MERINO INDUSTRIES LIMITED
(FORMERLY KNOWN AS CENTURY LAMINATING COMPANY LIMITED)
ANNUAL REPORT 2009-2010
MANAGEMENT DISCUSSION AND ANALYSIS
Merino offers a diversified laminates portfolio through two production
facilities (Hapur and Rohad) and a production capacity of 96 lac sheets
annually. The Group is one of the largest laminate manufacturers in Asia.
Merino is the largest laminates exporter from India (consolidated) and a
leading supplier to prominent OEMs in the US and elsewhere.
The product range includes a wide variety of laminated products, adding
value to one's furniture.
* Merino is one of the largest producers of laminate sheets in India (2009-
10 production of 84 lac sheets). The Group increased installed capacity
from 80 lac sheets in 2008-09 to 96 lac sheets in 2009-10.
* The proportion of 0.6 mm sheets (commodity end) of the total laminate
sales declined from 30% in 2002-03 to 10% in 2009-10, while the proportion
of the relatively value-added (> 1 mm) sheets increased from 5% to 40%
across the same period.
* An investment in chrome plating repair and maintenance resulted in high-
end finishes and textures.
* A forward integration from compact laminates to the manufacture of
restroom cubicles strengthened captive consumption, value-addition and
superior features (solid grade, possessing atmospheric and chemical
* The product mix comprised decorative laminates in over 400 designs, 23
finishes and 11 sizes, the largest complement among Indian manufacturers.
* The quality matched international standards comprising the EN 438
certification of UK, NEMA LD 3 of the US and ISO 4586 certifications.
Merino fire-retarded grades were tested and approved by Warringtonfire, UK,
* The periodic introduction of innovative products like the scratch-
resistant MR high-gloss laminate, electrostatic dissipative laminate and FR
grade laminate took place for the first time in India.
* The Group is climbing the value chain through an increasing proportion of
trend setting designs. The Group imported patterned paper from Europe,
increasing its value-added throughput.
* A preference for retail sales over institutional clients (70:30) resulted
in corresponding value-addition, widespread offtake and relative derisking.
A focus on zonal hubs accelerated material dispatch and delivery. The
Group's logistic cost, as a proportion of net sales, declined from 2.94% in
2008-09 to 2.64% in 2009-10, reflecting closer proximity to customers owing
to its strong distribution model. This is further expected to come down
with the new hub being established in the east.
* Close working with architects, carpenters and contractors helped them
understand their evolving requirements and enhance the awareness about
Merino products. This can be reflected in the numbers below -
advertisements, as a proportion of net sales, declined from 0.94% in 2007-
08 to 0.82% in 2009-10, reflecting strong brand positioning. With little
focus on advertisements, Merino intends to build its relations with
architects, carpenters and contractors.
* The growing average realisation of laminates reflects the increase in the
proportion of value-added products in the Group's product portfolio. Even
during the slowdown in 2008-09, when volume sales reduced, the average
realisation for the Group grew, coupled with higher product value-
additions. In a span of three years, realisations per sheet grew 28% from
Rs. 283 in 2007-08 to Rs. 362 in 2009-10.
Panel product and furniture division
The Group entered the business through plywood manufacture (reentry) in
2001. Over the decades, the Group widened its product portfolio and now
possesses three units for the production of low-pressure laminates
(installed capacity 35 lac sqm) and a growing presence in ancillary
businesses (furniture and restroom cubicles).
* Merinova offers prelaminated particle boards and prelaminated MDF boards.
The prelaminated MDF boards enjoy applications similar to plywood and are
denser than particle board. The Group's prelaminated boards are
dimensionally stable and resistant to moisture, delamination, steam
chemical and beverage stains. ,
* Merinova prelaminated boards are ideal for decorative applications over
plywood, MDF and particle board across varied designs and special finishes.
* Merino pioneered the popularity of post-form laminates in India through
research-led design innovation and features.
* Merino restroom and locker systems offer a range of appealing and
practical solutions for heavy traffic restrooms in collaboration with
Besco, Singapore. The products - cubicles, urinal modesty panels, support
grab bars, jet towels and locker systems - have strengthened the restroom
culture in India.
* Merino restroom cubicles use compact laminates and are accepted as market
* Merino evolved into a one-stop interior solutions provider following the
commencement of the furniture business in 2001 (brand 'MY SPACE').
Potato flakes division
Dehydrated potato flakes can be reprocessed to create a mashed potato
equivalent, eliminating lumping.
