MANAGEMENT DISCUSSION AND ANALYSIS
The World economy is moving into a slower growth phase principally due to the problemsfaced by the European economy and bleak prospects of US economy. This has also slowed downChinese and Indian Economy. In this situation, it was expected that the commodity pricesmay remain at a lower level for a longer period. Commodity prices came down to someextent. But, recently, Company is seeing reverse trend especially in the price of CrudeOil and commodity plastics.
From the low level reached in the market, fluctuations in the prices of Commodityplastics was between USD 50 to 100 per ton in the last 2-3 weeks. Indian economy isfurther adversely affected due to non-decisiveness by Centre and various State Governmentson various pending issues which may lead the GDP growth to a lower level of around 6.5%during the year 2012-13.
2. INDUSTRY STRUCTURE AND DEVELOPMENT
The consumption of Plastics in the Country increased by only 6% in the year 2011-12which shows significant slowdown in the consumption of Plastics in our country. It rarelyhappened that the growth of consumption of Plastics is lower than the GDP growth.Normally, it used to be around 1.5 plus times of GDP growth in our country.
This low growth may be due to high cost of raw material exacerbated by Rupeedepreciation which might have led to increased use of reprocessed plastics material. Lowerconsumption of Plastics may also be due to increase in imports of plastics products fromsurrounding countries viz China. The Company suspects that a large volume of plasticsproducts are imported by under invoicing the import costs.
In this situation, Company is encouraged by the building up of local plants for themanufacturing of various polymers in India. H P/ Mittal at Bhatinda is expected to starttheir plant to produce 500,000 tons of Polymers. The plant is expected to go intoproduction during this year. Dahej Plant, at Gujarat, of ONGC may also go into productionby 2013-14. Reliance has also taken effective steps to put up a large cracker complex atJamnagar, Gujarat. Government funded Petrochemical plant at Assam is also taking shape.
Gas prices have become quite low in USA. For the first time after more than a decade,several new crackers establishment have been announced in USA for putting green fieldPolymer manufacturing facilities in next 5/6 years. Thus Company feels quite comfortablethat it may be able to procure it s raw material requirements adequately from local andimported sources.
Non-implementation of Goods and Service Tax (GST) could not integrate the country seconomy fully. The same has been inordinately delayed. It is still unclear whether GST canbe in place even in 2013-14. However, the Central and State Governments continue toallocate larger sums of monies to boost Agricultural productivity and to improve thefacilities for potable water supply and sanitation.
These moves of the Government s have given additional opportunity to the Company toboost its business in Agriculture, potable water supply and sanitation.
Company is coming out with cost efficient alternatives to cater to these segmentscompared to the products made from conventional materials.
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 |
The net turnover (including other income) of the Company under review was Rs. 2976.22Crores (including Rs. 88.03 Crores by way of trading in other related products and Rs.69.16 Crores from sale of premises) as against Rs. 2478.68 Crores (including Rs. 62.94Crores by way of trading in other related products and Rs. 39.75 Crores from sales ofpremises) of the previous year.
The Company has processed (excluding discontinued business of PP Mats) 2,45,700 tons ofPolymers as against 2,23,751 tons of Polymers in the previous year, reflecting a growth of9.81 % in Polymer consumption.
The Company exported (excluding discontinued business of PP Mats) goods worth US$ 13.49million as against US$ 11.21 million in the previous year registering a growth of 20.34%.
Profit before interest, depreciation and exceptional items and taxes during the yearunder review have gone up by 31.52% from Rs. 367.09 Crores to Rs 482.82 Crores during theyear.
4. COMPANYS STRENGTH AND GROWTH DRIVERS
4.1 MANUFACTURING SITES
The Company had a plant to manufacture rigid PVC film at Malanpur. Its operations werediscontinued long back. Land and Building were mostly lying idle. A small area was beingused for Poly Foam Products.
With increase in demand of Plastics pipe products, the company has decided to utilizethis facility to put up a large facility to manufacture Plastics Pipe System. Accordingly,Protective Packaging Products manufacturing which were produced there in small way wereshifted to another unit and same land and building are being used to put up plastics pipesystem plant at an investment of around Rs. 150 Crores over a period of two years. Part ofthe capacity may be operational by October 2012.
Apart from activating this unit in a big way, the Company has plans to commenceproduction of Composite Cylinders at Halol, Protective Packaging Products at Hosur andalso the start up of production of Cross Laminated film products at another site at Halol.These plants are scheduled to go into production- one after another-starting fromSeptember 2012 onwards.
Beginning January 2013, the Company will have 22 plants manufacturing varieties ofproducts spread across the country to meet the requirements of its customers of variedquality plastics products in cost effective manner.
The Company is quite encouraged by diversifying to production of Composite Products.The Company is looking into additional product segments which may add into this compositeproduct portfolio, apart from making LPG Cylinders. The Company s plans for taking upadditional products in this product group may crystalise in the current year.
The Company continues to remain focused to manufacture plastics products. The productportfolio is selected in such a manner that neither it has to compete against importedplastics products nor it can be affected by the products made by the un-organized sectorin the country in an adverse manner.
