commercial syn bags ltd Management discussions


(a) Global Economy Overview

The world economy maintained a steady growth trajectory at the start of CY 2022, following a gradual recovery from the pandemic, but it was disrupted by the outbreak of the Russia-Ukraine conflict, steadily rising inflation and delayed normalisation of global supply chains. Inflation was on an upswing following the massive stimulus injection to tide over the pandemic. As central banks prepared to squeeze out excess liquidity to rein in inflation, constrained supply chains were further aggravated by economic sanctions on Russia and Chinas stringent shutdown to contain the spike in COVID-19 cases. This pushed inflation in advanced economies to multi-decadal highs, led by energy and commodity prices. Accelerated rate hikes by major central banks and slowing demand and investment sentiments impacted economic growth during the year.

Global growth is projected to fall from an estimated 3.5 percent in 2022 to 3.0 percent in both 2023 and 2024. While the forecast for 2023 is modestly higher than predicted in the April 2023 World Economic Outlook (WEO), it remains weak by historical standards. The rise in central bank policy rates to fight inflation continues to weigh on economic activity. Global headline inflation is expected to fall from 8.7 percent in 2022 to 6.8 percent in 2023 and 5.2 percent in 2024. Underlying (core) inflation is projected to decline more gradually, and forecasts for inflation in 2024 have been revised upward. • The recent resolution of the US debt ceiling standoff and, earlier this year, strong action by authorities to contain turbulence in US and Swiss banking, reduced the immediate risks of financial sector turmoil. This moderated adverse risks to the outlook. However, the balance of risks to global growth remains tilted to the downside. Inflation could remain high and even rise if further shocks occur, including those from an intensification of the war in Ukraine and extreme weather-related events, triggering more restrictive monetary policy. Financial sector turbulence could resume as markets adjust to further policy tightening by central banks. Chinas recovery could slow, in part as a result of unresolved real estate problems, with negative cross-border spillovers. Sovereign debt distress could spread to a wider group of economies. On the upside, inflation could fall faster than expected, reducing the need for tight monetary policy, and domestic demand could again prove more resilient. • In most economies, the priority remains achieving sustained disinflation while ensuring financial stability. Therefore, central banks should remain focused on restoring price stability and strengthening financial supervision and risk monitoring. Should market strains materialize, countries should provide liquidity promptly while mitigating the possibility of moral hazard. They should also build fiscal buffers, with the composition of fiscal adjustment ensuring targeted support for the most vulnerable. Improvements to the supply side of the economy would facilitate fiscal consolidation and a smoother decline of inflation toward target levels.

(Source - IMF World Economic Outlook update July 2023)

Overview of the World Economic Outlook Projections

2021 2022 2023 2024
World Output 6.3 3.5 3.0 3.0
Advanced Economies 5.4 2.7 1.5 1.4
United States 5.9 2.1 1.8 1.0
Euro Area 5.3 3.5 0.9 1.5
Germany 2.6 1.8 -0.3 1.3
France 6.4 2.5 0.8 1.3
Italy 7.0 3.7 1.1 0.9
Spain 5.5 5.5 2.5 2.0
Japan 2.2 1.0 1.4 1.0
United Kingdom 7.6 4.1 0.4 1.0
Canada 5.0 3.4 1.7 1.4
Other Advanced Economies 3/ 5.5 2.7 2.0 2.3
Emerging Market and Developing Economies 6.8 4.0 4.0 4.1
Emerging and Developing Asia 7.5 4.5 5.3 5.0
China 8.4 3.0 5.2 4.5
India 4/ 9.1 7.2 6.1 6.3
Emerging and Developing Europe 7.3 0.8 1.8 2.2
Russia 5.6 -2.1 1.5 1.3
Latin America and the Caribbean 7.0 3.9 1.9 2.2
Brazil 5.0 2.9 2.1 1.2
Mexico 4.7 3.0 2.6 1.5
Middle East and Central Asia 4.4 5.4 2.5 3.2
Saudi Arabia 3.9 8.7 1.9 2.8
Sub-Saharan Africa 4.7 3.9 3.5 4.1
Nigeria 3.6 3.3 3.2 3.0
South Africa 4.7 1.9 0.3 1.7

