kitply industries ltd Management discussions


MANAGEMENT DISCUSSION AND ANALYSIS REPORT

INDUSTRY STRUCTURE AND THE DEVELOPMENTS

PLYWOOD INDUSTRY

India’s plywood market is pegged at Rs. 20,000 crore with the branded plywood segment accounting for a small share (Rs. 4,500 Crore, 2013-2014). The annual industry growth rate of 5-7 % is creating an annual incremental opportunity worth Rs. 1,000 Crore. There has been a significant transition in the nature of plywood consumption over the last two decades; from a point where plywood accounted for 50% of the investments in interiors it accounts for only 10% today, indicating that the cost of plywood is now no longer a deterrent. In India, the demand for panel products is estimated at 8 million cubic meters, against the current production of 3.4 million cubic meters, 85% of which is plywood, as against the world average of 20%.

Fiscal 2014 was a difficult year for the Indian economy with the GDP growth ratre falling to its lowest in the decade. A receding economy, rising inflation combined with heightened interest rates, High risk weight- age for loans, volatility in exchange markets had an adverse impact on the savings ability of the population leading to a decline in demand for housing and real estate which had an direct impact on the demand for plywood and panel products. The slowdown has also resulted in slippage of productivity growth in the past few years.

The plywood industry had been under severe stress where small and medium sizes Industry have suffered heavily. High cost of production, low volume, expensive brand promotion, tight monetary situation, high finance cost, timber export ban from Myanmar and maintenance of quality have been the key issues.

Recently, the centre has given a major incentive to the states to engage private developers by agreeing in doling out 25% of the total cost of external services such as drainage, roads, sewage and a water supply as grant to state governments. Consequently, the meltdown may soon make housing for the masses a reality.

Since plywood, Boards and laminate related products are essential part of construction, the demand for these products is directly related to the growth of infrastructure and real estate sector. Thus with continued government focus on infrastructure and real estate sector the demand for plywood and other allied products is expected to remain buoyant.

The furniture vertical is the second largest wood processing segment after timber and logs, making India a fast emerging market for high end, value added imported products. The branded higher quality wooden furniture industry is growing at 15% annually, while the manufacture of pre fabricated doors and windows is relatively new and is growing at 10% per annum. The increasing demand of plywood in the furniture vertical will further accelerate the growth of this industry.

FUTURE OUTLOOK, OPPORTUNITIES & THREATS

Wood and wood based industry play a vital role in fueling the growth of the Indian economy. This industry has true potential to grow manifolds from the existing levels and is poised for a sustainable growth annually. The last decade has seen India become the manufacturing hub for the global markets. The wood, plywood and allied product industry are one of the key sectors having immense potential as India is one of the major wood users in the Asia Pacific region. The long-term future of the plywood industry continues to be positive.

Substantial increase in the prices of raw material has affected the profitability of the plywood companies and the uncertain global situation would continue to pose a threat to the profitability of the Industry.

But the industry still has a grouse - that the government has not given it any support or preference, despite it being an alternative to precious forest wood in the field of research and development. Competition from both unorganised and other organised players has led to difficulties in improving market share. Moreover the industry is facing a raw material shortage of 30-50% and stringent pollution norms, which may be a big threat in future.

RISK AND CONCERNS

Wherever necessary and possible, insurance cover is taken for risk mitigation. The Management does not perceive any major technological or environmental risk to the Company in the near future except for risks emanating from working capital shortage. There is severe working capital constraint in the organization and the Company has filed reference thereunder to the Hon’ble Board for Industrial and Financial Reconstruction (BIFR) for revival which has since been registered as Case No. 23/2012 and the matter is currently pending before the Hon’ble Appellate Authority of Industrial Financial Reconstruction (AAIFR).

SEGMENTS WISE PERFORMANCE

The Company mainly operates in the plywood manufacturing business.

The Company also has an Agro-Forestry Division wherein it carries out plantation activity in a large ongoing agro forestry project covering an area of 1326 acres in the districts of Durg and Raipur in Chhattisgarh.

The enormous pest attack which occurred in the past two years on the plantation sites has caused significant damages to the timbers resulting in rapid decline in the value of the timber plantation. The Company has filed a Miscellaneous Application before the Hon’ble BIFR seeking direction to fell the timber as a measure to mitigate loss and generate whatever funds can be generated from the salvaged timber.

INTERNAL CONTROL SYSTEM AND ADEQUACY

The Company’s internal control system has been designed to provide for :

• Accurate recording of transactions with internal checks and prompt reporting.

• Adhere to Applicable Accounting standards and Policies.

• Review of capital investments and long term business plans.

• Periodic review meetings to manage effective implementation of system.

• Compliance with applicable statutes, policies, listing requirements and operating guidelines of the company.

• Effective use of resources and safeguarding of assets.

• IT systems with in built controls to facilitate all of the above.

• All assets are safeguarded and protected against loss from unauthorized use or disposition, and that the transactions are authorized, recorded and reported correctly.

The Company has a budgetary control system and actual performance is reviewed with reference to budget by the management from time to time. The Company has a well-defined organization structure, authority levels and internal guidelines and rules for conducting business transactions.

The Audit Committee members review the Internal Audit Report quarterly and key observations are discussed for implementation and correction.

FINANCIAL PERFORMANCE

During the Financial Year ended March 31, 2014, the Company achieved Sales of Rs. 5051.01 lacs as against Rs. 6345.72 lacs for the previous year ended March 31, 2013. The loss for the year was Rs. 859.66 lacs as against Rs. 1163.16 lacs in the previous year.

MATERIAL DEVELOPMENT IN HUMAN RESOURCE/ INDUSTRIAL RELATION

Industrial Relations at all levels remained cordial throughout the year. Your Company has created a friendly atmosphere that helps retaining talented professionals and nurturing their career growth along with the growth of the organization. During the year under review your company has invested more towards appointing and retaining peoples. Your Company is confident of reaping the best from its human assets in the years to come.

QUALITY MANAGEMENT SYSTEM :

The company continues to lay emphasis on excellence in quality and services and is committed to total customer Satisfaction. The company continues to be on a mission to provide customer with products that can match with international standards and will surpass their expectations.

CAUTIONARY STATEMENT

Certain statements in this Management Discussion and Analysis, describing the Company’s objectives, outlook and expectations, may constitute "forward-looking statements" within the meaning of applicable laws and regulations. Actual results may differ materially from those expressed or implied. Several factors make a significant difference to the Company’s operations, including climatic conditions, economic scenario affecting demand and supply, Government regulations, taxation, natural calamity and such other factors over which the Company does not have any direct control.

ACKNOWLEDGEMENT

Your Directors express their sincere gratitude to the promoters, shareholders, customers and suppliers for their continued support.

The Directors also place on record their appreciation of the consistent good work put in by all cadres of employee.