This Indian Entrepreneur Became A Billionaire As Covid-19 Crisis Hit Global Supply Chains

Chemicals magnate Arun Bharat Ram, 79, a scion of the Delhi-based storied business clan that owns the erstwhile Shri Ram Group of Companies, has become a billionaire, thanks to the surging share price of his India-listed SRF Ltd.

His net worth has risen to $1.1 billion on the back of SRF’s stock which soared by roughly 63% since March 25, when New Delhi enforced a nationwide lockdown in an effort to curtail the spread of the novel coronavirus.

The company makes chemicals used in refrigerants as well as chemicals that are the raw materials for pesticides and pharmaceuticals. Another division makes textiles for industrial use, including fabrics that are used in tires, conveyor belts and tarpaulins, while a third division makes chemicals used in the film to package fast moving consumer goods like chocolates, chips and biscuits. SRF netted $92 million on revenue of $1.1 billion for the financial year ending March 2019, the latest figures available.

“Chemical stocks are at close to lifetime highs,” said Abhijit Akella, Mumbai-based vice president and senior analyst at financial services firm IIFL.

One reason is the recent change in sentiment towards China. As the Covid-19 pandemic has spurred many businesses to reassess their supply chains that depend upon China, where the virus is believed to have originated, investors are hoping that Indian companies across many sectors including chemicals will increase their market share as global clients look for low-cost alternatives, Akella said.

“People think India will benefit, that there will be massive market share gains,” Akella said. “But industry people are more cautious,” of saying that they can get those new clients, he added. “India has never invested in proper infrastructure, policies [inviting investments] are not there.”

SRF agrees there’s a “large element of angst” against China and it’s optimistic about cashing in on some of that.

“Post-Covid-19, I see a huge opportunity for the chemical industry in India to show significant growth,” Ashish Bharat Ram, Arun’s son and managing director at SRF, said by email. “Having said that, it will depend on each company in India as to how they leverage this opportunity, plus a lot will depend on how we can speed up the regulatory approval process as well. At SRF, we have made the right investments to seize the market opportunities as they arise.” 

SRF has a lot going for it, says Akella. The company had an early start in making refrigerant gasses and by the turn of the current century it realized that many of those gases could be banned in global markets because of upcoming emission norms. It set up a team to make advanced versions of those gases, and today it’s a low-cost generic competitor to global companies like Daikin and Honeywell, with revenues for its refrigerants business growing from 6.5 billion rupees in financial year 2015 to an expected 15 billion rupees in the financial year ending March 2020, said Akella. (The company’s results are expected to be released later this week.)

It then redeployed that team and set up an in-house R&D lab to develop new specialty chemicals. About 75% to 80% of the products from that unit are used to make pesticides that are sold to large global companies like Bayer, Dupont and Syngenta, among others, while the rest go into making pharma drugs. The business has scaled up in the last 10 to 12 years and is expected to provide 15 billion rupees ($200 million) in revenues in the financial year ending March 2020, said Akella.

The initial call to invest in technology was led by Bharat Ram himself who is passionate about technology, says his son. “He would be excited about developing new molecules,” Ashish said.

By around 2007-08 it was son Ashish who was instrumental in shifting the business focus to producing what customers wanted. It was a “fundamental shift,” he says as “instead of the R&D team leading what the business would do, it was the marketing team directing R&D on molecules that had to be developed.”

The buzz around this company is because of its specialty chemicals unit, said Akella and that’s what helped to re-rate the stock. “Earlier it was considered a commodity company…. The stock would never have gotten to the current levels without this business, which is seen as a long-term growth driver for them.”

Prior to that re-rating, SRF’s stock languished at around 200 rupees and was range-bound for nearly a decade, going as low as 70 rupees during the global financial crisis. But that changed after February 2014, the last time it was at 200 rupees and has since only gone up.

The demand for its chemicals from agricultural companies has picked up in the past three years after a rough period between 2015 and 2017, when inventories piled up, leading to a glut in the global chemical market. But post-2017, as inventory levels came down, combined with a decrease in supplies from China (the largest provider of these chemicals), as it focused on cleaning up its domestic industry to meet tighter pollution norms, the demand for such chemicals has also been rising. The beneficiaries have been SRF and other Indian competitors like PI Industries run by fellow billionaire Salil Singhal.

While investor focus remains on this business unit, SRF’s other divisions are also expanding, said Akella.

Bharat Ram started his career in 1967 with the Delhi Cloth & General Mills Co. Ltd. (now DCM Ltd.), the flagship company of his family. He set up SRF in 1970, initially as a manufacturer of nylon tire cords. Today, the company has 13 manufacturing plants, including one each in Thailand and South Africa.

Bharat Ram, a mid-handicap golfer, is also a keen musician and has learnt the sitar under the late renowned maestro Pt. Ravi Shankar, an instrument he continues to play. Both his sons—Ashish and younger son Kartik—help run the business.

Bharat Ram’s late wife Manju started the Shri Ram Group of Schools in Delhi and the satellite city of Gurgugram that are run by the SRF Foundation, the corporate social responsibility arm of the company. Bharat Ram is the chairman of the schools (Ashish and Kartik’s wives are the joint vice chairpersons) as well as of the premier Lady Shri Ram College for Women in Delhi.