4.2 DISTRIBUTION NETWORK
The Company considers its distributors as a valuable asset. They are spread throughoutthe country. With the strong retail net work serviced by the distributors, it enables theCompany to distribute its products in a cost effective manner to its customers. The
Company s products command respect in the segments they operate due to its superiorquality, range and service, and continuous introduction of newer products in that productgroup.
4.3 GROWTH DRIVERS
The Company s focus remains to supply quality functional plastics products along withinnovation in each product segment where the Company is operating. The growth impetus ofeach product is fully taken care of by the Company to invest adequate sums of monies yearafter year. During the financial year 2012-13, the Company intends to commit freshinvestment of around Rs. 200 Crores to augment the products produced at existing units andto initiate action to support green field projects i.e. Two units at Halol, Gujrat and oneunit at Hosur in Tamil Nadu along with large investments at its existing site at Malanpurin M.P.
The Company may be investing monies out of this investment plan to add new products incomposite segment in the current year. The Company is also investing large sums of moneyfor automation of its production process at different plants to improve the productionefficiency.
The Company is seeing increasing potential to participate in export markets. Thecompany is taking steps to boost the export of plastics pipe system, Cross Laminated filmproducts and Performance Packaging film, during the current year. Company may add otherproducts also in this year to boost export quantum growth in the current year
5. OPERATIONAL PERFORMANCE
5.1 PLASTICS PIPING SYSTEMS
The growth of PVC Pipes and Fittings business is becoming more dependent onavailability of adequate quantities of raw material.
There has been no addition to the capacity of local PVC resin producers. It clearlyindicates that growth in this business may depend largely on the Imports. The quantum ofImports may soon reach the level of local PVC resin production. Local production iscurrently around 1.2 million tons annually.
Your Company is managing imports of PVC resin at affordable prices. The Company sgrowth has been around 17% in volume terms.
There was a lull in the infrastructure sector. The farming community was quite activebecause of adequate water availability, good yield and support from Government sideenhancing minimum support prices for various agricultural products. The demand fromHousing segments was also encouraging.
The Company is encouraged by demand pull from Housing and Agricultural sector. TheCompany has, therefore, taken a decision to expand the capacity for both PVC Pipes andFittings and CPVC Pipe System in the current year. The Company will have fresh installedcapacity of 50,000 MT p.a. available from its new location of Malanpur in Madhya Pradeshin two phases. The new capacity of first phase will become operational from October 2012in part and full capacity of first phase will be in place by March 2013. This capacityenhancement will enable your Company to meet the growing demand of various sectors.Moreover the Malanpur location will enable your Company to put more focus on theunrepresented areas of MP, Rajasthan and other North Indian states in a cost efficientmanner.
The Knowledge Centre activities at Gadegaon were largely appreciated by all thevisitors from various architects, consultants, farmers and plumbing fraternity. TheCompany had more than 5000 visitors at Knowledge Centre during the year. The Companyexpects more number of visitors during the coming years.
The Company has entered into the Memorandum of Understanding with IAPMO (InternationalAssociation of Plumbing and Mechanical Officials). Through IAPMO the
Company s people will have more knowledge and exposure to "Uniform PlumbingCodes" adopted all over the world. Similarly, they will gain knowledge about recentdevelopments in various plumbing sectors including new products installation techniquesand training. This knowledge will be subsequently utilized for training all the plumbersand visitors coming to Knowledge Centre.Through training at Knowledge Centre, the Companywould like to give a message - "Better Plumbing for Better Life".
Most of the Company s channel partners, dealers and sub-dealers have also visitedKnowledge Centre. They all acknowledged that this has provided them enough knowledge andeducation about Company s various products, applications and they are benefited inincreasing their volume of business in Plastic Piping System.
The Company is also benefited indirectly by attracting potential enterpreneurs frombuilding material segment to take the distributorship of Company s Plastic PipingDivision.
The Government of India has put a renewed focus on Sanitation Sector across all theUrban and Rural areas. The Company expects that its products may move well in theSanitation Sectors in coming years.
The Inspection Chambers and Eco-Drain Pipes have gained acceptance in the market. As aresult the business of NU-Drain System may increase multifold in near future.
Manhole with 1.2 mtr dia meter is getting ready. The Company may launch this productimmediately after the monsoon is over. This Manhole may create increased demand for Pipesand Fittings in various applications like storm water projects and sewage transportationprojects. Once it is established and accepted by Government and Semi Government bodiesincluding Municipal Corporation, this business may see good growth potential. The Companyexpects to obtain all approvals and technical clearances during the following months forthis system.
During the year under review, the Company sold 137.60 million meters of Pipes and sold168.37 million pcs of Fittings registering a growth of 22.82%.
The Company s product portfolio increased to 5577 numbers against earlier 5311 numbers,thus adding 266 new products during the year under review.
The Company s Value Added Product sale reached 24.24% to total sale against 21.87% inthis system of the previous year. Company s focus continues to remain to increase thepercentage of Value Added Products in this system.
