MANAGEMENT DISCUSSION AND ANALYSISOVERVIEW
Since the failure of many a banking and financial institutions from October 2008, thedeveloped economies the world over have continued to face economic problems. We were luckythat the Indian economy did not suffer recession, though its GDP growth rate slowed downsince then and of late experiencing over all slowdown in economy. GDP in F.Y. 11 was 8.5%but for the current financial year it is expected to be around 7%.
BUSINESS SEGMENT
Flexible Packaging Industry
Packaging is the science, art and technology of protecting products from the overt andinherent adverse effects of the environment.
Flexible Packaging not only protects the products, it hasseveral advantages over thetraditional packaging materials like glass, metal, paper, etc. It is light weight, easy tohandle, needs less storage s,jace, cost effective and better aesthetic and appealingvalue.
The World Packaging Organization's (WPO) slogan, "Better Quality of Life ThroughBetter Packaging", sumps up the important place that Flexible Packaging occupies in amodern economy.
We operate in Flexible Packaging Laminates segment of the Flexible Packaging Industrywhich is the fastest growing segment of the packaging industry, registering higher thanGDP growth rate across the globe. World wide, Flexible Packaging sector is estimated to bearound USD 160 billion and growing at a rate of 7 - 7.5% annually. The biggest market forFlexible Packaging is North America and Europe which constitutes around 70% of the worldmarket and balance 30% is constituted by rest of the world. Thedeveloped markets aregrowing around 2.5 - 3.5% whereas developing countries aregrowing in the range of 8 -12%annually and Indian market is historically growing at 15-18% p.a.
A number of factors contribute to such robust growth.
Flexible Packaging has helped FMCG companies to penetrate the untapped/under tappedhuge rural markets with small-serve packs. High economic growth, growing income level,growing urbanization & organized retail industry, increasing health consciousness,changing food habits amongst Indians are the other important contributors to thespectacular growth of the Flexible Packaging industry.
Market researcher Nielsen estimates that the country's rural FMCG retail landscape willgrow from $12 billion in 2011 to $100 billion by 2025, as it unveiled its CONSUMER 360REPORT in NewDelhi on Tuesday, November 15, 2011. It further states the rural mindset isopen to consumption of newer, more contemporary food categories and as a result, drivesconsistent growth.
The research firm has identified four keytrends that it says will drive consumption:premuimisation, consumer switching from commodity to brands, from indulgence to regularconsumption and acceptability. While small sized packages arevital for entry in to themarket, as purchasing power increases, rural consumers areincreasingly buying larger packsizes to share with family andfriends.
The marker researcher added that Indian shoppers will increase spends on fast movingconsumer goods (FMCG) at modern retail stores from $1.8 billion to $5.0 billion by 2015.The Indian consumer is clearly enjoying the modern trade shopping experience andisincreasingly shopping there.
Further recent move of the Government to allow 51% FDI in multi-brand retail andtoincrease the FDI limit to 100% in single brand retail will boost the organized retailing.
Because of all the above factors andsince per capita consumption of Flexible Packagingin India is among the lowest in the world, andalso with introduction of innovativenewproducts, it is expected that Indian Flexible Packaging industry will grow at a higherrate of around 25% annually.
OUR BUSINESS
The main business of the Company is Flexible Packaging Laminates which containsmulti-layered laminated sheets / rolls of single or combination of substrates likePolyester (PET), BOPP, POLY, CPP, BONN, Metalized and Hologram films and others, eithersupplied in roll form or pouch form of various formats (zipper, standby, retort, etc.)involving manufacturing of rotogravure cylinders for various types of rotogravureprinting, shims for Holographic embossing, manufacturing of sealant layer films like3-Layer Polyethylene film, Cast Poly Propylene film, 5-Layer Nylon Polyethylene film. Thisbusiness is very customized business as per the needs of the customer. The Companyprovides complete solution under one roof for the packaging needs of the customers and hasa very impressive marquee clientele. The Company is one of the major players in flexiblepackaging laminates in India andenjoys a dominant position in certain market / productsegments.