(Source - IMF World Economic Outlook update July 2023)

(b) Indian Economy Overview

The Indian economy stayed on a steady growth path, demonstrating strong resilience to multiple headwinds stemming from elevated inflation and a volatile global macro environment. The Indian economy is estimated to have grown by 7.2% in FY 2022-231, driven by strong private consumption, steady manufacturing and normalisation of contact-intensive services sectors. Although inflation remained above the upper band of the RBIs comfort range of 4-6% for most part of FY 2022-23, it started easing during the third and fourth quarters, as the central bank hiked its policy rates by 250 basis points cumulatively to contain inflation. In April 2023, the RBI hit a pause to its rate hike cycle, and is widely expected to maintain it, if a benign inflationary environment persists.

The Indian economy growth stems from the resilience seen in the rebound of private consumption, seamlessly replacing the export stimuli as the leading driver of growth. The uptick in private consumption has also given a boost to production activity resulting in an increase in capacity utilisation across sectors. The rebound in consumption was engineered by the nearuniversal vaccination coverage overseen by the government, which brought people back to the streets to spend on contact- based services, such as restaurants, hotels, shopping malls, and cinemas, among others.

In FY 2022-23, growth has been principally led by private consumption and capital formation. The capex of the central government, which increased by 26% in FY 2022-23, was another growth driver in the current year. It has helped generate employment, seen in the declining urban unemployment rate and in the faster net registration in Employee Provident Fund. A sustained increase in private capex is also imminent with the strengthening of the balance sheets of the corporates and the consequent increase in credit financing it has been able to generate. The much-improved financial health of well-capitalised public sector banks has positioned them well to increase the credit supply.

However, the conflict in Europe necessitated a revision in expectations for economic growth and inflation in FY 2022-23. The countrys retail inflation had crept above the RBIs tolerance range in January 2022. It remained above the target range for 10 months before returning to below the upper end of the target range of 6% in November 2022. During those 10 months, rising international commodity prices contributed to Indias retail inflation as also local weather conditions like excessive heat and unseasonal rains, which kept food prices high. The government cut excise and customs duties and restricted exports to restrain inflation, while the RBI, like other central banks, raised repo rates and rolled back excess liquidity. With monetary tightening, the US dollar appreciated against several currencies, including the India rupee. However, the rupee has been one of the betterperforming currencies worldwide, but the depreciation may have added to the domestic inflationary pressures, besides widening the CAD. Global commodity prices may have eased but are still higher compared to pre-conflict levels. They have further widened the CAD, already enlarged by Indias growth momentum. However, the forex reserves remain sufficient to finance the CAD as well as intervene in the currency market to manage volatility in the Indian rupee.

(c) Industry Overview

The India Plastic Packaging Market size is expected to grow from USD 21.12 billion in 2023 to USD 24.59 billion by 2028, at a CAGR of 3.09% during the forecast period (2023-2028).

The growing preference for convenience and portability packaging continues to be a significant driver of rigid plastics in food packaging. Also, the need for comfort, portability, and tensile strength remains crucial for rigid plastics usage in the cosmetics & toiletries industry.

Flexible packaging accounts for more than 60% of the market and is mainly used for food, according to the Flexible Packaging Association. Since flexible packaging can offer solutions to various packaging problems, the demand for flexible packaging is expanding. According to IBEF, Indias grocery and food market are the sixth-largest in the world, with 70% of sales coming from retail. Also, food processing accounted for 32% of Indias total food market and was rated fifth in production, consumption, and export. It would propel the demand for flexible plastic in packaging.

