Management Discussion and Analysis
The World economy continues to remain in a low growth mode. One can see some silverlining in the prospects of US economy. Chinese and Indian Economy are also going through alower GDP growth phase. Government has recently taken several measures to kick start theinvestment process in our country. Government is also seized with the issues to removeconstraints from export initiative The Company believe that some positive signals mayemerge in near term from both the investment and export direction.
In such a bleak economic climate encompassing the Developed Countries and emergingmarkets, it was expected that the commodity prices may fall with the lead given by crudeoil prices.
However, the same has not happened. Crude prices continue to hover above 100 USD perbarrel. Plastics prices have seen some rebound trend since May this year. The prices havefurther pulled up due to steep depreciation of INR to USD parity since beginning of May.
It is forecasted that countrys economy may grow sub 6% GDP in the year 2013-14also.
2. INDUSTRY STRUCTURE AND DEVELOPMENT
The Company is engaged in the plastics products manufacturing business. In the givenoverview of the world and Indian economy, the growth in consumption of Plastics has beenreasonably better with consumption having reached double of GDP growth in the year2012-13. Overall consumption of plastics raw material in the country grew by around 12% inthe year 2012-13. This shows resilience of plastics raw material. Plastics are makinginroads in more and more applications. With this innovative wonder material, several newfrontiers will be available to exploit in the years to come. The total plasticsconsumption in the year 2012-13 was 8.8 Million tons. It is expected that in the currentyear the same may reach around 10 million tons by maintaining similar consumption growthtrend as observed in 2012-13.
Apart from consumption by the local convertors, the imports of plastics products haveseen dramatic jump in the year 2012-13 compared to 2011-12. Imports of Plastics productshave grown by around 20% and now close to 1 Million tons of products are being imported inthe country.
Plastic Convertors in our country are both in organized and Un-Organized sector. Theoverall consumption of Plastics however is growing at a faster pace with the players inthe organized sector due to their capability to offer more value and varieties of qualityproducts which can service part of the market which is being hijacked due to an influx ofimported products.
A new plant for producing Polymers set up by HPCL
- Mittal Energy Ltd. has commenced production at Bhatinda, Punjab. It is expected thatwithin next 3 to 4 years, an additional capacity of 3 million tons of Polymers will beavailable in our country on commencement of production at several new plants.
Implementation of Goods and Service Tax(GST) continues to be delayed. As on today, bestscenario seems to be that it may be in place by 1st April 2015. This delay will definitelyharm the growth potential of our economy.
Central and State Governments continue to allocate large sums of money into JNNURMscheme to improve the potential of water supply & sewerage facilities. More monies areinvested by the Governments to give boost to agriculture. These initiatives will continueto boost consumption of Plastics in the Country.
3. PRODUCT GROUPS
The product groups of the Company have been recast as follows:
|Group ||Products |
|Plastics Piping System ||uPVC Pipes, Injection Moulded fittings and handmade fittings, Polypropylene Random Co- polymer pipes and fittings, HDPE Pipe Systems, CPVC Pipes Systems, LLDPE Tube and Inspection Chambers and manholes. |
|Consumer products ||Furniture |
|Industrial Products ||Industrial products, Material handling System and Pallets |
|Packaging Products ||Flexible packaging film products, Protective Packaging Products, Cross Laminated Film products |
|Composite Products ||LPG Gas Cylinders, Composite Pipes and Composite Pallets. |
The net turnover (including other income) of the Company under review was Rs. 3406.97crores (including Rs. 113.80 Crores by way of trading in other related products and Rs.16.00 crores from sale of premises) as against Rs. 2938.47 crores (including Rs. 88.03crores by way of trading in other related products and Rs. 69.16 crores from sales ofpremises) of the previous year.
The Company during the year processed 2,81,452 tons of Polymers as against 2,45,700tons of Polymers in the previous year, reflecting a growth of 14.55% in Polymerconsumption.
The Company exported goods worth US $ 14.32 million as against US $ 13.49 million(excluding discontinued business of PP Mats) in the previous year registering a growth of6.15%.
Profit before interest, depreciation and exceptional items and taxes during the yearunder review have gone up by Rs. 56.58 crores from Rs. 482.82 crores to Rs. 539.40 croresduring the year.
4. COMPANYS STRENGTH AND GROWTH DRIVERS
4.1 Manufacturing Sites
The Company continues to increase its reach in the country by putting more newinvestments at different locations. For the fiscal ended 30th June, 2013, the Company has22 manufacturing sites in production. 23rd plant to manufacture LPG Gas Cylinders andComposite Pipes is ready. It may go into production in the third quarter of this yearafter getting regulatory approvals.
The Company has plans to put up another manufacturing unit in Eastern India during thecurrent year, subject to getting all clearances from State Governments on the land ownedby the Company at Kharagpur.
Company avoids making products which are affected adversely due to large imports ofsuch products.
to inbuilt infrastructure bottlenecks in the country. In spite of which the Company nowintends to boost the exports of several of its products as it sees newer opportunities. Toachieve this objective, Company has invested in certain segments which have large exportpotential.
Company anticipates that LPG Gas Cylinders, Composite Pipes and Composite Pallets mayalso be available for exports. All the planned composite products of the Company have goodpotential not only in domestic market but also in the world market.
Company continues to remain focused in the manufacturing of Plastics products. YourCompany sees several opportunities to exploit in manufacturing various other innovativeproducts not only for India but for world market, in the years to come.
4.2 Distribution Network
The Companys business is catered to all its consumers by its strong distributornetwork which is spread throughout the country. The Company is exploring the possibilityof E-retailing some of its products.
The Company is working to improve its distribution net work by offering better serviceto the end users with speed and at lower cost.
