In Rs. Million)
S. No. Particulars December 31 2017 December 31 2016
1 Revenue from operations 596.21 448.46
2 Profit before finance cost depreciation and tax expense 568.20 651.60
3 Finance Cost 176.90 285.85
4 Profit before depreciation and tax expense 391.30 365.75
5 Depreciation 6.00 15.29
6 Profit before Tax Expense 385.30 350.46
7 Tax Expense 64.24 21.14
8 Profit After Tax Expense 321.06 329.32
9 Add: Surplus at the beginning of the year 793.05 831.42
10 Total Available for appropriation 1114.11 1160.74
Appropriations:
11 Dividend including taxes 336.35 336.35
12 Transfer to general reserve 32.11 31.34
13 Surplus carried to Balance Sheet 745.65 793.05

B) CONSOLIDATED:

The Consolidated performance for the Financial Year ended December 31 2017 are asunder:

The financial summary

(In Rs. Million)
S. No. Particulars December 31 2017 December 31 2016
1 Revenue from operations 114471.36 94944.69
2 Profit before finance cost depreciation and tax expense 23836.75 16518.57
3 Finance cost 5946.71 6308.45
4 Profit before depreciation and tax expense 17890.04 10210.12
5 Depreciation 5256.27 5189.70
6 Profit before share of profit of associates exceptional items and tax 12633.77 5020.42
7 Share of profit of associates 8.84 41.53
8 Profit before exceptional items and tax 12642.61 5061.95
9 Exceptional items 1803.30 261.56
10 Profit before tax expense 10839.31 4800.39
11 Tax expense 2918.09 1792.07
12 Profit after tax expense 7921.22 3008.32
13 Non-controlling interests 285.35 98.90
14 Profit after tax expense after non-controlling interests 7635.87 2909.42
15 Add: Surplus at the beginning of the year 30755.62 29044.85
16 Total available for appropriation 38391.49 31954.27
Appropriations:
17 Dividend including taxes 338.84 499.27
18 Transfer to general reserve 32.11 77.01
19 Purchase of non-controlling interests adjusted to retained earnings - 613.42
20 Depreciation as per Transitional provisions - 15.84
21 Others - (6.89)
22 Surplus carried to the Balance Sheet 38020.54 30755.62

State of the Company's Affairs

During the year the Company has achieved revenue of Rs.596.21 million and net profitof Rs. 321.06 million on a standalone basis. During the same period the consolidatedrevenue was Rs. 114471.36 million and net profit after non-controlling interests was Rs.7635.87 million.

BUSINESS OUTLOOK

Cautionary Statement

RAIN Industries Limited along with its subsidiary companies in India and abroad aretogether referred to as "RAIN Group". Statements in this business outlookdescribing RAIN Group's estimates and expectations may be forward-looking statements.Actual results may differ materially from those expressed or implied. Important factorsthat could impact RAIN Group's operations include economic conditions affecting demand andsupply for the products manufactured by RAIN Group; price conditions in the domestic andoverseas markets in which RAIN Group operates; changes in Government regulations tax lawsand statutes; and other incidental factors.

Overview

RAIN Group operates in three business segments;

(a) Carbon

(b) Chemicals and

(c) Cement.

We are a leading vertically integrated global producer of a diversified portfolio ofcarbon-based and chemical products that are essential raw materials for staples ineveryday life and the producer of Priya Cement a market leader in south India.

Our Carbon business segment converts the by-products of oil refining (i.e. greenpetroleum coke or "GPC") and steel production (i.e. coal tar) into high-valuecarbon-based products [i.e. calcined petroleum coke (or "CPC) coal tar pitch (or"CTP") and other carbon products (or "OCP") that are critical rawmaterials for the aluminium graphite carbon black wood preservation titanium dioxiderefractory and several other industries globally.

Our Chemicals business segment extends the value chain of our carbon processing throughdownstream refining of a portion of this output into high-value chemical products that arecritical for end users from the specialty chemicals coatings construction petroleum andseveral other industries globally.

Our Cement business segment produces and markets high-quality ordinary portland cement(or "OPC") and portland pozzolana cement (or "PPC") consumed largelyby the civil construction and infrastructure industry.

Our scale and process sophistication provide us the flexibility to capitalize on marketopportunities by selecting raw materials from a wide range of sources across variousgeographies adjusting the composition of our product mix and producing products that meetstringent customer specifications including several specialty products.

Our production facility locations are spread worldwide and integrated global logisticsnetwork have strategically positioned us to capitalize on market opportunities byaddressing raw material supply and product demand on a global basis in both established(mainly North America and Europe) and emerging markets (mainly Asia and the Middle East).

BUSINESS SEGMENT OUTLOOK

1. Carbon

Carbon products include CPC CTP GPC and other derivatives of coal tar distillationincluding creosote oil naphthalene phthalic anhydride CARBORES and others.Energy produced through waste-heat recovery during the manufacturing of CPC is includedwithin Carbon business segment. This segment contributed approximately 75.8% of theconsolidated revenue of RAIN Group for CY 2017. Production capacity of approximately 2.1million metric tons per annum along with a CPC blending facility of 1.0 million.

1.1. Calcined Petroleum Coke ("CPC") metric tons per annum in India. RAINGroup is setting-up a greenfieldRAIN Group carries on the business of manufacturing andselling of CPC through plant with a capacity of 0.37 million metricits wholly ownedsubsidiaries in tons per India annum and the USA. using vertical-shafttechnology in Vizag India. We expect RAIN Group has six CPC manufacturing plants in theUSA the vertical-shaft CPC plant to commenceand one CPC plant in India with anoperations during CY 2019. Aggregate production capacity of approximately 2.1 millionmetric tons per annum along with a CPC blending facility of 1.0 million metric tons perannum in India. RAIN Group is setting-up a greenfield CPC plant with a capacity of 0.37million metric tons per annum using vertical-shaft technology in Vizag India. We expectthe vertical-shaft CPC

CPC is produced from GPC a porous black solid that is a by-product of the cruderefining process through a process plant to commence operations during CY 2019. known as"calcining".

This process removes moisture and volatile matter from GPC at a very high temperature.

CPC

CPC is produced from GPC a porous black solid that is a by-product of the cruderefining process through a process produced in two primary forms:

(i) anode-grade CPC (for use in the aluminium smelting process) and

(ii) industrial-known as "calcining".

This process removes moisture and volatile matter from GPC at a very high temperature.CPC grade CPC (for use in the manufacturing of titanium dioxide and other industrialapplications).

Anode-grade CPC is produced in two primary forms:

(i) anode-grade CPC (for use in the aluminium smelting process) and

(ii) industrial-represents approximately 89% of global CPC production andindustrial-grade CPC represents the remaining 11%.

Forgrade CPC (for use in the manufacturing of titanium dioxide and other industrialapplications).

Anode-grade CPC every metric ton of primary aluminium produced approximately 0.4metric tons ofrepresents approximately 89% of global CPC production and industrial-grade CPCrepresents the remaining 11%. is consumed.

For every metric ton of primary aluminium produced approximately 0.4 metric tons ofCPC is consumed.

Source: Management Estimate and Industry

Worldwide CPC production for CY 2017 was about 28.7 million metric tons 76% ofwhich was produced in China and North America comprising 62% of global demand. Chinacontinues to play a dominant role in the CPC industry million metric tons 76% WorldwideCPC production for CY 2017 was about 28.7 of which was produced in China and andits share of the world's CPC production is estimated to remain at 55% in the near term.China and North America

North America comprising 62% of global demand. China continues to play a dominant rolein the CPC industry and will maintain the positive surplus. Due to a large gap betweenproduction and demand Asia and Middle East will share of the world's CPC production isestimated become promising markets for Asian calciners. to remain at 55% in the near term.China and North America will maintain the positive surplus. Due to a large gap betweenproduction and demand Asia and Middle East will become

As per recent industry estimates worldwide demand for CPC aggregated to approximately29.2 million metric tons in CY 2017. The demand is expected to grow toapproximately 33.3 million metric tons by CY 2022 representing a CAGR of +2.64%.Worldwide production of CPC aggregated to approximately 28.7 million metric tons in CY2017 and is expected to grow to approximately 33.3 million metric tons by CY 2022representing a CAGR of +3.01%.