To meet the growing demand of Hi-Tech SWR System for use in Hi-rise Apartments, theCompany has planned to introduce the new series of Hi-Tech SWR System around
On demand of its channel partners, the Company has planned to extend the range of itsplumbing products to include varieties of Bath Room Fittings. These Fittings will be madefrom engineering plastics. They will supplement the CP Fittings in terms of aesthetics,performance and user friendly product design.
The Company expects to launch these Fittings by January 2013. This will enable Companys channel partners to improve on their product portfolio and business volume.
Due to slowing down of economy in U K and Australian market, the Company s exports inthis segment could not reach the anticipated growth target. It registered a meager growthof 3% during the year under review by value.
The Kanpur Unit operations are running satisfactorily. The Company s plan to expand its capacity to 20000 T. P.A. may be in place by January /March 2013. The Company had plansto expand the capacity in a big way at that site. The same has been put on hold due toerratic power supply.
Your Company s CPVC product business grew nearly 60% on year on year basis in valueterms. The Company expects to achieve the similar growth during the current year. TheCompany has taken adequate steps to expand the capacity of CPVC production to meet thegrowing demand of CPVC System. Your Company is able to source adequate quantity of rawmaterial required to meet the expected growth in demand.
The PPRC Plastics System has grown only 8% by value. The Company has plans to enter newareas of application to improve the sale of PPRC products in International markets. TheCompany anticipates a decent growth in this segment during coming years.
The Company s HDPE Pipe System sale saw a growth of around 14%.
The Company has an effective annual production capacity based on product mix of around5000 T of HDPE Pipes. The Company sold last year 2679 T of HDPE Pipes. Based on qualityfeedback from its various customers the Company expects a better utilization of thecapacity from Trade & Industrial projects in the current year.
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 geography of country.
Turnover of Furniture Business has gone up from Rs. 279 Crores to Rs. 292 Crores,thereby registering a growth of 5% in value terms. The Company s strategy of participatingselectively in commodity furniture products pulled down the overall business volume by 10%as some of the furniture products were contributing negative margin.
The company has re-casted its investment plan to increase the range of value addedproducts in the current year itself. Thus, it will broaden the range of value addedfurniture products. This will further build the superior brand image of Company s productsfor its aesthetics and durability.
The launch of Designer Chair DIVA is well received by the market for its uniqueness ofhaving inbuilt metal legs for stability, gas molded plastic seat for strength andtransparent back for aesthetic beauty. The launches of Gas Moulded Chairs for the firsttime in the country have been very well appreciated by the channel partners and consumers.There is still no chair, as of now in India, which can compare with above chairs inquality durability and aesthetics.
Company now plans to introduce few more models in painted upholstered Plastics Chair toenhance the volume further of this range. A new Paint shop is being planned at Durgapurfor catering to East market with newer Painted and Upholstered Plastic Chairs models.
The Company had good success with its strategic initiative that has paved the way forits future business. The Company s milestone of 1/3rd business with Premium Products saleswas further excelled by more than 5% in the previous year. It has reached to a level of38% of overall sales. The company intends to further increase share of Premium Productssales by another 8% plus in value during next twelve months which will help the businessto grow profitably.
There has been a delay in getting the plot registered in the Company s name at AndhraPradesh even after allotment and making full payment to APIIC at Ongole Growth centre.This was due to their internal technical reasons with court. The Company has, therefore,abandoned the Andhra Project for Furniture manufacturing as of now.
The Company has 253 Exclusive Franchise Show Rooms on All-India basis displaying entirerange of Supreme Furniture to the customer in a nice ambience.
The company s furniture products enjoy good acceptance in the market for its quality,design, color and range. "Supreme" brand is perceived as a premium brand in thecountry in plastics Furniture and enjoys a reputation of bringing many products andconcepts first time in the country.
As reported last year, the mat division was closed down by November 2011. Most of theequipments have been sold.
Only machines which were to be scrapped are left out. They may be sold by August 2012.
There have been a few enquiries for the Company s land & building also whichCompany shall evaluate and decide appropriately in due course of time.
5.3 INDUSTRIAL PRODUCTS
5.3.1 INDUSTRIAL COMPONENTS
On the backdrop of encouraging business trend observed during second half of FY 10 -11and highest ever Capex executed during the same year, the Division planned ambitiousgrowth of 27% for 2011-12. However, due to general slowdown in the demand of high ticketproducts and delays in start up of customers new projects, division achieved overall 11%growth in its revenue.
There has been degrowth of 7% in value in consumer durable sector. This was mainly dueto a major reduction in off take from one our important customer. However, Company couldgrow healthy 26% in value in Auto sector.
Layout improvements in old units at Noida and Talegaon have significantly improvedworking environment which has started yielding results in terms of Quality, Safety andproductivity, The development of interior parts including Cockpit Assembly, undertaken atTalegaon plant, during last year for one of the prestigious commercial vehicle project ofTata Motors is nearing completion and supplies are expected to start during later part ofthis year after various ongoing vehicle testing stages by the customer. Development ofparts for recently launched Two Wheeler Vespa by Piaggio, completed and supplies started.Both these projects are expected to improve revenue of Talegaon plant significantly infuture.
A focused drive undertaken at Noida plant to widen customer and product portfolio tocounter vulnerability of dependence on limited customer/product base, started yieldingresults. The plant has bagged order from two major Japanese companies in Consumer DurableSector and few other customers in the same and Auto sector. Company expects good growthduring the year because of these initiatives.