4.3 Growth Drivers
The Company has committed an investment of Rs. 415 crores in the year 2012-13. Part ofthe investments may be on the ground in first half of the current year. Entire investmentsmade on the ground have not gone into full production in the year 2012-13. It is expectedthat barring Composite products, the entire committed investments will go into commercialproduction in First quarter of this year.
The Company aims to further invest a sum of Rs. 250 crores in the current year. Theinvestment will be made to put up a Plastics complex at Kharagpur in West Bengal plusinvestments at several of its other sites as detailed in the Capex programme.
The investments will be made to acquire own offices at some of the cities where theCompany has a mix of own and rented premises in the same cities, currently. This willimprove efficiency and meet its growing requirements.
5. OPERATIONAL PERFORMANCE
5.1 Plastics Piping Systems
The Company manufactures this system using PVC, CPVC, PPR & HDPE raw materials.Principal material used in this Division is PVC.
PVC resin consumption in the country grew by 13.91% during the year 2012-2013 requiringlarger volume of imports since there was marginal increase in local production. Theindustry is expecting similar growth during the year 2013-2014.
The recovery of housing segment in USA and overall improvement in American economy willincrease the consumption of PVC raw materials there, thereby reducing the supply to India.For several other countries, Government is studying imposition of Anti Dumping Duty onimport of PVC. Thus the cost of imported resin is expected to remain at a higher level.Import percentage of PVC in total requirement for the current year will be higher thanlocal supply. There is a possibility of local production of PVC resin increase only to theextent of around 50,000 MT during the current year.
During the year under review, your Company sold 197.32 million pcs of fittings and203.06 million meters of pipes registering a growth of 37.68% in quantities. In volumeterm the Company achieved a growth of 15.74% tonnage over previous year.
There was considerable delay in the startup of Malanpur plant because of delay insupply of equipments and teething troubles in start-up of the new unit. The Companysbusiness was affected during the peak demand period of April & May2013 due tonon-supply of products from that unit which was budgeted in business plan. TheCompanys capacity at Gadegaon and Kanpur plants were fully sold out.
The Malanpur plant is stabilized from June 2013 onwards. Entire capacity of that unitwill be available for the year 2013-2014. The company is in the process of expanding thedepot storage capacity at Malanpur so that entire North India and Madhya Pradesh can beserviced from Malanpur plant and Malanpur Depot. This will enable the company to improvethe logistics and supply chain. The customers have appreciated the quality of productsproduced at Malanpur plant. With delivery time getting reduced nearly to half, thecustomer will be able to rotate the inventory faster. This will boost the business of theCompany and its customers from that region.
Apart from pipe production, the Malanpur plant is equipped to produce PVC and CPVCfittings. Your Company has established Malanpur plant as one of the most modern andautomated plant reducing dependency on man power while producing consistent good qualityproducts.
The installed capacity of Malanpur plant is 50,000 Tons of PVC Pipes, 12000 Tons of PVCFittings and 1500 Tons of CPVC Fittings on annual basis.
During the first quarter of 2013-2014 your Company is planning to introduce more than100 new fitting products which will include Hi-tech Low Noise SWR series for use in Highrise Apartments, full range of SCH 40 products making Aqua Gold range affordable for Masshousing and rural areas. Many specialty products like Valves and Floor Traps are alsoadded to the range which will make range of our products further wider. This will enablethe Company to serve the critical functional requirements of upcoming housing and otherinfrastructure projects.
The Companys plan to introduce varieties of Bath Room Fittings got delayed due todelay in moulds supply. However, this range is nearly ready for production. The Companyexpects to launch the same during September 2013.
The Company has added 169 new products in the range during 2012-2013 taking totalproduct portfolio to 5682 nos.
The company is establishing a depot at Gadegaon for products manufactured at Malanpurso that customers of Maharashtra, Gujarat and South India will have access to products ofMalanpur range. Thus the company will be able to deliver large range of piping products totheir customers cost effectively through their existing plants and supported by Depots atGadegaon, Malanpur and Kanpur.
Enthused by the growing demand for Supreme branded products, the company is planning tostart manufacturing of piping products in East India. The Company is in the process ofgetting clearances from West Bengal Government to put up a plant at its site at Kharagpur.The Company may commission the plant in one year time after the approval is received fromthe State Government. This will enable it to serve the consumers of those regions in costeffective manner.
The demand for CPVC Piping system has grown rapidly in the country. During the year2012-2013 the demand has grown overall by 40%. Your company has grown @ 37% in theseproducts during 2012-2013 by volume. It expects to maintain a similar growth during2013-2014. The Company is well supplied for raw material from its suppliers for the growthplan in the current year.
Your company is exploring the possibility of entering into Industrial applications aswell as Fire Sprinkler segment of CPVC business. The company has entered into anunderstanding for technical tie-up with leading world brands in that segment. Necessarytrial production is expected during first half of this year. Although these applicationsare very new to Indian market, once established, the company expects that this segmentwill enjoy reasonable growth in the coming years.
With various JNNURM projects in many metro and tier I & II cities, growth ishappening in Underground Sewage and Drainage System replacing piping materials made fromconventional materials. The Companys Eco-Drain pipes have gained good acceptance andCompanys capacity to produce Eco-drain pipes may be fully sold out during thecurrent year.
The Company has developed many varieties in its Inspection Chamber segment to suit thevarious flow patterns depending on the customer requirements. The Company is now fullyequipped to provide customized solutions to various housing and InfrastructureCompanys / SEZs for their sewage and drainage requirement.
Our 1000 mm and 1200 mm Manhole products are fully developed with various variants andcan be used upto an inward depth of 6 meters. The Company has installed Manhole productsin couple of projects with complete satisfaction of the customers.
The Companys 1.2 meter Manhole received Jury Award for "New InnovativeProduct" at Acetech Exhibition during November2012 at Mumbai.