World CPC – Production Vs. Demand (in Million Metric Tons)

RAIN Group estimates that over 280 oil refineries worldwide produce and sell GPC invarying forms and qualities. Generally the sale of GPC does not constitute a materialportion of oil refineries' revenues. The quality of GPC is largely a function of the crudequality used at a refinery. Manufacturers of CPC blend various grades of GPC (and CPC) tomeet the stringent quality specifications of aluminium smelters.

The price of GPC varies depending on the quality and the market in which it isutilized. The price of GPC is largely driven by prevailing demand and supply conditions. Arefinery typically realizes higher prices for GPC that is used in production ofanode-grade CPC and industrial-grade CPC as compared to GPC used as a fuel.

In general it is advantageous for oil refineries to process more sour crude ascompared to sweet crude to improve their profitability. The spread between sweet crudeand sour crude has increased. This economic incentive for refineries to process sourcrudes has the effect of reducing the production of anode-grade GPC. In fact asignificant volume of existing anode-grade GPC quality has deteriorated due to increaseduse of sour crude by refineries. It should be noted that many coking units will continueto produce anode-grade GPC because these refineries are unable to process sour crudes dueto limitation of their refinery configuration. In addition some refineries process sweetcrudes logistically advantaged to those locations.

In general CPC and GPC prices move in parallel. Hence CPC producers are converterswith ability to pass on the increase/decrease in GPC cost to their customers. Howeverthere may be a time lag of one or two quarters for adjusting the changes in prices of GPCand CPC. In the interim the difference if any may have to be absorbed bythe CPC producers.

The global calcinable-grade GPC supply is expected to grow only at a CAGR of +2.1%during 2017 to 2021. The availability of low-sulphur GPC is expected to be negativelyaffected due to regulations specified by the International Convention for the Preventionof Pollution from Ships ("MARPOL") which would be effective from 2020 and isexpected to cause oil refining companies to shift to heavier or high-sulfur crudes.

Threats & Challenges - CPC

The main threat for the supply of CPC is the availability of suitable quality GPC. GPCis a by-product of the oil refining process and is not produced to meet the supply orquality needs of CPC or aluminium producers. Changes in the economics of processing sourcrudes over the past 15 - 20 years have resulted in a trend towards refining more of thesecrudes.

While petroleum refineries continue to build refining capacity (and thereforeindirectly increase GPC production) the global supply of traditional anode-grade GPC isexpected to grow at a slower pace as refineries are processing more sour crude whichresults in the production of lower-quality (fuel-grade) GPC.

Thus global CPC producers have experienced and may continue to experience decline inthe availability of high-quality anode-grade GPC.

CPC quality directly influences anode quality in the performance of aluminium smelters.To meet the demand for consistent quality of anode-grade CPC from the aluminium industryRAIN Group works closely with smelters to expand existing quality specifications allowinguse of more non-traditional anode coke ("NTAC") in blends for the production ofanode-grade CPC without compromising on quality. RAIN Group's patented Isotropic CokeExperiment ("ICE") technology is one method of utilizing grades of GPCpreviously not considered acceptable to produce anode-grade CPC.

Additionally RAIN Group's infrastructure and locational advantages enable it toquickly respond to meet the increased demand for CPC in the Middle East Russia and India.

To meet the increase in demand for CPC in India and markets around India RAIN Grouphas set up a new CPC blending facility with a capacity of 1000000 metric tons during CY2016 at its Vizag facility in India. Strategic investments in flue gas desulphurization atthe Chalmette and Lake Charles plants in Louisiana USA have allowed RAIN Group to unlockan unmatchable advantage of utilizing high-sulfur GPC more efficiently to serve thegrowing demand from aluminium smelters without compromising on quality.

In the near future it is expected that India will lead CPC demand growth in the world(ex-China) on the back of significant capacity expansions by aluminium majors in India.Indian aluminium production is set to grow by approximately

25% by CY 2020. Due to the logistical synergies and recent implementation of stringentenvironmental regulations by the Chinese Government thereby increasing costs India willremain competitive against Chinese CPC suppliers.

1.2. Coal Tar Pitch ("CTP") and Other Carbon Products

RAIN Group has four coal tar distillation facilities in Belgium Canada Germany andRussia with an aggregate primary coal tar distillation capacity of approximately 1.3million metric tons per annum.

Coal tar distillation is carried out in Belgium Canada and Germany through whollyowned subsidiaries and coal tar distillation is carried out in Russia through a jointventure with PAO Severstal Russia. Further a debottlenecking project in Europe isunderway that will enable RAIN Group to distill up to 0.2 million metric tons of petrotar. This will further enable RAIN Group to leverage its raw material mix.

Coal tar is a liquid by-product derived from the conversion process of coal intometallurgical coke. During this conversion process approximately 80% of the coal volumeis processed into metallurgical coke. Metallurgical coke is used as an important reducingagent and energy source in blast furnaces to produce pig iron and steel. Consequently thesupply of coal tar is correlated to pig iron production which in turn is driven bysteel production.

Asia (including 61% from China) contributes approximately 79% of total global pig ironproduction and Europe (including Russia) contributes about 15% of total global pig ironproduction.

Due to the strict implementation of environment protection regulations in China it isexpected that there will be a significant fall in volumes of metallurgical coke in thecoming years. Consequently coal tar availability in China will be affected. Accordinglythe coal tar production in China is estimated to grow at a CAGR of -1.5% as against +2.7%in the Rest of the World from CY 2017 until CY 2022. During CY 2017 China's share ofglobal coal tar production reduced to 58% as against 61% in CY 2016.

The same is estimated to reduce to 53% by CY 2022. Unlike China the share of Europeand Asia (excluding China) increased from 15% and 18% respectively in CY 2016 to 16% and20% respectively in CY 2017. The contribution from North America marginally increased to2% in CY 2017. On a positive note it is estimated that the share of Europe Asia(excluding China) and North America will increase to 17% 23% and 3% respectively to theglobal coal tar production by CY 2022.

Every metric ton of metallurgical coke produced yields on average 0.04 metric tons ofcoal tar. Coal tar is the main raw material in the coal tar distillation process. The coaltar distillation process can be categorized into two stages:

(i) primary coal tar distillation ("Primary Distillation") and

(ii) downstream processing of selected products of Primary Distillation intoco-generated refined products ("Downstream").

The Primary Distillation process produces CTP (about 48% of tar distilled) naphthaleneoil (about 12%) and aromatic oils (about 40%).

With a distillation yield of 48% CTP is the main end-product in the coal tardistillation business and therefore crucial for its growth.

During 2017 the demand for CTP increased by 9.75% and 2.47% in China and rest of theworld respectively. Asia (excluding China) had a 10.96% increase in demand for CTP.Increase in demand for CTP is mainly due to the increase in production of aluminium.

As per recent industry estimates global demand for CTP aggregated to approximately 6.6million metric tons in CY

2017. This is expected to grow to approximately 7.8 million metric tons by CY 2022representing a CAGR of +3.35%.

Global production of CTP aggregated approximately 6.7 million metric tons in CY 2017and is expected to grow to approximately 7.8 million metric tons by CY 2022 representinga CAGR of +3.26%.

Geographically CTP production is led by China followed by Europe and Asia / Australiawith these three markets together having an aggregate share of 92% in CY 2017. China andEurope are the regions with surplus production. Europe and China will maintain thispositive surplus through CY 2022 with a CAGR of +5.1% and +9.2% respectively.

