Your Directors have pleasure in presenting the 44th Annual Report and the AuditedFinancial Statements for the Financial Year ended December 31 2018
FINANCIAL RESULTS A) Standalone
The Standalone performance for the Financial Year ended December 31 2018 is as under:
The financial summary
|Particulars ||December 31 2018 ||December 31 2017 |
|1 Revenue from operations ||105353 ||59621 |
|2 Profit before finance cost depreciation and tax expense ||97462 ||56820 |
|3 Finance Cost ||19608 ||17690 |
|4 Profit before depreciation and tax expense ||77854 ||39130 |
|5 Depreciation ||520 ||600 |
|6 Profit before Tax Expense ||77334 ||38530 |
|7 Tax Expense ||16868 ||6424 |
|8 Profit After Tax Expense ||60466 ||32106 |
|9 Add: Surplus at the beginning of the year ||74565 ||79305 |
|10 Total Available for appropriation ||135031 ||111411 |
|Appropriations: || || |
|11 Dividend including taxes ||67269 ||33635 |
|12 Transfer to general reserve ||6047 ||3211 |
|13 Surplus carried to Balance Sheet ||61715 ||74565 |
The Consolidated performance for the Financial Year ended December 31 2018 is asunder:
The financial summary
|Particulars ||December 31 2018 ||December 31 2017 |
|1 Revenue from operations ||140489.93 ||114495.93 |
|2 Profit before finance cost depreciation share of profit of associates exceptional items and tax expense ||20063.72 ||23836.75 |
|3 Finance cost ||4565.13 ||5946.71 |
|4 Profit before depreciation share of profit of associates exceptional items and tax expense ||15498.59 ||17890.04 |
|5 Depreciation ||5550.86 ||5256.27 |
|6 Profit before share of profit of associates exceptional items and tax expenses ||9947.73 ||12633.77 |
|7 Share of profit of associates ||8.80 ||8.84 |
|8 Profit before exceptional items and tax expenses ||9956.53 ||12642.61 |
|9 Exceptional items ||- ||1803.30 |
|10 Profit before tax expense ||9956.53 ||10839.31 |
|11 Tax expense ||3643.22 ||2918.09 |
|12 Profit after tax expense ||6313.31 ||7921.22 |
|13 Non-controlling interests ||49705 ||285.35 |
|14 Profit after tax expense after non-controlling interests ||5816.26 ||7635.87 |
|15 Add: Surplus at the beginning of the year ||38020.54 ||30755.62 |
|16 Total available for appropriation ||43836.80 ||38391.49 |
|Appropriations: || || |
|17 Dividend including taxes ||672.69 ||338.84 |
|18 Transfer to general reserve ||60.47 ||32.11 |
|19 Surplus carried to the Balance Sheet ||43103.64 ||38020.54 |
State of the Company's Affairs
During the year the Company achieved revenue of '1053.53 million and net profit of'604.66 million on a Standalone basis. During the same period the Consolidated revenuewas '140489.93 million and net profit after non-controlling interests was '5816.26million.
RAIN Industries Limited along with its subsidiary companies in India and abroad aretogether referred to as "RAIN Group". Information in this business outlookdescribing RAIN Group's estimates and expectations may include 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.
RAIN Group is one of the world's largest producers of CPC CTP OCP and advancedmaterials. RAIN operates in three key business verticals: Carbon Advanced Materials andCement. RAIN Group has production facilities in eight countries across three continentsand continues to grow through capacity expansions and mergers and acquisitions throughoutthe world.
Our Carbon business segment converts the by-products of oil refining [i.e. greenpetroleum coke (GPC)] and steel production (i.e. coal tar) into high-value carbon-basedproducts [i.e. calcined petroleum coke (CPC) coal tar pitch (CTP) and other carbonproducts (OCP)] that are critical raw materials for the aluminium graphite carbon blackwood preservation titanium dioxide refractory and several other global industries.
Our Advanced Materials business segment does the innovative downstream transformationof a portion of our carbon output petrochemicals and other raw materials into high-valueeco-friendly raw materials that are critical to the specialty chemicals coatingsconstruction automotive petroleum and several other global industries.
Our Cement business segment produces and markets high-quality ordinary portland cement(OPC) and portland pozzolana cement (PPC) consumed largely by the civil construction andinfrastructure industries within India.
Our scale and process sophistication provide us the flexibility to capitalise 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 global manufacturing footprint and our integrated worldwide logistics network havealso strategically positioned us to capitalise on market opportunities by addressing rawmaterial supply and product demand on a global basis in both established (mainly NorthAmerica and Europe) and emerging markets (mainly Asia and the Middle East).
Carbon consists of CPC CTP GPC and derivates of coal tar distillation includingcarbon black oil creosote oil naphthalene oil and other aromatic oils. This segmentcontributed approximately 68.5% of the consolidated revenue of RAIN Group for CY2018.
The Carbon business converts the by-products of oil refining and steel production intohigh-value carbon-based products that are crucial for the manufacture of aluminiumgraphite carbon black and titanium dioxide.
Environment-friendly and energy-efficient practices have made RAIN Group's Carbonbusiness highly efficient and sustainable. The business co-generates energy at four CPCplants with a combined power generation capacity of approximately 125 MW. The Company hasmade substantial investments in flue-gas desulfurisation (FGD) to significantly reduceemissions at its plants in India and in the US. These strategic investments have given theCarbon business a competitive advantage in the CPC industry.
1.1. Calcined Petroleum Coke (CPC)
RAIN Group carries on the business of manufacturing and selling of CPC through itswholly-owned subsidiaries in India and the US. RAIN Group has six CPC manufacturing plantsin the US and one CPC plant in India with an aggregate production capacity ofapproximately 2.1 MTPA along with a CPC blending facility in India with a capacity of 1.0MTPA. In addition RAIN Group is setting up a greenfield CPC plant with a capacity of 0.37MTPA using the vertical-shaft technology in Vizag India. We expect the vertical-shaftCPC plant to commence operations during the second half of CY2019. Adding thevertical-shaft technology to its portfolio will allow the CPC business to offer customersa wider range of quality options to meet their CPC requirements.