The Company has developed several new packaging solutions for various applicationssuitable for Food Industry & Personal Care, thus achieving World-Star accolades andrecognition for its valuable contribution to the products success in the market.TheCompany's strategy for constant product innovation, with thrust on cost effectivenessandquality enhancement with improving services, has led to a promising growth in its salesvolumes and a preferred supplier's position with its marquee clients.
Keeping its tradition of product innovation to suit a specific product andsimultaneously keeping in mind legal and environmental aspects, the Company has developednew types of Laminated Multi-colour Printed Laminates based on Aluminum Foil &Specialty Paper for packaging of such products such as pan masala which are banned to bepacked in plastic film based laminates by the Supreme Court effective 1st March, 2011 TheAluminum Foil & Specialty Paper based Laminates have more weight than the Plasticbased Laminates as a result the demand of such packaging hasgone up substantially creatinghuge opportunities. Toseize this additional business opportunity, the Company hasexpandedits capacity from 10000MT to 14000MT in the FY ended 30.09.2011.
The Company hasin-house cylinder manufacturing capabilities for captive consumption.Printing cylinder is at the core of the Rotogravure Flexible printing and the Companyhascapabilities to provide complete solution starting from Artwork/ Mock up stage toproducing final printing cylinders. The Company has world class and state-of-art totalexpertise and facilities integrated with best software to produce good quality cylinders.
Holograms produced by the Company are of world class quality being accepted widely indomestic markets. TheCompany is benefitting in terms of volume growth with the help ofHolographic solutions, asthis will make the business difficult for spurious manufactures,thereby increasing the business of the Company's clientele and help the Company toregister further growth. Also the Company has an edge over many a competitors asit offersone stop Holographic solutions mainly due to its integrated production facilities.
The Company hasalso produced a new form of laminate containing extruded laminatedpolyethylene that accelerates the shelf life, package body and appeal and exclusivebarrier properties to retain products freshness of snacks industry.
FINANCIAL ANALYSIS
A snap shot of the Income Statement for the last two years is given below:
| | (Rs. in Crore) |
| 2010-2011 | 2009-2010 |
| Sales & Other Income | 197.70 | 100.00% | 113.48 | 100.00% |
| Manufacturing Expenses(Adjusted for change in stock) | 155.38 | 78.59% | 89.41 | 78.79% |
| Operating and Other Expenses | 1.40 | 0.71% | 1.80 | 1.59% |
| EBITDA | 40.92 | 20.70% | 22.27 | 19.62% |
| Interest & Finance Charges | 2.52 | 1.27% | 0.11 | 0.09% |
| Depredation | 4.79 | 2.42% | 3.50 | 3.09% |
| Income Before Tax (Pre-Exceptional Items) | 33.61 | 17.00% | 18.66 | 16.45% |
| Prior Period Adjustments | (0.83) | (0.42%) | (0.04) | (0.03%) |
| Provision for Income Tax | 0.00 | 0.00% | 0.00 | 0.00% |
| Net Profit | 32.78 | 16.58% | 18.62 | 16.41% |
The Sales and the Net Profit for the year under review increased due t< variousmeasures taken by the management to improve operational efficiency, cost saving andexpansion of the market for the products of the Company.
EXPANSION PROJECT
The Company is embarking on further capacity expansion to meet the growing demand ofits existing clientele & export markets,
The new unit is planned at suitable location in Gujarat with annual capacity of 19500MTof Flexible Laminates. Details of the project are under finalization. The Directors arehopeful that this new project would go on stream during the later part of the current FYending 30.09.2012. Post expansion, the Company's total Flexible Packaging capacity willincrease to 33500 MT, which will make it second largest player in the industry in India.
OPPORTUNITIES & THREATS
Opportunities:
Flexible Packaging has been one of the fastest growing sectors of the packaging marketover the past decade. Annual growth rate of 15-18% shows very broad perspective of IndianFlexible Packaging industry and its promising growth which is expected to be 25%.
Flexible Packaging that is a very versatile packaging form that can cater to any needsof the customers and can be customized to specific requirements of the end application.The inherent property of barrier protection of packaging substrates like PE, PET, PP, PA,etc.,offers fearless protection against environmental threats like moisture, heat andchemical reaction. The convenience factor of handling and cost benefits are a few of addedadvantages.
