kanchan international ltd Management discussions

KANCHAN INTERNATIONAL LIMITED ANNUAL REPORT 2011-2012 MANAGEMENT DISCUSSION AND ANALYSIS 1. INDUSTRY STRUCTURE & DEVELOPMENTS The Consumer Electronics and Appliance Manufacturers Association (CEAMA) has put its growth estimates, for the home appliances industry at 20 per cent for 2011-12. Over the last five years, most companies in the home appliances basket have seen sales grow at a compounded rate of 25-30 per cent annually. Changing demographics in society, with more nuclear families and increasing percentage of floating population is one-key reason for the growing demand for home appliances. The growing rural demand is another factor that is helping home appliance makers grow sales. The CEAMA opines that over the next five years, rural India will consume 20 per cent of the consumer durable industrys production. On the profit side too, the picture has been quite good for home appliance makers. However, during the year serious inflationary trends were continued to be felt at consumer price levels. The rupee also depreciated sharply which had an adverse impact I across all sections of the economy. Rising cost of inputs such as steel, aluminium, copper, etc. have added to the production cost significantly over the last one year. Maintaining profit margins has been a tough job & there has been a clear dip in operating margins. The Central Government has increased the excise duty on various products including your Companys products. The increase is between 1% and 2%. This will have a cascading effect and push up the end prices of the products. Increase in cost of fuel & electricity and inputs required for production of home appliances add to the cost of the products. However, your Company continues to focus on producing new products of high quality of different price range, penetration in rural markets, exploring global markets, improvement in sales strategy and in turn building brand image leading to the path of profitability. Reduction in excise duty on pressure cooker, brand building and electrification of rural markets shall lead to better performance in upcoming years. 2. OPPORTUNITIES & THREATS Opportunities * Strong Brand. * Strong distribution network * Global presence * Established leadership position in home appliance segment. * The implementation of VAT should help to remove the disadvantage due to activities of unorganized sector. Rise in purchasing power of people Threats * Cheap imports from China and Far East * Uncertain Monsoon * A large number of players in the unorganized sector enjoy price advantage either due to tax concessions or SSI status. Increase in cost of fuel & electricity 3. RISK & CONCERNS Penetration in rural markets: The industry fortunes are linked to the rural income, which is depending to some extent on agricultural production, government off take and monsoon in the country. Globally competitive market: The Indian Market is facing tuff competition from global markets including new entrants. Due to high technology support and Research and Development, Global competitors are able to produce innovative and value-for-money products. Indian appliance producers have failed to focus on harnessing the power of theirbrands in smaller town markets and lower price points. Small town customers today are equally bitten by the consumerism bug and global players have successfully banked on this opportunity to drive penetration of their products into these untapped areas. The domestic, regional and global macroeconomic environment directly influences the demand of consumer durable products. Any economic slowdown can adversely impact demand supply dynamics and profitability of all industry players, including Kanchan. However, the Companys operations have historically shown significant exposure to the resilience to the fluctuations of economic and industry cycles, with demand for most of its key products continue to grow at healthy rates even at times of an overall economic slowdown. Kanchan has insured its assets and operations against a wide range of risks, as part of its overall risk management strategies. The export constitute a very small part of Companys sales and is also not dependant on global markets for imports and since Indian economy is not badly hit due to global slowdown, your company does not see any negative growth. Currency fluctuation related risk: The falling of Indian Rupee in the International Market has impacted our import. The Fluctuation in the Indian Currency has adversely impacted our buying Costs. 4. INTERNAL CONTROL SYSTEMS & THEIR ADEQUACY We have always believed that transparency, systems and controls are important factors in the success and growth of any organization. Your Company has a proper and adequate system of Internal Controls, to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposal and that transaction are authorized, recorded and reported correctly. Your Company has appointed Mr. Anil Jain as Internal Auditor of the Company. Mr. Anil Jain carries out the internal audit and internal control/systems on periodic basis, close monitoring thereof to strengthen and modify the same from time to time to meet the changing requirement of the Company. The deviation from the norms are first informed to the concerned operating person for corrective actions and in case of need, these are brought to the notice of the concerned head of the unit or the department, as the case may be. The Internal Auditor constantly looks into the areas where there is a possibility of saving in cost and submits his suggestions to the concerned operating departments. All major findings and suggestions are complied and reported to the Audit Committee of the Directors on a quarterly basis or earlier if so required. It operates at all the Plants at Daman and other business locations but centrally controlled from the corporate office at Mumbai. We believe that we have a sound internal control system in our Company. 5. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE: Management Discussion and analysis of the Companys operations and financial consolidation together with discussion on financial performance with respect to operational performance should be read with conjunction with the financial statements as given below: FINANCIAL PERFORMANCE: (Rs. in Lacs) Financial Year ended 2011-12 2010-11 2009-10 2008-09 2007-08 Sales 4085.76 4419.73 3703.61 3466.43 2852.00 Profit before depreciation, Interest & Tax (EBD1T) 1364.74 469.73 170.93 242.21 (262.97) Depreciation 46.89 48.29 48.24 45.08 44.92 Profit After Tax 16.42 (60.22) (109.13) 3.59 (437.41) Equity Share Capital 36.864 321.01 321.01 321.01 321.01 Reserves & Surplus - - - - - Earnings per Share 0.51 (1.88) (3.40) 0.11 (13.63) Sales per Share (Rs.) 110.83 1137.66 115.37 107.99 88.86 6. MATERIAL DEVELOPMENTS ON HUMAN RESOURCES/INDUSTRIAL RELATIONS The biggest strength of the Company has always been its people. Only with their participation we have managed to achieve a healthy work culture, transparency in working, fair business practice and a passion for efficiency. The Company follows a unique, homegrown philosophy of allowing people to set their own targets and give them the freedom to achieve them: I can. This philosophy has spread across all our employees and has been a constant source of motivation for our people. Further, to enhance their skills and enrich their experience, the Company provides continuous training. This includes workshops, courses, seminars and visit to the Companys plants. Of late, we have also started in-house conferences for various disciplines. Employees from all our offices are invited to participate. It is a useful forum for sharing experiences, ideas, innovations and developmental work undertaken in their respective work places. From the beginning, we have followed a progressive policy of taking keen interest in the well-being and progress of our people. All of this, we believe, has nurtured a strong sense of belonging among our people. 7. CAUTIONARY STATEMENT Statement in the Management discussion & analysis describing the Companys objectives, projections, estimates & exceptions may be forward looking statements within the meaning of applicable securities laws & regulations. Actual results could differ materially from those expressed or implied. Important factors that could make difference to the companys operations include economic conditions affecting demand/ supply and price conditions in the domestic & overseas markets in which the company operates changes in the Government regulations, tax laws & other statutes & other incidental factors. 8. FUTURE OUTLOOK: Our focus, as in the past has always been to continuously strengthen our competitive position through aggressive test management, excellent operational efficiencies without sacrificing the long term growth of the potential of our business. We expect to deliver higher volume in all our businesses. We also expect the market to stabilize in the near future. We further expect that our intensified focus on cost control will yield result and that we derive additional benefit from our going programme to reduce our operating cost. We aim to complete our ongoing projects on or ahead of schedule and within budgets. Despite negative market condition and extremely competitive market, we remain focused on our basic objectives of achieving a least cost position and developing low capital cost position and developing low capital cost projects. We have responded decisively to current market conditions and remain very well placed to prosper through the commodity cycle.