parekh aluminex ltd Management discussions

PAREKH ALUMINEX LIMITED ANNUAL REPORT 2011-2012 MANAGEMENT DISCUSSION AND ANALYSIS INDUSTRY STRUCTURE AND DEVELOPMENT: India has witnessed a huge transformation in economic and social growth resulting into emergence of the large Aluminium container and Kitchen Foil Industry. This industry predominantly was run as small scale operations by individual operators but has been transformed into organized structured Industry recognized as Packaging products mainly in Food sector, Caterings, Railways, Airlines, Hotels, Restaurants, etc. Aluminium being biodegradable and good for Food packaging, the Industry is gradually migrating into a FMCG sector. Further the product application for Aluminium containers has been into Health and Hygiene sector also like Hospitals and Health centres resulting into a sector being termed as Aluminium Consumer goods sector. Currently India has limited players in organized sector in Aluminium Containers and Kitchen Foils. Hardly couple of players may fall in category of unorganized and organized players while on small scale and local area basis there may be few more who have insignificant share in market making. The Country has been seeing huge demand of this products due to increased urbanization and hygiene awareness resulting into growth by existing players and also few global Companies are trying to market their product initially and may get into operations as and when they find the market ready for their products. Further the Company is constantly introducing newer products for newer application for newer markets; thereby increasing the overall market of the products. FINANCIAL PERFORMANCE: Economic growth in India during the last year has distinctly slowed down. Industrial growth was soft and not in a buoyant mode. There was no encouraging reports from Indian Exports. Despite the gloomy situation, Parekh Aluminex Limited (PAL) registered a sales growth of 49% in the domestic market and 73% in the export market. EBIDTA grew by 56% and profit after tax grew by 26%. Domestic Sales grew as a result of the Companys expanding market presence due to increase in applications of the product, enhanced need for hygiene and awareness about the eco friendly nature of our products. The Company also started sales to big retailers like Bharti Walmart, Reliance, Big Bazaar etc. Export business grew with growth coming from US and UK markets. EBIDTA to Sales was 17.92% last year, this year it is 18.38%; there is an improvement of 2.57% due to economies of scale and better efficiencies. Net Profit to sales was 7.45% last year, whereas this year it is 6.18%. The deterioration is due to high finance cost as compared to last year due to higher borrowings. Since the Company has entered absolutely nascent retail market of foil containers & foil rolls, with more than 250 varieties the inventories have gone up. OPPORTUNITIES: The young population, urbanization, international exposure to the current people, environmental rules and regulations, nuclear family concepts, huge demand for improved hygiene levels, huge growth in retail markets, provides huge opportunities to scale up this business and industry will see huge multiple growth in years to come. THREATS: * Substitution with other packaging material * Not meeting the demand due to production constraints * Managing the new retail business viz: logistics, selling chain, etc. However substitution product to be successful needs to be cheaper, eco- friendlier and better than the Companys products. Company shall plan expansion in advance to meet the demand and with a strong new management team the new retail business should be able to be managed effectively. RISKS AND CONCERNS: All the plants of the Company are at one location. Due to that Company derives huge economies of scale & efficiencies. But there is always a risk of any natural/unnatural eventualities occurring; that shall effect the entire operations of the Company. Since Company is entering retail sales; there would be challenges over supply chain, logistics etc. inventories and debtors level is expected to be high till such time that the retail business stabilizes. Demand not matching up with the supply as by the end of 2012-13 production capacities of the Company would be almost at the optimum utilization. There could be a slight drop in the bottomline in case of finance cost going up. CURRENT YEARS OUTLOOK: Going forward Company plans to focus more towards retail business, product brand building, develop custom made products for food chains. This will result in a fundamental change in perception about the Company and there will be lots of value addition thereby increasing the bottom line of the Company. Branding of the Companys product range will also improve the image of the Company. Company has also started sales of coloured foil containers and foil rolls, which not only gives edge to the product line but also creates value additions. Company is also in process of putting various systems/processes in place, so that eventually the Company is system/processes driven. We are also in the process of building a much stronger and professional team in various faculties to facilitate smooth working. Based on Companys order book position and execution capabilities; we are hopeful of achieving 40% growth in the topline of the Company. We also expect to increase our retail business share. This year the team, logistics, branding and advertisements would be in place along with the entire supply chain to launch the retail packs of foil containers and foil rolls. We target to have everything in place by this year end so as to kick start the business from early next year onwards. In the current year we shall also be exploring new markets for exports. Overall we look to the immediate future with optimism & sense of well being.