The Company has added a new plumbing gallery at its Knowledge Centre at Gadegaon. Thosewho visited this gallery have expressed satisfaction over the benefits and knowledge theyderived from the same. The Company continues to train large number of plumbers throughoutthe country so that the Plastics Piping Systems are installed in right manner which maygive a very long life to the product.
The Companys focus remains to increase the sale of Value Added Products. As aresult, the overall percentage of sale of Value Added Products to total sale increased to26.47% against 24.24% of last year. The company expects to further increase the share inyears to come.
However, the Kanpur unit operations are running satisfactorily. Erratic power supplyhas dampened the initiative to increase capacity at that location substantially. TheCompany aims to increase its current capacity substantially from present annual capacityof 17000 Tons once the power supply quality improves.
The companys High Density Polyethylene Pipe segment saw a growth of 30% duringthe year under review. The Company expects to achieve a similar growth during the currentyear.
With the increase in use of CPVC products in plumbing sector, the PPRC market appearsto have stagnated in India. However, your company is working on accreditation of its PPRCproducts with international certification to move actively in overseas market.
The Exports continued to remain sluggish. The overall growth during the year has beenaround 5% only in $ terms. The Company aims to boost its export business by gettingInternational accreditation of its various systems, increasing the product portfoliorequired in export markets, participating in more international exhibitions and increasingcustomers base in more countries. Company is currently exporting to 15 countries for itsPiping System
5.2 Consumer Products
The Company has its furniture manufacturing activity at 5 locations viz: Pondicherry(UT), Durgapur (West Bengal), Lalru (Punjab), Gadegaon (Maharashtra) and Guwahati (Assam)to cater effectively to different geographical regions of the country.
Turnover of own manufactured Furniture Products has gone up from Rs. 283 Crores to Rs.297 Crores, thereby registering a growth of 5% in value terms. The Company continues itsstrategy to minimize participation in commodity furniture business. Many of the commodityproducts were contributing negative margins. The overall business grew in volume by 3%.
The business of traded items has gone down from Rs. 10 crores to Rs. 3 crores. TheCompany has decided to discontinue this business.
The Company has re-casted its investment plan to increase the range of valueadded products further. Moulds for few new products have already reached the respectiveplants for launch during July / August13. It will broaden the range of value addedfurniture products. Thus they would be available for servicing the market for most of theyear. This will further build the superior brand image of Companys products for itsaesthetics and durability.
The launch of Designer Chair DIVA and TEXAS are well received by themarket for its uniqueness, strength and aesthetic beauty. The channel partners andconsumers have well appreciated the launches of these Gas Moulded Chairs. Another Gasmoulded Chair will be launched at the beginning of the year itself.
Company introduced few more models in painted upholstered Plastics Chair. New Paintshop planned at Durgapur for catering to East market with newer Painted and UpholsteredPlastic Chairs models was put in operation during June13.
The Company had success with its strategic initiative that has paved the way for itsfurniture business to grow profitably. The Companys business in Premium Productssales has increased from a level of 38% in 2011-12 to 40% of overall sales in the year2012-13. The Company expects to further increase share of Premium Products sales byanother 4% plus in value during next Twelve months.
The Company has more than 303 Exclusive Franchise Show Rooms on All-India basisdisplaying entire range of Supreme Furniture to the customer in a nice ambience.
The Companys furniture products enjoy good acceptance in the market for itsquality, design, color and range. "Supreme" brand is perceived as a premiumbrand in the country in plastics furniture. It enjoys a reputation of bringing manyproducts and concepts first time in the country. With the increase in discretionaryspending power of large population over the years, the Company will occupy space at moreretail counters as established brand, to fulfill the aspiration of this segment ofcustomers.
The Company has also decided to develop footprints on Exports of Plastic FurnitureItems. Necessary actions to develop the business are being initiated. The Company expectsthat this may deliver promising returns in the future.
5.3 Industrial Products
5.3.1 Industrial Components
In spite of slump in demand which was observed both in Auto and Consumer Durable Sectorduring the later part of the year 2011-12, the division embarked on aggressive growth inrevenue with a target of 25% for FY 12-13, riding high on the widened customer base andproduct portfolio for which Division worked aggressively during the previous year. Inspite of continued slowdown in automotive sector coupled with slow demand in ConsumerDurables, the Division achieved overall growth of 16% in its revenue during the year.
Although there was heavy demand recession in general, company managed growth of 21% inAutomotive sector and 12% in Consumer Durables, against its planned target of 30% and 18%respectively.
Focused drive at Noida Plant to widen customer and product portfolio to countervulnerability due to dependence on one customer, yielded considerable results. The plantstarted supplies to two major Japanese companies in Consumer Durable sector and a fewother customers in the same and Auto sector. These opportunities have added considerablerevenue growth for Noida.
Revenue growth at Talegaon Plant was badly affected due to demand recession inAutomotive sector. The business for Automotive Models, which were acquired during previousyears, did not actually take off as envisaged, due to low demand for these Models. Theinitial trial run for the Cockpit Assembly for one of the prestigious projects of ourcustomer has been completed at the Plant. Company expects supplies to start towards laterpart of this year. Supplies stabilized for the parts of Two Wheeler Vespabeing made by Piaggio. Both these projects are expected to improve revenue of the Plantsignificantly, once Auto sector starts recovering. Company is planning re-engineeringexercise at Talegaon plant to optimize usage of all resources and cutting down costs tostay competitive. Company utilized this low demand period to consolidate and improveoperational efficiency of the plant.
