Management Discussion and Analysis ReportBUSINESS OVERVIEW:
A. Standalone Performance:
Performance of the Company has improved multifold this year for all business aspects,sales, margins, and sectorial growth
(i) Net Sales and Other Income:
Sales of the Company have grown robustly by 65.97% this year, which is significantachievement for the Company.
Net Sales and other income for the year under review increased from Rs. 34733.95 Lacsto Rs. 57658.26 Lacs, which is on account of full year of operations of the project ofAcetanilide and Basic chemicals plant at village Dudhwada, Vadodara.
Increase in sales has occurred due to the following factors.
1. Increase in sales and exports of Dyes
2. Increase in sales of Basic Chemicals
3. Marginal increase in the sales prices of finished goods.
(ii) Expenditure:
The total expenditure increased from Rs. 36249.33 Lacs to Rs. 54168.55 Lacs for theyear 2010-11. The increase in total expenditure is mainly attributable to the increase indepreciation, manufacturing & administrative expenses and financial cost.Thecommissioning of new plants has increased depreciation for the current year.
(iii) Interest and Financial Expenses:
Interest and Financial charges increased from Rs. 2056.62 Lacs to Rs. 4389.28 Lacs forthe year 2010-11. The interest and finance cost is more on account of loans taken foracquisition of DyStar, which were repaid in third quarter of the year 2010-11.
(iv) Profit Before Tax and Exceptional Items:
The Profit before tax increased from Rs. 3424.92 Lacs to Rs. 5145.55 Lacs for the year2010-11, which was increased due to higher revenue and reduction in derivative loss ascompared to year 2009-10.
(v) Profit after tax:
The profit after tax increased from Rs. 2490.18 Lacs to Rs. 3305.02 Lacs due toreduction in derivative loss as compared to the year 2009-10.
(vi) Net Block:
The net block increased from Rs. 17771.57 Lacs to Rs. 28659.84 Lacs for the year2010-11, which was on account of comissioning of phase I of Vinyl Sulphone plant and otherassets.
B. Consolidated Financial Performance:
(i) Net Sales and other Income:
The net sales for the year 2010-11 amounts to Rs. 380667.52 Lacs which was Rs. 80150.68Lacs for the year 2009-10 having operations at DyStar for two months only. Other incomeamounting to Rs. 6218.04 Lacs for the year 2010-11 as against Rs.924.02 Lacs for the year2009-10.
(ii) Earnings before Exceptional Items and after Tax:
The Earnings before Exceptional Items and after Tax increased from Rs. 704.35 Lacs toRs. 10959.76 Lacs for the year 2010-11, which was increased due to higher revenue duringthe year 2010-11.
(iii) The net capital reserve on account of acquisition of assets of DyStar amountsto Rs. 94532.04 Lacs which was Rs. 89024.29 Lacs as on 31st March, 2010. The increase incurrent period is mainly on acccount of acquistion of business of DyStar USA.
(iv) The net block of assets as on 31st March, 2011 amount to Rs. 76056.16 Lacswhich was Rs. 72270.88 Lacs as on 31st March, 2010.
MARKET OUTLOOK:
The management believes the Global dyes industry would grow at around 4%. Developedeconomies are expected to show slower rate of growth in consumption, especially in Europeand USA. However, the consumption in developing economies like China and India is expectedto show a faster growth rate of 6.5% to 7%. In the recent years, there has been a clearshift of manufacturing from Europe, USA, Korea and Taiwan to India and China. As a resultexports from India are bound to rise. With increasing income levels of consumers in Asia,markets have shown increasing preference for brands and well known retailers, the upswingin textiles can be expected at-least in the coming few years. Reduction in cotton pricesis expected to spur demand of reactive dyes. The resultant growth in consumption ofreactive dyes is expected to continue for the next two years.
Growth of the Company is expected in the future years by capturing market share invarious countries for replacing the products those are currently not supplied from India.Non-Indian origin supplies are the opportunities for the Company to gain incrementalbusiness. Company’s sales team is geared up to gain such opportunities in future.
