sintex plastics technology ltd Management discussions

Note: For India, data and forecasts are presented on a fiscal year basis, with FY 202172022 starting in April 2021. For the April 2022 WEO, India?s growth projections are 8.9 percent in 2022 and 5.2 percent in 2023 based on calendar year.

The post-Covid-19 pandemic recovery is being hit by a potentially huge global supply shock that will reduce growth and push up inflation.

The war in Ukraine and economic sanctions on Russia have put global energy supplies at risk. Sanctions seem unlikely to be rescinded any time soon. Russia supplies around 10% of the worlds energy, including 17% of its natural gas and 12% of its oil. The jump in oil and gas prices will add to industry costs and reduce consumers real incomes. Outright shortages and energy rationing are possible in Europe if there is an abrupt halt to Russian supply. Higher energy prices are a given. Fitch Ratings has cut its world GDP growth forecast for 2022 by 0.7pp to 3.5%, with the eurozone cut by 1.5pp to 3.0% and the US by 0.2pp to 3.5%.

This reflects the drag from higher energy prices and a faster pace of US interest rate hikes than anticipated. We have lowered our forecast for world growth in 2023 by 0.2pp to 2.8%.

According to the World Economic Situation and Prospects Report, The baseline forecast is for a sharp contraction in 2022, with GDP falling by about 8.5 percent, and a further decline of about 2.3 percent in 2023.

Outlook for 2022-23:

The International Monetary Fund (IMF), in its latest World Economic Outlook report, has slashed its forecast for Indias FY23 gross domestic product growth to 8.2 per cent from 9 per cent, saying that higher commodity prices will weigh on private consumption and investment. This was one of the steepest cuts for emerging economies compared to the IMFs January WEO forecasts.

Indian economy:

India is likely to maintain its position as the fastest-growing major economy with the ADB outlook projecting a growth rate of 7.5 per cent for 2022-23 on strong investment prospects

The ADB, however, flagged inflation as a major issue mainly on account of a rise in prices of commodities in wake of the ongoing Russia Ukraine war.

"India is on the path to a sustained economic recovery, thanks to the vigorous countrywide drive to deliver safe and wide-reaching COVID-19 vaccinations, which helped reduce the severity of the third pandemic wave with minimal disruptions to mobility and economic activity," said ADB Country Director for India Takeo Konishi.

"The Government of Indias policy to improve logistics infrastructure, incentives to facilitate industrial production, and measures to improve farmers income will support the countrys accelerated recovery," Konishi said.

The IMFs projection of Indias retail inflation is now at 6.1 per cent, higher than the Reserve Bank of Indias (RBIs) forecast of 5.7 per cent.

It also expected Indias FY23 current account deficit to be 3.1 per cent, compared with 1.5 per cent expected for FY22. There was also a cut in Indias FY24 GDP growth forecast to 6.9 per cent from 7.1 per cent estimated in IMFs January report.

Estimates for 2022 and beyond:

The World Bank retained its FY22 growth forecast for India at 8.3 per cent but upgraded it to 8.7 per cent for FY23, from 7.5 per cent estimated earlier, citing improving growth prospects, especially a reviving private capex cycle.

"Indias economy is expected to grow by 8.3 per cent in the fiscal year ending March 2022, unchanged from the June 2021 outlook.

According to the governments statistics department, the economy is expected to grow at 9.2 per cent in FY22, lower than the 9.5 per cent estimate by the International Monetary Fund as well as the Reserve Bank of India.

The plastic and plastic processing industry

In FY20 (till January 2020), plastic exports stood at US$ 7.045 billion with the highest contribution from plastic raw materials at US$ 2.91 billion; plastic sheets, films, and plates at US$ 1.22 billion; and packaging materials at US$ 722.47 million.

The plastic industry in India made a promising beginning in 1957 with the production of polystyrene. Thereafter, significant progress has been made, and the industry has grown and diversified rapidly. The industry spans the country and hosts more than 2,000 exporters.

It employs about 4 million people and comprises more than 30,000 processing units, 85-90% of which are small and medium-sized enterprises.

The Indian plastics industry hosts more than 2,000 exporters. It employs about 4 million people and comprises more than 30,000 processing units, 85-90% of which are small and medium-sized enterprises.

• India exported plastics raw material worth US$ 352.04 million in July 2021, and the export during April 2021 to July 2021 was US$ 1.57 billion.

• The total plastics raw material export during April 2021 to August 2021 was US$ 1.57 billion.

• In FY21, India exported plastics raw material worth US$ 3.29 billion.