(Source- https://www.mordorintelligence.com/industry-reports/india-plastic-packaging-market)

Indian FIBC market has undergone a remarkable increase in the last decade. India has recorded a total FIBC production of 306,996 MT in 2021, of which nearly 28% is accounted for by food-grade FIBC production. Furthermore, the total export sales of FIBC from India have tripled over the past decade, reaching a value of $708.48 million in the fiscal year 2021. This growth can be largely attributed to the expanding industries, including food products & agriculture, pharmaceutical products, and chemicals and fertilisers. The Indian governments favourable measures and increased international commerce have propelled industrialization in these sectors, increasing the demand for FIBC for effective storage and transportation of goods. The Make in India initiative and industry-specific incentives have resulted in the establishment of numerous manufacturing enterprises in India, further boosting the demand for FIBC. As a result, the Indian FIBC industry is expected to continue to flourish, playing a significant role in the transportation and storage of goods for various end-user industries.

The rise of emerging economies and increased trade between countries has led to a need for superior packaging standards in the global market. FIBC, with its lightweight and customizable design, is poised to meet this demand and is expected to continue to grow.As environmental concerns continue to escalate, consumers are seeking sustainable and eco-f riendly packaging solutions. FIBC packaging is recyclable and reusable, making it an attractive choice for consumers and manufacturers a like. With a growing population, the food and agriculture industries are expanding rapidly. The FIBC market is poised to benefit from this growth as it is used to transport grains, rice, and other food products. FIBC packaging offers cost effective solutions for bulk packaging needs, making it an attractive choice for several industries, including construction, mining, and chemical manufacturing.

(d) Company Overview

Your Company is an ISO certified company engaged in the manufacturing and supply of Flexible Intermediate Bulk Container (FIBC), High Density Polyethylene (HDPE) and Polypropylene (PP) woven sacks, Fabric, Container Bags, Pond Liners,

Mulch Films, Tarpaulin (under the brand name - TIGER TARPAULIN), Vermi Beds, Flexible Pipes (under the brand name - COMSYN SWAJAL) and Flexible Packaging for export and domestic markets. Other range of products are sold under the brand name - COMSYN.

Companys customer base is spread across the globe with major presence in European Union, United Kingdom, United States and Latin America. The majority of sales are through exports which continue to contribute more than 70% of sales from manufacturing segment. The Company has also been recognised by Government of India as an Export House.

The Company is continuously doing Research and Development activities to produce best of its products as per the need of customers. The Company offers various packaging solutions for wide range of end users such as Construction, Agriculture, Asbestos Waste Removal, Bulk Packaging, Household Waste Removal, Human Safety, Gardens, Green Houses, Shelter, Grain, Pulses, Animal Food, Seeds, Fertilizers, Chemicals, and Food Products etc.

The Company has been operating as DCA cum CS of ONGC Petro additions Limited (OPaL). During this year this business not only delivered a steady performance but also continued to add value to the Company, in terms of profitability. This segment helps the Company as a source of Raw Material and helps to increase its presence in the national market. Further it also helps the Company to decide its raw material procurement policy and reduction of cost.

The Company has installed the solar power generation plant and also a rooftop solar power plant for generation of electricity for captive consumption. The Company is also using all its wastage generated during the operation and thereby contributing towards the environment.

The bulk packaging industry facing significant external challenges during FY23. Various adverse factors combined to create a challenging operating environment, including highly volatile raw material prices for woven bags and FIBC products throughout the year. Additionally, the Russia-Ukraine conflict had far-reaching consequences, leading to an energy crisis in Europe, reduced overall industrial production, and decreased the demand for bulk packaging products from the region.

New Product

The Company has commenced commercial production of its new manufacturing unit Techtex (A unit of Commercial Syn Bags Limited) situated at Plot Nos A-12 & A-13, Indore Special Economic Zone, Pithampur Phase - 2, Dhar, Madhya Pradesh on 11th March, 2023. The capacity addition with the commencement of this unit is 3900 MTPA and the total capacity of the Company is 24530 MTPA (on standalone basis). The new unit is into the manufacturing of Geotextiles, Ground Covers, Nets and other technical textiles products.