Khushkhera plant, where Company added capacity during the previous year, improved itscapacity utilization. It has achieved revenue growth at CAGR basis in excess of 46%consecutively for the last 4 years. It supported two prestigious product launches ofMaruti that is a LUV and a small Car during last year. The plant has successfully startedsupplies to Honda Car for its first order in recently launched Sedan which has become amarket hit. Development is in progress for the next model of Car which is scheduled to belaunched during early 2014. Further Company has bagged order for one more model of Car inmid-size range scheduled to be on road by mid-2014. Company expects good long termprospects with Honda Motors. Focused drive has been taken to consolidate the operationsfor future growth sustenance of the unit.
Chennai plant got affected due to demand recession during the first half of the year.The demand started picking up during second half. A large MNC in Consumer Durable sectorhad selected this plant as a Supplier Partner during previous year. This customer is inthe process of launching Washing Machines in India by next year. The company has acquiredthis business to supply the plastic parts and sub-assemblies for this product. The regularsupplies are expected to start during the later part of this year. Company expects goodgrowth with this customer in the years to come.
Chennai plant continued to be adversely affected due to continuous power shortage inTamil Nadu. However, the Company could ensure trouble free supplies to all its customers,by running the plant with expensive captive power. Although, power situation is improving,it is still not satisfactory.
Pondy plant suffered marginal de-growth due to low demand of washing Machine parts fromour main customer. Emphasis was given to automate the plant for man- powerrationalization, Consistency in quality and Productivity improvements. Plant has achievedfairly good optimization of man power utilisation due to this initiative. Continuousimprovements in operational parameters are taking place with a steady work through TPMjourney.
At Durgapur and Gadegaon plants, the facilities installed during previous year for oneof the major customers from Consumer Durable sector remained largely un-utilized duringfirst half of the year. There is a steady pick up in the demand for the product duringlast few months. The Company expects this business to pick up again during this year andyears ahead. It is expected to fetch considerable revenue in future.
Company has decided to put more efforts and investments in automation during FY 13-14and ensuing 2-3 years. The new machines and equipments which are being added are equippedwith latest energy efficient technologies. This initiative coupled with automation willensure better Quality, Productivity, Safety, Energy conservation and Cost reduction. Withthese measures, Company hopes to negate the impact of lowering of margin caused due tovarious cost increases and remain competitive. This year company has also managed to getprice corrections from some of its customers. Company is also planning to take LeanManagement initiatives at its couple of plants. Like Pondy plant, Noida plant has alsoinitiated journey towards TPM last year. Company plans to extend this initiative graduallyto other plants as well.
Company is continuously putting its efforts to improve Energy Management by way ofmonitoring energy related parameters on regular basis. This initiative of the company,apart from cost reduction will support Environment and Green Initiatives.
As a part of continuous up-gradation and further stabilizing Quality ManagementSystems, all plants are re-certified with up-graded versions of the system, as & whenrequired.
Company has taken several HR initiatives at all its locations. Structured approach tobridge the Competency Gap and Performance Management System is being put in place.Training and Development of Human resource is being monitored to enhance Human Capital.
Overall rating of the company by its customers meets or exceeds their expectations.Company is considered a highly dependable and valuable supplier. Company received variousAwards and Recognitions from time to time from its customers for its support in Quality,Cost, Delivery and New product development, Overall Support etc.
The Journey towards excellence is being cultivated as a culture and will be continuous.Efforts are being accelerated to increase customer and product base, bring in newtechnology, Automation, Effective cost management to ensure sustained profitable growth.
5.3.2 Material Handling Products
This division caters to Industrial and Agricultural sectors. With manufacturing indexdown during last year most of manufacturing sectors suffered. The company was successfulin retaining all major customers with excellent service and reliable supplier reputation.The company achieved a value growth of approx. 10% and succeeded in achieving positivevolume growth, though meager 3%, during last year. The company continues to service itsclient with least lead-time at economical cost by manufacturing at its six manufacturingsites spread across the country.
Anticipating our customers future needs, the Company has now moved to givingheavy duty Industrial crates by developing several models with superior product designmoulds to cater to quality conscious customers in automobile, appliance and logisticsindustry. The companys products for heavy-duty requirement in Fishery Industry havealso been well accepted. Company also developed a few new moulds to cater to specializedapplications.
The company has planned to increase the channel partner strength for this business toservice the market. At present the strength of Channel partner is at a level of 118 nos.
The plan is for vigorously increasing the Channel partners throughout the countryduring this year.
The companys business to soft drink customers fared well. Business prospects forcoming year are also promising, as per indication received from the major customers.
Company has upgraded fabrication facilities with automation and usage of newermaterials for developing tailor made crates to meet specific requirement of applicationswith different industrial customers. This is helping to replace conventional materialusage while handling products at customers end. These are value added products for yourCompany.
The Roto Moulding facility of company at Gadegaon is functioning well. It has also beenstrengthened with PU facility to meet specific heavy-duty requirement with supply of PUfilled Roto Moulded items. The company now has a range of Roto Moulded Pallets. TheCompany continues to be leader in the Injection Moulded Pallet business in India. It hasfurther enhanced product portfolio with unique application focused products. Range ofCargo Pallets for Exports application has been well accepted in the market. Thecompanys enhanced Injection Moulding Pallet making capacity at Gadegaon isfunctioning well. The plans have been drawn to further enhance the manufacturing capacityof Pallet production.
BIS has gazetted the necessary Plastic Pallet specification for "Bags storage ingodown" application. It should facilitate various Grain Storage federations, Centralas well as State, to increase the usage of Plastic Pallets. We have the suitable Palletwith these specifications in our range. We expect good business prospect for thisapplication.
5.4 Packaging Products
5.4.1 Packaging Films
Performance Films Divison
The Performance films business had a sluggish year. Sales were 3854 tons against 3790tons in the previous year thus there was 64 tons growth in sales by volume. The turnoverin value terms has gone up by around 6.5 %.
Several new players have entered this business making the market highly competitive andtherefore price sensitive. Oil films, which are highly competitive, continue to be themajor segment of sales of this division.