The levels of surplus production over demand for CTP in other regions are expected todecline in future years.

Seventy-eight percent of the world's CTP production is primarily used to produce carbonanodes for aluminium smelting. For every metric ton of primary aluminium approximately0.1 metric ton of CTP is consumed. Therefore production of primary aluminium is one ofthe most important determinants of demand for CTP.

The second-largest CTP end-users consuming approximately 10% of global production aregraphite electrode producers.

Graphite 2 million metric tons of CTP in CY 2017. During CY 2017 electrodes areused in the manufacturing of steel using electric arc furnaces. approximately 57.2% oftotal global primary aluminium production was in China 12.7% in Europe (includingRussia) and 6.2% The in North America. As per recent industry forecasts the demand forCTP from the global aluminium industry consumed approximately 5.2 million metric tons ofCTP aluminium CY 2017.

Industry

During CY 2017 will increase from 5.2 million metric tons in CY 2017 to 6.1million metric tons in CY 2022 representing a CAGR of +3.3%. approximately 57.2% of totalglobal primary aluminium production was in China 12.7% in Europe (including Russia) and6.2% in North America.

As per recent industry forecasts the demand for CTP from the aluminium industry willincrease from 5.2 million metric tons in CY 2017 to 6.1 million metric tons in CY 2022representing a CAGR of +3.3%.

World Aluminium Production & Demand (in Million Metric Tons)

Further global demand for primary aluminium aggregated to approximately 62.6 millionmetric tons in CY 2017 and isFurther global demand for primary aluminium aggregated toapproximately 62.6 million metric tons in CY 2017 and is expected to grow to approximately69.9 million metric tons by CY 2021 representing a CAGR of +2.81%. Of the totalexpected to grow to approximately 69.9 million metric tons by CY 2021 representinga CAGR of +2.81%.

Of the total demand in CY 2016 54.8% was from China 13.4% from Europe(including Russia) and 10.1% from North America. demand in CY 2016 54.8% Asobserved earlier it is expected that China will increase its share in aluminiumconsumption to about 56.0% of was from China 13.4% from Europe (including Russia)and 10.1% from North America.

As observed total demand for primary aluminium by CY 2021.

The expected demand will be driven by electrical conductors andearlier it is expectedthat China will increase its share in aluminium consumption to about 56.0% of total demandsignificant growth for primary aluminium in the packaging industry. Western Europeis expected to see an increase in aluminium consumptionby CY 2021.

The expected demand will be driven by electrical conductors and significant growth ofabout 0.6% CAGR which mainly will be driven by the in the packaging industry. WesternEurope is expected automobile see andincrease packaging industries.aluminium consumption of about 0.6% CAGR which mainly will be driven by the automobileand packaging industries.

Aluminium continues to chip away at the steel industry's previously unassailableposition as construction material of choice for the automotive industry. Due to thepressure of improving fuel economy automotive manufacturers increased the use lightermaterials such as aluminium for the whole structural body shell plus closing panels likehood trunk and doors. The aluminium producers will continue to innovate with alloys andproduction processes to meet the automotive industry's demand.

Other Products in Tar Distillation

Naphthalene as a chemical intermediate is mainly used as a precursor to otherchemicals or as a solvent for chemical reaction. Naphthalene is used both in theproduction of dispersants and the construction industry and as superplasticizers toproduce concrete and gypsum. Therefore demand for naphthalene is correlated to thebuilding materials industry.

Naphthalene also is used in the production of phthalic anhydride as a substitute forortho-xylene as it is more cost-effective. Phthalic anhydride is used in the manufacturingof plastics polyester resins and alkyd resins. Additionally phthalate esters made fromphthalic anhydride are used as plasticizers in the production of several PVC products.

Aromatic oils such as creosote oil and carbon back oil are sold to a variety ofindustries. Creosote oil is used by the wood-treatment industry for the impregnation ofwood. Carbon black oil is used by the carbon black industry to produce carbon black whichis primarily used by the rubber and automobile tyre industries.

After industrial processing the downstream products made from naphthalene and aromaticoils such as phthalic anhydride form indispensable constituents of many articles ofdaily life. For example they are used as a key raw material in the leather constructioncar tyres and pharmaceutical industries.

Threats & Challenges - CTP

The main threat for the supply of CTP is the availability of reliable quantity of coaltar from the steel industry. With approximately 8% of global coal tar production comingfrom the EU's 27 countries the region's supply of coal tar meets most of the coal tarrequirements for RAIN Group's distillation operations which are located predominantly inEurope.

RAIN Group strengthened its coal tar sourcing through its Russian joint venture. Withapproximately 5% of global coal tar production Russia will contribute significantly tocoal tar supply in the region.

Although the aluminium industry has experienced production and consumption growth on along-term basis there may be cyclical periods of weak demand that could result indecreased primary aluminium production. RAIN Group's sales have historically declinedduring such cyclical periods of weak global demand for aluminium.

The curtailment of coal tar distillation by certain manufacturers in North America andEurope minimizes the demand for coal tar and has benefited RAIN Group with improvedavailability of raw material for its distillation plants.

Naphthalene and aromatic oils (other by-products in primary distillation) are subjectto the demand and supply forces of the construction industry and the changes in prices ofcorrelated commodities. Any decrease in prices of fuel oil and ortho-xylene could reducemargins and competitiveness of naphthalene and aromatic oils.

1.3. Co-generated Energy

RAIN Group is committed to environmental compliance at each of its facilities. As partof this commitment RAIN Group has made significant investments in waste-heat recoverysystems at its CPC plants. RAIN Group co-generates energy through waste heat recovered inthe calcining process. Currently RAIN Group has co-generation at four of its seven CPCplants with a combined energy generation capacity of approximately 125 MW.

The operation of these waste-heat recovery units reduces greenhouse gas emissions byoffsetting the use of fossil fuels that would be otherwise required to produce anequivalent amount of energy. This significantly reduces RAIN Group's carbon footprint andresults in carbon-neutral facilities.

As further evidence of RAIN Group's commitment to the environment it has madesubstantial investments in flue gas desulfurization at its CPC plants in India and USA tosubstantially reduce the emission of sulfur dioxide to meet all requirements of regulatoryair quality standards.

Threats & Challenges - Energy

Energy production is proportional to the waste heat produced during calcinationprocess. The output is subject to the volume and quality of raw material being processedin calcination. Any decrease in capacity utilizations in calcination or change in rawmaterial quality will directly influence the generation of energy. A substantial part ofenergy produced is sold to external customers for industrial use. Availability ofalternate economical sources of energy such as solar energy to these industries in futurecan cause reduction in sales of energy by RAIN Group.

A declining trend in tariff in India may affect revenues from the sale of energy. Partof the energy generated at our Vizag plant is captively used within the plant and partlyby our Cement operations mitigating the risk of declining energy tariffs. Energy revenuesin US are subject to natural gas prices which are fluctuating from time to time causinguncertainty in growth of revenue from sale of energy in US. The Company occasionallyenters into natural gas forward contracts to hedge any fall in the prices of natural gas.

2. Chemicals

RAIN Group produces chemicals in two parallel production streams. One stream is derivedfrom the downstream refining of primary coal tar distillates while the other stream usespetroleum derivatives such as C9 and C10 as its raw material. The chemicals producedinclude resins and modifiers aromatic chemicals and superplasticizers. These chemicalsare used in a broad variety of end-markets including paints coatings constructionplastics paper tyres rail ties insulation and foam. About 15.7% of the consolidatedrevenue for CY 2017 is from this segment. RAIN Group's

Chemicals business can be classified broadly into three sub-product categories:

2.1. Resins & Modifiers

We produce aromatic hydrocarbon resins that are based on either coal tar distillates orpetrochemical raw materials. Our coal tar distillate-based resins are produced from thedownstream refining of the carboindene we produce internally. Our petrochemical-basedresins are produced from C9 aromatic resin oil and several other petrochemical rawmaterials we procure from third-party suppliers. Similarly we produce modifiers from thedownstream refining of naphthalene and other inputs procured externally.