OPPORTUNITIES:
The Company with its expansion projects being implemented is well equipped to face thecurrent industry climate, the Company has already performed a detailed review of itsproduct portfolio in the management review meetings. It has decided to strategicallyre-jig its product portfolio for Dyes as well as for Dye Intermediates. Strengtheningproduct-mix is expected to provide improvements in margins for the coming year.
a. Dyes:
The Company has introduced various specialty products in its portfolio and has alsostarted production of products transferred from European manufacturing facilities. Theinclusion of specialty dyes product ranges and products from DyStar portfolio would helpit sustain the margin improvement in the present industry environment and also improve theprice realization per unit.
b. Dyes Intermediates:
The expanded capacity of Vinyl Sulphone includes manufacturing of various sulphones ofhigher values, which would give boost to its margins and price realization. The productionof specialty intermediates in expanded facility would also add to the margin improvementof the Company.
The Company’s integrated manufacturing facility imparts efficiency to its entirevalue chain. With the commencement of its Dyes Intermediates expansion, the managementexpects to realize the advantages of cost and advantage of over its peers.
THREATS, RISKS AND CONCERNS:
• Volatility in raw material prices especially crude oil prices, crude oil andtransportation cost can adversely affect the business operation and can thin outprofitability of the Company.
• The inflationary pressures would tend to increase interest cost, hence interestservicing could affect the profitability of the Company. However, on account of exports,the Company is better placed to mitigate increase in interest costs, by converting rupeeloan to foreign currency loans.
• The Company is exporting its products therefore; the volatility in foreignexchange rates may affect profitability.
• With minimum entry barriers and competitive prices, the business of the Companycan be affected by competition in the industry.
• Irregular supply of the raw materials can also affect the business of theCompany.
• Uncertainties in demand in the western retail markets, especially Europe and USAcan affect off take of the products of the Company.
INTERNAL CONTROL SYSTEMS AND ITS ADEQUACY:
The business environment is becoming complex every day, hence to avoid pilferage andslippages in the system, the internal control systems of the Company are regularlyreviewed and are being improved and strengthened to safeguard and protect the assets ofthe Company and remain protected against loss from unauthorized use. With the growth ofthe Company, the number of employees is also increasing hence the Company has establishedwell defined roles for its entire team. The senior executives are equipped with authorityand are responsible for major operational activities of the Company. The Board ofDirectors are provided timely and requisite information for control and review of theoperations of the Company with the support of well designed and established ManagementInformation System (MIS).
The Company has also appointed independent internal auditors to assist the managementfor the effective discharge of its responsibilities by furnishing it with findings,observations and pertinent comments, adequacy of internal controls, analysis andrecommendations concerning the activities covered for audit and reviewed by it during theyear. Findings of internal audit reports and effectiveness of internal control measures isreviewed by top management and audit committee of the Company.The Committee also meets theStatutory Auditors of the Company to ascertain, their views on the strengthening ofinternal control systems in the Company.
HUMAN RESOURCES:
The Company has a talent base of 467 at the end of the year. Harmonious relationscontinued to prevail in the organization, strengthening the well established traditions offairness in dealings and commitment to the future growth of employees through sustainedgrowth of the Company. The Company has continued to attract the best talent in all areasof competence.
Company has strengthen its management team during this year by appointing andempowering 4 new Key Management Executives to strengthen management capability of theCompany.
Continuous upgrading technical skills, and bringing innovations through continuouscareer development programs has been the key to develop human resources of the Company.Entrepreneurial spirit has been the hallmark of the Company and group as a whole. TheCompany is continuously further focusing this year to further strengthen its decisionmaking ability of its Key Management Team.
CAUTIONARY STATEMENT:
Certain statements made in this Management Discussion and Analysis Report relating tothe Company’s objectives, projections, outlook, estimates, expectations, predictionsetc. may constitute "forward looking statements" within the meaning ofapplicable laws and regulations. Actual results may differ from such expectations,projections etc. whether express or implied. Several factors that could make a differenceto Company’s operations these include climatic conditions and economic conditionsaffecting demand and supply, changes in Government regulation tax regimes, naturalcalamities, etc. over which the Company does not have any direct control.