The Company does job work for others in this business to utilize the capacity. Suchbusiness in tonnage has gone down to 1210 tons from 1766 tons in the previous year.
The company has been concentrating on development and sale of higher value-addedproducts. Some speciality films have been developed this year which may contribute toimproved performance next year.
Exports were 636 tons against 660 tons last year. Due to sluggish demand from existingcustomers, exports were lower than expected. The Company has added new customers this yearand has set an export target of over 750 tons.
The Company expects a growth of around 12% in its sales volume in the current year.
5.4.2 Protective Packaging Products
Overall business of division grew by 7% in Volume and 12% in Value over last year.Amongst the 3 verticals, the construction product business registered almost no growth.Many approved civil projects were delayed as also contracting firms were delayingpayments. The payment problems also hindered the desired growth of insulation business.The growth in the packaging vertical was achieved mainly from the new applications of foamas mattress filler.
The first phase of Unit II of Hosur started since Oct2012. The third Cross linkpolyethylene plant of saleable capacity of 550 MTPA was commissioned during the year andis running successfully. However due to acute shortage of Power in Tamil Nadu State, theElectricity board has not given power connection to the unit. Due to non availability ofpower, the unit ran intermittently on DG power for a long time. This not only affectedproduction, but the cost also was very high, impacting profitability. Besides, the capcelloperations could not be shifted to the new plant for efficient operations. Also the 4thpress could not be installed to increase further production. TNEB has now given us 54% ofour demand. The Tamil Nadu government has taken several measures to make more poweravailable to industries. We are confident of getting the balance power in the course ofthis year.
There was a negative growth in the computer & automobile industry, due to lack ofdemand, which has resulted less intake of packaging material against projected level. Thegrowing competition from the local manufacturers for some of the commodity products washigh. This impacted demand as well as profitability. The division has managed to controlthe costs of products by introducing several technological improvements to countercompetition in the trade market. Reach is now a focus area of the division. Distributorsand Dealers network for all variety of products is now being created in B class growingtowns as well, to achieve desired growth.
Growth achieved was 6.7% in Volume and 12% in Value against last year. There was asignificant growth observed in the Eastern Zone (79% in volume and 67% in value). Thesupply was being made from Malanpur plant. However due to logistic issues many businessopportunities were lost. It is proposed to start a new plant with adequate capacity ofFoam for processing (3600 MTPA) along with other products during the next year. It isexpected that due to new opportunities, sales in the East Zone will grow significantly onstart up of the new plant. The customer base has already been put in most places. Reachwill be further strengthened this year. The new plant may commence by the end of thisfinancial year, giving your company logistic advantage, which will improve sale as well asprofits.
The division has & will continue to focus on new product & applicationdevelopment. This activity keeps the division ahead of its competitors. Efforts are on toautomate our conversion facilities in all locations to improve our offerings to ourcustomers as well as increase productivity & reduce costs. This will help us retainour Institutional customers, as well as help us in getting many more customers.
Growth achieved was only 1.8% in Value. As mentioned above there was a big drop indemand from contracting firms, as many projects were put on hold. Also unbranded cheaperproducts were introduced by the competitors for some applications in this sector, whichhas also restricted growth to some extent. The division has taken a two prong approach totackle the same.
a. The marketing team is now working towards convincing customers about the efficacy ofour product. Success is being achieved.
b. The division also introduced economical grades for those customers whosespecification requirements are lower than our existing products. Both these initiativeswill ensure proper growth of this business. We also expect that there will be a growth inthis segment as several infrastructure projects are expected to be approved in this year.Several products have been introduced in this year. The division has also started theprocess of creating a distribution network for most of the products. This will ensure thatbusiness will be less affected by lack of large projects.
Water proofing membrane which was launched nearly 3 years ago had not picked up due toapplication related issues. This has been now addressed. The membrane is now adhesivebacked & ready to apply. We have also developed an economical m/c for laying thisproduct efficiently. This has helped to solve all application related bottlenecks. Thedivision is expecting significant sale of this product in this year.
The growth achieved in this vertical has been 18% in Volume and 24% in value vis-a-vislast year. Our brands Insushield and Insureflector, both are now well established in themarket. Locally made sub-standard products are also introduced by the competitors, whichhas affected the growth to some extent. A new range of products has been introduced withlower service life but having suitability in the application to counter the competition inthis segment.
The opportunity of business growth is high in this sector as in many areas Greenbuilding concept is picking up. Our products are already used in Green buildings in manyareas.
Saleable capacity of cross linked extruded foam has been increased to 1620 tons against1070 tons last year
NBR PVC hose which was introduced last year has achieved significant growth vis-a-vislast year. The brand is now well established in the market and quality is comparable withother competing domestic & international brands. The market is looking for someadditional sizes which cannot be manufactured presently. To overcome this bottleneck, thedivision has decided to modify the line for manufacturing higher sizes of tubes and alsoincrease the productivity during the coming year to become more competitive. We expect asubstantial growth of this product this year.
Product has been successfully tested for BS 476, Part 6 & 7 (class O), which is animportant requirement for certification of product in any projects. Institutionalcustomers have also started taking NBR hose kit, which is supplied along with their Airconditioner units.
Major focus was on productivity, some of the old foam extruders are re-engineered withinhouse technology which has resulted in 12% increase in the production level from theearlier capacity.
The old Sentinel extruder which is almost 27 years old and one of its kind in India isreconditioned and the plant is now running with original hardware standards.
A new product has been developed which is air filled Cross link poly ethylene foamhaving a higher insulation value against standard product. The product has also beentested successfully. The product will be introduced in the market soon.
Many new varieties of cross link polyethylene foam have been developed for gasket andacoustic applications. The products are under testing. These products will replace manyimported products in these application areas.