CPC is produced through a process known as "calcining" GPC a porous blacksolid that is a byproduct of the crude refining process. This process removes moisture andvolatile matter from the GPC at a very high temperature. CPC is produced in two primaryqualities: (i) anode-grade CPC (for use in the aluminium smelting process) and (ii)industrial- grade CPC (for use in the manufacturing of titanium dioxide and otherindustrial applications). Anode- grade CPC represents approximately 89% of global CPCproduction and industrial-grade CPC represents the remaining 11%. For every tonne ofprimary aluminium produced approximately 0.4 tonnes of CPC is consumed.
Worldwide CPC production for CY2018 was about 28.9 MT 74% of which was produced inChina and North America comprising 59% of global demand. China continues to play adominant role in the CPC industry and its share of the world's CPC production is estimatedto remain at 55% in the near term. China and North America will maintain the positivesurplus. Due to a large gap between production and demand Asian calciners are expected toincrease their focus on Asia and the Middle East as markets for the surplus capacity.
As per recent industry estimates worldwide demand for CPC aggregated to approximately28.8 MT in CY2018. The demand is expected to grow to approximately 34.2 MT by CY2023representing a CAGR of +3.5%. Worldwide production of CPC aggregated to approximately 28.9MT in CY2018 and is expected to grow to approximately 34.3 MT by CY2023 representing aCAGR of +3.5%.
RAIN Group estimates that more than 280 oil refineries worldwide produce and sell GPCin varying 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 crudeoil being refined. Manufacturers of CPC blend various grades of GPC (and CPC) to meet thestringent quality specifications of their customers.
The price of GPC varies depending on the quality and the market in which it isutilised. The price of GPC is largely driven by prevailing demand and supply conditions. Arefinery typically realises 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 itis advantageous for oil refineries to process more sour crude as compared to sweet crudeto improve their profitability. The price spread between sweet crude and sour crude hasincreased. This economic incentive for refineries to process sour crudes has the effect ofreducing the production of anode-grade GPC. in fact a significant volume of existinganode-grade GPC quality has deteriorated due to increased use of sour crude by refineries.Nonetheless it should be noted that many coking units will continue to produceanode-grade GPC because these refineries are unable to process sour crudes due tolimitations 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 CPC prices to reflect changes in GPCcosts. During this period the difference if any may have to be absorbed by the CPCproducers.
During 2018 to 2023 the demand for global calcinable-grade GPC is expected to outgrowthe increase in supply at a CAGR of +2.8% compared to +2.1% respectively. Theavailability of low-sulphur GPC is expected to be negatively affected due to regulationsspecified by the international Convention for the Prevention of Pollution from Ships(MARPOL) which would be effective from 2020 and is expected to cause oil-refiningcompanies to shift to heavier or high-sulphur crudes. The regulation aims to reducegreenhouse gasses emitted at sea by reducing the allowable level of sulphur in marine fuelused for operating ships from 3% to 0.5%. it is assumed that larger vessels will usescrubbers to meet the requirement. The freight cost is estimated to increase in allperspectives. Refineries may also find it reasonable to process the high-sulphur feedstockin a coker and get a premium rather than selling high-sulphur fuel oil (HSFO) at adiscount. Hence there is very limited possibility of a petroleum coke shortage after theimplementation of MARPOL.
Threats & Challenges - CPC
The main threat for the CPC industry 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 sourcrudes. 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 producershave experienced and may continue to experience a decline in the availability ofhigh-quality anode-grade GPC.
CPC quality directly influences anode quality in the performance of aluminium smelters.To meet the aluminium industry's demand for consistent quality of anode-grade CPC RAINGroup works closely with smelters to expand existing quality specifications allowing useof more non-traditional anode coke (NTAC) in blends for the production of anode-grade CPCwithout compromising on quality. RAiN Group's patented isotropic Coke Experiment (iCE)technology is one method of utilising grades of GPC previously not considered acceptableto produce anode-grade CPC. Additionally strategic investments in flue-gasdesulphurisation at the Chalmette and Lake Charles plants in Louisiana US have enabledRAiN Group to unlock an unmatched advantage of utilising high-sulphur GPC more efficientlyto serve the growing demand from aluminium smelters without compromising on quality.
it is expected that india will continue leading CPC demand growth in the world(excluding China) as a result of significant capacity expansions by major aluminiumproducers in india. indian aluminium production is set to grow by approximately 25% byCY2020. Due to the logistical synergies and implementation of stringent environmentalregulations by the Chinese Government thereby increasing costs india will remaincompetitive against Chinese CPC suppliers. RAiN Group's infrastructure and locationaladvantages enable the Company to quickly meet increased demand for CPC in india as wellas the Middle East. To serve the increasing demand in India and nearby markets RAIN Groupcommissioned a new CPC blending facility with a capacity of 10 MT during CY2016 at itsVizag facility in India
In July 2018 the Hon'ble Supreme Court of India ordered a ban on the importation ofpet coke to reduce pollution by burning it as fuel impacting the Company's ability toimport pet coke from its US facilities and other sources for calcination and blending InOctober 2018 however the court provided a limited exemption to the calcination andaluminium industries that use pet coke as a raw material rather than as a fuel; theseindustries also were able to demonstrate that their production processes result in minimalemissions At the same time the October 2018 order limits the import of GPC by thecalcination industry to 14 MT and the import of CPC by the aluminium industry to 05 MTDespite the exemption a number of uncertainties remain including (i) how the allocationswill be shared among industry players (ii) whether imports of CPC for blending by thecalcination industry will be permitted (iii) whether import levels will increase toaccommodate expansions in production capacity and to meet increasing aluminium industrydemand and (iv) the impact of this order on Special Economic Zones Clarifications onthese matters are being sought from regulators
1.2. Coal Tar Pitch (CTP) and Other Carbon Products (OCP)