We sell our coal tar and petrochemical-based resins under the brand name NOVARESwhich are customized resins with softening points up to 170oC. We also sellpetrochemical-based resins under the brand name MULTIRES which are low-cost resins. Ourcoal tar-based resins are used primarily for applications in coatings rubber tyres andother end-user rubber products and our petrochemical-based resins are used primarily forapplications in adhesives and printing inks. We produce resins with different chemicalcompositions and softening points which allows our resins to have different hardening andadhesive properties depending on the intended application and customer specification. Ourresins are the only coal tar-based resins that are currently produced commercially inEurope for rubber tyre applications in electric cars. Our resins also include by-productsof the resins production process that we sell under the brand names NOVABOOST andNOVADEST for applications in petroleum products.

We sell modifiers under the brand names KMC and RUETASOLV. KMC modifiers are usedfor carbonless copy papers carrier and insulation oils and flooring production.RUETASOLV modifiers are used for epoxy-based coatings which are highly resistant toextreme temperatures and chemical stresses as well as extreme dry or wet conditions.

In addition we offer various services to our customers of resins and modifiers whichinclude technical advice customized production research and development and technicalknow-how. We have a dedicated product development and applications team that works closelywith our customers to tailor the quality and grade of resins and modifiers to meet theirspecific application needs. The team has developed several innovative products such as:(a) coal tar-based resins used for rubber tyre applications in electric cars; (b) a familyof colorless water-white resins used in color-sensitive adhesive applications such astape and book bindings; and (c) a new generation eco-friendly resins such as those withwater-miscibility to be used in novel waterborne coatings and adhesive formulations withreduced volatile organic emissions.

2.2. Aromatic Chemicals

The aromatic chemicals we produce and sell comprise a wide range of phenolics such asphenol O-cresol M/P-cresol and xylenol. We also produce and sell anthracenecarbazole acetophenone and 3.5-xylenol. Phenolics are produced from the downstreamrefining of carbolic oil that we internally distill from coal tar as well as carbolic oiland other raw materials that we purchase from third parties.

Anthracene and carbazole are produced from the downstream refining of anthracene oilthat we internally distill from coal tar. Acetophenone and 3.5-xylenol are produced frompetrochemical-based raw materials we purchase from third parties. We also producecarboindene from the downstream refining of carbolic oil for use as a raw material in ourcoal tar-based resins.

Our aromatic chemical products certain of which can be custom mixed to meet exactingcustomer specifications are used as precursors for several end-user products. Forexample our phenolics product group is used for applications in leather treatmentelectric wire enamels and foodstuff and pharmaceutical applications. Our carbozoleproduct is an important constituent for the high-performance pigment violet PV23 whichis used in textiles printing inks and plastics.

2.3. Superplasticizers

Superplasticizers are specialty polymers produced from the downstream refiningpolymerization and purification of naphthalene oil and naphthalene that we produceinternally as well as several raw materials we purchase from third-party suppliers. Oursuperplasticizers products are a class of polymer-based dispersant materials principallyused as in-process aids in the manufacture of products such as concrete and gypsum aswell as a variety of other industrial and agricultural applications.

High-performance superplasticizers provide end-users with meaningful reductions intheir process water demand which serves to enhance properties such as strengthelasticity flow spreading permeability latex coalescence wetting color-fastnessresistance to wear and useful life. We produce a range of differentiated naphthalene(‘‘PNS'') and melamine (‘‘PMS'') superplasticizers in both liquid andpowder form as well as carboxylate (‘‘PCE'') dispersants in liquid form.

In 2017 the European chemical business witnessed a favorable growth of 3.8% and 5.1%in production and price respectively. Due to the increase in chemical consumption by 8.5%and exports by 7.1% the total chemical sales by European chemical companies in 2017 werehigher by 8.4%. With the increasing consumer demand and accelerated investments inproduction capacities together with overall economic growth the European chemicalindustry is expected to grow at 2% in 2018.

On a strong note the US specialty chemical markets reported an average gain of 4.2% in2017 compared to 2016.

Oilfield electronics corrosion inhibitors adhesives and sealants and miningsegments had an impressive growth in specialty chemicals consumption during 2017 comparedto 2016. At the same time negative consumption observed from segments such as rubberprocessing pigments textile paper additives lubricants and antioxidants.

Threats & Challenges - Chemicals

Key threats for RAIN Group's Chemical business are volatility in commodity prices andexchange rate fluctuations. The price of C9 and C10 fractions largely depend on exchangerates and the price of crude and fuel oil.

RAIN Group is mitigating its pricing and procurement risks through an integrated globalmanagement of sales and supply procurement optimized processes and long-term agreementswith suppliers to ensure reliable sourcing of raw material.

The quarterly operating results fluctuate due to a variety of factors that are outsideour control including inclement weather conditions which in the past have affectedoperating results. Historically our operating results have been lower in the first andfourth quarters as compared to the second and third quarters.

3. Cement

RAIN Group has two integrated cement plants one each in the States of Telangana andAndhra Pradesh with an aggregate installed capacity of 4 million metric tons per annum.RAIN Group also has a fly-ash handling and cement packaging unit in the State ofKarnataka. About 8.5% of the consolidated revenue of RAIN Group for CY 2017 is from theCement business segment.

RAIN Group's cement plants manufacture two grades of cement (i.e. OPC and PPC). Theplants are strategically located near the primary raw material source of limestone. Thefly-ash handling unit in the State of Karnataka has a cement packaging unit that convertsthe bulk cement into packed cement and enable supplies to neighboring areas.

Out of the total cement produced PPC grade accounts for about 75% and OPC grade about25%.

RAIN Group constantly has been reducing the output cost by introducing efficient energymeasures such as waste-heat recovery power plants and the use of pet coke("GPC") to heat its furnaces. Stringent BIS standards are applied in cementproduction to attain consistency in quality.

RAIN Group has built a vast dealer network in the southern states of India. It has madeadditional inroads into other neighboring States of Maharashtra Goa Odisha and Kerala.Sales in the new market regions account for 18% of total sales achieved during CY 2017.

The major costs in the production of cement are (a) freight and transportation and (b)power and fuel constituting 30% each to the total cost of manufacturing. We have enteredinto long-term contracts with transport agencies for transportation of cement to alldealers spread across various states. RAIN Group constantly works to improve efficienciesin logistics. The downside risk is that any increase in fuel prices could adversely affectfreight costs.

RAIN Group has long-term arrangements with The Singareni Collieries Company Limited forsupply of coal which meets about 59% of its total requirement. In addition about 23% ofhigh-quality coal is imported and blended with pet coke of about 18%.

The Cement business segment consumes power of up to 29MW. RAIN Group supplements itsrequirements for power in the Cement business segment from power generated in its CPCplant in Vizag and its new 6.4MW waste-heat recovery power plant in the Kurnoolcement plant. Additionally a 4.1MW waste-heat recovery power plant is under developmentat the Nalgonda cement plant. With these measures RAIN Group expects significant savingsin its energy costs in the coming years.

Cement Industry Growth in India

The Indian cement industry is estimated to have a total production capacity of 420million metric tons during CY 2017 which is expected to increase to around 550 millionmetric tons by CY 2025.

Cement is a cyclical commodity with a high correlation to GDP. The Indian housingsector is the most critical demand driver of cement accounting for about 67% of totalconsumption. The other major consumers of cement include infrastructure (13%) commercialconstruction (11%) and industrial construction (9%).

