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Rain Commodities: Rainmaker? - Outside View

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Rain Commodities: Rainmaker?
Jun 23, 2010

For the benefit of the uninitiated who might be fooled into thinking that Rain Commodities (RC) is a 'rainmaker' please banish the thought. It manufactures and sells cement and buys and sells green petroleum coke and pet coke (sourced from its subsidiaries)but more for show it appears. Originally called Rain Calcining it metamorphosed into its present name. It has a capacity to make about 3 m tonnes of cement per annum, after the recent capacity expansion, but produced a little over 2.3 m tonnes in 2009. Its many subsidiary units make Calcined Petroleum Coke and also generate and sell power, with the largest CPC producer in the group, the American subsidiary, operating 7 plants in the US of A. For the matter of record, CPC is one of the key inputs in the manufacture of aluminium. The ultimate holding company of the group may well be Sujala Investments Pvt Ltd. 'Rain' appears to be the group trademark or some such. RC appears to be the hub of a complex, interlinked web of companies, operating out of base station -India - and extending to the USA, Mauritius, Hongkong and China. The Mauritius and Hongkong entities appear basically to be shell holding companies. RC has 3 wholly owned subsidiaries, one of which, RCCIL, its principal investment outlet, has wholly owned and majority owned subsidiaries of its own and, its subsidiaries in turn, are the holding companies of yet other subsidiaries or something to that effect. RCCIL operates a 100% EOU making CPC at Vizag. As the group expands, stay tuned for even more fine - tuning. RC also holds shares, in a wholly owned wisp of a subsidiary called Rain Calciner Ltd, which does not even exist. With so many companies to be monitored, the accountants can be pardoned for this apparent goof up. If the objective is to confuse, the management has succeeded admirably.

To make the overall feel good factor a little more alluring to the management, RC is busy implementing a buyback of shares while it simultaneously issued shares at a premium in 2008. In 2008 it also implemented a buyback of shares and, in 2009, it got the general-body shareholder approval to implement a further buyback. At end 2009 the group shareholding in RC was officially a little over 42%, and in all possibility, along with some of the NRI holdings and, holdings by other pvt bodies corporate, the group holding may well have touched the half century mark. And, with the implementation of the new buyback, the management holding may well exceed the crucial cutoff mark. It may be noted that the buyback is basically to increase the NRI shareholding in the company. Needless to add these buybacks are being executed with the help of the company's cash flow.

There is plenty of high octane action in the cash flow department alright. With interest free loans extended to its subsidiaries and other inter-se revenue and capital account transactions with other group companies and large dollops of corporate guarantees given on behalf of loans availed of by subsidiary companies, and purchase, sale and redemption of investments, the accounts and treasury departments may well have burned the midnight lamp. The group balance sheet shows that at end December 2009, the group borrowings were in excess of Rs 30 bn against a gross block of Rs 37 bn. Loans to subsidiaries are given as 'baksheesh' and it earned a princely Rs 8 m on its investment portfolio of Rs 2.4 bn, with no dividends accruing from its subsidiaries. The larger subsidiaries are meanwhile shown as earning a fair return on their investments. Besides what income RC earned on the purchase / sale of securities, done in abundant measure, is not shown separately. In 2008, RC even sold its produce to one of its subsidiaries, RCCIL Ltd and RCCIL was allowed to run up a part of its trade debtor dues, in excess of 6 months! All systems go it appears.

Another point of note is that the consumption pattern of raw materials in 2009 has undergone a noticeable shift as compared to the preceding year. It still made the same productócement.

One hopes that the merrymaking will continue in the same free spirit and abandon, if not more, as the company grows in stature in the years to come.

Disclosure: Please note that I am not a shareholder of this company

This column "Cool Hand Luke" is written by Luke Verghese. Luke has been a business journalist, financial analyst and knowledge management head with a professional experience of more than 20 years. An avid watcher of the stock market, he has written extensively on stock market trends. His articles have featured in Business Standard, Financial Express and Fortune India amongst others. He has also been the Deputy Editor, Fortune India and the Financial Editor of The Business and Political Observer.

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