Khushkhera plant capacity augmentation resulted in to doubling of plant capacity.During the year, the plant had 46% revenue growth. Company expects robust growth duringthe current year also. Several actions have been initiated to consolidate the operationsfor future growth sustenance at that Unit.
New facility at Chennai which was operational during FY 10-11, is getting stabilized interms of production and operations. Although, initially plant was catering only toConsumer Durable sector for one of the company s major customers, Company has developednow few customers in Auto Sector, to smoothen demand volatility.
Company has been selected for plastic parts required for Washing Machines beinglaunched in India by one of the large MNCs in Consumer Durable Sector and developmentactivity for the same will start soon. Supplies for the same are expected to start from FY13 -14.
All these initiatives should generate significant growth at Chennai plant during thisyear and in future years. Due to severe power shortage in Tamil Nadu during significantperiod of the year, there was adverse effect on smooth running of operations. However,Company ensured trouble free supplies to customers, even running the plant by usingexpensive captive power. Although the power situation has improved to some extent, it isstill far from satisfactory.
At Puducherry plant, all plastic parts for the next model of Radiance, i.e. All plasticbody Washing Machine , were fully established as per the requirement of productivity,Quality and Delivery norms specified by the customer. Company expects that this shouldresult in to continuous and sustained growth at Puducherry plant. This plant, which alsocaters to company s other Divisions, i.e. Furniture and Material Handling, bagged TPMExcellence Award from Japan Institute of Plant Maintenance( JIPM ) Japan, during the year.
Durgapur and Gadegaon facilities which were expanded last year to meet the potentialdemand from one of the major customers from Durable Sector remained largely underutilizeddue to technical snag in the product at customer end. This resulted in sharp drop withrespect to projected demand. Company has taken up initiative to utilize the capacity bylaunching new product range which will start during the current year. This will alsogenerate significant revenue in future.
The new machines and equipments which are being added are with energy efficienttechnologies and will ensure better Quality, Productivity, Safety and lower cost. Tonegate the impact of lowering margins due to various cost increases and to remaincompetitive, Company makes continuous efforts to remain a lean manufacturer. Company isalso in discussion with its various customers for price corrections for the old continuingbusinesses.
Company is continuously putting efforts to establish and improve Energy ManagementSystem at all the locations. This initiative of the company, apart from cost reduction,will support Environment and Green initiatives.
As a part of up-gradation and implementation of Quality Management Systems, all plantsare re-certified for ISO/TS 16949, EMS & OHSAS for latest up-graded versions.
Puducherry plant was certified by latest Integrated Management System (IMS) during theyear and currently Chennai plant is working on the same. There has been continuous thruston Safety, Health, Hygiene and Environment.
Overall rating of the company by all its customers is good. Your Company is considereda highly dependable and valuable supplier. Company receives various Awards andRecognitions from time to time from its customers for its support in Quality, Cost,Delivery and new product development 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 growth with profits.
5.3.2 MATERIAL HANDLING PRODUCTS
The Company achieved a value growth of approx. 17% and a volume growth of approximate10% during last year. The division is recording continuous growth in the business. TheCompany continues to service its client with least lead-time at economical cost bymanufacturing at six own manufacturing sites spread across the country.
Anticipating the customer s future needs, the Company has now moved to giving heavyduty Industrial crates by developing several models with superior product design to caterto quality conscious customers in automobile, appliance and logistics industry. Suppliesof these products have started. The Company s products for a heavy-duty requirement inFishery Industry have also been well accepted. The Company expects to have good growth inthis segment.
The Company s business to soft drink customers fared well. Business prospects for thisyear are also promising, as per indication from the customers.
Company has fabrication facilities at locations other then manufacturing, as well, todevelop tailor made crates to meet specific requirement of applications at customers end.This is helping in a big way to replace conventional material usage while handlingproducts at customers end. These are value added products for your Company. The companyhas upgraded its fabrication facilities with automation and usage of newer materials.
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 has a range of Roto Moulded Pallets.
The Company expects a good growth for its Pallet business during next year. Companyalso plans to launch very heavy duty Plastic Pallets without Steel reinforcement in theIndian market for the first time.
The Company continues to be a leader in the Injection Moulded Pallet business in India.It has further enhanced product portfolio with unique application focused products. The
Company s enhanced Injection Moulding Pallet making capacity at Gadegaon is functioningwell. The plans have been drawn for even better utilization of capacity.
The Company has been successful in replacing wooden Pallet for Grain and Seeds Storageapplication. The necessary statutory approvals from BIS of Plastic Pallet specificationsfor Grain Storage application are through. It should result into geometric business growthfor this application.
5.4 PACKAGING PRODUCTS
5.4.1 PACKAGING FILMS
The Performance films business had a tough year. Growth was lower at 6.8% v/s expectedgrowth of 20%.
The government s policy to buy five layer films for distribution of oil continued to besluggish against an expected revival. Also, all competitors expanded capacity. At the sametime, several new players entered this field, rendering the business to be extremelycompetitive, capacity far outstripping demand. However, with an overall growth in businessthis year, business for the Company may be better in this year.