During the last few years low capacity utilization coupled with weak prices andincreasing input costs have impacted the performance of the cement industry in India.Subdued operating profits and high debt-service obligations have led some Indian cementproducers to defer expansion plans.

With improved demand resulting from infrastructure and housing sectors coupled withlimited capacity additions the cement capacity utilization on a pan-India basis isexpected to steadily improve over next few years. Demand is expected to be boosted byinfrastructure development in Tier 2 and Tier 3 cities growth in real estate sector andinitiatives to build 100 Smart Cities by the Government of India.

Cement being a bulk commodity is a freight-intensive industry and transporting itover long distances can be uneconomical. This has resulted in cement being largely aregional play with the industry divided into five main regions in India: North SouthWest East and Central. The Southern region of India has the highest installed capacityaccounting for about 35% of the Country's total installed capacity.

Current Position

During CY 2017 demand in India's cement industry remained flat when compared to CY2016.

This slowest growth pace in a decade was mainly attributable to a slowdown inconstruction activities due to demonetization. Though there is hope of demand pick-up dueto the Indian Government's thrust on infrastructure this is contingent on the success ofdemonetization scheme and execution. The growth in Southern region was driven byinitiation of development activities in the newly formed capital city of Andhra Pradeshand low-cost housing project in Telangana.

Near Future

As stated elsewhere cement demand is closely linked to the overall economic growthparticularly in the housing and infrastructure sectors. With the Government of Indiaintroducing plans with a thrust on housing and infrastructure development cement demandis expected to increase.

Historically positive incremental demand over supply as well as high levels ofcapacity utilization have led to increases in cement prices. Rebound in demand growthfrom CY 2018 is expected to support prices in the Southern region. Cement demand inSouthern region is expected to increase at a CAGR of 5% to 6%.

Due to the limited capacity additions and demand revival the cement sector is expectedto enter a multi-year earnings growth cycle where it gains pricing and operating leverage.

Threats & Challenges - Cement

The Indian cement industry has witnessed a massive capacity addition of overapproximately 234 million metric tons during last nine years. This capacity addition isdisproportionately high and concentrated in South India. During the same period cementcapacity in South India alone has increased by approximately 87 million metric tons. Thishas resulted in significant pressure on capacity utilization and price realization.

The Indian cement industry's average utilization has come down drastically toapproximately 70% in CY 2017 led by weak demand and an oversupply in the industry. Thesame is expected to reach 80% by CY 2022. While it is so on all India basis theutilization levels in Southern region remained at 58% in CY 2017 which is expected toreach 70% by CY 2022. Cement demand and capacity utilization are expected to improve ledby a slower pace in capacity addition and better demand prospects.

Until CY 2014 the Southern region (especially in Telangana and Andhra Pradesh) faceddemand issues due to political instability and delays in sanctioning projects across thesectors. However now the Government of Telangana is undertaking major irrigationprojects and the Government of Andhra Pradesh is building a new capital city. More than90% of RAIN Group's cement sales volumes are in the Southern region almost 30% of whichis sold in Andhra

Pradesh and Telangana. Hence the above developments planned for these two states areexpected to contribute to the growth in the Cement business of RAIN Group. We have madeinroads into neighboring state such as Maharashtra since there is a lack of adequatecement production capacity due to absence of limestone mines and hence approximately 50%of its demand is met by the Southern region's cement plants.

With no new capacity additions coming online in Maharashtra during the next threeyears increasing capacity utilization of the Southern region's cement facilities shouldlead to an increase in performance. Volume growth should benefit most Southern-basedcompanies due to their high operating / financial leverage. RAIN Group already hasexpanded into new markets such Maharashtra Odisha Kerala Goa and Pondicherry. These newgeographical markets contributed 18% of cement sales during CY 2017.

Listing of Equity Shares

The Company's equity shares are listed on the following Stock Exchanges:

(i) BSE Limited Phiroze JeeJeebhoy Towers Dalal Street Mumbai-400 001; and

(ii) National Stock Exchange of India Limited Exchange Plaza Floor 5 Plot No. C/1 GBlock Bandra–Kurla Complex Bandra (East) Mumbai – 400051.

The Company has paid the Annual Listing Fees to the said Stock Exchanges for thefinancial year 2017-18.

Subsidiary Companies

As per the provisions of Section 129 of the Companies Act 2013 read with Rule 5 ofCompanies (Accounts) Rules 2014 a separate statement containing the salient features ofthe financial statements of the subsidiary Companies/ Associate Companies/Joint Venturesin Form AOC-1 is annexed to this Board's Report (Annexure- 1).

Performance and contribution of each of the subsidiaries associates and joint ventures

As per Rule 8 of Company's (Accounts) Rules 2014 a Report on the Financial performanceof subsidiaries associates and joint venture companies along with their contribution tothe overall performance of the Company during the Financial Year ended December 31 2017is annexed to this Board's report (Annexure – 2).

Consolidated Financial Statements

The consolidated financial statements prepared in accordance with Indian AccountingStandards (Ind AS) as per the Companies (Indian Accounting Standards) Rules 2015 notifiedunder Section 133 of the Companies Act 2013 and other relevant provisions of theCompanies Act 2013. As per the provisions of Section 136 of the Companies Act 2013 theCompany has placed separate audited accounts of its subsidiaries on its websitewww.rain-industries.com and a copy of separate audited financial statements of itssubsidiaries will be provided to shareholders upon their request.

Share Capital

The Paid-up Share Capital of the Company as on December 31 2017 is Rs.672691358divided into 336345679 Equity Shares of Rs.2/- each fully paid up.

Number of Meetings of the Board of Directors

During the year 4 Board meetings were held.

The dates on which the Board meetings were held are: February 23 2017 May 5 2017August 11 2017 and November 8 2017.

Details of the attendance of the Directors at the Board meetings held during the yearended December 31 2017 are as follows:

Name of the Director Number of Board Meetings
Held Attended
Mr. N. Radhakrishna Reddy 4 4
Mr. Jagan Mohan Reddy Nellore 4 4
Mr. N. Sujith Kumar Reddy 4 4
Mr. S. L. Rao 4 4
Mr. Dipankar Basu1 4 2
Mr. H. L. Zutshi 4 4
Ms. Radhika Vijay Haribhakti 4 4

 

Name of the Director Number of Board Meetings
Held Attended
Ms. Nirmala Reddy 4 4
Mr. Krishnan Narayanan2 4 4

1 Mr. Dipankar Basu resigned from the Directorship of the Company w.e.f. November 112017.

2 IDBI Bank Limited has withdrawn its Nominee Director Mr. Krishnan Narayanan from theDirectorship of the Company with effect from November 30 2017.

Management Discussion and Analysis

The Management Discussion and Analysis forms an integral part of this Report andprovides details of the overall industry structure developments performance and state ofaffairs of the Company's various businesses viz. Carbon Products Chemicals Cement alongwith internal controls and their adequacy Risk Management Systems and other materialdevelopments during the financial year.

Directors Responsibility Statement as required under Section 134 of the Companies Act2013

Pursuant to the requirement under Section 134 of the Companies Act 2013 with respectto the Directors' Responsibility Statement the Board of Directors of the Company herebyconfirms:

i) that in the preparation of the Annual Accounts the applicable accounting standardshave been followed;

ii) that the Directors have selected such accounting policies and applied themconsistently and made judgments and estimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of the Company as at December 31 2017and of Profit and Loss Account of the Company for that period;

iii) that the Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of this Act for safeguardingthe assets of the Company and for preventing and detecting fraud and other irregularities;

iv) that the Directors have prepared the Annual Accounts for the Financial Year endedDecember 31 2017 on a going concern basis;

v) that the Directors have laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and were operatingeffectively; and

vi) that the Directors have devised proper systems to ensure compliance with theprovisions of all applicable laws and that such systems were adequate and operatingeffectively.