Factors driving growth of Flexible Packaging:
• Materials like metals arevolatile, glass is becoming increasingly expensive,wood is not eco-friendly, therefore posing excellent growth prospect for flexiblepackaging.
• Flexible Packaging vies for conversion opportunities from rigid packaging andalready controls the Foodservice area. In general, flexible packaging continues to providesolid market penetration vs. aseptic and hot-fill rigid packaging, a trend most industrypundits believe will continue.
• Flexible Packaging also has a strong outlook for barrier packaging, includingstand-up pouches, non-retort stand-up pouches.
• A growing middle class population of over 400 million with high income. ChangingConsumer habits in 1,2 & 3 Tier cities with working style of fast economies likedeveloped countries globally, therefore making life on a fast track. Thus impetus given oneasy, fast, convenient and flexible products, which is the prime deliverance of FlexiblePackaging.
• Rapid growth in globalization in FMCG segment.
• Emergence of organized retail and technological strides in food manufacturingand processing is further fuelling the next growth trajectory for the food industry inIndia.
The Company's new expansions will have high value added product offerings and itsexposure in Flexible Packaging market will increase. Dueto its constant efforts forexcellent product quality, low cost manufacturing acumen, broad gamut of productofferings, one stop solution format, complete integration of conversion capabilities,hands on style management, motivated & skilled professional taskforce, top marquee ofclients, aggressive marketing strategies, etc. the Company is poised for becoming a majorand important player in the industry.
The Company's established design development and cylinder operation with world classsoftwares like Esko Artpro 10, Sonic speed engravers, automatics proofing and mock-upmachines hasgiven the Company an added advantage over its competitors. This advantage candirectly be leveraged to adding the profitability of the organization, asin-process flawscan be eradicated at the initial level of digital proof providing to the clients.
Threats:
The industry is very dynamic and very fragmented at the same time. Unorganized sectoris still a very large part of the market. However, growing awareness for hygiene andgrowing health consciousness and also rapidly expanding organized retail sector help theFlexible Packaging companies in the organized sector to grow.
It is generalized as plastic industry globally andtherefore perceived to be anon-eco-unfriendly industry experiencing stiff opposition. However with technologicaladvances, Flexible Packaging has become safer for food products and well accepted theworld over.
The Company faces competition from other domestic manufacturers. However, since themarket is growing at a high rate and because of the Company's inherent strengththis factor is not worrisome.
FUTURE OUTLOOK
The Indian economy is growing at around 7%. Usages of flexible packaging are growing atmuch faster rate due to its various advantages and other growth factors discussed hereinabove. Capacity is planned to be enhanced. The Directors are therefore optimistic ofbrighterfuture of the Company.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company has an adequate system of internal control related to all its functionsconsidering the size and nature of operations.
HUMAN RESOURCE DEVELOPMENT/INDUSTRIAL RELATIONS
The management of the Company puts greater value to its Human Resources. The Companyhas been taking on a continuous basis necessary steps for strengthening organizationalcompetency through involvement and development of employees as well asinstalling effectivesystems for improving the productivity, quality and accountabilityat functional levelsthrough upgradeation of the skill andknowledge level and providing appropriate leadershipat all levels, motivatingthem, inculcating the attitude for speed of action and takingresponsibilities as well as face challenges successfully. The relations with its HumanAssets at all levels remained harmonious throughout the year.
CAUTIONARY STATEMENT
Statement in this Management Discussion and Analysis describing the Company'sobjectives, projections, estimates, expectations or predictions may be"forward-looking statements" within the meaning of applicable securities lawsand regulations. Actual results could differ materially from those expressed or implied.Important factors that could make a difference to the Company's operations include rawmaterial availability and prices, cyclical demand and pricing in the Company's principalmarkets, changes in Government regulations, tax regimes, economic developments withinIndia and the countries in which the Company conducts business and other incidentalfactors. TheCompany assumes no responsibilities to publicly amend, modify or revise anyforward looking statements on the basis of any subsequent developments. Information orevents.