Exports were 672 tons against 571 tons last year. As per the projections received fromthe Company s existing customers, the Company expects exports to grow to 800 tons thisyear. The Company is giving special drive to boost export of this product. The Companyexpects the business to grow around 15% by volume this year.
5.4.2 PROTECTIVE PACKAGING PRODUCTS
The year was challenging for the division, to retain the growth rate. The growth ratefor the first three Quarters of the year was 16% in Value and 9% Volume against sameperiod last year. This has improved, in the last Quarter with a Value growth of 23% andVolume growth of 19%. The overall year on year growth was 17% in Value and 13% in Volumeagainst last year. The division is expecting 15% volume growth of the coming year.
Urse plant has been fully stabilized and some of the products lines are running closeto full capacity.
The second unit at Hosur may start by Sept 2012. In the first phase the plant will bestarted with cross link block foam and directly extruded cross link PE foam. The existingproduction capacity of cross link block foam will be enhanced from 1640 MTPA to 2400 MTPAduring the year. The division is planning to enter into manufacturing of Gaskets,especially for the Automobile sector. This new conversion facility will start in Hosurunit II, in the second half of the year.
Non-Cross Linked Foam capacity was enhanced from 9400 MTPA to 10300 MTPA during lastyear and is expected to increase 11900 MTPA during the current year. While competition inthis product category has increased, the division expects to continue growing in thesegment. The product enjoys a good brand image in the market.
New products and new applications are being developed in the cross linked foam productcategory. This will ensure higher utilization of all cross linked product manufacturingfacilities.
Growth achieved 33% in value and 39% in volume against last year. Though theconstruction industry is still struggling, the Company expects to have reasonable growthin the coming year as well. A large number of architects are now approving the Company sproducts for various upcoming Projects. This is a result of constant efforts by themarketing team.
The division had problems in disposing off the cross-linked PE foam wastages. Severalinitiatives have been taken to reduce the selling of these wastages. The division ispleased to inform that a new application has been developed using one type of productwastage which has found good acceptance in the market.
The growth recorded during last year was 39% in value and 35% in volume. Consideringthe acceptability of Company s extruded cross-linked PE foam in the insulation sector byseveral consultants and growing demand, a new manufacturing facility is being set up atHosur (Unit II). The existing capacity of 1100 MTPA will be enhanced to 1650 MTPA duringthe year. This will be the 3rd Plant for this product category and will reduce the costand logistic challenges that are being faced to service the South Indian market from theexisting plants located at Malanpur & Urse. "INSUreflector", the other rangeof insulation product, is also well accepted by the market and consultants. The divisionexpects to launch several new variants of INSUreflector in the current year. This producthas established its advantage in the industrial roofing shed under-deck insulation againstother products being offered by many other companies
The NBR PVC hose launched last year has not successfully picked up as the prices forimported products is quite low. However, efforts are being taken by the division to reducedensity of its products, thereby making it cost competitive. Besides efforts are on tointroduce class "O" BS 476, part 6 and 7 category products. This is specifiedfor many projects. Business for the same is expected to start from the second quarter ofthe current financial year. Both these initiatives should set this business in the righttrack.
To retain the business growth, especially for the standard product, extensive Researchand Development work has been carried out during the year to reduce the compounding costand to improve the productivity and quality.
For the first time in India, 16 Kg/m3 density Foam has been developed with all qualityfeatures similar to 20 Kg/m3 density Foam, at Company s Malanpur Plant. The new standardhas been achieved by modifying the equipment design and by upgrading the processtechnology.
The new range of products are developed with ROHS and REACH compliance to cater themarket demand of hazard free products.
Two of the Company s Insulation products are now enlisted in IGBC (Indian GreenBuilding Council) website
5.4.3 CROSS LAMINATED FILM
Business for Cross Laminated Film & Products grew by 13% in volume terms & by24% in value terms. The company sold 16999 tons of Products against 15050 tons during theprevious year. Exports grew by 30% to 1836 tons from 1412 tons. There was strong demandfor company s products in domestic & international markets during the year underreview which outpaced the product availability.
The company foresees a strong demand for its products in local market during thecurrent year as well. Despite anaemic growth of world economy the company has done well onthe export front. The company is eyeing to scale a new peak of 3300 tons in exports duringthe current year by entering new markets of Africa, U.S.A. & Myanmar supported bystrong demand in the existing European & Asian markets. The company expects to sellthe entire available capacity of around 24000 tons in the Current Year from the existing& new unit.
The spurt in demand both in local as well as international markets has prompted companyto advance its expansion plans. The company has already purchased land at Halol in Gujaratfor putting up new unit. The construction of production unit is in full swing at thatlocation. The company plans to more than double the existing capacity in two phases at thenew site. In the first phase, the annual capacity will be expanded by 12000 tons for whichorders have already been placed. The first phase will be fully operational by April 2013.In the second phase the capacity will be expanded by another 8000 tons which shall be inplace by April 2014.
