Regency Ceramics downed its shutters in January 2012 after a riot broke out in its factory in which workers set fire to the plant and machinery and killed the President (Operations) in his house. The factory was “beyond repair” and the company declared a lock-down. About 1,500 people lost their jobs.
And now, after 11 long years, the company is all set to be back in business. Lying embedded in the temporal recess between the two epochs is a story of how a thriving business was scuttled by political rivalry and a how a labyrinthine legal system prevented it from getting back on its feet.
In its time, Regency Ceramics was a popular brand in tiles. The company was set up in 1983, began operations in 1985 and was built tile-by-tile by Dr GN Naidu, and its only competitor in South India was Spartek. In 2011-12, the company, listed on BSE and NSE, reported a turnover of ₹178 crore and a pre-tax loss of ₹27 crore, which was because of disruptions in supply of natural gas by GAIL.
At the crossfire
A retired government official of Andhra Pradesh, who was in service during that time, recalls that the core of the issue was political vendetta against the then MLA of Yanam in Puducherry. The opponents of the MLA wanted to “bring Yanam to its knees”. The way to do it was to close down Regency Ceramics, which was the biggest industry in Yanam. The company was a victim of a political crossfire.
But the lockdown turned out to be only the beginning of Regency Ceramics’ travails. It had insured its plant and machinery for a sum of ₹336.12 lakh, with the public sector National Insurance Company. After the incident, Regency submitted a claim for ₹157 crore. “The insurer refused to even acknowledge the liability,” says Narala Satyendra Prasad, the company’s Whole-time Director and CFO.
The dispute between the company and the insurer went into arbitration and, in March 2022, the arbitration bench comprising three retired Supreme Court judges (Justice Arijit Pasayat, Justice Jasti Chelameswar and Justice Kurien Joseph,) unanimously ruled in favour of Regency Ceramics and ordered National Insurance to pay ₹157 crore plus interest.
Signs of revival
National Insurance has since gone to the courts praying to set aside the award, under Section 34 of the Arbitration and Reconciliation Act, 1996. Regardless, feeling confident of a legal victory, the promoters began working for the company’s revival. On cards is a ₹120-crore revival plan, the first part of which is to start the first of the four manufacturing lines, before the end of this year. To kick-off, the promoters have brought in ₹15 crore of their own funds. The process of de-mothballing the plant has begun, but while it is underway, the company has revived the dealer network and is getting some products contract-manufactured at a third party in Gujarat. “My plan is to start sales by Sankaranti (mid-January),” says Satyendra Prasad. All the four lines will be ready by the summer of 2024.
Couldn’t the promoters have brought in their own funds and re-started the plant earlier? Prasad says there were issues in raising both equity and debt. The promoters were not sure how the legal fracas with National Insurance would go, and hence did not wish to risk money. As for debt, when the management realised that the lockdown was not going to end any time soon, it negotiated with the banks for a one-time-settlement, paying 60 per cent of the dues. A company with an ‘OTS (one time settlement) history’ always finds it hard to raise loans.
The success at arbitration changed the promoters’ outlook — they now do not see bringing in their own funds as risky. Once the plant starts operations and sales fetch revenues, raising debt should not be a big deal.
Prasad, who is the Chairman and MD, GN Naidu’s son-in-law, has been a serial entrepreneur before joining Regency Ceramics. He had a great run with a deep-sea fishing company for a couple of years, until the government of India suddenly cancelled licences of all companies, upon protests by coastal fishermen. With two trawlers roaming the Arabian sea “we made money hand-over-fist”. Then he started a coconut processing company, making a successful business out of virgin coconut oil — but a hurricane ravaged coconut groves in the company’s captive region in Andhra Pradesh. In the early 2000s, Prasad, a graduate in computer engineering from the Guindy Engineering College, Chennai, started an IT company and made a profitable exit after a few years. He devoted his time and attention fully to Regency Ceramics only during the company’s troubled period.
Now, Prasad believes the worst is behind the company. Regency’s first line will produce 7,000 sq metres a day; when all the four lines are abuzz, the company will be producing 25,000 sq m a day. A dipstick survey of the dealers has shown Prasad that Regency still has a good brand recall.
“The dealers are delighted that Regency is coming back into business,” he says.