(e) Strength, Weakness, Opportunities and Threats

The Company has wide range of products in its basket which caters to the customers across the globe. The product portfolio comprises of about 15 different products like FIBC, Woven Sack Bags, Tarpaulin, Liners, Garbage Bags, Mulch Film, Pond Liner, Vermi Beds, and flexible pipes and the newly added product Geotextiles, Ground Covers, Nets and other technical textiles products. Product diversification helps in catering to different markets as per their demands. Your Company is having BIS Certification for separate clean room facilities and the Companys fully integrated food grade manufacturing facility for FIBC is one of the best in India. The Company supplies to various industries like agriculture, construction, food, bulk packaging, chemical, cement and food grade bags. The strong Industry relation is a core strength of the Company. The Company focuses on quality and customer satisfaction to maintain long term relationship and to procure repeat orders. There is increased competition due to industry wise capacity addition. The Companys total capacity is 27630MTPA (on consolidated basis including the capacity of wholly owned subsidiary) and your company has adequate production capacity to meet the increased demand of the Customers.

Volatility of Oil and currency are some major threats. The full capacity utilization of the new manufacturing unit may take some time. Being a labour oriented industry with high requirement of skilled labour, shortage of labour is a major risk associated with the sector, however the Company has put in place adequate system to monitor labour requirement and have already implemented skilled development training program. Competition from new players within and outside the country is also posing the threat for the company and with the experience of more than three decades in this industry and strong customer relationship your company is able to meet this threat. Unforeseen geopolitical uncertainties may impact commodity prices and the supply chain in the short-term Potential challenges arising from escalated interest rates and higher borrowing costs may adversely affect working capital management.

The Company follows a risk management policy wherein the management keeps an eagles eye view on the markets, both domestic and foreign, related to the products the Company manufactures and the raw materials required. The management also monitors the socio-economic changes worldwide and the changes in the currency fluctuation to minimize the risks. There are no risks which in the opinion of the Board are of the nature that can threaten the existence of the Company. However, the risks inter-se that are generally dealt in regular course of business and have to be taken care of are -economic risk, technology risk, fluctuations in foreign exchange rates and raw material prices which the Company regularly monitors with a proactive approach adopted by the management to evaluate and mitigate these potential risks.

(f) Segment-wise or product-wise performance

The Company operates in three segments i.e.

(a) Manufacture and sale of FIBC, Bulk Bags, Poly Tarpaulin, Woven Sacks/Bags, Box Bags, PP/HDPE Fabric, Liner, Mulch Film, Vermi Beds and other flexible packaging and

(b) Trading of Granules

(c) Solar Power generation.

The segment for Manufacture and sale of FIBC, Bulk Bags, Poly Tarpaulin, Woven Sacks/Bags, Box Bags, PP/HDPE Fabric, Liner, Mulch Film, Vermi Beds and other flexible packaging meets the quantitative thresholds and is considered as reportable segment. Financial information of all other segments have been shown in ‘All other Segments.

(g) Future Outlook

Driven by lightweight, customized product features, user-friendly, sustainability advantages and enhanced packaging options the product base of the Company has the potential to maintain positive growth through demand emanating from international as well as domestic industries. In the domestic market, the industry is also envisaged to receive a boost from agriculture, mineral, petrochemical industries and various industrial markets who are opting for FIBC as packaging option. Internationally, the FIBC industry is estimated to demonstrate firm growth driven by demand from new markets like Latin & Central America, Eastern Europe & some parts of Africa. Also, acceptability and increase in usage by the pharmaceutical and food industry across the globe will have positive impact.

(h) Risk and concerns, internal control systems and their adequacy

The Company is engaged in the business of manufacturing and export of containers and packaging materials, which is associated with normal business risk as well as the imbalance of demand-supply of products in the domestic as well as international market. We are subject to foreign currency exchange rate fluctuations which could have a material impact on our results of operations and financial conditions. There are no risks which in the opinion of the Board are of the nature that can threaten the existence of the Company. However, the risks inter-se that are generally dealt in regular course of business and have to be taken care of are -economic risk, technology risk, fluctuations in foreign exchange rates and raw material prices which the Company regularly monitors with a proactive approach adopted by the management to evaluate and mitigate these potential risks. The Company has a well-defined Policy for Risk Mitigation on foreign exchange by adopting hedging strategies. Global as well as Indian economic and political factors that are beyond our control, influence forecasts and may directly affect our business operations.