• The total plastic and linoleum export during April 2021 to August 2021 was US$ 4.15 billion and for the month of August 2021, it was US$ 754.37 million.

• The total plastic and linoleum export in FY21 was US$ 7.45 billion and for the month of March 2021, it was US$ 719.15 million.

• In FY20, plastic and linoleum export from India stood at US$ 7.55 billion.

• In FY21 export of plastic sheets, films, and plates stood at US$ 1.53 billion and packaging material was US$ 863.62 million.

• The Indian plastics industry produces and export a wide range of raw materials, plastic-moulded extruded goods, polyester films, moulded/ soft luggage items, writing instruments, plastic woven sacks and bags, polyvinyl chloride (PVC), leather cloth and sheeting, packaging, consumer goods, sanitary fittings, electrical accessories, laboratory/ medical surgical ware, tarpaulins, laminates, fishnets, travel ware, and others.

• The Indian plastics industry offer excellent potential in terms of capacity, infrastructure, and skilled manpower. It is supported by many polymer producers, plastic process machinery and mould manufacturers in the country.

• Among the industrys major strengths is the availability of raw materials in the country. Thus, plastic processors do not have to depend on import. These raw materials, including polypropylene, high-density polyethylene, low-density polyethylene, and PVC, are manufactured domestically.

Sintex Plastics Technology Limited

Sintex Plastics Technology Limited is a globally-respected plastic processing conglomerate that caters to diverse high-growth sectors. Headquartered in Kalol, Gujarat, the Company has an expansive presence in India and across the globe through its subsidiaries.

The Companys India presence is catered to by its two subsidiaries Sintex-BAPL Limited and Sintex Prefab and Infra Limited.

Sintex BAPL Limited: The Company develops and delivers custom moulding solutions to various user sectors in India. This Company also has a global presence through its step-down international subsidiary Sintex Logistics LLC.

Sintex Logistics LLC: This is the marketing and business development outfit which is sourcing solutions from the Indian operations for its US clients. The company is selling products in compliance with Buy America Act.

Sintex Prefab and Infra Limited: undertakes EPC contracts for various infrastructure projects across the nation

The Companys operations are managed by experienced professionals. Sintex enjoys a strong presence across diverse sectors and has made a name for itself by foreseeing trends and accordingly evolving and developing suitable products. Its plastic-based products have gained currency across fast-growing segments.

1. India operations

Expertise and experience have enabled Sintex to forge mutually enriching relations with all major automobile OEMs operating in India.

The Companys operating units since located proximate to all automobile assembling hubs in India, keeps attracting attention of customers for the development and supply of plastic components and assemblies for their vehicles for over past three decades.

The Company continues to enjoys presence in the high-growth Mass Transit, Electrical component spaces which over the years have emerged as important flanking revenue verticals for the Company.

Automotive Division (ICM): This segment primarily deals with manufacturing of injection-molded plastic components for the auto industry. The Groups product basket comprises exterior and interior systems, under-the-hood systems and painting of plastic parts.

Sintex BAPL has strong business relationship with Indias major Auto OEMs, like Maruti Suzuki, Hyundai Motors, Kia Motors, TATA Motors, Mahindra & Mahindra, Force Motors, MG Motors, Volvo Eicher, TVS Motors, Mahindra Two Wheelers etc.

The Company till date is successful in securing businesses it has of Hyundai Motors, Kia Motors, MG Motors, Tata Motors PVBU for design, development, and supplies to existing and new platforms.

The company has received new RFQs from Hyundai Motors & Kia Motors for their upcoming programs. These factors hold promise for a healthy performance in the current year.

Also the company is in dialogues with many Electric Vehicle manufacturers for the businesses of plastic parts. Engineering & Design capability and knowhow is seen as the companys asset and USP to win new orders.

Similar to the last year, the company continues its journey to travel from static components supplier to the more critical moving components and assemblies. This is a business space that is relatively uncluttered owing to technology barriers and high precision operations. Sintex-BAPL has made considerable headway in this direction.

Precision parts:

The Company continued to leverage its Global Key Account strategy into the precision parts space by leveraging presence in western countries and customer centric relationship.

In the electrical segment, the Company continues to enjoy a strategic supplier status from Schneider. The business remains stable with Socomec ( for thermoset components ) due to the higher demand for switches in the solar energy space and domestic increase in power distribution.

The company also remains in strategic position with BorgWarner, to supply plastic engine parts to General Motors in USA.

Management discussion and analysis

Plastic Division (PP)

The Companys custom moulding operations are classified into two segments:

1) Application-specific standard products and 2) Customer- specific products primarily catering to the automotive, Mass Transit and Electrical sectors.

