Precision Pipes & Profiles Company Ltd


BSE: 532934 | NSE: PPAP | ISIN: INE095I01015 
Market Cap: [Rs.Cr.] 98 | Face Value: [Rs.] 10
Industry: Plastics Products

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Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Business Overview

Precision Pipes and Profiles Company Limited ("PPAP") is the principalmanufacturer of automotive Body Sealing, Exterior & Interior parts. PPAP is alsoengaged in the business of manufacturing of profilesfor White Goods Industry and MainlinePower Distribution System. Auto division is primarily focused on Outer Belt Moulding,Inner Belt Moulding, Windshield Moulding, Roof Moulding, Quarter Window Moulding, A-PillarGarnish, B-Pillar Garnish, Body Side Moulding and Skirt Air Damper etc. Refrigerationdivision primarily manufactures Trim, Door Profile and Freezer Profile for RefrigerationIndustry and Mainline Power Distribution System division manufactures U.K. Adapter, FrenchAdapter, Schuko Adapter, Dressing & Cap, Cabler Spoon, Extruded Track and CopperConductor to Electrical & Construction Industries.

PPAP is major supplier to OEMs and the Company’s esteemed customers list includeMaruti Suzuki India Limited, Honda Cars India Limited, General Motors (India) Limited,Toyota Kirloskar Motors Private Limited, Renault Nissan Automotive India Private Limited,Tata Motors Limited, Ford India Private Limited, Mahindra and Mahindra Limited andInternational Cars and Motors Limited along with their Tier 1 suppliers. The company hastechnical collaboration with Tokai Kogyo Co. Ltd, Japan and Nissen Chemitech Corporation,Japan to develop automotive products. In the White Goods Industry, the Company developscustomized profiles for Godrej, Voltas, Videocon and Carrier Refrigerators. PPAP derivesaround 95% of the turnover from automobile customers.

Automobile Current Trends and Performance

Overall Indian Automobile Industry has shown marginal growth in FY 2012-13 compared tolast FY 2011-12. Production and Domestic sales have registered growth of 1.20% and 2.61%,however export is negative growth due to negative global environment and fluctuations.

One of the hot spot in world automotive industry is Indian car market. Indian carindustry is going through turbulent times now. Car sales are down by more than 6% in FY2012-13 compared to last year of FY 2011-12. The main reasons are high interest rates,high fuel price, high inflation, low growth in other business sectors etc. Utility vehiclesegment is having maximum growth.

Industry Structure & Development

Future prospect of Indian Automotive Sector is bright. As per industry forecasts, by2016 India is expected to be the world’s seventh-largest automobile market andthird-largest by 2030, behind only the US and China. This confidence is based on strongsector fundamentals which include extremely low current levels of Vehicle penetration inthe country, projected high rate of GDP growth for the Indian economy, huge investmentsbeing made by the Government in infrastructure along with a very large upwardly mobilemiddle class population with aspirations for better living standards.

By 2016, the Government is targeting an annual turnover of US$145bn in the AutomobileIndustry, representing 10% of GDP and employing a total of 25 million people.

The large population growth of more than 20 million a year and the rising livingstandards are two important indicators that logically lead to an increasing demand forautomotives in India. Also, IT & BPO growth is giving impetus to this demand.

However , PPAP’s own Sales Growth was 18 % vis a vis previous year , mainly due toaddition of Exports of Sealing System Parts to countries like Japan, Mexico through itsCustomer Nissan Motors.

Automobile companies across segments continue to face tremendous pressure on profitmargins due to elevated inflation levels. Added to this are the heightened marketing costsincurred and heavy discounts offered by vehicle manufacturers to attract consumers to theshowrooms. This partially explains the price hikes initiated by the vehicle OEMs toprotect margins despite the weak demand environment. Going ahead, amidst rising marketcompetition, new product launches, as also product refreshes planned, OEMs are expected toincrease spending on marketing & promotional activities. Although commodity prices arenot expected to witness steep hikes, overall cost and competitive pressures would keep theprofit margins under pressure

The year 2012-13 also saw flurry of many New Model launches. Few of many are asfollows: Model Alto 800 by MSIL, Models - Sail & Enjoy by General Motors , Evalia byNissan , Scala by Renault Nissan , Elantra by Hyundai etc.

FY 2014 Forecast

SIAM had to revise its sales forecast several times in FY 2013. It had initiallypredicted a double digit growth in car sales but finally cut it to 0-1 percent, as salesremained in the slow lane. This percent.

Awards & Recognition

PPAP was awarded the prestigious Trophy-‘Overall Performance-Gold’ fromIndia’s Largest Car manufacturer Maruti Suzuki India Limited (MSIL) during theirAnnual Supplier Convention in Kuala Lampur held on 3rd – 4thMay, 2013. PPAP was also awarded Appreciation award from Honda Cars India Ltd. forQuality, Cost & Delivery.

PPAP also received Best Practices Recognition Award for Successful Implementation ofQuality Systems Basics from General Motors India Limited.