The development of IXPE (Physical cross link foam) has started. We hope to startoffering this product in the first half of this financial year.. The product isadvantageous in many applications, such as automobile, medical, sports etc.
The division expects to grow by over 10% in volume this year.
5.4.3 Cross Laminated Film
Business for Cross Laminated film and products grew by 4% in volume terms and by 11% inValue terms. The Company sold 17725 tons of products against 16999 tons during theprevious year. Exports grew by 9% to 2004 tons from 1836 tons.
Business was sluggish mainly due to irregular and delayed monsoon during the year 2012which resulted in large carryover stocks of Tarpaulins with our distributors. However dueto timely arrival of monsoon in the current year, demand for the product picked up towardsthe end of the year under review. The Company registered record sale in the month ofJune13. Now with MET department predicting more than average monsoon during thecurrent year, the Company foresees adequate demand for its products during the currentyear.
As per plan, the first phase of expansion to install capacity by 12000 tons wassuccessfully completed at the new unit in Halol. It became fully operational by April-13.The second phase of capacity expansion by another 8000 tons, as planned earlier, to be inplace by April-14 has been deferred for the time being.
The capacity at the earlier two units was also enhanced from 18000 tons to 19000 tonsannually by de- bottlenecking.
The Company decided to widen its market base by launching new product in roll form in35 GSM towards the end of the year under review. This is likely to meet the requirement ofseparate segment of market called the traditional BARSATI market which hashuge potential. The Company expects to sell about 2000 tons of these products in thecurrent year. Further the Company also decided to fabricate made-up products viz. vehiclecover, furniture cover, flower bed cover and other similar value added products. TheCompany has introduced these products in last quarter of the year under review. Initialfeedback is encouraging and the Company foresees a good portion of its capacityutilization in these products.
On export front, the Company is also succeeding in North American and African Marketswhere there is huge potential for Tarpaulin and other specialized fabricated products. TheCompany has already executed trial orders received from African markets. It expectscontinued growth in business in these countries. In European and Asian market,Companys products namely Tarpaulin and furniture cover are already established.Demand for other specialized products is being explored in these countries as well.
The Company is eying to export 3000 Tons during the current year.
The Company has been computing its production capacity till date by considering theweighted average of thickness of product manufactured ranging from 70 GSM to 300 GSM.However due to the shift in market demand towards lower GSM and also due to introductionof new product in further lower 35 GSM and 55GSM, the Company has decided to revisit itsproduction capacity. The Company has arrived at 27000 tons Annual Capacity based on thecurrent product mix.. With this capacity, the Company expects to sell around 23000 tons inthe current year.
The Company sold 261 tons of Cross line bonded film product during the year underreview. It is expected to improve in the current year as several made up products to covervarious types of vehicles have been launched with this material..
Cross plastic film technology is in advanced stage of perfection at ourcollaborators end.. The Company is committed to put up a plant to manufacture thisproduct when the technology is perfected. The same may happen in 2014/15.
5.5 Construction Business
"Supreme Chambers" a Corporate Green Park which has been awarded PlatinumCertificate under " LEED India Core & Shell Rating System" by Indian GreenBuilding Council (IGBC) is fully ready and Occupation certificate received by the company.All the infrastructure facilities & utilities including club house have already beenoperational. Five members / owners are all operating their business activities from theirrespective premises in the Supreme Chambers for quite some time smoothly &satisfactorily.
Many enquiries are being received by the company on regular basis. The prospectivebuyers whoever have visited the premises have shown great admiration for the building foris fine looking design & layout its eco-friendly features & amenities, its lavishlandscape area and peaceful surrounding. The prospective buyers have shown genuineinterest in the property. However these inquiries could not get materialized due to one orthe other reason.
Slower economic growth has led to decline in the expansion by companies due toprevailing cautious sentiments and as a result the real estate market remained sluggishparticularly in the segment of commercial premises. It still remains subdued.
Your Company is pleased to inform that after a gap of almost 18 months, some sale hastaken place. The company sold 10,950 sq ft and realized Rs. 16 crores. It has furthernegotiated sale of 25,656 sq. ft. at an aggregate consideration of Rs. 37.62 croresagainst which advance of Rs. 4.25 crores has already been received .The balanceconsideration is scheduled to be received during first quarter / half of the current year.
Out of the total saleable area available of about 2,79,529 sq. ft., Company has tillnow realized net Rs. 143.05 Crores against sale of 92,632 sq. ft. and after fructifyingthe negotiated sale mentioned above, remaining area to be sold would be about 1,61,241 sq.ft.
Your Companys project "Supreme Chambers" has the location advantagesince it is well connected to upcoming metro junction, railway station & domestic& international airport and the surrounding location has already become a hub forMedia, Entertainment and Pharma Industry. More and more corporates are moving theiroffices into suburban districts for better space availability, convenience and costaffordability. As such "Supreme Chambers" would be a good venue for commercialestablishments.
In view of prevailing situation, the Company has thought of selling only a part of theinventory at prevailing prices and to wait for the opportune time for market conditions toimprove to fetch desired valuations for the remaining blocks.
5.6 New Initiatives
5.6.1 Composite LPG Cylinder
Our cylinders were approved by EN and ISO Standards produced at our suppliersplace before shipment of the plant. However, it is mandatory to test once again for EN andISO Standards on the cylinders produced at our site.
Our samples, produced at our plant, have been submitted for testing. All the testsshould be completed by Oct2013 as some of the tests are of long duration.
Your Company has received some encouraging enquiries for exports. It hopes to startproduction in Jan / March 2014 against those orders.
Company is equipped to make six different sizes of Cylinders ranging from 5 to 14 kg.of LPG.
