powercell battery india ltd Management discussions

POWERCELL BATTERY INDIA LIMITED ANNUAL REPORT 2005-2006 MANAGEMENT DISCUSSION AND ANALYSIS Operational Review * Current Operations After a very healthy growth during the 12 months to March 2005, the period of 12 months to March 2006 registered a modest 3% growth by volume for the Indian battery market. Given this overall situation, the Companys sales for the current 18 months period was nearly 25% lower in value over the corresponding previous 18 months. Such decline was not related to the market, but several internal issues including inability to supply as per demand of the market due to an industrial unrest in the Companys manufacturing location at Maddur. These issues which contributed to the decline were arrested after the takeover of the Company by EIIL, which is the largest dry battery marketer in the country. EIIL not only brought in management expertise for quick improvement, but also the ability to supply products from its various manufacturing locations thereby providing enormous flexibility to your Companys supply chain. Last 4 months during the current 18 months period i.e., effectively the period after this takeover, your Company had a volume growth of 3 % over the corresponding period in the previous year in line with market growth. After the takeover by EIIL, your Company successfully entered the very large D Bare Bottom segment of the dry battery market. Your Company was unrepresented in this segment and this entry will be of great benefit to your Companys operations in the years to come-both in terms of market share and profitability. During the period under review the battery Industry witnessed unprecedented rise in prices of major input materials, led by very bullish trends in zinc, which accounts for nearly 50% of the cost of a zinc carbon battery. Your Company was able to increase its selling prices considerably in order to offset the rising input costs. Price increases were taken across all products. However, there was a lag between the incurring of increase in costs and the consequent implementation of the price increases in keeping with the supply chain throughout. Your Company had to incur some losses due to this time lag. Among other operations, your Company continued to be a supplier to OEM customers of repute. However, there was some decline in the Companys flashlights business attributed to the same issues prevailing within the Company prior to its takeover by EIIL. However, this business was addressed with priority in the last 4 months of the period under review and results seemed to be encouraging. * Prospects As already mentioned above, your Company was restricted by operational constraints in the period under review, as a result of which the potential of its brand and distribution did not get fully exploited. However, now that it is part of a Group comprising of a very dominant Industry player, growth fuelled by marketing and manufacturing synergies is expected to yield quick results. All indications point to an economic growth of 8% and such growth is expected to reflect in the Companys performance. Accordingly, your Company has prepared an aggressive growth plan in the forthcoming year. The plan revolves around driving volumes in the Bare Bottom D segment and improving upon franchise already created in the AA and other D segments. Branding through market level initiatives and also building a significant distribution have been the cornerstone for your Companys success. Significant improvement is now being sought in both branding as well as distribution, so that these propel your Company to further success in the years to come. While prices of most input materials have now stabilized, zinc continues to be in a bull run. Market level strengths of your Company will allow it to pass on the adverse impacts whereby profitability will be protected. Your Company will continue to focus and build on its fash lights business operations taking advantage of its holding Company, EIILs overwhelming dominance in that Industry.