Potato flakes are nutritionally superior to fresh potatoes, enriched with
minerals and anti-oxidants. The controlled moisture in the flakes
facilitates multipurpose applications, not otherwise possible with fresh
The Indian processed foods industry is poised to grow a whopping 42.5% from
US$181 billion in 2009 to US$258 billion by 2015 and by 76% to US$318
billion by 2020 (Source: E&Y). The food processing sector grew from 6% in
2009 to 14.9% till July 2010. The country is processing 10% of the total
food produce and expects to enhance this to 20% by 2015.
Consumer spending on processed food is likely to grow owing to an increase
in per capita disposable income by 8% over the last five years coupled with
an increase in per capita expenditure on food products by 20%. The scope:
India's per capita food expenditure is a sixth of that in China and a
sixteenth of that in the US.
The Merino Group entered the potato cold-storage business in 1968 and as a
forward integration, extended to the production of potato flakes in 2005
(Vegit brand). The Group is integrated across the entire chain from
biotech, contract farming, cold chain to food processing.
Merino offers dehydrated potato flakes and snack mixes, readily available
at Reliance Fresh, Big Bazaar, Food Bazaar, Spencer, More, Spinach,
Nilgiris, Metro Cash and Carry and other hyper stores.
Enhancing customer value:
* Provides convenience to customers as it saves processing time
* Provides consistent taste, quantity and pricing
* Provides timely dispatch and delivery through ease in storage and
* Provides hygienic and healthy products
* Provides a shelf-life of nine months
* The division produced 28 lac kg of potato flakes in 2009-10 against I
32 lac kg in 2008-09. Additionally, against a loss of Rs. 110 lacs incurred
in 2008-09, the division registered a profit of Rs. 546 lacs in 2009-10.
The increased profitability was mainly attributable to+the trading of raw
potato and a higher realisation from potato flakes.
a Merino integrated its agricultural operations from tissue culture to food
processing for consistent quality raw material supply.
* With over 80% market share in India, Vegit is among the largest
manufacturers of potato flakes in Asia; the Group possesses Asia's largest
cold storage for potatoes.
* Merino Vegit potato flakes are FPO approved and the production plant is
certified by HACCP, ISO 9001 and ISO 14001. The entire production is
controlled through a PLC online system, used for the first time in India,
leading to enhanced quality control.
* Merino invested in an automated European plant for the manufacture of
dehydrated potato flakes and snack mixes.
* Merino markets potato flakes to institutional clients (restaurants and
caterers) and direct consumers (through hyper stores). Merino Vegit has a
presence across 70% of the country.
The potato flakes business in India is worth Rs 50 crore, growing at a CAGR
of 5% over three years.
Analysis of our financial statements:
The Group performed exceedingly well in 2009-10: while net sales increased
by only 13%, net profit registered a 395% increase, representing a robust
foundation for sustainable growth.
The financial statements complied in all material respects with the
Notified Accounting Standards by the Companies Accounting Standards Rules,
2006 (as amended) and the relevant provisions of the Companies Act, 1956.
The financial statements were prepared under the historical cost convention
method on an accrual basis. Accounting policies were consistently applied
and were consistent with those used in the previous year. The preparation
of financial statements, in conformity with generally accepted accounting
principles, require the management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the
results of operation during the reporting year end.
* Gross sales increased 11% from Rs. 43,446 lacs in 2008-09 to Rs. 48,120
* EBIDTA grew 63% from Rs. 3,489 lacs in 2008-09 to Rs. 5,684 lacs
* PBT grew 296% from Rs. 903 lacs in 2008-09 to Rs.3,577 lacs
* PAT grew 395% from Rs. 468 lacs in 2008-09 to Rs. 2,316 lacs Derivates
* EBIDTA margin grew 356 bps from 8.49% in 2008-09 to 12.05% J * PBT margin
grew 539 bps from 2.20% in 2008-09 to 7.59% : * PAT margin grew 377 bps
from 1.14% in 2008-09 to 4.91% I * ROCE grew 800 bps from 12% in 2008-09 to
* Net sales grew 13% and capital employed in the business increased by only
* Average debt cost at 7% against an ROCE of 20% signified that every rupee
borrowed realised 2.5 times more than the interest outflow
Net sales grew 13% from Rs. 40,364 lacs in 2008-09 to Rs. 45,768 lacs in
2009-10 for the following reasons:
* Increased sales in terms of quantity
* Expanded capacities in Merino Industries Limited
* Improved realisations following an increase in input costs
* Enhanced exports to Rs. 11,989 lacs against Rs. 1 1,556 lacs in 200809;
the Group expanded their footprint across Latin America and Canada, taking
its total global footprint across 42 nations
* Increased non-core income by 99% to Rs. 1,380 lacs in 2009-10 from Rs.