Application-based custom moulding: This is the flagship vertical accounting for more than 70% of the Companys revenue. Under this vertical, the Company has developed niche solutions for critical applications that are high on the Governments priority list. In addition, the Company is focused on expanding its presence in India Inc. with the Key Account Management process. As a result, new customer addition and strong business relations with existing corporates are also making a significant contribution to business growth.

Customer-specific custom moulding: As the name suggests, the Company designs and develops components as per customer specification. While product development and approval take considerable time, once approved customer stickiness is high owing to prohibitive switch-over costs leading to long revenue visibility and high profitability. While the Indian operations are primarily concentrated on developing components for the automobile sector, the team is working on making inroads into the domestic Mass Transit, Electricals business spaces.

I) Application-based custom moulding

1. Water storage solutions

2. Plastic section

3. Sub-ground structures

4. Environment and Pollution management products

1. Water storage solutions

Over the last three decades, the Company has created a product for every application and price point - positioning it as a one-stop-shop for all water storage needs of consumers.

The water storage segment remained the key driver in sales Turnover. This was owing distribution expansion in North, East, South India, a greater focus on retailer performance.

In this space, the Company has segregated its brand portfolio into two categories - Value drivers and mass volume - for focused marketing. This year overall business performance remained low due to economic slowdown and covid impact . Working on theme of Health and Hygiene company launched four upgraded new products in the market in the last quarter of the year . Premium product Pure has been upgraded to Anti microbial giving features of Anti bacterial , anti algae , anti viral and anti fungus. Sintex ACE water tank has also been launched with Anti bacterial features. New white variant of Double wall and RENO tank has also been launched to cater the growing demand of white water tanks at different price points .

To maintain its leadership position, the Company carried forward key initiatives under the "Sintex Hamesha" brand umbrella.

• "Services" vertical and a network of authorised service partners who provides installation, accessory selling & after sales support. This vertical started generating revenue through the sales of services and accessories.

• Branded Retailer Loyalty Program where high-performing retailers will be recognised and rewarded.

The team leveraged the digital tool to improve market penetration and sales productivity:

• Super Sales mobile app for all frontline sales employees

• Modernised the DMS distributor management system

2. Plastic sections

This business space focuses on providing safe, durable & cost-effective products, designs & solutions for the rapidly improving lifestyle of the average Indian. The Company has divided this business into four portfolios- 1) Doors 2) Kitchens & Furniture 3) Walls & Ceilings and 4) Plastoboards.

Since aesthetics play a deciding role in sales, the Company developed several new colors, shades, and designs in each sub-category aligned to diverse regional tastes and preferences. The production capability has been developed to enter into Interior section range of products .

In addition to new product launches, the team strengthened its connect with carpenters through innovative education programs. The business development teams worked closely with decision makers, opinion influencers, and channel partners to improve awareness and accessibility of the premium range of interior solutions to discerning consumers.

The Company continued smart solutions like the Super Sales mobile app for all frontline sales employees in the interiors business for improving person productivity and overall sales volumes.

3. Sub-ground structures

This product vertical comprises liquid storage solutions to address Indias sewage needs. The Groups product basket comprises septic tanks, packaged treatment solutions, and biogas holders.

Septic tanks: The Group developed underground septic tanks for storage of liquid waste (for about 50-500 people) which has secured approvals from numerous municipalities and governmental agencies along with the Ministry of Non-Renewable Energy. The Company continued to market large volumes of this product in urban India to promote space saving, in itself a USP.

Packaged wastewater treatment solutions: Sintex group has developed decentralised packaged wastewater treatment solutions (large and small capacity variants) in collaboration with Aqua Nishihara, Japanese global leaders in this space. This unique solution reduces BOD levels by 90-95% depending on the product. The product has received the acceptance watermark from key authorities.

To widen the opportunity canvas, Sintex developed customised variants in which the treated water can be used for gardening, toilet flushing, floor washing and in the cooling tower, along with construction activities.

The Company has focused on service aspects by effectively using the dedicated cell consisting of service managers and technicians for after-sales services (including AMC) to ensure product performance.

The team has also tied up with third party service providers for AMC and O&M for providing better and faster service to its customers.

Biogas holders: The Company pioneered portable, prefabricated and moulded biogas plants in India to primarily address the fuel and sanitation needs of rural India - an issue high on the Central Governments priority list.