PPAP received Appreciation Certificate for achieving Targets in the Category of Cost& also in Delivery from Toyota Kirloskar Motors

Pvt. Ltd.

Opportunities and Threats

Opportunities

The growth of auto-ancillary is dependent on the automobile industry. India is beingrecognized as potential emerging auto market. The Indian passenger vehicle market isdominated by cars. Two-third of the auto components production is consumed directly byOEMs.

According to the Confederation of Indian Industry, auto sector currently employs78,77,702 people, 58 percent of whom are in the passenger car segment. However, there isan increasing demand for skilled professionals in the domain of effective servicedelivery, spares management and support functions. ITIs and Polytechnics provide 530,000graduates every year but there is an urgent need for updating courses to keep up withchanging trends in technology, manufacturing, and processes.

The Indian Automobile component industry has been making rapid strides towardsachievement of world class quality systems, which is the most important aspect for thisindustry.

The strength of your company is the design and manufacture of technologically superiorproducts. Your company continues to invest in up-gradation and expansion of manufacturingcapabilities and capacities. The in-house Research and Development department has beenconsistently developing quality products and is also striving to achieve costefficiencies.

The company is regularly receiving strong support from its Foreign Technology Partnersin the form of sharing new technologies and also receiving continuous assistance inupgrading manufacturing processes, which results in technologically superior products withsustainable quality.

Threats

Even with this rapid growth, the Indian automotive industry’s contribution inglobal terms is very low. Key factors influencing the global car manufacturers have aripple effect on the domestic automobile industry in different parts of the world, as wellas, the auto ancillary industry which supplies parts to the auto industry. Internationallyconsumer preferences are determining the current styles, reliability, and performancestandards of vehicles. Government regulations in relation to trade, safety, andenvironment etc. also make it necessary for modernization and changes in designs andproduction methods. Movement in oil prices also has an impact on demand for cars in India.

India continues to be an attractive destination for the global automotive players. Tocounter the threat of growing global competition, the Company is regularly bridging thequality gap between its products and foreign offerings while maintaining its low costproduct development / sourcing advantage.

Further tightening of liquidity position, hardening of consumer interest rates wouldhave an adverse impact in the domestic automobile market.

Segment wise performance

The Company is operating mainly into Auto Component business and derives more than 95%of the turnover from automobile customers and remaining from profiles for white goods,electrical and construction industry.

Divisional Contribution in total turnover during the Financial Year 2012-2013:

DIVISION Sales 2012-13 % of total Sales Sales 2011-2012 % of total sales
(in crores) (in crores)
Automobile 204.84 95.08 176.52 95.60
Refrigeration 7.84 3.64 6.31 3.42
Miscellaneous 2.75 1.28 1.81 0.98
Total 215.43 100 184.64 100

Outlook

Factors that will drive growth in Indian automobile Industry are:

• Rising incomes among Indian population will lead to increased affordability,increasing domestic demand for vehicles, especially in the small car segment.

• Fuel economy and demand for greater fuel efficiencyis a major factor thataffects consumer purchase decision that will bring leading companies across two-wheelerand four-wheeler segment to focus on delivering performance-oriented products.

• Product innovation and market segmentation will channelize growth. Vehiclesbased on alternative fuels will be an area of interest for both consumers and auto makers.

• Focus on establishing India as auto-manufacturing hub is reigning in policysupport in form of Government’s technology modernization fund.

• Industry will seek to augment sales by tapping into rural markets, youth, womenand luxury segments.

India is emerging as a strong automotive Research and Development hub with foreignplayers like Hyundai, Suzuki, General Motors who are setting up base in India. This moveis further enhanced by Government’s support towards setting up centre's fordevelopment and innovation.

Risks and Concerns

The Company is exposed to external and internal risks associated with the business.

The operations of the Company are directly dependent on the growth of Indian automotiveindustry. General economic conditions impact the automotive industry, and in turn, theoperations of the Company as well. To counter these risks, the Company continues tobroaden its product portfolio, increase customer profile and geographic reach

The Company is exposed to strong competitive pressures both domestic and overseas. TheCompany is also exposed to financial risk from changes in interest rates, foreign exchangerates and commodity prices. The Company also faces challenges with regard to fast changingtechnology, sustaining cost efficiencies and planning capacity expansion in the wake ofchanging demand patterns.

We are fully aware of others risks and have structured risk management system in placewhile the possibility of negative impact due to one or more of such risks cannot betotally ruled out. The Company proactively takes conscious and reasonable steps makingefforts to mitigate the significant risks that may affect it.

The Company is undertaking various new projects ranging from development of new modelsand new segments also. These projects are at various stages of planning and execution.Though the Company employs sophisticated techniques and processes to forecast the demandof new products yet the same is subject to margin of error. Timely introduction of newproducts, their acceptability in the market place and managing complexity of operationsacross various manufacturing locations, would be the key to sustain competitiveness.

FINANCIAL PERFORMANCE

1. Income

Our total income has been increased from Rs. 187.41 crores in fiscal 2012 to Rs. 219.59crores in fiscal 2013. The increase in income was on account of increase in sales ofproduct manufactured by us.