RAIN Group operates four coal tar distillation facilities in Belgium Canada Germanyand Russia with an aggregate primary coal tar distillation capacity of approximately 13MT per annum Coal tar distillation is carried out in Belgium Canada and Germany throughwholly- owned subsidiaries and coal tar distillation is carried out in Russia through ajoint venture with PAO Severstal Russia Coal tar is a liquid by-product derived from theconversion of coal into metallurgical coke During this conversion approximately 80% ofthe coal volume is processed into metallurgical coke Metallurgical coke is an importantreducing agent and energy source in blast furnaces that produce pig iron and steelConsequently the supply of coal tar is correlated to pig iron production which in turnis driven by steel production Asia (including 61% from China) contributes approximately79% of total global pig iron production and Europe (including Russia) contributes about15% Every tonne of metallurgical coke produced yields on average 004 tonnes of coal tarCoal tar is the main raw material in the coal tar distillation process The coal tardistillation process can be categorised into two stages: (i) primary coal tar distillation("primary distillation") and (ii) downstream processing of selected products ofprimary distillation into cogenerated refined products ("downstream") With adistillation yield of approximately 48% CTP is the main end-product in the coal tardistillation business and therefore crucial for its growth Coal tar distillation alsoyields naphthalene oil (approximately 12%) and aromatic oils (approximately 40%) Unlikethe previous two years China in 2018 relaxed capacity restrictions on coke producers thathad been implemented to reduce emissions In an effort to avoid overcapacity China isexpected to manage coke production to match CTP demand from coal tar distillers andaluminium smelters A tightening of coal tar supply should be visible during winterheating seasons During 2018 improvement in coal tar supply from Eastern Europe wasobserved with Russia and Turkey being the major coal tar exporters to Europeandistillers While demand for CTP is expected to be lower across China Central and LatinAmerica and Europe demand for CTP in North America is expected to increase with therestart of mothballed aluminium smelters; that demand may partially be met with excesspitch available in Europe A ramp-up in production by Middle East smelters also could havea positive impact on demand for CTP in this region China and Europe will continue to havesurplus availability of CTP. This will compensate for the CTP deficit in the rest of theworld largely in America and the Middle East During 2018 due to large curtailments inaluminium production China's demand for CTP decreased by 06% The rest of the worldhowever saw a 23% increase in CTP demand - including a 75% increase in Asia (excludingChina) - largely due to an increase in aluminium production in India and the Middle East
As per recent industry estimates global demand for CTP aggregated to approximately 6.6MT in CY2018. This is expected to grow to approximately 7.9 MT by CY2023 representing aCAGR of +3.5%. Global production of CTP aggregated to approximately 6.7 MT in CY2018 andis expected to grow to approximately 7.9 MT by CY2023 representing a CAGR of +3.4%.
Geographically CTP production is led by China followed by Europe and Asia with thesethree markets having an aggregate share of 92% in CY2018. China Europe and Asia(excluding China) currently have surplus production. While China will maintain thissurplus through CY2023 with a CAGR of +10.0% the levels of surplus production over demandfor CTP in Europe should decline with a negative CAGR of - 10.7% through CY2023. Thelevels of surplus in other regions are expected to remain negative in future years.
Seventy-eight percent of the world's CTP production is primarily used to produce carbonanodes for aluminium smelting. For every tonne of primary aluminium producedapproximately 0.1 tonne of CTP is consumed. Therefore production of primary aluminium isan important determinant of demand for CTP. The second-largest CTP end-users consumingapproximately 10% of global production are graphite electrode producers. Graphiteelectrodes are used in the manufacturing of steel using electric arc furnaces. Elsewheredemand for CTP is increasing as a key component in the production of lithium-ionbatteries solar panels LED lights and in materials such as carbon fibre.
The aluminium industry is the largest consumer of CPC and CTP. Global demand forprimary aluminium aggregated to approximately 65.9 MT in CY2018 and is expected to grow toapproximately 77.4 MT by CY2023 representing a CAGR of +3.3%. Of the total demand inCY2018 54.7% was from China 14.3% from Europe (including Russia) and 10.2% from NorthAmerica. It is expected that China will increase its share in aluminium consumption toabout 56.0% of total demand for primary aluminium by CY2023. The expected demand will bedriven by electrical conductors and significant growth in the packaging industry. India isexpected to see an increase in aluminium consumption of about 7.3% CAGR which mainly willbe driven by the construction automobile and packaging industries.
Aluminium continues to chip away at steel's previously unassailable position as thematerial of choice for the automotive industry. Due to more stringent regulations andsocietal pressure to improve fuel economy automobile manufacturers are increasing theiruse of lighter materials such as aluminium for the structural shell of vehicles as well asclosing panels such as the hood trunk and doors. Aluminium producers will continue toinnovate with new alloys and production processes to meet the automotive industry'sdemand.
By 2023 more than 10.3 MT of aluminum smelting capacity additions are expected throughvarious greenfield and brownfield projects announced across the world. Approximately 69%of the additional capacity will take place in China and 23% in Asia (excluding China) andthe Middle East. Smelting capacity additions until 2023 in North America and Europe willbe approximately 5% and 3% respectively. Some of these additions were expected to occurin 2018 but they were delayed or put on hold due to high alumina and power costs.
Other Products from Tar Distillation
Naphthalene as a chemical intermediate is used mainly 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 a superplasticiser toproduce concrete and gypsum. Therefore the demand for naphthalene is correlated to thebuilding materials industry.
Naphthalene is also used in the production of phthalic anhydride (PA) as a substitutefor ortho-xylene as it is more cost-effective. PA is used in the manufacturing ofplastics polyester resins and alkyd resins. Additionally phthalate esters made from PAare used as plasticisers in the production of several PVC products. RAIN's AdvancedMaterials segment produced PA and a majority of our internally produced naphthalene issupplied to that plant.
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. The majority of this production is sold in North America as the European market hasseen decreased demand due to environmental restrictions. As a result of declining demandin Europe as well as a significant capital investment that would have been required atour Castrop-Rauxel creosote production facility we ceased production in Germany in thefourth quarter of 2018. Going forward we believe we will be able to meet the Europeanmarket requirements from our Belgium facility.
Carbon black oil Is primarily sold to the carbon black industry. The carbon blackindustry produces carbon black for the tyre and rubber industries. Therefore demand forour carbon black oil is dependent on these end industries.
After industrial processing the downstream products made from naphthalene and aromaticoils such as PT and toluene form indispensable constituents of many articles of dailylife. For example they are used as a key raw material in the leather construction tyreand pharmaceutical industries.
Threats & Challenges - CTP
The main threat to the supply of CTP is the availability of reliable quantities of coaltar from the steel industry. With approximately 8% of global coal tar production comingfrom the EU's 28 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. Steel production using electric arc furnaces is becoming more prevalent due tovarious factors including its superior technology and lower emissions compared totraditional blast furnaces. As a result coal tar production is limited to the existingcapacities of metallurgical coke ovens. RAIN Group strengthened its coal tar sourcingthrough its Russian joint venture. With approximately 5% of global coal tar productionRussia contributes significantly to coal 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.