Besides, the capacity at the existing two units which is of 18000 tons will be enhancedto 19000 tons by debottlenecking. The new fabrication site at Puducherry has been put intooperation which together with the induction of new contractors at new unit in Halol willenhance the fabrication capacity commensurate with the expanded film production capacity.However the impetus will be on automation of some of the activities involved infabrication to overcome the constraint of labour availability. The company s collaboratorhas already taken steps in these directions.
The company has entered into an agreement with it s collaborator whereby the exclusiverights to manufacture & sell XF products in entire South Asia & whole of Africahave been extended to include entire East Asia(except Mongolia).
The exclusive rights to manufacture & sell products (developed from NewTechnologies which includes Cross Line Bonded Film & Cross Plastic Film) in India& SAARC countries have been extended to include entire South Asia & East Asia (except Japan & Mongolia). The collaborator has also granted the company a first rightof refusal for acquiring similar exclusive rights for each country of Africa.
The Company sold 244 tons of Cross Line Bonded Film products, a next generation XF filmduring the year under review. The Company has installed balancing equipments formanufacturing this film on one other machine. With the increase in production the companyexpects to sell around 1000 tons of this film product in the current year.
Two of the licensees of the company s collaborator, one in U.S.A. & another inEurope may start commercial production of Cross Plastic Film during current year. Based onthe commercial success of the product the company may consider putting up similar facilityat new unit in Halol.
5.5 CONSTRUCTION BUSINESS
Due to awareness of climate change and increasing focus on other pressing environmentalissues, the concept of Green Building is steadily becoming the norms and standard practicein real estate sector across the country. The developers are gradually realizing theadvantages of Green Building in India and thus it is expected good growth in the demand ofGreen Building. A number of large Corporate Houses are making it sure that their officebuildings or factories are constructed with sustainability in mind, as such the future ofGreen Building concept is looking bright at the moment.
In this backdrop, the Company is delighted to inform that the Corporate Green Park"Supreme Chambers" has been awarded Platinum Certificate under "LEED IndiaCore and Shell Rating System" by Indian Green Building Council (IGBC) and it issecond such building in Mumbai to get this prestigious "LEED India Core and ShellPlatinum Rating"
The prestigious magazine "Construction Week" in its edition of June, 2012,has handpicked 10 of India s very best Commercial Green Buildings, out of Top 200 GreenBuildings spread across the cities of India to illustrate the Country s green drive inwhich "Supreme Chambers" ranked 2nd to get such esteemed status.
The Corporate Green Park, which has been built with passion by the Company is fullyready for occupation.The Company has received Occupation Certificate from MunicipalCorporation of Greater Mumbai. Adequate supply of water, electricity and other requisiteutilities have already been commissioned. Two occupants have already started functioningbusiness activities from their respective premises from "Supreme Chambers" andthe other two occupants shall also commence their business activities shortly from theirrespective premises at the said location. Due to Supreme Chambers strategic location,proximity to domestic and international airports, easy connectivity to (i) Railway Station(ii) Western Express Highway and (iii) Upcoming Metro Junction, it remains the primechoice of destination for perfect business centre. It was the endeavor of the Company tomake eco-friendly, green featured corporate park that would promote the Company s image ofmanufacturing green products and which projects it as a Brand Ambassador.
The Company has incurred Rs.140.57 Crores towards Cost of Construction as on 30th June,2012, which together with the estimated Outstanding Expenses/ Liabilities may reach toRs.155 Crores. The Company has realized Rs.127.07 Crores net from the sale of six of itsOffice Blocks comprising about 81,682 sq. ft., out of Total Saleable Area of around 2.79Lacs sq. ft. which includes realization of Rs.69.16 Crores from sale of 41,678 sq.ftduring the year under review.
Real Estate Market is reeling under the burden of high interest rate, inflation andslower economic growth domestically and weak economy globally & therefore the demandfor real estate property particularly commercial premises has remained sluggish in allprime business centers in India for quite some time. This sentiment may remain subdued forsome more time.
Under the circumstances, the Company has adopted wait and watch policy and is waitingfor the appropriate time for improvement in the sentiments in the real estate sector whichshall lead to the growth in demand for commercial property market. The Company is hopefulthat with slowing down of new construction of commercial premises in Greater Mumbai, theCompany may have good demand for its ready to use premises, with occupation certificate inplace, in near future.
5.6 NEW INITIATIVES
Your company has chosen to foray into Composites having excellent growth potential.Consumption of Fiber Glass Products in India is around 1.2 lacs tons per annum againstwhich consumption in China is over one million tons.
With excellent properties of Fibre Glass and varied application opportunitiesavailable, It is expected that there will be healthy growth in composite productsbusiness.
5.6.1 COMPOSITE LPG CYLINDER :
It is a known fact that steel cylinders are in use at most of the household for LPG.Presently over 18 Crores steel cylinders re in use in our country and three oil marketingcompanies buy over 1 core cylinders per year.
Due to availability of huge market, your Company has decided to venture into compositeLPG cylinder for household use. Although, these cylinders are expensive compared to steelcylinders but they are safe, as in case of accident. they do not explode like steelcylinders. This will save precious human lives.
The cylinder being translucent, the level of gas can also be seen which will be addedadvantage to the consumers.Empty cylinders will weigh half of the weight of present steelcylinders so they are easy to carry and also aesthetically much better looking.
