There are not many investors who are betting on commodity companies today. Which is why the bet that value investor Mohnish Pabrai has placed on Rain Industries has everybody interested. Pabrai has so far picked up 10 million shares of the company at about ₹40.
As is well known, Pabrai only invests in stocks that he thinks have deep value and the potential to give multi-fold return. So, what is it exactly that this California-based investor sees in this Hyderabad-headquartered company? In an e-mail response to Outlook Business, Pabrai said he appreciated the interest but didn’t wish to comment on the purchase.
Rain Industries’ core business is cyclical in nature as its main customers are aluminium manufacturers. The company provides them with calcined petroleum coke (CPC) and coal tar pitch (CTP) products, which go into the carbon anodes used in the aluminium extraction process. One tonne of aluminium requires 0.4 tonne of CPC and 0.1 tonne of CTP.
Europe dominates Rain's revenue mix
Together, both these carbon products account for 71% of Rain Industries’ revenue. And with exports accounting for 85% of its revenue, cross-currency movements play a major role in determining the company’s earnings.
For the quarter ending March 2015, the company reported a 3% year-on-year fall in the sales of carbon products. The company attributed the fall to a 19% decline in average blended realisation and a depreciating Euro.
And therein lies the rub — the company’s existence is wholly dependent on its global fortunes. Rain Industries’ European assets account for 56% of the total revenue generated from its subsidiaries; while US assets account for 21%, the rest comes from its Egyptian, Chinese, Russian, Canadian and Indian assets.
Rain Industries’ customers are spread across the continents and include the Canadian-based Rio Tinto Alcan and Aluminerie Alouette, US-based Alcoa and Century Aluminium, Norway’s Norsk Hydro