p c i ltd Management discussions

PCI LIMITED ANNUAL REPORT 2008-2009 MANAGEMENT DISCUSSION AND ANALYSIS 1. INDUSTRY STRUCTURE AND DEVELOPMENT OUTLOOK: PCI limited and other companies under the Prime Group principally operate in Power and Energy Sector which is a part of larger Infrastructure sector. In the 11th Five year plan, investment in infrastructure sector is likely to increase to around 8% of GDP compared to 4.6% in the 10th plan period. It is estimated that the spending on infrastructure will be around Rs.23,850 billion in the 11th plan period. The spending is planned across the various segments with Power likely to see the maximum spending of approx. 30% of the total outlay during the 11th plan period. Consequently the 11th plan allocation on Power and Energy sector is approx. Rs.7155 billions. The potential for growth in power sector is tremendous. A few key indicators of potential growth are as follows: 1. With the overall growth in economy, the demand supply gap is ever increasing inspite of continuous addition of new capacity. 2. The per capita consumption of electricity in India is still 612 kWh against 1802 kWh in China, 2980 kWh in middle east and 8365 kWh in OECD countries( as per key World energy Statistics 2007). 3. The transmission and distribution loss is around 30% as against international average of around 7%. 4. The distribution system in India is characterized by inefficiency, low productivity, frequent interruption in supply and poor voltage. In order to overcome the above problems. Government of India has initiated a number of reforms since 2003 viz. Electricity Act 2003 securitization of SEB dues to attract more private investment, distribution reforms under which Power thefts have been made punishable offence, APDRP was launched to improve T & D infrastructure in the country and electricity regulatory commission has been set up at the state level to delineate tariff setting from politics. All this is resulting into revolutionary growth in the Power sector and all industries associated with Power are due to be benefited hugely for at least next two decades. 2. SEGMENTS: I. PCI- CONDITION MONITORING & TESTING AND MEASURING EQUIPMENTS DIVISION: In order to cater to the Power Generation, Transmission and Distribution industry, a variety and range of testing and maintenance equipments are required for preventive and predictive maintenance. The demand for these products is commensurate with the growth of the Power sector. PCI has a wide range of testing and measuring products for preventive/ predictive maintenance and condition monitoring as well as for HV and EHV testing, which are used at various stages and are indispensable for smooth and effective generation, transmission and distribution of Power throughout the length and breadth of the Country and beyond. The products are technically and technologically the best in their segment in the world as they are manufactured by international market leaders with proven track records globally. To synergies the products with the geographical realities of India and the region, PCI possess a vast network of sales and service centers and a large pool of seasoned engineering professionals who are continuously trained and updated by OEM with ever changing technological advancements. The ground level experiences of these professionals are also accounted for while implementing technological upgradations. All these factors place the Company in a unique position in the market and give it a perfect platform to grow in future to newer heights. ii. PCI-UPS DIVISION: The power availability situation in India is facing problems on two fronts: Quantity and Quality. While there is acute shortage of Power, whatever is available also lacks in quality The growth of various sectors of economy has led to a situation where the quality of Power to run the machines/systems has become indispensable. The running of any IT system, Banking System, Telecom System, Process Machinery, Rocket Launching System, any administrative set up (to name a few), cannot be conceived without a Uninterrupted Power Supply (UPS) system attached to it, as the losses it will incur in absence of UPS may be incalculable. Today the Power consumer of all kinds, looks upon UPS system as answer not only as alternate source of Power in absence of regular supply, but also as a means to ensure conditioned (Quality) power. As a result, the UPS industry is very upbeat The growth has been witnessed across all segments. The culture of POWER MANAGEMENT is increasingly being inculcated by all kinds of organisations. The UPS division of the Company caters to almost all segments and range varies from 10 KVA to 40 MVA with different technology base. As a result, the division has grown in leaps and bounds and the future is certainly very optimistic. The division intends to be market leader particularly in the Application Industry segments which possess a very strong brand loyalty for our products. All the product lines that the division is into are foreseeing good growth in their respective industry segments. The division is providing power solutions specially designed to meet the needs of internet data Centres with special enhanced features - like efficiency & reliability. Moreover, as the industry is shifting towards smaller and more efficient designs coupled with competitive prices, the division has planned to expand its horizon in the smaller KVA with Branded products, where only