Research and development activities are being conducted to create a new carbon-freealuminium smelting technology that would produce oxygen while eliminating all directgreenhouse gas emissions from the traditional smelting process. If successfullycommercialised this new process would also be expected to increase productivity. At thistime of increasingly stringent environmental regulations and a drive to slash emissionsthis new technology would obviously be appealing to aluminium producers and theircustomers around the world. As per analyst estimates on average the aluminium industrycurrently generates 12 tons of carbon dioxide emissions per ton of aluminium at thesmelter. The developers of this technology believe that if successfully commercialised itcould be used in new smelters as well as retrofitted into the existing ones. While thereis uncertainty around its commercial viability successful introduction of this technologywould likely impact future demand by the aluminium industry for carbon-based products inthe smelting process.
The curtailment of coal tar distillation by certain manufacturers in North America andEurope has minimised the demand for coal tar and benefited RAIN Group with improvedavailability of raw material for its distillation plants.
Increasing demand from traditional end customers as well as demand from more recentapplications such as lithium-ion batteries solar panels and LED light bulbs aregradually tightening the global balance for supply of CTP. In the event of future coal tarand CTP shortages petroleum pitch would be the most reliable alternative for thealuminium industry as smelters could blend up to 15-25% of petroleum pitch with CTP forpreparing the carbon anodes.
Naphthalene and aromatic oils (other by-products in primary distillation) are subjectto the demand and supply forces of the constructin and automotive industries as well aschanges in the price of correlated commodities. Any decrease in the prices of fuel oil andortho-xylene could reduce margins and the competitiveness of naphthalene and aromaticoils.
1.3. Co-generated Energy
RAIN Group is committed to environmental compliance at all of its facilities. As partof this commitment RAIN Group has made significant investments in waste-heat-recovery(WHR) systems at its CPC plants. RAIN Group co-generates energy through the waste heatrecovered in the calcining process. Currently RAIN Group has co-generation at four of itsseven CPC plants and one of its two cement production plants with a combined powergeneration capacity of approximately 132 MW. Additionally commissioning of a new 4.1 MWWHR system is under progress at the other cement production plant.
The operation of these WHR units reduces greenhouse gas emissions by offsetting the useof fossil fuels that would be otherwise required to produce an equivalent amount ofenergy. This significantly reduces RAIN Group's carbon footprint and results incarbon-neutral facilities.
As further evidence of RAIN Group's commitment to the environment it has madesubstantial investments in flue-gas desulfurisation at its CPC plants in India and the USto substantially reduce the emission of sulphur dioxide to meet all regulatoryrequirements for air quality standards.
Threats & Challenges - Energy
Energy production is proportional to the waste heat produced during the calcinationprocess. The output is subject to the volume and quality of raw materials being processedin calcination. Any decrease in capacity utilisations in calcination or change in rawmaterial quality will directly influence the generation of energy. A substantial part ofthe energy produced is sold to external customers for industrial use. Availability ofalternate economical sources of energy such as solar energy to these industries infuture could cause a reduction in sales of energy by RAIN Group.
A declining trend in tariff in India continues to impact revenues from the sale ofenergy. Part of the energy generated at our CPC plants as well as our cement facilitiesis captively used to power those operations mitigating the impact of declining energytariffs. Energy revenues in the US are subject to fluctuating natural gas prices whichat times causes uncertainty regarding revenue growth from energy sales.
2. Advanced Materials
RAIN Group is a global leader and innovator in the production of advanced materialsthrough the innovative downstream transformation of a portion of our carbon outputpetrochemicals and other raw materials into high-value eco-friendly raw materials thatare critical to the specialty chemicals coatings construction automotive petroleum andseveral other global industries. RAIN Group operates advanced materials productionfacilities in Belgium Canada Germany and the Netherlands.
RAIN Group produces 0.7 MT of advanced material products per annum which account forover 25% of its consolidated turnover. Its products have applications ranging from rubbertires to printing inks and from energy storage to pharmaceutical products.
RAIN produces advanced materials in two parallel production processes:
Downstream processing and refining of primary coal tar distillates
Petroleum derivates such as C9 and C10 which serve as raw materials for theproduction of a range of advanced material products
In 2018 the Company completed a debottlenecking project in Europe that will enableRAIN Group to distill up to 0.2 MT of petro tar. This will further enable RAIN Group toleverage its raw material mix.
Approximately 25% of the consolidated revenue for CY2018 is from this segment. RAINGroup's Advanced Materials business can be classified broadly into four sub-productcategories:
RAIN Group manufactures hydrocarbon resins based on coal tar distillates producedduring the downstream refining of carboindene and from C9 and C10 which are liquidby-products derived from the steam cracking of petroleum substances. Coal tar-based resinsare used primarily for applications in coatings and rubber tyres while petrochemical-based resins are used primarily for applications in adhesives and printing inks. TheCompany recently introduced a family of colourless resins used in colour-sensitiveapplications such as tape and book bindings.
The Company also produces phenolics which are used for applications in leathertreatment electric wire enamels and pharmaceuticals.
2.2. Engineered Products
RAIN Group's innovative CARBORES binder an engineered pitch product combines theadvantages of CTP products and phenolic resins. CTP contains polycyclic aromatichydrocarbons (PAHs) that require special safety precautions during its use. CARBORES isa substitute binder used in carbon-containing refractory products and graphite productsproduced from a dramatically reduced concentration of PAHs. While designed for refractoryproducts the property profile of CARBORES also allows it to be a substitute forstandard CTP in other applications.