In order to supply very safe cylinders, Company has ordered a very modern plant withcomplete automation so that quality of cylinders is fully assured.
Company has committed to invest Rs. 70 Crores for production capacity of 5 laccylinders per annum. Equipments are expected to reach the plant site at Halol (Gujarat) byfirst week of Dec 2012. Trial runs are likely to commence from first week of Jan 2013 andCompany hopes to be in production before end of March 2013.
Company is happy to inform that cylinders made on our equipment has passed all therequisite tests based on EN and ISO Standards. Company expects to get the formalacceptance certificate from testing authorities by Sept 2012.
5.6.2 COMPOSITE PIPES:
M/S. NBL Corporation of Japan has the patented technology and process to manufactureHigh Pressure Composite Pipes where burst pressure is 100 Mpa. Company has entered intechnical tie up with its collaborator M/s. NBL Corporation of Japan on exclusivity basisfor India. These composite pipes are very suitable for down hole and casing pipes for oiland gas industry. These are much lighter in weight compared to present special steel pipesin use. They are anti-corrosive which is very much desirable for these applications. Ourcollaborator has already secured trial order for 6 kms from ONGC for down hole tubing.
Order is likely to be executed by Company s collaborator in August / September, 2012.
Company has taken effective steps to produce these pipes and ordered for first smallsize plant to produce 15,000 pipes per annum. Presently the plant is under manufacturingat Japan. Investment in the initial capacity of this plant would be about Rs. 10 Croresand together with building and other infrastructure, total cost of the project is likelyto be around Rs. 16 Crores. This plant will also be in same campus of cylinder plant atHalol .As per present schedule, ordered equipment are likely to arrive at plant site byOctober, 2012 and company expects to start commercial production from November, 2012.
Company is also looking for other suitable opportunities in composite sector.
6. OVERALL GROWTH PROSPECTS
The Indian economy with its demographic advantage, entrepreneurial drive and innovativeattitude is destined to cross USD 5 Trillion GDP per annum from the current level of 1.5Trillion GDP per annum even before the year 2020. The company is seeing adequateopportunities to go on growing in its business. The company s focus is thus to givefurther impetus to its growth plan by giving additional drive to grow.
In the current year 2012-13, Company sees volume growth of Plastics in the countrybetween 10-12%. However, the Company is aiming to grow it s business by 25% in value termin the current year. Company expects to grow by around 16% growth in volume. The increasedpercentage of turnover growth compared to volume will be due to increased share of valueadded products and normal inflation prevalent in the country s economy.
The Total Borrowing levels as on 30.06.2012 was Rs. 351.10 Crores as compared to Rs.514.28 Crores as on 30.06.2011.This is despite the increase in the crude oil prices andconsequent increase in the polymer prices coupled with abrupt depreciation of Indian Rupeevis a vis Dollar during the year which necessitated higher Working Capital requirements.The Company has repaid Term Loan installments and fixed deposits aggregating Rs. 72.41Crores including pre-payment of outstanding amount of Term Loan Rs. 12.50 Crores bearinghigher rate of interest. The Company has not taken any fresh Secured Term Loan during theyear under review.
The Interest and Financial Cost in absolute terms have gone up to Rs. 54.80 Croresduring financial year 2011-12 from Rs. 42.50 Crores during financial year 2010-11 ,principally, due to (i) increase in the cost of Short term/ Long term borrowings in viewof prevalence of higher interest rate regime (ii) increase in the hedging cost on ForeignCurrency Loans and (iii) deployment of larger funds for working capital requirementsduring most part of the year. The outstanding Interest bearing liabilities as on30-06-2012 bears average Interest rate of 9.50% p.a. vis-a-vis 9.72% p.a. as on30-06-2011. It is expected that interest rates may soften during the year.
The Company has judiciously managed its Working Capital requirements by availing Buyers Credit for importing Raw Materials/ Capital Goods, by way of fully hedged foreignexchange exposure and raising short term resources through placement of Commercial Papers,at competitive rates. Company s focus shall remain to closely monitor and reduce itsborrowing level & also to bring down total interest cost below 1% of the totalturnover in the coming year/s.
During the year under review company had committed investment of around Rs. 280 Croresout of which around Rs.73.40 Crores only have been put to ground during the year mainly toaugment certain capacities, new moulds and balancing equipments at its several existingsites. Work at Halol for Cross laminated Film products, at Hosur for Protective PackagingProducts and at Halol for Composite Cylinders project is in full swing and shall be inoperation during the current year. Company has made total outflow towards capitalinvestment during the year under review to the tune of Rs. 169 Crores includingoutstanding Capex payments of previous year. The same has been funded through the internalaccruals of the Company.
During the year 2012-13, the Company envisages total Capex including commitments for2013-14 of about Rs. 400 Crores including existing commitments, mainly on the followingsegments.