5.6.2 Composite Pipes
Installation of Companys small size plant was completed in the month ofFeb2013. Company encountered some technical problems during trial run which has ledto some difference of opinion with its technology provider M/s. NBL Corporation of Japan.
Discussions are going on to resolve the issues. In view of this, start of production atthis plant at Halol will be delayed.
5.6.3 Composite Pallets
Company has entered into a Technical tie-up with LOMOLD of South Africa to manufacturelightweight but heavy duty Plastic Pallets reinforced with Glass Fibers. LOMOLD has thepatent for the technology and process for the same.
All the necessary equipments to produce these products at Gadegaon are likely to be atour site in January / March 2014 quarter. Commercial production to commence in the lastquarter of this year. This will be good addition to our existing range of products. Lightweight pallets have a capacity of carrying heavy weight at much lower weight. This will bethe unique feature of these pallets.
The Company intends to introduce other products from these equipments including someauto parts. Company expects to utilize this capacity at optimal level in the year 2014-15
The Total Borrowing level as on 30.06.2013 is Rs. 469.85Crores as compared to Rs.351.10 Crores as on 30.06.2012. The year under review saw a volatile Rupee vis a visDollar and fluctuating crude prices which forced the Company to keep higher inventorylevels throughout the year. This has resulted in increase in average borrowing levels formost part of the year. Company continued its planned capital expenditure and most of thecommitted capex is now on the ground. The Company has incurred capex of Rs. 374.35 Croresduring the year under review, including commitments made in previous year, mainly on thefollowing segments.
a) To set up new Manufacturing Unit to produce Cross Laminated Film and Products atHalol (Gujarat), this has commenced production between October, 2012 to April, 2013progressively.
b) To set up production of Plastic Piping system facility at its existing location atMalanpur (M.P.) which has commenced commercial production from April, 2013
c) To set up new manufacturing facility of Protective packaging Products at Hosur(Tamilnadu) which became operational during 1st quarter of the year under review. d) Toset up a state of the art facility to manufacture Composite Cylinders and Composite pipeat Halol (Gujarat). Trials have already commenced and awaiting statutory approval of theproduct for commercial launch.
e) To manufacture new product range of Bath Fittings. It is scheduled to commenceproduction during the first quarter of current year.
f) To add several new varieties of products in Plastic Piping System and increaseproduction capacity at Gadegaon (Maharashtra).
g) To augment additional capacities & Product Range and to install automation andbalancing equipments at all its existing sites and product groups.
The Company has repaid Term Loan installments and fixed deposits aggregating Rs. 97.44crores and also availed fresh foreign currency (fully hedged) and Rupee Term Loansaggregating to Rs. 188.20 Crores during the year under review to meet its ongoing CapexPlan.
Company has discontinued offering immovable properties as security for any fresh termloans which has been well accepted by the lenders.
Company has realized Rs. 16 Crores from sale of its commercial premises and furthernegotiated sale worth Rs. 37.62 Crores against which an advance of Rs. 4.25 Crores hasbeen received. The balance consideration is likely to be received during first quarter /half year of the current year.
The Interest and Financial Cost for operations in absolute terms have come down to Rs.52.35 Crores during financial year 2012-13 from Rs. 54.80 Crores during financial year
2011-12, despite increase in average borrowing levels as mentioned earlier, principallydue to judicious mix of total borrowings between commercial papers, Buyers creditand availing of Rupee and Foreign Currency Loans at competitive rates. Company continuedits policy to keep all its foreign exchange exposures fully hedged.
The Company enjoys excellent relationship with all its Bankers, Lenders and Supplierswhich enables the Company to negotiate best possible terms on all its borrowings. Theoutstanding Interest bearing liabilities as on 30-06-2013 bears Interest rate of 9.31 %p.a. vis--vis 9.50% p.a. as on 30-06-2012. Companys focus shall remain to closelymonitor and reduce its borrowing level & also to bring down total interest cost below1% of the total turnover in the coming year/s.
During the year 2013-14, the Company envisages total Capex of Rs. 250 Crores includingexisting commitments, mainly on the followings.
a) To put up a Plastic Piping System plant at Kharagpur in West Bengal b) To put upProtective Packaging System unit at Kharagpur Complex c) To replace some capacity ofMoulding Machines with energy efficient machines including additional new products infurniture business. d) To increase Pipe production capacity at Gadegaon and introducingseveral new varieties of fittings at Jalgaon & Malanpur.
e) Investment in Automation in several of its existing units f) To buy office premisesat Delhi, Ernakulam, Hyderabad, Kolkata, Chennai and Indore. This will consolidate theoffice activities at one location in these cities wherein mix of several ownerships &rented premises subsisting today, in some cities. g) Investment in equipments forComposite Pallets.
In view of Companys potential to continuously generate healthy cash flows fromits operations together with better management of Working Capital, the Company isreasonably confident to fund its capex plan for 2013-14, from Internal Accruals andSuppliers Credit. Moreover the sale proceeds from "Supreme Chambers" willprovide additional comfort to meet its future Capex requirements
The financial parameters of the Company continued to strengthen on y-o-y over a periodof last five years from 2008-09 to 2012-13. As on the close of the year under review, theDebt Equity Ratio of the Company is 0.58 times. The Interest Cover is 10.3 times and NetWorth is 801.21Crores, as compared to 1.46 times, 4.53 times, and Rs. 285.31 croresrespectively as on 30th June, 2009 which reflects substantial improvement in the keyfinancials of the Company.
Due to the excellent performance of the Company backed by strong financial parameters,achieved year after year, CRISIL has improved long term Rating of the Company fromAA-/Stable to AA-/Positive which signifies high degree of safety and reaffirmed Short TermDebt programme Rating A1+ which signifies very strong degree of safety backed by sustainedimprovement in Companys business risk profile, increase in contribution from valueadded products, improved profitability and prudent Working Capital management.