The biogas plant uses livestock excreta and leftover food to generate biogas which is used to fuel rural kitchens. Any remnant can thereafter be used as fertiliser. The product has received approval from the Ministry of Non-Renewable Energy which enables the Company to market this product seamlessly to government agencies pan-India. Biogas plants have gained significant acceptance in many states. In addition, Sintex has successfully marketed its biogas solutions to dairy farms across different states.

Sintex is also making its mark in Biogas by proposing the solutions to the corporate sector for its CSR Activities and expects good business volume from this initiative over the coming years.

4. Environment & Pollution management solutions

The Company has an entire range of Plastic Waste Bins to address all segregation and handling issues ranging from 10 Ltrs. to 1100 Ltrs. The product basket also includes customisation from household bins to wheeled bins.

Sintex has progressed to offering colour coded bins which are in demand as it facilitates in seamless segregation - this is increasingly relevant for India where the garbage aggregators are largely uneducated.

The Companys key clientele includes municipal corporations, urban local bodies, infrastructure companies, hotels, restaurants, resorts, residential and commercial complexes, schools, colleges, and institutions, among others.

5. Electrical products and solutions

Power theft was a major concern for power utilities across India as the nation was plagued with more than 20% T&D losses which significantly dented the profitability of power utilities.

To address this issue, Sintex leveraged the unique SMC material promoted to develop enclosures and other products with in-built features as a solution against power theft. It operates in the mid- (440 to 1,200 volts) and high-voltage (up to 11 kilovolt-amperes) segments.

SMC material has an intrinsic benefit and superior performance parameters such as shockproof, rust proof and zero resale value. It thus offered durable maintenance free solutions even for open-to-sky public place installation.

Sintex is one of the largest manufacturers of electrical enclosures for the power transmission and distribution sector, catering to state electricity boards and circle offices all over India. The Company graduated from the supply of empty boxes to fully-fitted, ready-to-use enclosures for diverse applications, strengthening its position as a preferred business partner.

The Company has compartmentalised its business into three segments for better focus on each segment. The three segments are - 1) Business from Electricity Boards (EB), 2) Non-EB business and 3) Retail segment.

Business from Electricity Boards: This segment caters to the needs of various State DISCOMs (electricity distribution companies of India) and Central Government agencies . However company has reduced its focus in EB sectors due to longer cash flow cycle.

Non-EB business: The Company works with leading private sector power distribution companies, providing a slew of products.

The team has also developed important stand-alone products which will enable it to cater to a wider spectrum of user sectors, thereby expanding its opportunity canvas over the coming years.

Industrial containers: Industrial containers cater to almost all industries, namely chemicals, processing, textile, food, pharma, battery, Auto and other growing manufacturing industries.

The Company enjoys the preferred supplier position with leading corporates such as Trident, Raymond, ITC, Sun Parma, Thermax, Arvind Yarn Ltd.,Vapi Green Enviro Ltd., Amity Raisin, Chenab Textiles, Birla Textiles, The Phosphate Chemicals Pvt. Ltd., Triplex Water Engineering, Vardhman Industries, RSWM, Amara Raja Batteries, Raj Industries, Mylan Labs and others.

With the growth in the economy, the Company expects demand for this product to remain buoyant in the current year.

FRP underground tanks: The Companys single and double wall fuel storage tanks are positioned as a safe and cost-effective alternative to MS fuel storage tanks. The double wall storage tanks ensure that leakages, if any, are detected before the fuel contaminates groundwater. The Company markets its products to government and private sector oil marketing companies which include the likes of Shell, HPCL, IOCL. In addition, the FRP underground and above ground storage tanks are also used for water storage and conservation, chemical storage, and sewage treatment plants. With the government policy to enhance the fuel station network across India, the Company expects a very high growth rate in this segment.

Key Financial Ratios

* For continuing operation only.

Human resources

Sintex believes that its intellectual capital represents its most valuable asset - from the top floor to the shop floor. In line with this, the Company has positioned employee engagement as a key priority through its people-centric policies and initiatives.

The Companys knowledge enhancement focus has helped create an organisation which is recognised as a center of learning and excellence. The Company has consistently worked on not only increasing its workforce but ensuring that its people competencies are enhanced in line with changing business needs.

As a result, the Company enjoys the support of a committed and well satisfied human capital. Compensation packages offered by the Company, best-of-class methods in recruitment, training, motivation, and performance appraisal, attract and retain the best talents.

The Group comprised a strong workforce of 2027 as on March 31, 2022.

Internal control systems

The internal control mechanism of the Company is well documented. This is embodied in the SAP( Hana) . It is a common practice in the Company to lay down well thought out business plans for each year.