local players are existing currently. The government, both at the central & the state level, are driven by IT and has been the major buyer of UPS products. These trends are resulting in a higher dependence on UPS systems for power protection and for power conditioning. iii. PCI- MANUFACTURING DIVISION: Change is the only constant in the technology driven Power Sector. A lot of work/research is being carried out on the technology front to help achieve the Demand requirements and also provide Quality Power at the doorsteps of the end user. Efforts are being made world wide to device methods for reducing the transmission and distribution losses, cost of generation, generation of green energy etc. The Manufacturing division of the Company is primarily engaged in Production of Sub-assembly and vital parts of steam turbines of up to 500 MW including turbine blades, developed with in-house R & D activities and this division is primarily focussed on in-house product development as well as for various customers. It broadly works on threeplatforms, Precision Engineering, Investment casting and Product development. It has successfully developed many parts/ assemblies which have resulted into import substitution. It regularly gets development cum manufacturing orders from various esteemed customers including BHEL, and successfully develops the prototype followed by regular production. The Company sees very high potential in the division in coming years vis-a-vis the market scenario followed by regular supply orders, which are constantly on the increase with huge ongoing growth of the power sector in the Country. iv. PCI-OTHER BUSINESS: a. WIND ENERGY: In keeping with its commitment on contributing to the green and clean environment, PCI has invested in Wind energy and has installed three Wind Mills of a total capacity of 4.5 MW in the State of Gujrat. The wind mills are already operational for more than a year and are generating revenues for the Company apart from contributing to the nation by generating green power. b. AVIATION AND AEROSPACE DIVISION: PCI is also nurturing an aerospace and aviation division in which it is dealing with small two seater and four seater aircrafts in tie-up with an Austrian major, Ground Support Systems from Germany etc. This division has already started contributing to the Companys revenue and profits. Keeping in view the economic growth of the country, the demand for small aircrafts is expected to increase considerably in future for several applications including for pilot training, surveillance. Mapping etc. c. PROJECTS DIVISION: PCI has a separate projects division which is responsible for execution of turn key projects undertaken by the Company. Presently the division is engaged in execution of a project for Railways for setting up Coil Spring manufacturing plant at Gwalior, a Substation construction Project in Jharkhand and an EPC project for setting up an Hydro based power plant in Himachal Pradesh. 3. SUBSIDIARY: During the last financial year, three subsidiaries were incorporated with the idea of reorganizing the operational outlook of the Company. PCI EUROPE GmbH was incorporated in Germany to focus on the business related to Europe, while PCI Asia Pacific Pvt. Ltd., was incorporated in Hong Kong to synergies the business of the Company with Asia Pacific region. Both are 100% subsidiaries of the Company and have commenced operation during the year. Another subsidiary with the name and style of PRIME ELECTRIC LIMITED has been incorporated for entering into business of manufacture of Extra High Voltage (EHV) Power Transformers. The project is already under implementation with the acquisition of approx. 100 acres land in Nellore, Andhra Pradesh in a multi activity SEZ. The order for major plant and machinery has been placed and the factory construction activity has already started. A team of experts from the transformer field including some veterans with considerable experience in this specific line and also in power sector overall, have been appointed for the execution of the Project and for its operations thereafter. The commercial production is expected to begin by end of 2010. The demand for such transformers is tremendous and all the existing transformer manufacturing Companies are overbooked with orders, including in India. The project is expected to result in total transformation of the Groups fortunes in coming years. All the activities put together and with additional investment (proposed) of approx. Rs.200 Crores, the Company, including its Subsidiaries, has a vision of achieving a turnover of Rs.1000 Crores in next 3-4 years time. 4. OPPORTUNITIES, RISKS AND CONCERNS: Since the Indian economy is a growing economy, the opportunities for the company in all the fields in which it is operating are tremendous. In the yesteryears, the Company has been successful in setting up a sound operational and financial platform from which all its future projects can take off well. However, growth and sustainability of every business depends upon that of other businesses as well and hence, future growth of the Company is largely linked with the growth story of India which is quite positive. Moreover, the technology market is fast changing and is often plagued by obsolescence and a critical check on the same is necessary for continuous growth. 