MANAGEMENT DISCUSSIONAND ANALYSIS REPORTEconomic Review
The meltdown in the global economy affected the Indian industry quite severely in thesecond half of financial year 2008- 09. However, the Government of India acted positivelyby providing fiscal and monetary packages to help revive the economy. Moreover, with theresults of national elections providing a stable Government at the Centre, positivesentiments and confidence returned to the Indian markets.
The Indian economy and more particularly the Chemicals and related segments recoveredmuch faster than most of the counterparts across the world. It is surely heartening tonote that India's Index of Industrial Production showed a growth of ^10.4% for the year asa whole indicating that the growth has regained its momentum.
Nitro Aromatics Industry
The Company's current business activity is Manufacturing of Nitro Aromatics. In linewith the global recession, the nitro. aromatics and related industries such as thedye-intermediates, pigments, rubber chemicals, etc. suffered major setback. Also the badmonsoon affected the pesticides and insecticides. Consequently, the nitro aromaticindustry also experienced stiff challenges by way of major demand shrinkage across allsegments and geographies more particularly from overseas. Fortunately the domestic demandfor chemicals started picking up from the beginning of the financial year itself. The pickup on the exports front however was much sluggish. Your Company had not started itscommercial operations and hence it was not affected because of the change in demandpatterns.
Industry Structure and Developments:
Your Company essentially manufactures Nitro Aromatics and uses Benzene, SulphuricAcid(hence sulphur), "Chlorine, as major feedstock. Benzene is available in Indiafrom the petroleum refineries and petrochemical units. Imported Benzene is available.Benzene is also available as a bi-product from steel industry. Your company uses benzeneonly from the petroleum feedstock. Fluctuations in the crude oil price largely affects theprice of benzene and sulhpur as these are directly correlated to the crude oil price.
Chlorine is available from the chloralkali Industry which goes through cyclicalfluctuations which largely affects its price.
Opportunities, Threats, Outlook, Risks and Concerns:
The demand for Nitro Aromatics which are the main products of the Company is growing atover 7% p.a, and we are confident that we will be able to market the products in Local aswell as International Market.
• The Company is also exploring opportunities of other products for sustainedgrowth.
Since the availability and the price of benzene and sulphur depends upon crude oil,cyclical fluctuation in crude oil will affect benzene and sulphur as well.
Key Threats include
- Availability of cheaper imported chemicals.
- Increasing input prices of feed-stock i.e. Benzene, Sulphuric Acid, Fuel oil etc.
- The price and demand of various chemicals undergo fluctuations.
- There are fluctuations in foreign currency rates. Hence there is an inherent risk ininternational markets.
Segment-wise Performance:
Since Your company has started trial production for the year under review no commentcan be given on segment wise and product wide performance.
Risks and Concerns:
The Company's risk management system identified various risks, collated at thedepartmental level and planned suitable mitigation measures. These are subjected to aquarterly review by a Risk Co-ordination Committee and the Audit Committee of the Board.
The Chemical Industry is prone to fluctuations in demand depending upon the performanceof the user industry. The demand for Nitro Aromatics is also subject to fluctuations basedon the performance of the user industry. Due to the recessionary conditions in thechemical industry world wide, your company expects this to have impact on the prices ofchemicals in India also. Your company is trying to minimize the impact by closelymonitoring operating parameters as well as procurement of raw materials at competitiveprices.
Internal Control Systems and Adequacy:
The Company has adequate internal control procedures commensurate with size and natureof its business. The internal control systems provide for policies, guidelines,authorizations and approval procedures. As part of good Corporate Governance the AuditCommittee constituted by the Board periodically reviews the internal controls, AuditPrograms, Financial Results. The Company has appointed Internal Auditors who regularlycheck the adequacy and effectiveness of all Internal Controls and suggest improvements.
Financial Performance:
Financial results and Performance for the year are elaborated in the Directors' Report.
Human Resources:
Harmonious relations continue to prevail with employees. Skilled professionals in allits operations are basically its human. resource assets and are integral part of theCompany's ongoing success. They have played significant role and enable the Company todeliver better performance.
Cautionary statement
Statement in this Management Discussion and Analysis describing the Company'sobjectives, projections, estimates and expectations may be 'forward looking statements'within the meaning of Applicable laws and regulations. Actual results might differsubstantially or materially from those expressed or implied. Important-developments thatcould affect the Company's operations include a downtrend in the chemical industry -global or domestic or both, raw material availability and prices, cyclical demand andpricing in the Company's principal markets, significant changes in political and economicenvironment in India or key markets abroad, tax laws, litigation, manpower cost, exchangerate fluctuations, interest and other costs in which business is conducted, and otherincidental factors.