2. Profit

The Company’s Profit before interest, Depreciation and Tax decreased from Rs 33.13crores in fiscal 2012 to Rs. 19.83 Crores in Fiscal 2013. The EBIDTA margin for the fiscal2012 and 2013 has been 17.94% and 9.20 % respectively showing a decrease of 48.72 %. PATdecreased to Rs. 153.99 lakhs in fiscal 2013 from Rs. 1288.64 lakhs in fiscal

3. Earning Per Share (EPS)

The Company recorded an EPS of Rs. 1.10 per equity share of Rs.10 each on an Equity ofRs.14.00 Crores during 2012-13.

Internal Control Systems and their Adequacy

PPAP has in place systems of internal control which are commensurate with its size, andthe nature of its operations. These have been designed to provide reasonable assurancewith regard to recording and providing reliable financial and operational information,complying with applicable statutes, safeguarding assets from unauthorized use or losses,executing transactions with proper authorization and ensuring compliance of corporatepolicies. As a part of its internal control measures, an independent Internal Auditorscrutinizes the financialsand other operations of the Company. Diversions from setstandards are reported to the Board through the Audit Committee and appropriate remedialmeasures are taken

The Company has a well-established governance process of regular meetings, review ofits actual and planned performance, potential risks assessment at all its manufacturingplants and of its various functions which aid in establishing competitive advantage. TheCompany has a focused approach towards Risk and Internal Controls covering all aspects ofits businesses.

Human Resources / Industrial Relations

Your Company firmly believes and recognizes that competent workforce is the keycontributor to the success of the organization and a significant part of its successdepends on the quality of its human resources. Your Company continuously recruits skilledprofessionals to meet its business requirements. This intellectual capital is reflected inthe quality of products manufactured by your Company, our business strategy and ourexcellent customer relations.

Your Company works on a golden rule of managing people," give them the work thatis best suited to them" so that they unleash their greatest energy and best efforts.Industrial relation at all the plants continued to remain cordial, through continuousdialogue and openness.

As on 31st March 2013 your company has 914 employees.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the Company’sobjectives, projections, estimate, expectations may be "forward-lookingstatements" within the meaning of applicable securities laws and regulations. Thesestatements include forecasts and estimates as well as the assumptions on which they arebased. Actual results could differ materially from those expressed or implied.Important developments that could affect the Company’s operations include a changesin the political and down trend in the automobile sector, significant economic environmentin India, exchange rate fluctuations, tax laws, litigation, labour relations, interestcost and other incidental factors. The readers are hereby cautioned and advised that theseforward-looking statements are subject to numerous risks and uncertainties that aredifficult to foresee and actual outcomes might differ significantly.

   

Peer Comparison

Company Market Cap
(Rs. in Cr.)
P/E (TTM)
(x)
P/BV (TTM)
(x)
EV/EBIDTA
(x)
ROE
(%)
ROCE
(%)
D/E
(x)
Supreme Inds. 7,593.78 26.98 7.88 8.73 37.8 40.3 0.57
Jain Irrigation 4,688.88 24.61 1.99 9.00 1.4 9.9 1.34
Astral Poly 3,872.18 39.64 12.35 7.81 28.0 31.8 0.42
Finolex Inds. 3,473.56 15.75 4.40 6.84 17.4 13.3 1.36
Sintex Inds. 2,907.60 8.41 0.93 5.86 11.5 10.8 1.13
Mayur Uniquote 1,948.97 34.30 11.34 6.38 42.7 57.2 0.14
Responsive Ind 1,886.98 37.21 3.92 17.30 11.6 8.3 1.35
Jai Corp 1,723.42 22.04 0.82 7.12 3.5 5.1 0.01
Time Technoplast 1,041.05 12.97 1.35 6.78 11.3 14.2 0.66
Wim Plast 563.10 17.85 3.73 6.61 23.6 32.5 0.00
Nilkamal Ltd 539.21 13.47 1.17 4.78 7.5 10.6 0.91
EPC Inds. 525.85 67.70 4.77 21.46 6.4 7.4 0.14
Swadeshi Inds 513.95 0.00 45.67 0.00 0.0 0.0 0.00
Vikas GlobalOne 307.63 77.56 7.68 13.44 8.0 11.2 0.88
Plastiblends (I) 274.50 10.08 2.01 4.45 13.7 16.4 0.48

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Key Information

Key Executives:

Ajay Kumar Jain , Managing Director  

Abhishek Jain , Whole-time Director  

Pravin Gupta , Independent Director  

Sonia Bhandari , Company Secretary  


Company Head Office / Quarters:
54 Okhla Industrial Estate,
Phase-III,
New Delhi,
New Delhi-110020
Phone :
Fax :
E-mail : investor@precisionpipes.com
Web : http://www.precisionpipes.com
Registrars:
Link Intime India Pvt Ltd
A-40 II Flr Phase-II
Naraina Indl Area
Near Batra Banquet
New Delhi - 110 028

Fund Holding

 
Scheme Name No. of Shares
No data found

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