5. INTERNAL CONTROL SYSTEMS: The Company has for long appointed independent Internal Auditors who regularly conduct internal audit and give periodic reports to the management. The observations of the internal auditors are also presented before the Audit Committee of the Board of Directors. Apart from that, the Audit Committee also formulates and monitors the internal control system in the Company. For day to day controls of the operations of the company, adequate checks and balances are in place in every department and are also subject to review by top management. Company also has a Corporate Governance Committee in place which guides the Company in establishing, implementing and maintaining sound Corporate Governance policies and practices, statutory or otherwise. 6. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE: During the financial year 2008-09, the Company has recorded a consolidated turnover of Rs. 14586.01 lacs (previous year Rs. 11607.16). The Company has also achieved indirect turnover of Rs. 11701.76 lacs during the current financial year as compared to indirect turnover of Rs.8596.00 lacs for the financial year 2007-08, thereby achieving a total direct and indirect turnover of Rs. 26287.77 lacs and recording an increase on total turnover by 30% over the previous year. 7. HUMAN RESOURCES: The Company gives utmost importance to its Human Resources. Training and developmental programs are regularly organized. The structuring of various departments/profit centres are periodically reviewed to ensure maximum output and employee satisfaction. The attrition is very low as compared to industry average. 8. AWARDS AND RECOGNITIONS: The Group and its founder Chairman, Mr. SURINDER MEHTA have been conferred with many awards from various organizations for its contribution to the Country and the society in various spheres of life. The most prestigious PADMA SHRI has been conferred to Mr.Surinder Mehta for his contributions in the field of Technology Solutions by Honorable President of India on Republic Day 2009. Apart from the above, some of the other prestigious awards conferred on to the Company and to Mr. Surinder Mehta personally are UDYOG RATNA AWARD, PRIYADARSHINI INDIRA GANDHI AWARD, RAJIV GANDHI EXCELENCE AWARD, DISTINGUISHED ENTERPRENURSHIP AWARD by PHD CHAMBER OF COMMERCE & INDUSTRY, AMITY HR EXCELLENCE AWARD, NATIONAL BUSINESS LEADERSHIP AWARD, GE SALES CHANNEL RECOGNITION AWARD, BUSINESS SPHERE AWARD, ASHOKA AWARDS, RASTRIYA VIKAS SHIROMANI AWARD, ISNT-MUMBAI AWARDS, BUSINESS INITIATIVE DEVELOPMENT AWARD, THE PRIDE OF MILLENIUM AWARD, RATAN SIROMANI AWARD,ARC OF EURPOE GOLD STAR AWARD to name a few. CORPORATE SOCIAL RESPONBILITY: PRIME GROUP is committed towards social responsibilities and it discharges the same through various entities under the group. One of the Companies under the group namely ENDOLITE INDIA LTD is the social venture of the Group. This Company is a Joint Venture of International Society for Human Welfare and Rehabilitation (ISHWAR), the charitable society founded by the Prime Group and Chas A. Blatchford and Co. Ltd., England. The Company specializes in Prosthetic and Orthotic fitments of all kinds including cosmetic restorations. The technology used by it is one of the best in the world and as a result, the amputees/physically challenged people using the fitments feel almost natural replacement of the amputations. The Company has fitment Centres all over the Country including one in Bangladesh. The Company is in existence since 1996 and so far it has been successful in bringing smile to the faces of thousands of hopeless cases. It has helped them not only in living a normal life but also to pursue even those vocations which require active physical involvement. An NGO named ISHWAR (INTERNATIONAL SOCIETY FOR HUMAN WELFARE AND REHABILITION), is run by the group to provide high technology and high quality artificial limbs and other orthotic devices like Callipers, wheel chairs etc. to the physically challenged and the needy. All these activities are carried out by ISHWAR through its three dedicated centers and through various camps at different locations in the country, in association with and with assistance from ENDOLITE INDIA LIMITEDs Manpower and the Infrastructure resources of the Prime Group. ISHWAR organization serves the poor segment of society and the destitute who cannot afford by their own means. The NGO has also been actively involved in healing the pain of victims of natural calamities and otherwise. It has generously distributed aid for Delhi Bomb Blast Victims, Gujarat Earth quake victims, Pakistan Earth quake victims apart from organizing various donation camps every year on World Disability Day. The NGO is dedicated to serving the poor and down trodden in every possible way. The ISHWAR NGO also provides scholarship support to a large number of young students to pursue their education with dignity. The manufacturing division of PCI LTD. has a dedicated unit for manufacture of high quality Prosthetic and Orthotic Products. The unit possesses machines imported from ITALY and UK. The prime purpose of this unit is to support ISHWAR NGO and ENDOLITE INDIA LTD. by indigenously providing , superior quality hi-tech products at affordable cost. The division produces many such products viz. Ranger Foot, Aqua Limb, Safety knee joint and Caliper type knee joint to name a few. This is bringing in a huge difference in the quality and technology of such products in use by a large number of NGOs across the country apart from Endoliteand ISHWAR organizations of the Prime Group.