Rain industry

 

looks cheap

why no data after 2015?

wait a little bit then buy?

why is stagnant for so long and suddenly so high priced

Data doesn’t look good lot of debt

Management Plans and Interest.Rain is operated by a well-aligned management team with a track record of prudent capital allocation. Jagan Mohan Reddy is the CEO of the company co-founded by his father, and overall the Reddy family owns ~40% of Rain Industries providing significant alignment of interest. Management is well aware of its depressed valuation and plans to return capital to shareholders while de-leveraging the corporate structure. From 2007 to 2012 Rain reduced its net-debt from US$728 mln to US$413 while returning 12% of income to shareholders.

Risk of fraud. Poor corporate governance practices and high levels of corruption amongst government officials are part of emerging market investing. Several factors help Rain avoid such problems: it is an owner-operated company providing alignment of interest with minority shareholders, despite operating a ~US $2 bln revenue company the CEO takes home a salary of less than US$500,000, majority of the operations are located overseas protecting it from government officials, and all operations are audited by one of the ‘big four’ accounting firms. Further Rain has raised over US$1.3 bln from foreign investors, books that were run by Citigroup, Goldman Sachs, and Wells Fargo – three well-regarded investment banks. The acquisitions of U.S.– and European– based businesses combined with foreign debt raises have put Rain under a level of scrutiny that is rare for most emerging market companies.

The depressed valuation of this leveraged, underfollowed, niche market, stable margin, and oligopolistic natured business provides an opportunity for a serial capital compounder. Original idea sourced from a sumzero write-up posted by Luca Franza of Ausonio Fund.

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