The Company has a Risk Management Policy and adequate Internal Control System in place. The main objective of this Policy is to ensure sustainable business growth with stability and to promote a pro-active approach in reporting, evaluating and resolving risks associated with the Companys business. In order to achieve the key objective, this Policy establishes a structured and disciplined approach to Risk Management; in order to guide decisions on risk related issues. Internal Control System is commensurate with the size, scale and complexity of its operations. The Company continuously reviews its various types of regulatory, financial, operational, environmental and other business risks. There are adequate systems to ensure compliance of all various statutory and regulatory requirements and review the same from time to time and to take appropriate actions from time to time. There is a greater demand for Indian products as an alternative to Chinese ones. Further, due to its cost-effectiveness compared to alternative packaging options, plastic bulk packaging is becoming more prevalent.

(i) Discussion on financial performance with respect to operational performance.

The Boards Report has specifically dealt with the subject under the headings ‘Summarized Profit & loss Account and State of Companys Affairs & Review of operations

(j) Material developments in Human Resources / Industrial Relations front, including number of people employed.

We believe that our employees are key contributors to our business success. We focus on attracting and retaining the best possible talent. Our Company looks for specific skill-sets, interests and background that would be an asset for our business. Many initiatives were taken to support business through organizational efficiency, process change support and various employee engagement programs which has helped the organization to achieve higher productivity level. A significant effort has also been undertaken to develop leadership as well as technical/ functional capabilities in order to meet future talent requirement.

As on March 31, 2023we have 2281 employees on payroll. Company is committed to provide necessary training / conducts development programmes to imbibe necessary skills required within the employees. The management of the Company enjoys cordial relations with its employees at all levels.

(k) Details of Significant Changes in Key Financial Ratios

Ratios Numerator Denominator FY 22-23 FY 21-22 Deviation by >25% Reasons
Current Ratio Current Assets Current Liabilities 1.95 1.77 10.66% NA
Debt-Equity Ratio, Total Debt Shareholders Equity 0.54 0.69 -21.51% NA
Debt Service Coverage Ratio, Earnings available for debt service Debt service = Interest & Lease Payments + Principal Repayments 1.59 2.31 -31.08% Compare to last year earning is Low and Principal Repayment is at same pace, hence Ratio Negative
Return on Equity Ratio Net Profits after taxes- Preference Dividend Average Shareholders Equity 0.07 0.20 -63.71% Compare to last year earning is Low and Principal Repayment is at same pace, hence Ratio Negative
Inventory Turnover ratio, Sales Average Inventory 5.23 5.80 -9.92% NA
Trade Receivables turnover ratio, Total Sales Avg. Accounts Receivable 9.29 11.40 -18.49% NA
Trade payables turnover ratio, Net Credit Purchases Average Trade Payables 13.79 17.16 -19.66% NA
Net capital turnover ratio Net Sales Average Working Capital 5.39 7.56 -28.68% Although Sales are on same page and Working Capital at reasonable available highduring year
Net profit ratio, Net Profits after taxes Sales 2.77 5.65 -50.93% Profit is very Low compare to last year hence Negative Ratio.
Return on Capital employed Earnings before interest and taxes Capital Employed 0.08 0.15 -46.96% Profit is very Low comapare to last year and Capital employed is at same pace hence Negative Ratio
Return on investment Return on Investment Average Investment 0.08 0.10 -14.13% NA

(l) Compliance with Indian Accounting Standards

In the preparation of the financial statements, the Company has followed the Indian Accounting Standards as notified. The significant accounting policies which are consistently applied have been set out in the Notes to the Financial Statements.

(m) Cautionary Statement

Statements in this report describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable laws and regulations. The actual results may differ materially from those expressed in this statement because of many factors like economic condition, availability of labour, price conditions, domestic and international market, changes in Government policies, tax regime, etc. The Company assumes no responsibility to publicly amend, modify or revise any statement on basis of any development, information and event.

For and on behalf of the Board
Anil Choudhary
Place : Indore Chairman & Managing Director
Date : 28th August, 2023 DIN : 00017913