Statement on Declaration given by Independent Directors under Section 149

The Independent Directors have submitted their declaration of independence as requiredpursuant to sub-section (7) of Section 149 of the Companies Act 2013 stating that theymeet the criteria of independence as provided in subsection (6) of Section 149.

Nomination and Remuneration Committee

The Nomination and Remuneration Committee consists of the following Directors:

Ms. Radhika Vijay Haribhakti Chairperson Mr. S.L. Rao Mr. H.L. Zutshi Ms. NirmalaReddy and Mr. Varun Batra. Mr. Varun Batra was appointed as member of Nomination andRemuneration Committee on February 28 2018.

v Brief description of the terms of reference:

• Identifying persons who are qualified to become Directors and who may beappointed in senior management in accordance with the criteria laid down and recommend tothe Board for their appointment and removal;

• Formulation of criteria for evaluation of Independent Directors and the Board;

• Carry on the evaluation of every Director's performance;

• Formulation of the criteria for determining qualifications positive attributesand independence of a Director; and

• Recommend to the Board a policy relating to the remuneration of the DirectorsKey Managerial Personnel and other Employees.

v Nomination and Remuneration policy Policy objectives:

1. To lay down criteria terms and conditions with regard to identifying persons whoare qualified to become Directors (Executive and Non-Executive) and persons who may beappointed to senior management and key managerial positions and to determine theirremuneration.

2. To determine remuneration based on the Company's size and financial positioncomparable with trends and practices on remuneration prevailing in peer companies.

3. To carry out evaluation on the performance of Directors.

4. To provide them with reward linked directly to their effort performance dedicationand achievement relating to the Company's operations.

5. To retain motivate and promote talent to ensure long term sustainability oftalented managerial persons and create competitive advantage.

Nomination and Remuneration Committee meetings

During the period from January 1 2017 to December 31 2017 Nomination andRemuneration Committee Meetings were held on August 10 2017 and November 7 2017.

Attendance at the Nomination and Remuneration Committee Meetings

Name of the Director Number of Meetings
Designation Held Attended
Ms. Radhika Vijay Haribhakti Chairperson 2 2
Mr. H. L. Zutshi Member 2 2
Mr. S. L. Rao Member 2 1
Ms. Nirmala Reddy Member 2 2
Mr. Krishnan Narayanan1 Member 2 2

1 IDBI Bank Limited has withdrawn its Nominee Director Mr. Krishnan Narayanan from theDirectorship of the Company with effect from November 30 2017.

Particulars of Loans Guarantees Securities or Investments under Section 186

The Company has not given any Loans Guarantees Investments and Security as per theprovisions of Section 186 of the Companies Act 2013 during the Financial Year endedDecember 31 2017.

Particulars of Contracts or Arrangements with Related Parties

The particulars of contracts or arrangements with related parties referred to in subsection (1) of Section 188 entered by the Company during the financial year ended December31 2017 in prescribed Form AOC-2 is annexed to this Board's Report (Annexure – 3).

Transfer of amount to Reserves

The Company has transferred Rs. 32.11 million to the general reserve for the FinancialYear ended December 31 2017. An amount of Rs. 745.65 million is retained in the retainedearnings.

Dividend

The Board of Directors at their meeting held on August 11 2017 declared an InterimDividend @ 50% on the paid-up Equity Share Capital i.e. Rs. 1.00 per equity share for thefinancial year ended December 31 2017 and same was paid to the shareholders.

Further the Board at its meeting held on February 28 2018 recommended Final Dividend@ 50% on the paid-up

Equity Share Capital i.e. Rs. 1 per equity share for the financial year ended December31 2017.

The Final Dividend will be paid subject to the approval of shareholders at the ensuingAnnual General meeting (AGM) to be held on May 11 2018.

The Final Dividend if declared by the Shareholders at the Annual General Meeting wouldbe paid to those shareholders whose names appear in the Register of Members of the Companyas on May 4 2018. In respect of equity shares held in electronic form the final dividendwill be paid to the beneficial owners of shares whose names appear as at the end ofbusiness hours on May 4 2018 as per the details furnished by National SecuritiesDepository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) for thispurpose.

Extract of Annual Return

The Extract of Annual Return as per the provisions of Section 92 of the Companies Act2013 and Rule 12 of Companies (Management and Administration) Rules 2014 in Form MGT-9 isannexed to this Report (Annexure – 4).

The conservation of energy technology absorption foreign exchange earnings and outgopursuant to provisions of Section 134(3)(m) of the Companies Act 2013 (Act) read with theCompanies (Accounts) Rules 2014

Information with respect to conservation of energy technology absorption foreignexchange earnings and outgo pursuant to Section 134(3)(m) of the Act read with Companies(Accounts) Rules 2014 is annexed to this Board's Report (Annexure – 5).

Risk Management Committee

The Risk Management Committee consists of the following Directors:

Mr. N. Radhakrishna Reddy Chairman Mr. Jagan Mohan Reddy Nellore Managing Directorand Mr. N. Sujith Kumar Reddy Director. Mr. T. Srinivasa Rao is the Chief Risk Officerand Mr. S. Venkat Ramana Reddy acts as Secretary to the Committee.

The Committee had formulated a Risk Management Policy for dealing with different kindsof risks which it faces in day to day operations of the Company. Risk Management Policy ofthe Company outlines different kinds of risks and risk mitigating measures to be adoptedby the Board. The Company has adequate internal control systems and procedures to combatrisks. The risk management procedures are reviewed by the Audit Committee and the Board ofDirectors on a quarterly basis at the time of review of the quarterly financial results ofthe Company.

During the Financial Year Risk Management Committee Meeting was held on November 72017.

Attendance at the Risk Management Committee Meeting:

Name of the Director Designation Number of Meetings
Held Attended
Mr. N. Radhakrishna Reddy Chairman 1 1
Mr. Jagan Mohan Reddy Nellore Member 1 1
Mr. N. Sujith Kumar Reddy Member 1 1

Corporate Social Responsibility (CSR)

Corporate Social Responsibility reflects the strong commitment of the Company toimprove the quality of life of the workforce and their families and also the community andsociety at large. The Company believes in undertaking business in a way that will lead tooverall development of all stakeholders and society. The Board of Directors of the Companyhave constituted a Corporate Social Responsibility Committee comprising the followingDirectors: Mr. Jagan Mohan Reddy Nellore Chairman Mr. N. Sujith Kumar Reddy Member andMs. Nirmala Reddy Member (Independent Director).

Corporate Social Responsibility policy was adopted by the Board of Directors on therecommendation of the Corporate Social Responsibility Committee.

During the last three years the Company has spent Rs.6.30 Million on CSR activities.

A report on Corporate Social Responsibility as Per Rule 8 of Companies (CorporateSocial Responsibility Policy) Rules 2014 is annexed to this Board's Report (Annexure-6). During the Financial Year Corporate Social Responsibility Committee Meeting washeld on February 21 2017

Attendance at the Corporate Social Responsibility Committee Meeting:

Name of the Director Designation Number of Meetings
Held Attended
Mr. Jagan Mohan Reddy Nellore Chairman 1 1
Mr. N. Sujith Kumar Reddy Member 1 1
Ms. Nirmala Reddy Member 1 1

Mechanism for Evaluation of the Board

Evaluation of all Board members is performed on an annual basis. The evaluation isperformed by the Board Nomination and Remuneration Committee and Independent Directorswith specific focus on the performance and effective functioning of the Board andIndividual Directors. In line with Securities and Exchange Board of India Circular No.SEBI/HO/CFD/CMD/CIR/P/2017/004 dated January 5 2017 the Company adopted the recommendedcriteria by Securities and Exchange Board of India.