The Company's portfolio of engineered products also includes PETRORES which is usedin specialty applications such as lithium-ion batteries and energy storage PETRORES isproduced by further processing our petro pitch which is a derivative of petro tardistillation
2.3. Petrochemical Intermediates
RAIN Group produces benzene toluene and xylene from the secondary distillation ofcrude benzene a liquid by-product derived in conversion of coal into metallurgical cokeused for pig iron and steel production Benzene toluene and xylene are critical inputsfor several chemical-based substances Toluene and xylene are used as solvents for inksand paints
2.4. Naphthalene Derivates
RAIN Group produces PA polynaphthalene sulfonates and modifiers from the downstreamrefining of naphthalene and from other inputs procured externally
The Company also produces specialty polymers called superplasticisers from thedownstream refining polymerisation and purification of naphthalene oil and naphthaleneSuperplasticisers are used as in-process aids in the manufacture of concrete and gypsumwallboard and have widespread use for a variety of industrial and agriculturalapplications
In addition RAIN Group produces a wide range of differentiated naphthalene andmelamine superplasticisers in liquid and powder form as well as carboxylate dispersantsin liquid form
Based on slowing GDP growth in key markets mainly Europe political uncertainties likethe trade dispute between the US and China and the return of volatility of raw-materialmarkets we expect more challenging and uncertain business conditions in near future
Europe is the main market for our resins modifiers and petrochemicals Lower demandfrom the coatings and adhesive industry for resins and modifiers will get offset by theimproving demand from the tyre industry resulting in an overall stable volume in resinsand modifiers business This segment will benefit from our new product NOVARES pure HHCRproduced in our new hydrogenated hydrocarbon resins plant in Europe We shall have somecompetition from Chinese resins producers in some areas of the business Carbon-less copypaper coatings and effluents are some of our end customers for products under themodifiers group Majority of these customers are from Asia The business in this productshall remain moderate due to strict competition from China 35 DMP although a smallcontributor used in disinfectants has a strong market in Asia and has better prospects dueto its higher demand
Among petrochemicals PA is highly competitive since the main raw material naphthaleneis available in-house from our distillation business Further the naphthalene-basedprocess is cost advantageous compared to the ortho xylene-based production. In the comingyears the overall outlook of petrochemicals is stable due to the partial offset of theperformance of benzene toluene xylene (BTX) with PA.
North America is our main market for polymers superplasticisers and naphthalene. Theproducts are mainly used in producing gypsum as well as in concrete mixture forconstruction. The delays in infrastructure projects and storm has affected the performanceof this business. Investment in infrastructure and industrial and residential projectsshall maintain the overall outlook stable in coming years. Oversupply will continue toimpact the naphthalene business.
Engineered products business shall benefit in sealer market in North America with ournew sealer - ULTRASEAL - an and growing demand in Asia for our PETRORES in lithium-ionanode application. With a stable demand from refractories in Asia the performance ofCARBORES shall be moderate. Overall the outlook for this business is positive.
Threats & Challenges - Advanced Materials
Key threats for RAIN Group's Advanced Materials business are volatility in commodityprices and Chinese competition. The price of benzene C9 and C10 fractions largely dependon the price of crude and fuel oil. Tariffs issued by the US have caused Chinesemanufacturers to redirect sales to Europe creating increased competition in that market.We expect this to continue until a new trade agreement between the US and China isfinalised.
RAIN Group tries to mitigate its pricing and procurement risks through an integratedglobal management of sales and supply procurement optimised processes and long-termagreements with suppliers to ensure reliable sourcing of raw materials.
The quarterly operating results fluctuate due to a variety of factors that are outsideour control including inclement weather conditions. Historically our operating resultshave been lower in the first and fourth quarters compared to the second and thirdquarters.
RAIN Group has two integrated cement plants one each in the states of Telangana andAndhra Pradesh with an aggregate installed capacity of 4 MT per annum. The plants arestrategically located near sources of limestone the primary raw material in cementproduction. RAIN Group also has a fly-ash handling and cement packaging unit in the stateof Karnataka that converts the bulk cement into packed cement and enables supplies toneighbouring areas. About 6.5% of the consolidated revenue of RAIN Group for CY2018 isfrom the Cement business segment.
RAIN Group's cement plants manufacture two grades of cement: ordinary portland cement(OPC) and portland pozzolana cement (PPC). Out of the total cement produced PPC-gradeaccounts for about 75% and OPC grade about 25%.
RAIN Group has been reducing the output cost by introducing efficient energy measuressuch as WHR power plants and the use of GPC to heat its furnaces. Stringent Bureau ofIndian Standards (BIS) are applied in cement production to attain consistency in quality.
RAIN Group has built a vast dealer network in the southern states of India and has madeadditional inroads into the neighbouring states of neighboring Maharashtra Goa Odishaand Kerala. Sales in the new market regions account for 15% of total sales achieved duringCY2018.
The major costs in the production of cement are (a) freight and transportation and (b)power and fuel each constituting 30% of the total cost of manufacturing. RAIN Groupconstantly works to improve efficiencies in logistics such as entering into long-termcontracts with transport agencies for transportation of cement to dealers spread acrossvarious states. The downside risk is that any increase in fuel prices could adverselyaffect freight costs. RAIN Group also has long-term arrangements with The SingareniCollieries Company Limited for the supply of coal which meets about 56% of the total fuelrequirement for its cement plants. In addition about 26% of high-quality coal is importedand blended with pet coke of about 18%.
The Cement business segment consumes up to 29 MW of electricity. RAIN Group supplementsits requirements for power in the Cement business segment with power generated at its CPCplant in Vizag and its new 6.4 MW WHR power plant in the Kurnool cement plant.Additionally a 4.1 MW WHR power plant is under development at the Nalgonda cement plant.With these measures RAIN Group expects significant savings in its energy costs in thecoming years.
Cement Industry Growth in India
The Indian cement industry is estimated to have a total production capacity of 502 MTduring CY2018. The industry is expected to grow at 4% in CY2019. Due to an increase indemand from various sectors the capacity is expected to increase from 550 MT to 600 MT byCY2025. 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 65% of totalconsumption. The other major consumers of cement include infrastructure (15%) andcommercial and industrial construction (20%). During the last few years low capacityutilisation coupled with weak prices and increasing input costs have impacted theperformance of the cement industry in India. Subdued operating profits and highdebt-service obligations have led some Indian cement producers to defer expansion plans.
With increased demand by the infrastructure and housing sectors coupled with limitedcapacity additions the cement capacity utilisation on a pan-India basis is expected toimprove steadily over the next few years. In particular demand is expected to be boostedby infrastructure development in Tier 2 and Tier 3 cities growth in the real estatesector and initiatives 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 34% of the country's total installed capacity.
During CY2018 demand in India's cement industry remained flat when compared to CY2017.Growth in demand observed in South India was led by Andhra Pradesh and Telangana. Floodsin Kerala and state elections had some impact on demand in this region. Although there isthe possibility of increased demand due to the Indian Government's emphasis oninfrastructure development increases will be contingent on the successful execution ofcontemplated projects. The growth in the southern region was driven by the initiation ofdevelopment activities in the newly formed capital city of Andhra Pradesh as well asirrigation and low- cost housing projects in Telangana.