7. INTERNAL CONTROL SYSTEM
The Company has adequate internal audit and control systems. Internal auditorscomprising of professional firms of Chartered Accountants have been entrusted the job toconduct regular internal audits at all units / locations and report to the management thelapses, if any. Both internal auditors and statutory auditors independently evaluate theadequacy of internal control system. Based on the audit observations and suggestions,follow up, remedial measures are being taken including review and increase in the scope ofcoverage, if necessary. The Audit Committee of Directors, in its periodical meetings,review the adequacy of internal control systems and procedures and suggest areas ofimprovements. The Company has undertaken a detailed exercise to revisit its controlsystems in technical and other non financial areas to align them properly with ManagementInformation Systems (MIS) to make MIS more efficient and result oriented. Informationtechnology base created by the Company over the period is providing a very useful helpinghand in the process. Needless to mention, that ensuring maintenance of proper accountingrecords, safeguarding assets against loss and misappropriation, compliance of applicablelaws, rules and regulations and providing reasonable assurance against fraud and errorswill continue to remain central point of the entire control systems.
8. HUMAN RRESOURCES
Human resource is considered as key to the future growth strategy of the Company andlooks upon to focus its efforts to further align human resource policies, processes andinitiatives to meet its business needs. In order to focus on keeping employees abreast oftechnological and technical developments, the Company provides opportunity for trainingand learning within the country and abroad. Industrial relations at all the units andlocations are cordial.
9. CORPORATE SOCIAL RESPONSIBILITY (CSR)
The Company, as a responsible citizen believes in meaningful contribution to communitywelfare, enriching countrys environmental capital & building sustainable futurefor the society by opening livelihood opportunities.
In line with its objectives, companys Gadegaon unit had initiated followingactivities during the year 2012-2013
a) Rural Health Improvement Program
The companys rural health improvement mission has now entered third year sinceits inception in January 2011 and has shown positive impact on the health parameter of thetribal masses of Tal- Dhadgaon in the District of Nandurbar, Maharashtra State.
The mobile medical service unit has one Ambulance van manned with a qualified medicalofficer, a nurse, a lady counsellor who provide medical aid to the tribal people dwellingat remote and un-accessible locations.
Other activities under this campaign include health check-ups for students studying atAashramshalas and Aanganwadis, health check-up camps for villagers, healthawareness programs through examinations and workshops. Also, counseling sessions areconducted for female students.
These services are rendered to as many as 28 villages in this tribal belt ofMaharashtra.
This year, this service has benefited 3143 nos of patient. Health camps conducted inAshramshalas & Aanganwadis have benefited 797 students. There was veryencouraging response to the workshops which were conducted throughout the year. As many as452 female students in their adolescence participated in these workshops.The examinationsconducted with a aim to create health awareness amongst student fraternity receivedoverwhelming response with a record 1625 number of participants.
b) Rural Sanitation Program
In furtherance to its earlier goal, company has provided 3rd unit of ladiespublic toilet with capacity of 8 blocks for 200 ladies of Gadegaon village.
This innovative model of public toilet has been well appreciated by the womenpopulation. A large number of office bearers of Grampanchayats from nearby districtshave paid study visits to this project and were highly inspired to undertake similarinitiative in their own villages.
c) Rural Water Supply
The village of Gadegaon and many villages in the district of Jalgaon of MaharashtraState faced acute water shortage due to scanty rainfall in last 2 years.
The Company took initiative to mitigate this calamity by providing drinking waterthrough tankers to the villages viz. Nandra & Sanghvi Tal - Jamner, Dist - Jalgaonduring the period of 1st April to 15th June 2013. A population of around 3000 villagerswas benefited by this service.
Company has provided 20 nos of Plastic water storage tanks each of 2000 Ltr Capacity to10 villages in Tal- Pachora, Dist - Jalgaon.The tanks were used for storing water suppliedby Govt. agencies during the period of crisis.
The mankind today faces a threat of irreversible damage to the eco- system. The climatechange, the loss of bio-diversity which has altered natures balance, severe waterstress that impacts food security and basic human needs and alarming rate of naturalresource depletion are severely threatening the future.
The companys commitment towards cleaner and greener environment encapsulatesstrategies for integrated water management and reduction in energy consumption.
Companys Gadegaon unit has bagged prestigious and most coveted 8th State levelaward for Excellence in Energy Conservation and Management for the year 2011-12. Thisaward recognizes companys performance in Energy conservation, use of innovativetechnologies, employee awareness and participation besides futuristic approach.
The award is constituted by Maharashtra Energy Development Agency (A Govt. ofMaharashtra Institute)
Companys Gadegaon unit has reduced its specific water consumption by almost 40 %over the previous year under consideration. This was achieved by adopting philosophy of"Reduce-Reuse-Recycle"
Companys model of water conservation is applauded by other industries as well andthis knowledge sharing will certainly help in achieving water conservation by industrialsector as a whole.
e) Grant / Contribution for Educational and Healthcare Facilities
The Company generously contributes towards various philanthropic activitiesparticularly for education grant to students in need and to various Institutions / Trustscarrying out exemplary work in the field of education, healthcare and benefits ofunderprivileged in rural India.
Company has decided to undertake programs for the improvement of educational quality invillage schools. The plan includes providing basic infrastructure, computer awareness,training of the teachers, etc. Company remains committed to contribute for variousphilanthropic causes particularly in the field of education, healthcare and benefits ofunderprivileged.
Statements in the Management Discussion and Analysis describing the Companysobjectives, expectations or predictions may be forward looking within the meaning ofapplicable securities, laws and regulations. Actual results may differ materially fromthose expressed in the statement. Important factors that would influence theCompanys operations include cost of raw materials, tax laws, interest and power costand economic developments and such other factors within the country and the internationaleconomic and financial developments.