Management Discussions And Analysis
Operating Performance for the Year
The gross sales of the Company for the year 2010-11 registered excellent growth atRs.140.88 crores as compared to Rs.83.34 crores in the previous year. The profit beforetax has also tremendously improved at Rs.7.01 crores as compared to Rs.4.66 crores in theprevious year, without taking into account an exceptional item of Rs. 3.25 crores in theyear under review and Rs.7.15 crores in the previous year being the settlement amounts forwithdrawal of all pending litigations paid to the workers of Reay Road factory. Theimproved performance augurs well for the times ahead. These figures are after taking intoaccount the standing charges of Company's Reay Road Unit where its Oils and Fatsoperations have been continued, but the Management has however started putting the Unit'sassets to good use which has helped to reduce the burden of its standing charges in theyear under review. After taking into account the exceptional items in the respectiveyears, the profit after tax stands at Rs.3.18 crores during the year under review againstloss of Rs.1.62 crores in the previous year.
Gearing-up for Increased Demand for Foundry Chemicals and Coatings
During the year the Company increased its focus on the potential of its business ofFoundry Chemicals and Coatings which is now its main business activity. With additionalcapacity already created, and that in the pipeline, the Company has substantially improvedits position and market standing. The increased production tonnages have obviously startedshowing benefits of economies of scale by way of improved efficiency and reduction in unitoverhead cost, which helped the Company to achieve these results despite an extremelycompetitive and quality conscious market. With the implementation of further capacitiesalready in the pipeline the Management, barring any volatile fluctuations in prices ofpetroleum based raw materials, is confident of the Company meeting the increasing marketdemands and attaining better performances in the current year and the years to come.
Future of Exports of Foundry Chemicals and Coatings
As reported last year, the Company has already established the acceptability of itsproducts in the international markets. Export turnover achieved by the Company last yearwhich was the very first year of exports, was to the tune of Rs.2.20 crores, which grew toRs.2.80 crores in the year under review. As a base has already been established, theManagement is looking towards increasing the Company's presence in the export markets.
Moving with Industry and International Competition
The Management is constantly taking effective steps at realigning the business of theCompany so as to ensure better overall results. The Company is wholly concentrating on theFoundry Chemicals and Coatings business, which Management believes offer an opportunity interms of higher sales and profitability. However, this business also faces the threat oflocal and international competition, besides fluctuations in prices of petroleum based rawmaterials. The improved technology and manufacturing practices adopted by competition incollaboration with major international players in the industry worldwide, pose an excitingchallenge that has to be met effectively to survive and grow in the industry and remaincompetitive and acceptable to the quality and cost conscious customers.
The Company has an internal audit system, which covers all areas of the Company'soperations and plays an important role in ensuring a proper internal control system. TheManagement is aware of the importance of internal controls and steps are continuouslytaken to upgrade their systems.
Foreign Exchange Exposure
The Company's exposure to foreign exchange is on account of the import of certain rawmaterials and certain capital goods, and export sales for which adequate cover is taken toprovide against exchange rate fluctuations.
Meeting the Challenge of Price Fluctuations in Key Raw Materials
The volatile fluctuation in the key raw materials during the year under review posed areal challenge to the Management in the planning of purchases, stocks and production.
This is a major risk factor in forecasting future performance. However, barring theyear 2008-09 when businesses globally were affected by industrial recession, the situationon this front has generally remained within manageable limits.
The Company is fortunate in having a dedicated team of managerial and other staff builtover a period of time. it is now necessary to add technically qualified and experiencedpeople to take forward the business plans of the Company, and the Management is consciousof the need to induct the right profiles to meet the requirements.
Historical Perspective and Future Outlook of Foundry Chemicals and Coatings
The Company was incorporated in 1929 and has been in the Foundry Chemicals businesssince 1964. After a modest beginning by setting up capacity in its Reay Road Unit, itestablished a full fledged, modern factory at Tarapur in Maharashtra for Foundry,Industrial and Speciality Chemicals in 1983. In the meantime, the Company had already setup factories at Jamshedpur for Foundry Chemicals in 1974 and at Bangalore for FoundryCoatings in 1976. The manufacturing facilities at all locations have inherent foreigntechnology that is upgraded continuously.
However, with the closure of the Oils and Fats operations in Reay Road Unit in May,2006, and disposal of its Ceramics business undertaking at Aurangabad a year later, theCompany decided to focus on the Foundry Chemicals and Coatings business with technicallyspecialised people to take on the challenge of re-instating the Company as industryleader. This focus has borne fruit and in the last three years, the Company's Gross Saleshave grown from Rs. 65 crores in 2007-08 to Rs.141 crores in 2010-11, a cumulative growthof 117%. Production during the same period has grown cumulatively by 85% from 8470 tonnesto 15633 tonnes.
With the settlement of the liabilities relating to the Reay Road Unit, the Company canlook forward to sustained growth in profitability from the current year, barring of courseany exceptional volatile fluctuations in the price of petroleum based raw materials usedfor its products.