MANAGEMENT DISCUSSION AND ANALYSIS REPORT
1. Industry Structure & Development
Kilburn Engineering is a technology led Company, specialized in process design,engineering, manufacturing, project management and installation of equipment and systemsfor various process plants. The Company is a leader in solid, liquid, gas drying systemsand specially designed skid mounted packages for offshore platforms. Its products havediverse applications in industries like chemical, petrochemical, fertilizer, steel,refineries, oil and gas, power, food processing, etc. The Companys focus is to meetthe requirement of critically customized process equipment for several sectors. Thedevelopment of the Company primarily hinges on the growth plan / modernization of its userindustries. Since the last year most of the customers are deferring their capex decisionsprimarily due to industrial slow down. This slowing growth is adversely impacting thecompanys order book particularly for Process Equipments.
With the Companys experience in fabrication of exotic material such as Nickel,Inconel, Duplex Stainless Steel and the setting up of a new modern facility with ASME"U" Stamp certification with heavy handling facilities, the Company can expectvalue added orders. The Company is a leading manufacturer of Rotary Dryers/ Calciners oflarge capacity in India. The Company is also an established manufacturer of Instrument& Utility Gas System for the oil and gas industry. Companys experience in supplyof both onshore and offshore packages in the oil & gas industry will help in gettingorders for new projects and revamping projects of platforms & onshore facilities whichare coming up during the current year.
During the year, the Company has approached several large companies in both domesticand international markets for registration and has been able to get empanelled in somecases post their audit of our facilities and capabilities. Enquiries have been receivedfrom some of these companies and quotations submitted against these enquiries are undertheir evaluation. The process of empanelment with others is continuing. Theseregistrations and empanelment will add substantially to the Companys business infuture. As mentioned in the Directors Report, the Company has embarked on severalnew marketing initiatives like technological tie-ups, development of new products andexploring markets in new geographical areas. With these tie-ups, the Company can explorebusiness opportunities in respect of Waste Heat Recovery Systems, Fired Heaters, ProcessSkids, Reformers and the Fuel Gas Conditioning Systems for Power Plants in addition toexisting product lines.
In view of huge gap between the demand and indigenous availability of coal, the countryis depending on import of coal which has high moisture content. The Company has takenseveral steps to introduce its Coal Drying System at Power Plants, mine mouth, sea portand for other applications in steel plants. With technology from Carrier VibratingEquipment Inc., USA, our technical collaborators, the company has very recently installeda Coke Drying System for the first time in the country in a leading Steel Company. Uponsuccessful commissioning, the Company expects to secure further orders for drying of cokein Steel plants who are not having Coke Ovens. The Steel plants having coke oven may alsouse coal dryer for pre-drying of coal before the same is fed in to the Coke oven.
Apart from the Process Equipment as discussed above, the Company has strong presence inthe food processing industry. The Company continues to be a leader in tea dryers. With theintroduction of the Phase VI Dryer which improves the capacity and delivers better qualitywith negligible fly-off and lower utility cost, the Company expects to improve further itsperformance in this segment.
As regards Paddy Dryer, the systems supplied in Eastern/ Southern India based on onlyVFBDs have now been modified to combine VFBD and LSU both for South and Eastern Region forparboiled paddy. The modification was necessitated both for technical and commercialreasons. We expect to secure orders for the modified systems shortly.
As regards sugar dryer, the Company will strengthen its marketing efforts in thissegment both in India and abroad.
2. Economic Outlook
During the year, Process Equipment order inflow is continuing to remain sluggish andthis is having an adverse effect on the Companys current year operations. With thelikely upturn of global / Indian economy expected from 2013 leading to reversal ofindustrial slowdown both in export and domestic market, your company is expected toimprove its order book for its diverse range of customized Process Equipment.
3. Industry Overview
For industry especially the capital goods sector the most worrying aspect was a feebleIIP growth of 2.8% for 2011-12 against a robust 8.2% growth seen in fiscal 2010-11. Duringthe year, the sector witnessed a major slowdown in order booking and subdued executionowing to lower infrastructure spending, rising input costs and spiraling interest rates.Confidence in growth, critical for capital formation and expenditure, remained at a lowlevel throughout the year. This was reflected in the sharp fall in fresh order inflows.
4. Business Overview
The Order Inflow and Sales during 2011-2012 were adversely impacted due to the overallsluggish global and domestic economic scenario. The deferment/cancellation of some of theplanned projects across geographies have led to a drop in Export Orders.
Markets are increasingly getting flooded with new aggressive competitors, both Indianand foreign. Your Company is taking actions in terms of strengthening internalcapabilities improving cost competitiveness, diversifying into new geographies &venturing into new product lines and forging strategic alliances with overseas technologyproviders as also large manufacturing companies both in India and abroad. However,inadequate order inflow of process equipment coupled with higher input cost, thin marginon sales price could adversely affect the Companys revenues and margins.
5. Financial Performance vis--vis Operational Performance
Financial performance has been separately dealt with under the Directors Report.
Segment-Wise Or Product-Wise Performance
The Company is primarily engaged in designing and manufacture of drying systems fordiverse applications. The Companys current and future performance in respect ofthese business groups has been outlined in the Directors Report.