RAIN Group also has made inroads into neighboring states such as Maharashtra wherethere is a lack of adequate cement production capacity due to the absence of limestonemines. As a result approximately 50% of its demand is met by the southern region's cementplants. With no new capacity additions coming online in Maharashtra during the next threeyears increasing capacity utilisation of the southern region's cement facilities shouldlead to an increase in performance. Volume growth should benefit most companies based inSouth India due to their high operating/ financial leverage. RAIN Group already hasexpanded into new markets such as Maharashtra Odisha
Kerala Goa and Pondicherry. These new geographical markets contributed 18% of cementsales during CY2018.
As stated elsewhere cement demand is closely linked to the overall economic growthparticularly in the housing and infrastructure sectors. With the Government of Indiaintroducing new plans for housing and infrastructure development cement demand isexpected to increase.
Historically positive incremental demand over supply as well as high levels ofcapacity utilisation have led to an increase in cement prices. A rebound in demand growthfrom CY2018 is expected to support prices in the southern region. Cement demand acrossIndia is expected to increase at a CAGR of 8%
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.
The Government of Telangana is undertaking major irrigation projects and theGovernment of Andhra Pradesh is building a new capital city. More than 90% of RAIN Group'scement sales volumes are in the southern region almost 30% of which is sold in AndhraPradesh and Telangana each. Hence the above developments planned for these two states areexpected to contribute to the growth in the Cement business of RAIN Group.
The real estate sector is a crucial contributor to demand growth in the southernregion. Major cities like Bengaluru Chennai and Hyderabad have emerged as promisingcommercial destinations which boosts demand for commercial and office space within thesecities. In addition these cities are some of the biggest hospitality markets in SouthIndia with Hyderabad reporting year- over-year growth of 7.6% followed by 4.3% inBengaluru and 1.4% in Chennai.
Threats & Challenges - Cement
The Indian cement industry has witnessed a massive capacity addition of more than 250MT during last decade. This the capacity addition is disproportionately high when comparedto the growth in demand concentrated in South India with approximately 79 MT of newcapacity during this period. This has resulted in significant pressure on capacityutilisation and price realisation among the region's producers.
The Indian cement industry's average utilisation has declined drastically toapproximately 63% in CY2018 led by weak demand and an oversupply in the industry.Pan-India utilisation is expected to reach 67% by CY2020 while the utilisation levels inthe southern region are expected to remain stable at 57% until CY2020. Cement demand andcapacity utilisation are expected to improve led by a slower pace in capacity additionand better demand prospects.
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 001Maharashtra India; and
(ii) National Stock Exchange of India Limited
Exchange Plaza Floor 5 Plot No. C/1 G Block
Bandra -Kurla Complex Bandra (East)
Mumbai - 400 051 Maharashtra India.
The Company has paid the Annual Listing Fees to the said Stock Exchanges for theFinancial Year 2018-19.
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 Financialperformance of Subsidiaries Associates and Joint Venture Companies along with theircontribution to the overall performance of the Company during the Financial Year endedDecember 31 2018 is 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 the Company has placedseparate Audited accounts of its Subsidiaries on its website www.rain-industries.com and acopy of separate Audited Financial Statements of its Subsidiaries will be provided toshareholders upon their request.
The Paid-up Share Capital of the Company as on December 31 2018 is '672691358/- divided into 336345679 Equity Shares of ' 2/- each fully paid up.
Number of Meetings of the Board of Directors
During the year four Board meetings were held.
The dates on which the Board meetings were held are: February 28 2018 May 11 2018August 14 2018 and November 14 2018.
Details of the attendance of the Directors at the Board meetings held during the yearended December 31 2018 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 H. L. Zutshi ||4 ||4 |
|Ms Radhika Vijay Haribhakti ||4 ||4 |
|Ms Nirmala Reddy ||4 ||4 |
|Mr Varun Batra1 ||4 ||3 |
1 Mr Varun Batra was appointed as an Independent Director of the Companyw.e.f. February 28 2018.
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 Advanced Materials 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 judgements and estimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of the Company as on December 31 2018and 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 2018 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 sub-section (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 Nirmala Reddy and Mr Varun Batra.
Mr Varun Batra was appointed as member of the Nomination and Remuneration Committee onFebruary 28 2018.
Brief description of the terms of reference
Identifying persons who are qualified to become Directors and who may be appointed inSenior Management in accordance with the criteria laid down and recommend to the Board fortheir 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 attributes andindependence of a Director; and
Recommend to the Board a policy relating to the remuneration of the Directors KeyManagerial Personnel and other Employees.
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 Non-executive and Independent Director) andpersons who may be appointed to senior management and key managerial positions and todetermine their remuneration.
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 longterm sustainability of talentedmanagerial persons and create competitive advantage.
Nomination and Remuneration Committee meetings
During the period from January 1 2018 to December 31 2018 Nomination andRemuneration Committee Meetings were held on February 27 2018 and November 13 2018.
Attendance at the Nomination and Remuneration Committee Meetings
|Name of the Director ||Designation || |
Number of Meetings
| || ||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 Varun Batral ||Member ||2 ||1 |
1 Mr Varun Batra was appointed as member of the Nomination andRemuneration Committee on February 28 2018.
Particulars of Loans Guarantees Securities or Investments under Section 186
The details of Loans Guarantees investments and Security made during the FinancialYear ended December 31 2018 is given in compliance with the provisions of Section 186 ofthe Companies Act 2013 read with Companies (Meetings of Board and its Powers) Rules 2014and the same is annexed to the Board's Report (Annexure - 3).
Particulars of Contracts or Arrangements with Related Parties
The particulars of contracts or arrangements with related parties referred to insub-section (1) of Section 188 entered by the Company during the Financial Year endedDecember 31 2018 in prescribed Form AOC-2 is annexed to this Board's Report (Annexure- 4).
Transfer of Amount to Reserves
The Company has transferred ' 60.47 million to the General Reserve for theFinancial Year ended December 31 2018. An amount of ' 617.15 million is retainedin the retained earnings.
The Board of Directors at their meeting held on November 14 2018 declared an interimDividend @ 50% on the paid-up Equity Share Capital i.e. ' 1.00 per equity sharefor the Financial Year ended December 31 2018 and same was paid to the shareholders andno further dividend has been recommended for the Financial Year ended December 31 2018.