The Directors were given six Forms for evaluation of the following:

(i) Evaluation of Board;

(ii) Evaluation of Committees of the Board;

(iii) Evaluation of Independent Directors;

(iv) Evaluation of Chairperson;

(v) Evaluation of Non-Executive and Non-Independent Directors; and

(vi) Evaluation of Managing Director.

The Directors were requested to give following ratings for each criteria:

1. Could do more to meet expectations;

2. Meets expectations; and

3. Exceeds expectations.

The Board of Directors have appointed Mr. DVM Gopal Practicing Company Secretary asscrutinizer for Board evaluation process.

The Directors have sent the duly filled forms to Mr. DVM Gopal after evaluation.

Mr. DVM Gopal based on the evaluation done by the Directors has prepared a report andsubmitted the Evaluation Report.

The Chairperson based on the report of the scrutinizer has informed the rankings toeach Director and also informed that based on the evaluation done by the Directors andalso report issued by Mr. DVM Gopal the performance of Directors is satisfactory and theyare recommended for continuation as Directors of the Company.

Directors

Mr. N. Radhakrishna Reddy and Mr. N. Sujith Kumar Reddy Directors of the Companyretire by rotation and being eligible offer themselves for re-appointment.

The term of appointment of Ms. Radhika Vijay Haribhakti as an Independent Director ofthe Company will expire on June 10 2018.

A notice under Section 160 of the Companies Act 2013 is received from a member of theCompany proposing candidature of Ms. Radhika Vijay Haribhakti. The Company has received:

i) consent in writing to act as a Director in Form DIR-2 pursuant to Rule 8 of theCompanies (Appointment & Qualification of Directors) Rules 2014;

ii) Intimation in Form DIR-8 pursuant to terms of the Companies (Appointment &Qualification of Directors) Rules 2014 from Ms. Radhika Vijay Haribhakti to theeffect that she is not disqualified as per Section 164(2) of the Companies Act 2013; and

iii) a declaration to the effect that she meets the criteria of independence asprovided under Section 149 of the Companies Act 2013. The Nomination and RemunerationCommittee at their meeting held on February 27 2018 and Board of Directors at theirmeeting held on February 28 2018 have recommended the re-appointment of Ms. Radhika VijayHaribhakti as an Independent Director for a further period of 5 years i.e. from June 112018 to June 10 2023.

To broad base the Board Mr. Varun Batra was appointed as an Independent Director ofthe Company w.e.f. February 28 2018 by the Board of Directors at their meeting held onFebruary 28 2018 under section 161 of the Companies Act 2013. The appointment is subjectto the approval of the shareholders at the General Meeting.

A notice under Section 160 of the Companies Act 2013 is received from a member of theCompany proposing candidature of Mr. Varun Batra. The Company has received:

i) consent in writing to act as a Director in Form DIR-2 pursuant to Rule 8 of theCompanies (Appointment & Qualification of Directors) Rules 2014;

ii) Intimation in Form DIR-8 pursuant to terms of the Companies (Appointment &Qualification of Directors) Rules 2014 from Mr. Varun Batra to the effect that he is notdisqualified as per Section 164(2) of the Companies Act 2013; and

iii) a declaration to the effect that he meets the criteria of independence as providedunder Section 149 of the Companies Act 2013. Mr. Dipankar Basu resigned from theDirectorship of the Company w.e.f. November 11 2017 due to advancing age and fallinghealth.

IDBI Bank Limited has withdrawn its Nominee Director Mr. Krishnan Narayanan from theDirectorship of the Company with effect from November 30 2017.

There has been no change in the key managerial personnel during the year.

Deposits

The Company has not accepted any deposits from the public in terms of Section 73 of theCompanies Act 2013 and as such no amount on account of principal or interest on publicdeposits was outstanding as on the date of the balance sheet.

Statutory Auditors

The Company's Statutory Auditors B S R and Associates LLP Chartered Accountants (ICAIRegn. No.116231W/W-100024) were appointed as the Statutory Auditors of the Company for aperiod of 3 years at the 40th Annual General Meeting of the Company i.e. upto theconclusion of the 43rd Annual General Meeting of the Company subject to ratification bymembers at every Annual General Meeting of the Company.

Pursuant to Section 139 of the Companies Act 2013 the Board of Directors of theCompany at their meeting held on February 28 2018 have considered the re-appointment of BS R and Associates LLP Chartered Accountants (ICAI Regn. No.116231W/W-100024) for afurther period of 5 years i.e. from the conclusion of this 43rd Annual General meetingtill the conclusion of 48th Annual General meeting of the Company to be held in the year2023 subject to ratification of shareholders of the Company at every Annual GeneralMeeting.

B S R and Associates LLP Chartered Accountants have confirmed their eligibility underSection 141 of the Companies Act 2013 and the Rules framed thereunder for reappointmentas Statutory Auditors of the Company.

Accordingly a resolution seeking Members' approval for re-appointment of B S R &Associates LLP Chartered Accountants as the Statutory Auditors of the Company for afurther period of 5 years i.e. from the conclusion this 43rd Annual General meeting tillthe conclusion of 48th Annual General meeting of the Company to be held in the year 2023subject to ratification of shareholders of the Company at every Annual General Meeting.

Auditors Report

There are no qualifications reservations or adverse remarks made by B S R &Associates LLP Chartered Accountants (ICAI Regn. No.116231W/W-100024) Statutory Auditorsin their report for the Financial Year ended December 31 2017.

Secretarial Auditors Report

Pursuant to the provisions of Section 204 of the Companies Act 2013 and the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Board of Directorshave appointed DVM Gopal & Associates Practising Company Secretaries as SecretarialAuditors to conduct Secretarial Audit of the Company for the Financial year ended December31 2017. The Secretarial Auditors Report issued by DVM Gopal & Associates PractisingCompany Secretaries in Form MR-3 is annexed to this Board's Report (Annexure – 7).The Secretarial Auditors Report does not contain any qualifications reservation oradverse remarks.

Board's response on Auditor's qualification reservation or adverse remarks ordisclaimer made

There are no qualifications reservations or adverse remarks made by the statutoryauditors in their report or by the Practicing Company Secretary in the Secretarial AuditReport for the year.

During the year there were no instances of frauds reported by auditors under Section143(12) of the Companies Act 2013.

Internal Auditors

The Board of Directors of the Company have appointed Ernst & Young LLP as InternalAuditors to conduct Internal Audit of the Company for the Financial Year ended December31 2017.

Audit Committee

The Audit Committee consists of the following Directors:

Mr. H.L. Zutshi Chairman Mr. S. L. Rao Ms. Radhika Vijay Haribhakti Ms. NirmalaReddy and Mr. Varun Batra. Mr. Varun Batra was appointed as member of Audit Committee onFebruary 28 2018.

There has been no such incidence where the Board has not accepted the recommendation ofthe Audit Committee during the year under review.

Four Audit Committee Meetings were held during the Financial year ended December 312017. The maximum time gap between any two meetings was not more than one hundred andtwenty days. The Audit Committee meetings were held on February 22 2017 May 4 2017August 10 2017 and November 7 2017.

Attendance at the Audit Committee Meetings

Name of the Director Designation Number of Meetings
Held Attended
Mr. H. L. Zutshi Chairman 4 4
Mr. S. L. Rao Member 4 3
Ms. Radhika Vijay Haribhakti Member 4 4
Ms. Nirmala Reddy Member 4 4
Mr. Dipankar Basu1 Member 4 Nil
Mr. Krishnan Narayanan2 Member 4 4

1 Mr. Dipankar Basu has resigned from the membership of the Audit Committee of theBoard of Directors of the Company w.e.f. May 25 2017.

2 IDBI Bank Limited has withdrawn its Nominee Director Mr. Krishnan Narayanan from theDirectorship of the Company with effect from November 30 2017.