6. Risk, Challenges & Threats
The Companys business portfolio is dominated by engineering segment. Thissegments business has its unique risk characteristics. Long-delivery projectactivity, fraught with unforeseen events continually challenge its cost and deliverycommitments. Extreme volatility in forex and commodity prices, deterioratingcredit-worthiness of the customer, delays in project execution, inability of sub-vendorsto maintain supplies of agreed quality and delivery etc. may adversely impact aprojects profitability. Intensifying competition, stringent pre-qualificationstandards, pressure on margins and unfavourable cash-flow stream in certain projects addto business risks.
The diverse uses of the Companys products and the customers acceptance ofour product quality with competitive pricing should provide opportunities for significantgrowth in Sales & Profitability in the years ahead.
Variation in prices of commodities and currencies
The Company deals with various raw materials. Fixed price contracts can have negativeimpact in the event of rise in input costs if it is not appropriately hedged in time. Dueto a significant share of around 40% of business being in International markets, theCompany is exposed to the risk of currency fluctuations.
The Company believes in keeping its commodity and currency exposures hedged to optimumlevels.
Infrastructure Investment Slowdown
Slowdown in the infrastructure investment can lead to lower order intake.
Company is spreading its exposure by entering into new products which have steady andregular demand. It is extending its geographies, adding its customer base and expandingits businesses which your company feels is a key priority for a sustainable growth.
The details of the New Project have been separately dealt with under theDirectors Report.
8. Internal Control Systems and their Adequacy
Your Company has an effective and adequate Internal Control and Management InformationSystem in place with particular emphasis on shop floor operations, quality control,delivery commitments, budget variances, etc. Your Companys Internal Auditors areengaged in reviewing and analyzing the effectiveness and adequacy of the Internal ControlSystems. The Internal Auditors submit periodical review reports to the management and thesame are presented to the Audit Committee for review and suggestion along with Managementreplies to the observations made by the Internal Auditors. Additionally, the Companycontinued management audit by a senior officer of the Company covering an in depth studyof certain specific areas during the year.
9. Human Resource Development
The Company considers human resources as its most critical asset and has put in placevarious practices to ensure healthy and smooth work environment. Industrial relationscontinued to be cordial and harmonious throughout the year.
10. Gentle word of Caution
Some of the statements in this management discussion and analysis report describing theCompanys objectives, projections, estimates and expectations maybe ForwardLooking Statements within the meaning of applicable laws and regulations. Actualresults might differ substantially or materially from those expressed or implied.Important developments that could affect the Companys operations include a downtrendin industry, significant changes in political and economic environment in India, tax laws,foreign exchange fluctuation, custom duties, litigations and labour relations.
ANNEXURE "B" FORMING PART OF DIRECTORS REPORT 2011-2012:
INFORMATION PURSUANT TO SECTION 217(1)(e) OF THE COMPANIES ACT, 1956 READ WITH THECOMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1988.
A. Conservation of energy:
a) Energy conservation measures taken:
The Companys production activity is not energy intensive.
b) Additional investments and proposals, if any, being implemented for reductionof consumption of energy: The Company is planning to install necessary equipments foroptimizing energy usage at its new location.
c) Impact of the measure at (a) and (b) above for reduction of energyconsumption and consequent impact on the cost of production of goods:
Impact of measures being undertaken can be identified after implementation.
d) Total energy consumption and energy consumption per unit of production:
Total consumption 5,83,194 KWH
Consumption per unit 225.54 KWH / M.T
B. Research and Development (R&D):
1. Specified areas in which R&D carried out by the Company:
a) Development of complete system for ageing of basmati rice.
b) Development of continuous withering system for green tea application.
c) Developed and commissioned energy efficient tunnel dryer for drying of Hysil Blocks.
d) Developed fluid bed technology for drying of dense soda ash.
e) Developed Vibro Fluid Bed technology for drying of coke.
2. Benefits derived as a result of the above R&D:
a) Saving in inventory carrying cost and factory space.
b) Saving in man power and improved quality of the final product.
c) In tunnel dryer use of re-circulated exhaust gases results in lesser heat loss.
d) Use of pre drying concept of product results in better heat transfer.
e) Drying of Coke before firing in blast furnace increases production capacity.
3. Future Plan of action:
Development of Continuous Vacuum drying system for various products.
4. Expenditure on R&D:
|a) Capital ||: Nil |
|b) Recurring ||: Rs. 46.60 Lacs |
|c) Total ||: Rs. 46.60 Lacs |
|d) Total R&D expenditure as a percentage of total turnover ||: 0.46% |
C. Technology absorption, adaptation and innovation:
a) Research on coal drying system for power plant using normal steam / waste steam asheat source will provide following benefits
- Improve the efficiency of boiler
- Resolve the number of mechanical issues related to the movement / crushing of coal.
b) Benefits derived as a result of the above efforts e.g., product improvement, costreduction, product development, import substitution, etc.: Enhancement in Companyscapacity to provide a broader range of process plant and systems.
c) Technology import : NA
D. Foreign exchange earnings and outgo:
a) Activities relating to exports, initiative taken to increase exports, development ofnew export markets for products and services and export plans:
The Companys executives visited prospective customers overseas. The Company alsoactively participated in ACHEMA Fair and explored available opportunities.
b) Total foreign exchange used and earned:
|Total foreign exchange used ||- Rs. 1,290.44 Lac |
|Total foreign exchange earned ||- Rs. 2,654 Lac |