694 lacs in 2008-09; this was largely owing to gain in foreign currency
fluctuation at Rs. 352 lacs as against none in 2008-09
Increased scale enhanced absolute expenses from Rs. 39,854 lacs in 2008-09
to Rs. 41,662 lacs in 2009-10. But improved operating efficiencies and
higher product realisation reduced the operating cost, as a percentage of
total income, by 900 bps - from 97% in 2008-09 to 88% in 2009-10.
Purchase of trading goods: Purchase of trading goods increased to Rs. 2,572
lacs owing to the increased inventory sale of potato sales during the peak
season, generating higher trading gains.
Material costs: The material cost increase was owing to two important
factors - increase in capacity, increase in capacity utilisation and
increase in the raw material costs. Material consumption, as a percentage
of net sales, declined from 58% in 2008-09 to 53% in 2009-10.
Employee cost: This cost increased 17% from Rs. 3,199 in 2008-09 to Rs.
3,738 lacs in 2009-10, driven by an increase in employee base and annual
increments. However, the increase in team size delivered superior returns:
revenue per employee increased 1 5% from Rs 34 lac per employee in 2008-09
to Rs 39 lac per employee in 2009-10 and EBIDTA per employee increased 67%
from Rs. 3 lac to Rs. 5 lac.
Manufacturing and other expenses: Expenses under this head decreased 5%
from Rs. 11,791 in 2008-09 to Rs. 11,178 in 2009-10, primarily owing to
effective cost management by the Group.
The capital employed in the business increased 2% from Rs. 31,410 lacs as
on March 31, 2009 to Rs. 32,119 lacs as on March 31, 2010. ROCE increased
from 12% in 2008-09 to 20% in 2009-10.
Shareholders' funds (networth) increased 22% from Rs. 7,903 lacs as on
March 31, 2009 to Rs. 9,604 lacs as on March 31, 2010, owing to operational
Equity capital: The Group's equity capital comprised 1,03,69,600 equity
shares of Rs. 10 each. The promoters held 95% of the Group equity as on
March 31, 2010.
Reserve and surplus: Reserves and surplus increased 25% from Rs. 6,856 lacs
as on March 31, 2009 to Rs. 8,556 lacs as on March 31, 2010 - through a
Rs.1,706 lacs ploughback of operational surplus in 2009-10 against Rs. 468
lacs in 2008-09. Free reserves comprised 90% of the reserve balance,
creating a robust foundation for future initiatives. The book value per
share stood at Rs. 93 as on March 31, 2010 against Rs. 76 as on March 31,
The reliance on external funds reduced from Rs. 17,310 lacs as on March 31,
2009 to Rs. 13,239 lacs as on March 31, 2010. This was owing to the
judicious deployment of operational earnings. As a result, the debt-equity
ratio strengthened from 0.42 as on March 31, 2009 to 0.23 as on March 31,
2009-10 2008-09 Y-o-y
Amount %age of Amount %age of growth
(Rs lacs) total cost (Rs lacs) total cost (%)
Trading Goods 2,572 6 1,564 4 2
Material Consumed 24,174 58 23,300 68 (Nil)
Employee Expenses 3,738 9 3,199 8 1
Manufacturing and 11,178 27 11,791 (30) (3)
Total 41,662 100 39,854 100
Interest cost declined 39% from Rs. 1,507 lacs in 2008-09 to Rs. 919 lacs
in 2009-10. The Group strengthened its negotiating power with lenders,
reducing the average debt cost from 10% in 2008-09 to 6% in 2009-10;
interest cover strengthened from 2 to 6.
The net block increased from Rs. 10,274 lacs as on March 31, 2009 to
Rs.11,950 lacs as on March 31, 2010 owing to additional investments in
plant and machinery for capacity expansions and land acquisitions.
Depreciation was provided in accordance with Schedule XIV of the Companies
Act, 1 956. Depreciation increased 1 6% from Rs. 6,854 lacs in 2008-09 to
Rs. 7,940 lacs in 2009-10 owing to an increase in gross block. Capital
work-in-progress declined from Rs. 638 lacs in 2008-09 to Rs.481 lacs in
2009-10, signifying that most expansion plans of 2008-09 were completed in
2009-10 resulting in capacity expansion.
The net current assets of the Group (working capital) declined 22% from Rs.
15,955 lacs as on March 31, 2009 to Rs. 12,435 lacs as on March 31, 2010
despite sales increases, indicating superior working capital management.
Our strong ERP helped locate overdue receivables with appropriate action.
The Group practised inventory valuation at lower of cost or market value,
The finished goods inventory turnover improved from 16 in 2007-08 to 18 in
2009-10; inventory holding declined from 23 days of turnover equivalent in
2007-08 to 21 days in 2009-10.
Debtors increased 5% from Rs. 6,836 lacs in 2008-09 to Rs. 7,147 lacs in
2009-10. The debtors' collection period, as a measure of collection
efficiency, improved from 57 days in 2008-09 to 54 days in 2009-10; 70% of
sales were through the dealer network with a reduction in the OEM debtors'
cycle owing to stronger credit terms.