Corporate Governance Report

A separate report on Corporate Governance is annexed as part of the Annual Report alongwith the Auditor's Certificate on its compliance.

Vigil Mechanism

The Company has adopted a Whistle Blower Policy establishing a formal vigil mechanismfor the Directors and employees to report concerns about unethical behavior actual orsuspected fraud or violation of Code of Conduct and Ethics. It also provides for adequatesafeguards against the victimization of employees who avail of the mechanism and providesdirect access to the Chairperson of the Audit Committee in exceptional cases. It isaffirmed that no personnel of the Company has been denied access to the Audit Committee.The policy of vigil mechanism is available on the Company's website.

The Whistle Blower Policy aims for conducting the affairs in a fair and transparentmanner by adopting highest standards of professionalism honesty integrity and ethicalbehavior. All employees of the Company are covered under the Whistle Blower Policy.

Statement of particulars of appointment and remuneration of managerial personnel

The Statement of particulars of Appointment and Remuneration of Managerial personnel asper Rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014is annexed to this Board's Report (Annexure – 8). Insurance

All properties and insurable interests of the Company have been fully insured.

Adequacy of internal financial controls with reference to the Financial Statements

1. The Company maintains all its records in ERP (SAP) System and the work flow andapprovals are routed through ERP (SAP);

2. The Company has appointed Internal Auditors to examine the internal controls andverify whether the workflow of the organization is in accordance with the approvedpolicies of the Company. In every quarter during approval of Financial Statements theInternal Auditors present to the Audit Committee the Internal Audit Report and ManagementComments on the Internal Audit observations; and

3. The Board of Directors of the Company have adopted various policies such as RelatedParty Transactions Policy Whistle Blower Policy Material Subsidiaries Policy CorporateSocial Responsibility Policy Anti Corruption and Anti Bribery Policy Risk ManagementPolicy Dissemination of Material Events Policy Documents Preservation Policy Monitoringand Reporting of Trading by Insiders Code of Internal Procedures and Conduct forRegulating Monitoring and Reporting of Trading by Insiders Code of Practices andProcedures for Fair Disclosures Policy on Prevention of Fraud and such other proceduresfor ensuring the orderly and efficient conduct of its business for safeguarding of itsassets the accuracy and completeness of the accounting records and the timely preparationof reliable financial information.

Names of Companies which have become or ceased to be Company's Subsidiaries JointVentures or Associate Companies during the year

During the Financial Year

i) RTGERS Aromatic Chemicals GmbH RTGERS ChemTrade GmbH RTGERS Basic AromaticsGmbH RTGERS InfraTec GmbH and RTGERS Novares GmbH merged with RTGERS Germany GmbH.

ii) Tarlog GmbH merged with RTGERS Germany GmbH. RTGERS BVBA RTGERS HoldingBelgium BVBA; and

iii) VFT Trading BVBA merged with Rain Carbon BVBA. No Company has been added asSubsidiary/ Joint Venture/ Associate of the Company during the period under review.

Change in the nature of business

There has been no change in the nature of business of the Company.

The details of significant and material orders passed by the Regulators or Courts orTribunals impacting the going concern status and Company's operations in future

There have been no significant material orders passed by the Regulators or Courts orTribunals which would impact the going concern status of the Company and its futureoperations.

Material changes and commitments

There are no material changes and commitments affecting the financial position of theCompany which occurred between the financial year ended December 31 2017 to which thefinancial statements relates and the date of signing of this report.

Financial Year of the Company

The Company has wholly owned subsidiary Companies situated in India and outside India.The Companies situated outside India follow the financial year from 1st January to 31stDecember and they contribute significant revenue to the consolidated revenue of thecompany and their statutory financials tax filings are also made on this basis in therespective jurisdictions where they are registered. A common financial year of Company andits subsidiary Companies has synergies in closing of accounts compilation and disclosureof data internal control assessment and audit thereof and preparation of consolidatedfinancial statements hence the Company is following the financial year from 1st Januaryto 31st December.

The Company Law Board vide its order dated October 16 2015 permitted the Company tofollow the financial year from January 1 to December 31.

Meeting of Independent Directors

A separate meeting of the Independent Directors was held under the Chairmanship of Mr.H.L. Zutshi Independent Director on November 7 2017 inter-alia to discuss evaluationof the performance of Non- independent Directors the Board as a whole evaluation of theperformance of the Chairman taking into account the views of the Executive andNon-Executive Directors and the evaluation of the quality content and timelines of flowof information between the management and the Board that is necessary for the Board toeffectively and reasonably perform its duties.

The Independent Directors expressed satisfaction with the overall performance of theDirectors and the Board as a whole.

Business Responsibility Report

Pursuant to the Regulation 34 of Securities and Exchange Board of India (ListingObligations and Disclosure Requirements) Regulations 2015 Business Responsibility Reportis annexed to this Board's Report (Annexure -9).

Human Resources

The Company believes that the quality of it's employees is the key to its success andis committed to providing necessary human resource development and training opportunitiesto equip employees with additional skills to enable them to adapt to contemporarytechnological advancements.

Industrial relations during the year continued to be cordial and the Company iscommitted to maintain good industrial relations through effective communication meetingsand negotiation.

Policy on Sexual Harassment

The Company has adopted policy on Prevention of Sexual Harassment of Women at Workplacein accordance with the Sexual Harassment of Women at Workplace (Prevention Prohibitionand Redressal) Act 2013.

The Company has not received any complaints during the year. The Company regularlyconducts awareness programs for its employees.

The following is a summary of sexual harassment complaints received and disposed offduring the year:

S. No. Particulars No.
1 Number of complaints on sexual harassment received Nil
2 Number of complaints disposed off during the year Not Applicable
3 Number of cases pending for more than 90 days Not Applicable
4 Number of workshops or awareness programme against sexual harassment carried out The Company regularly conducts necessary awareness programmes for its employees
5 Nature of action taken by the employer or district officer Not Applicable

Environment Health and Safety

The Company considers it is essential to protect the Earth and limited naturalresources as well as the health and well being of every person. The Company strives toachieve safety health and environmental excellence in all aspects of its businessactivities. Acting responsibly with a focus on safety health and the environment to bepart of the Company's DNA.

Indian Accounting Standards (Ind AS)

The Company has adopted Indian Accounting Standards (Ind AS) with effect from January1 2017 pursuant to Ministry of Corporate Affairs' notification of the Companies (IndianAccounting Standards) Rules 2015.

Dividend Distribution policy

Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 requires that the top 500 listed companies based on the marketcapitalization to formulate Dividend Distribution Policy. In compliance with the saidrequirement the Company has formulated its Dividend Distribution Policy the details ofwhich are available on the Company's website at: http://www.rain-industries.com

Compliance with Secretarial Standards on Board and General Meetings

The Company has complied with Secretarial Standards issued by the Institute of CompanySecretaries of India on Board Meetings and General Meetings.

Prevention of Insider Trading Code

As per SEBI (Prohibition of Insider Trading) Regulation 2015 the Company has adopteda Code of Conduct for Prevention of Insider Trading. The Company has appointed Mr. S.Venkat Ramana Reddy Company Secretary as Compliance Officer who is responsible forsetting forth procedures and implementation of the code for trading in Company'ssecurities. During the year under review there has been due compliance with the saidcode.

Acknowledgements

We express our sincere appreciation and thank our valued Shareholders CustomersBankers Business Partners/ Associates Financial Institutions Insurance CompaniesCentral and State Government Departments for their continued support and encouragement tothe Company.

We are pleased to record our appreciation of the sincere and dedicated services of theemployees and workmen at all levels.

On behalf of the Board of Directors
for Rain Industries Limited
Jagan Mohan Reddy Nellore N. Sujith Kumar Reddy
Place : Hyderabad Managing Director Director
Date : February 28 2018 DIN: 00017633 DIN: 00022383