To set up new Manufacturing Unit to produce Cross Laminated Film Products atHalol (Gujarat)
To set up production of Plastic Piping system facility at erstwhile closed downUnit of PVC Film Business at Malanpur (M.P.) and utilize existing Land, Building and otherinfrastructure already in place
To set up new manufacturing facility of Protective packaging Products at Hosur (Tamilnadu)
To put up the unit to manufacture Composite LPG Cylinders at Halol (Gujarat)
To acquire requisite Land in West Bengal to set up new unit for Plastic PipingSystem, Protective Packaging Products and Industrial components in Eastern India.
To create additional capacities & Product Range and to install automationand balancing equipments at all its existing sites and product groups.
The Company envisages a total capital investment outlay in excess of about Rs.1100Crores over a period of five years from 2011-12 to 2015-16 in addition to Capex for newproducts in Composites. In view of Company s potential to generate healthy cash flows fromits operations together with better management of Working Capital, the Company isreasonably confident to fund its future expansions from Internal Accruals and SuppliersCredit. Moreover the sale proceeds from "Supreme Chambers" will provideadditional funds to meet its future Capex requirements.
CRISIL has assigned the Rating on the Bank facilities to "AA-/ Stable" andreaffirmed Short Term Debt programme Rating as A1+ , which reflects the sustainedimprovement in Company s business risk profile backed by increase in contribution fromvalue added products, improved profitability and prudent Working Capital management.
8. 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.
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.
10. CORPORATE SOCIAL RESPONSIBILITY (CSR)
The Company is aware and committed towards the Corporate Social Responsibility byaddressing social development imperatives of Society, especially in the areas of ruraldevelopments, education, healthcare and protection & promotion of environment.
The Company s, Gadegaon Unit, in furtherance of its above objectives had under takenfollowing social work activities during the year 2011-2012
10.1 MOBILE HEALTH CENTRE
The Company has provided Mobile Health Center in remote tribal area of Tal-Dhadgaon inDist: Nandurbar of Maharashtra State . The Company has adopted a total 26 villages inDhadgaon. One Ambulance Van manned by qualified Medical Officer / Nurse and Lady SocialCounselor equipped with primary medicines etc. have been provided for the benefit ofunprivileged population free of cost. Total population of these villages is 24137 who arebeneficiaries of the services of health centre.
The Medical Staff of Mobile Dispensary / Health Center also conduct health awarenessprogram for school children s and girls of Ashramshalas. This year total 1667 studentsfrom various schools and total 421 students from Ashram Shala participated in healthcheckup and education programme .The Centre also organizes educational programs forprevention of communicable and non communicable diseases, preventive, curative measures,first-aid services etc.
10.2 SANITATION FACILITIES
This year with an aim to promote Govt. National Program "Human Defecation",Supreme has provided second Unit of ladies public toilet with capacity of 12 blocks for300 ladies to Gadegaon village on 5th June 2012. The toilet unit is equipped with allbasic amenities. The facility is widely appreciated by the women of the village andpopularly called "Gappa Souchalaya".
Total population of women in Gadegaon village is around 1500. The first unit of publictoilet with capacity of 24 blocks for 600 women have already been provided last year. Thisyear second unit of toilet with capacity of 12 blocks is provided for 300 women. We haveproposed to provide third and fourth unit of toilet at two different locations covering 12blocks each for remaining 600 women during the next year.
10.3 SAFETY AWARENESS
In view of fostering safety consciousness amongst the neighboring villagers andfamilies, various safety activities are conducted time to time. This includes celebrationof environment day, road safety week, and mock drills. This has created very goodawareness about safety amongst the local community and their family. During fire safetyweek, we organized workshop at Gadegaon village on the subject of "Safety in handlingLPG Gas Cylinder". The Safety Officer of M/s. Bharat Petroleum Corporation, Jalgaonpresented demonstration on safe handling of Cylinders. Around two hundred ladies fromGadegaon, Neri, Hingna villages have actively participated in the drive.
On the eve of fire safety week, Unit has organized Drawing, Slogans; Essay Competitionamongst the school children s of Gadegaon wherein successful participants were awardedsuitable prizes on the concluding day of a week long celebration.
10.4 VERMI COMPOST PROJECT
The Company has developed vermi culture composting project at the factory premises. Weare generating 3 MT. of manure per month through the project. The tree leaves wastematerial, waste food of canteen etc. is collected for the vermi composting.
The Company encourages the neighboring farmers / Villagers to visit the project andeducate them how to generate organic fertilizer. This is ongoing activity at our factory.
10.5 INSTITUTE INDUSTRY PARTNERSHIP
The Company encourages the students from various education institutes viz Engineering,Polytechnic, Pharmacy, Management etc. to visit the factory to take live project andimpart education in their respective field. During the year as many as 615 students fromvarious colleges and institutes visited the factory for in-plant training.
10.6 GREEN CERTIFICATE OF MERIT
The Company s Gadegaon Unit has been awarded with prestigious Green Certificate ofMerit by Frost and Sullivan, a US based Company in recognition of company s contributiontowards promotion and protection of environment, occupational health and safety, EnergyConservation, Bio Diversity and Social responsibility.
Statements in the Management Discussion and Analysis describing the Company sobjectives, 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 the Company soperations include cost of raw materials, tax laws, interest and power cost and economicdevelopments and such other factors within the country and the international economic andfinancial developments.