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 Board's Report (Annexure - 5).
The conservation of energy technology absorption foreign exchange earnings and outgopursuant to the provisions of Section 134(3)(m) of the Companies Act 2013 (Act) read withthe Companies (Accounts) Rules 2014 information with respect to conservation ofenergy technology absorption foreign exchange earnings and outgo pursuant to Section134(3)(m) of the Act read with Companies (Accounts) Rules 2014 is annexed to this Board'sReport (Annexure - 6).
Risk Management Committee
The Risk Management Committee consists of the following Directors:
Mr N Radhakrishna Reddy Chairman Mr Jagan Mohan Reddy Nellore Managing Director andMr N Sujith Kumar Reddy Director.
Mr T Srinivasa Rao is the Chief Risk Officer and Mr S Venkat Ramana Reddy acts asSecretary 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 132018.
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 tothe overall development of all stakeholders and society.
The Board of Directors of the Company have constituted a Corporate SocialResponsibility Committee comprising the following Directors:
Mr Jagan Mohan Reddy Nellore Chairman Mr N Sujith Kumar Reddy Member and Ms NirmalaReddy 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 ' 6.40 million on CSRactivities.
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 -7).
During the Financial Year Corporate Social Responsibility Committee Meeting was heldon November 12 2018.
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 |
Stakeholders Relationship Committee
The Board of Directors at their meeting held on February 28 2018 have decided tore-constitute the Stakeholders Relationship Grievance and Share Transfer Committee intothe Stakeholders Relationship Committee and Share Transfer Committee.
The Stakeholders Relationship Committee consists of following Directors:
Mr N Radhakrishna Reddy Chairman Mr Jagan Mohan Reddy Nellore Member Mr N SujithKumar Reddy Member and Ms Nirmala Reddy Member (Independent Director).
During the Financial Year Stakeholders Relationship Committee Meeting was held onAugust 11 2018.
Attendance at Stakeholders Relationship 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 |
|Ms Nirmala Reddy ||Member ||1 ||1 |
Terms of Reference
(i) Resolving the grievances of the security holders including complaints related totransfer/transmission of shares non-receipt of annual report non-receipt of declareddividends non-receipt of new/duplicate certificates etc.
(ii) Review of measures taken for effective exercise of voting rights by shareholders.
(iii) Review of adherence to the service standards adopted by the Company in respect ofvarious services being rendered by the Registrar & Share Transfer Agent.
(iv) Review of the various measures and initiatives taken by the Company for reducingthe quantum of unclaimed dividends and ensuring timely receipt of dividend warrants/annualreports/statutory notices by the shareholders of the Company.
Share Transfer Committee
The Share Transfer Committee consists of following Directors:
Mr N Radhakrishna Reddy Chairman
Mr Jagan Mohan Reddy Nellore Member Mr N Sujith Kumar Reddy Member.
The Committee meets every week/15 days to oversee and review all matters connected withthe securities transfers and review the performance of the Registrar and Transfer agentsand recommends measures for overall improvement in the quality of investor services.
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 the Securities and Exchange Board of india (SEBI) Circular No.SEBI/HO/CFD/CMD/CIR/P/2017/004 dated January 5 2017 the Company adopted the recommendedcriteria by the SEBI.
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 the 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 scrutiniser has informed the rankings toeach Director and also informed that based on the Evaluation done by the Directors and thereport issued by Mr DVM Gopal the performance of Directors is satisfactory and they arerecommended for continuation as Directors of the Company.
Mr Jagan Mohan Reddy Nellore Managing Director of the Company also serves as theChief Executive Officer of Rain Carbon Inc. a step-down wholly owned subsidiary of theCompany.
To ensure that the Company's Carbon business receives the attention necessary tonavigate changing raw material trends tax laws and other issues; manage organicexpansions; and ensure the ongoing success of this crucial business segment Mr Nellorehas decided to dedicate more time to Rain Carbon Inc.
As per the provisions of the Companies Act 2013 the Whole-time Director/ChiefExecutive Officer/
Managing Director of the Companies incorporated under the Companies Act 2013 shall bea Resident in India. With Mr Nellore also being the Chief Executive Officer of Rain CarbonInc. it is difficult for him to be in India for a defined period of time every year.
In view of the above Mr Nellore has submitted his resignation from the position ofManaging Director with effect from March 31 2019 but continues to be the Director andVice Chairman of the Company.
Consequent to the resignation of Mr Jagan Mohan Reddy Nellore from the position ofManaging Director
Mr N. Radhakrishna Reddy has been appointed as Managing Director of the Company for aperiod of three years (i.e. from March 31 2019 to March 30 2022).
Mr Jagan Mohan Reddy Nellore and Mr N Sujith Kumar Reddy Directors of the Companyretire by rotation and are eligible to offer themselves for re-appointment.
The term of appointment of Ms Nirmala Reddy as an Independent Director of the Companywill expire on September 29 2019.
A notice under Section 160 of the Companies Act 2013 is received from a member of theCompany proposing candidature of Ms Nirmala Reddy. The Company has received from MsNirmala Reddy: i) consent in writing to act as a Director in Form DIR-2 pursuant to Rule 8of the Companies (Appointment & Qualification of Directors) Rules 2014; ii)intimation in Form DIR-8 pursuant to terms of the Companies (Appointment &Qualification of Directors) Rules 2014 to the effect that she is not disqualified as perSection 164(2) of the Companies Act 2013; and iii) a declaration to the effect that shemeets the criteria of independence as provided under Section 149 of the Companies Act2013.
The Nomination and Remuneration Committee at their meeting held on February 26 2019and the Board of Directors at their meeting held on February 27 2019 have recommended there-appointment of Ms Nirmala Reddy as an Independent Director for a further period fromSeptember 30 2019 to February 27 2023.
To broad base the Board Mr Brian Jude McNamara was appointed as an Additional Director(Independent Director) of the Company w.e.f. February 28 2019 by the Board of Directorsat their meeting held on February 27 2019 under Section 161 of the Companies Act 2013.The appointment is subject to 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 Brian Jude McNamara. The Company has received from MrBrian Jude McNamara: i) consent in writing to act as a Director in Form DIR-2 pursuant toRule 8 of the Companies (Appointment & Qualification of Directors) Rules 2014; ii)intimation in Form DIR-8 pursuant to terms of the Companies (Appointment &Qualification of Directors) Rules 2014 to the effect that he is not disqualified as perSection 164(2) of the Companies Act 2013; and iii) a declaration to the effect that hemeets the criteria of independence as provided under Section 149 of the Companies Act2013.