Loans and advances:
Loans and advances increased 8% from Rs. 313 lacs in 2008-09 to Rs. 339
lacs in 2009-10 mainly owing to an increase in advances recoverable in
Creditors increased from Rs. 3,102 lacs in 2008-09 to Rs. 5,649 lacs in
2009-10 owing to increased sales volume. Creditor's day equivalent of sales
stood at 45 days in 2009-10, against 28 days in the previous year.
Provision for taxation:
Provision for tax increased from Rs. 504 lacs in 2008-09 to Rs. 1,475 lacs
in 2009-10 owing to an increase in profits. The Group also set aside an
amount of Rs. 6 lacs for the earlier year's income tax.
The Group reported a foreign exchange gain of Rs. 352 lacs in 2009-10
against a loss of Rs. 888 lacs in 2008-09.
Inability to keep pace with evolving preferences could affect growth:
* Merino invested in the finest state-of-the-art technology from the best
international companies viz. Stienaman AG, Kundig and Simpelkemp, an
effective hedge against product obsolescence.
* Merino invested over Rs. 71 crore across the five years leading to 2009-
10 to upgrade technology, including Rs. 18 crore in 2009-10.
* Merino used better machines leading to better quality end products.
* Merino introduced 73 laminate varieties in 2009-10, emphasising its brand
as an innovation-led manufacturer.
* Merino's revenues from products launched in the three years leading to
2009-1 0 accounted for 25% of its revenues during the year under review.
Inability to mobilise adequate funding could impact growth:
* Merino's debtors' collection period improved from 57 days of turnover
equivalent in 2008-09 to 54 days in 2009-10, enhancing liquidity.
* Merino enjoyed adequate working capital sanctions from a consortium of
* Merino's working capital, as a percentage of net sales, declined from 12%
in 2008-09 to 9% in 2009-10, highlighting its fiscal efficiency.
* Merino's proposed investment of Rs. 14 crore in laminate capacity
expansion in 201 0-11 was funded by a project gearing of 0.71.
Inability to procure correct quantities of raw material at the right price
could affect production process
* Merino enjoys buyers' credit, helping us access cheaper foreign funds
close to LIBOR rates as against cash credit, which is comparatively
* Merino's laminate manufacturing units are proximate to sources of raw
* Merino procures raw materials directly from farmers and manufacturers.
* Merino enters supply contracts with manufacturers to hedge against raw
material price hikes and protect the bottom line.
Growing competition could affect business sustainability:
* Merino offers a one-stop shop for interior solutions.
* Merino possesses the widest range of laminates (SKUs in excess of 50,000)
* Merino added five new products in 2009-10, widening its product basket.
* Merino products reflect quality and are manufactured in conformance with
the ISI standards.
* Merino enjoys a market share of around 20% of the country's organised
Inability to spread sales wide could restrict growth:
* Merino has 18 branch offices across India that help place products in
5,000 nationwide retail outlets. No state (except UP) accounted for over
11% of the Group's products.
* Merino exports products to 42 countries; exports accounted for 26% of the
Group's net sales in 2009-10. No country (except the US) accounted for over
7% of the Group's products.
* Merino commissioned a liaison office in the US in 2010 to expand its
presence in the Americas.
Corporate Social Responsibility:
Steps taken for the betterment of the environment:-
* Commissioning a boiler, based on Agro waste fuel for power generation (in
subsitution of FO/Diesel generators with turbines)
* Development of a 'Green Belt' inside the factory by planting shrubs,
flowers, grass and trees
* Minimisation of waste in all processes through Environment Management
* Recycling of water, BOPP and oil, among others
* Usage of potato peels in production of wormi-compost which replaced
chemical fertiliser in the field
* Replacement of CFCs by using vapour absorption machines which use steam
as source of energy
* 100% usage of boiler ash in brick production
* Redesigning of incinerator to better treat hazardous effluents
* Reusage of the sawdust for heat generation in the incinerator
* Plantation of 500 trees per annum in nearby locations
* Usage of cyclone for separation of dust particles from outgoing fuel
gases in the boiler
Steps taken to fight tuberculosis:x
* Adoption of 100 villages in the belt from Hapur, U.P to Garh Mukteshwar
* Providing free dispensaries, mobile vans and doctors on service
Steps taken for education:
* Providing scholarships to needy students
* Publication of books for student welfare
Annapoorna -'Swami Vivekananda' Mid-day Meal Program:
* A step towards nation building
* Service in the field of Health and Education
* Providing nutritious and hygienic meals to students (preferably girls in
primary schools) belonging to the weaker section of the society