From the annual business plan, detailed budgets for revenue and the capital for each quarter is determined. The actual performance is reviewed in comparison with the budget and deviations, if any, are addressed adequately.

The Company also has an internal audit system commensurate to the size and volume of the business. The internal audit program covers all the functions and activities of the Company.

The Audit Committee of the Board of directors meets every quarter to review the reports of the Internal and Statutory Audit and to verify all financial statements, ensuring compliance.

Risk management

Risk management at Sintex Plastics Technology is an integral part of the business model, focusing on making the business model emerge stronger and ensuring that profitable business growth becomes sustainable.

The Company has adopted a comprehensive and integrated risk appraisal, mitigation and management process. The risk management framework goes beyond traditional boundaries and seeks to involve all key managers of the Company.

The risk mitigation measures of the Company are placed before the Board periodically for review and improvement.

Cautionary statement

This document contains statements about expected events and financial and operational results of Sintex Plastics Technology Limited which are forward- looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is a significant chance that the assumptions, predictions and other forward-looking statements may not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause assumptions, and actual results and events to differ materially from those expressed here.

BAPL Rototech Pvt. Ltd.

BAPL Rototech Pvt. Ltd. is a joint venture company between Sintex-BAPL Ltd. and Rototech (Italy). Ending FY22, the Company operates with 2 manufacturing facilities, one at Pithampur, M.P known as "The Mother Plant" and another at Jamshedpur, Jharkhand, which manufactures plastic fuel tanks, Diesel Exhaust Fluid (DEF) / Urea Tanks / Adblue Tanks and CV exterior parts Fender, Mud Guards, snorkels etc. using Roto-Moulding and Blow Molding technology, catering the needs of the Commercial Vehicle sector in India and across the globe.

The Companys current customer portfolio includes established OEMs viz Volvo- Eicher, Volvo (India), Tata Motors Limited - All locations, Cummins Technologies, Mahindra Trucks, Escorts to name a few along with a new customer induction of Force Motors.

In 2021-22, Company demonstrated their operational capability and effective resource utilization to sustain the business growth trajectory as demonstrated in FY 2020-21 in Jamshedpur, in particular by supplying fuel tanks to Tata Motors and Adblue tanks to Cummins and Tata Motors both. To support their strategic customer (Tata Motors) and to acquire new Customer being 2nd Largest player in MHCV, company is looking forward to setting up one more manufacturing facility at Pant Nagar (Uttarakhand) in calendar Year 2022. Further, due to Covid-19 pandemic, Force Motors and Mahindra has supposed to initiate their product launch in FY 23.

Company has Started operation in

• Exiting Production Facility at

- Pithampur (2015-16)

- Jamshedpur (New Facility added in 2019-20)

Despite early pandemic set-back in Quarter 1 of FY22, the Competitive Edge and Market Leadership along with a glimpse of overall economic revival has helped BR to register robust growth FY22.

• With Total Revenue of 160.62 Cr INR, the Company has registered 15.5% top-line growth in FY22 compared to FY21

• EBIDTA Level has also grown by 12.7% compared to FY21 in spite of adverse inflationary impact in commodity (due to spike in crude oil price), power which includes gas being ma and transportation.

Company has exceeded market share in their product and market segment with constant In-house product innovation, product differentiation with superior quality along with strong customer-supplier relationships and phenomenal teamwork.

Further, Company has decided to diversify their business strategy to deep penetrate in agriculture and off-road business with similar product lines but with new product evolutions.

In Addition, Company is committed to gain the competitive edge by exploiting their resources to develop new products or features, better solution in cost- quality being system suppliers to gain incremental market share and to secure exponential business growth.

New Customers

Force Motors {Production Ramp-up in FY 23}.

International Operations Sintex Logistics LLC (U.S.A)

Financial year 2020-21 had major impact of two waves of Covid-19 pandemic forcing widespread restrictions in industrial activities in US. This led to either complete shutdown or 50% reduced production at customers during Q1. During Q4, there were many restrictions and lockdown at India facilities supplying to SLLLC thereby restricting supply chain. This was aggravated by global shortage of containers and shipping routes

Despite the above challenges we could complete major projects with Siemens viz Orange County, Twin City III, Phoenix. We continued to meet demand for projects e.g. Houston 4 (Siemens) and AMTRAK (Alstom) with some delays.

We won Virgin Heavy Rail interior program from Siemens and FRP seats program from Freedman

Future Outlook

We continued to maintain relationship with all the customers in US. We are pitching in for a bigger share of Cummins business of plastic parts including new programs. We have completed half of the AMTRAK program and shall be completing balance 14 train sets to Alstom by Q1 2022.