Key Managerial Personnel
|Mr Jagan Mohan Reddy Nellore ||- Managing Director |
|Mr T. Srinivasa Rao ||- Chief Financial Officer |
|Mr S. Venkat Ramana Reddy ||- Company Secretary |
There has been no change in the key managerial personnel during the year.
Meeting of Independent Directors
A separate meeting of the Independent Directors was held under the Chairmanship of MrVarun Batra Independent Director on November 13 2018 inter-alia to discussevaluation of the performance of Non-independent Directors the Board as a wholeevaluation of the performance of the Chairman taking into account the views of theExecutive and Non-executive Directors and the evaluation of the quality content andtimeliness of flow of information between the management and the Board that is necessaryfor the Board to effectively and reasonably perform its duties.
The Independent Directors expressed satisfaction with the overall performance of theDirectors and the Board as a whole.
The Company has not accepted any deposits from the public in terms of Section 73 of theCompanies Act 2013. Hence no amount on account of principal or interest on publicdeposits was outstanding as on the date of the balance sheet.
The Company's Statutory Auditors BSR and Associates LLP Chartered Accountants (ICAIRegn. No.-116231W/W-100024) were appointed as the Statutory Auditors of the Company for aperiod of 5 years at the 43rd Annual General Meeting of the Company i.e. upto the conclusion of the 48th Annual General Meeting of the Company.
Accordingly BSR and Associates LLP Chartered Accountants Statutory Auditors of theCompany will continue till the conclusion of Annual General Meeting to be held in 2023. Inthis regard the Company has received a Certificate from the Auditors to the effect thattheir continuation as Statutory Auditors would be in accordance with the provisions ofSection 141 of the Companies Act 2013.
There are no qualifications reservations or adverse remarks made by BSR &Associates LLP Chartered Accountants (ICAI Regn. No. 116231W/W-100024) Statutory Auditorsin their report for the Financial Year ended December 31 2018.
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 & Associates LLP Practising Company Secretaries as SecretarialAuditors to conduct Secretarial Audit of the Company for the Financial Year ended December31 2018.
The Secretarial Auditors Report issued by DVM & Associates LLP Practising CompanySecretaries in Form MR-3 is annexed to this Board's Report (Annexure - 8).
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.
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 2018.
Maintenance of Cost Records specified by the Central Government under Section 148 ofthe Companies Act 2013
The provisions relating to maintenance of Cost Records as specified by the CentralGovernment under Section 148 of the Companies Act 2013 is not applicable to the Company.
The Audit Committee consists of the following Directors:
Mr H. L. Zutshi Chairman Mr S. L. Rao Ms Radhika Vijay Haribhakti Ms Nirmala Reddyand Mr Varun Batra.
Mr Varun Batra was appointed as member of the Audit Committee on February 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 312018. The maximum time gap between any two meetings was not more than one hundred andtwenty days.
The Audit Committee meetings were held on February 27 2018 May 10 2018 August 132018 and November 13 2018.
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 Varun Batra1 ||Member ||4 ||3 |
1 Mr Varun Batra was appointed as member of Audit Committee on February28 2018.
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.
The Company has adopted a Whistle Blower Policy establishing a formal vigil mechanismfor the Directors and employees to report concerns about unethical behaviour actual orsuspected fraud or violation of Code of Conduct and Ethics. It also provides for adequatesafeguards against the victimisation 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 ethicalbehaviour. 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 - 9).
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 organisation 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 AntiCorruption 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 no Company has become the Subsidiary/ Joint Venture/Associate of the Company Rain Coke Limited step-down subsidiary of the Company hasceased to be the Company's subsidiary 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 the 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 2018 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 IndiaThe Companies situated outside India follow the Financial Year from January 1 to December31 and they contribute significant revenue to the consolidated revenue of the Company andtheir statutory financials; tax filings are also made on this basis in the respectivejurisdictions where they are registered A common Financial Year of the Company and itssubsidiary companies has synergies in closing of accounts compilation and disclosure ofdata internal control assessment and audit thereof and preparation of ConsolidatedFinancial Statements; hence the Company is following the Financial Year from January 1 toDecember 31 The Company Law Board vide its order dated October 16 2015 permitted theCompany to follow the Financial Year from January 1 to December 31
Business Responsibility Report
Pursuant to Regulation 34 of the SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 Business Responsibility Report is annexed to this Board's Report (Annexure- 10)
The Company believes that the quality of its employees is the key to its success and iscommitted to providing necessary human resource development and training opportunities toequip 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 regularly conducts awareness programmes for its employees
The following is a summary of sexual harassment complaints received and disposed offduring the year:
|Particulars ||Status of the No. of complaints received and disposed off |
|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 ninety days ||Not Applicable |
|4 Number of workshops or awareness programmes 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 |
Constitution of Internal Complaints Committee under the Sexual Harassment of Women atWorkplace (Prevention Prohibition and Redressal) Act 2013
The Company has constituted an Internal Complaints Committee under the SexualHarassment of Women at Workplace (Prevention Prohibition and Redressal) Act 2013 TheCompany has not received any complaints during the year
Environment Health and Safety
The Company considers it is essential to protect the Earth and limited naturalresources as well as the health and wellbeing of every person
The Company strives to achieve safety health and environmental excellence in allaspects of its business activities Acting responsibly with a focus on safety health andthe environment is part of the Company's DNA.
Dividend Distribution policy
Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 requires the top 500 listed companies based on the marketcapitalisation to formulate Dividend Distribution Policy In compliance with the saidrequirement the Company has formulated its Dividend Distribution Policy; the policy isavailable on the Company's website at: http:// www.rain-industries.com
Compliance with Secretarial Standards
The Company has complied with Secretarial Standards issued by the Institute of CompanySecretaries of India
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 VenkatRamana Reddy Company Secretary as Compliance Officer who is responsible for settingforth procedures and implementing the code for trading in Company's securities During theyear under review there has been due compliance with the said code
We express our sincere appreciation and thank our valued Shareholders CustomersBankers Business Partners/ Associates Financial Institutions Insurance Companies andCentral 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 27 2019 ||DIN: 00017633 ||DIN: 00022383 |