MANAGEMENT DISCUSSION AND ANALYSIS REPORT
INDUSTRY OVERVIEW
The Indian economy has faced a number of challenges during the last year which resulted
in growth slow down, inflationary pressures and weakening of the rupee. This has been in
the background of unsupportive external environment, domestic structural constraints and
political uncertainties. The outlook for the current year is projected to be better, but a
major uncertain factor is the outcome of the general elections.
The overall economic slowdown has impacted the industrial sector with lower
investments, inordinate delay in projects alongwith other domestic and global factors has
resulted in lower industrial growth including in the capital goods industry. During the
last year, very few projects in the steel sector have been finalized. However, the Union
Budget 2013-2014 has put emphasis on containment of inflationary pressures, mitigation of
structural bottlenecks and raising investments.
After witnessing the lowest growth in GDP during the last decade, the Indian economy in
2013 has seen economic expansion drop to levels even below the crisis year of 2008-2009.
Domestic supply bottlenecks and policy obstacles have seen growth decelerate and
industrial output slump. The existing projects have been delayed due to financial
constraints and implementation gaps. The high inflation and the tight monetary policy also
continued to challenge the economic revival. The Government and RBI have taken measures to
reduce fiscal deficit to provide stability and protect the credit standing. New
investments are expected in almost all the major industrial sectors. These changes are
expected to yield positive results in the coming years and your company will surely have
its share of benefits in the India growth story.
FINANCIAL AND OPERATIONAL PERFORMANCE
During the year ended 31st December, 2013, sales and other income was Rs. 1,233.23 lacs
as against Rs. 1,113.30 lacs for the year ended 31st December, 2012. There was a loss
before taxation of Rs. 500.92 lacs for the current year ended 31st December, 2013, as
compared to loss before taxation of Rs. 436.34 lacs for the year ended 31stDecember, 2012.
SEGMENTAL INFORMATION
The Company has only one reportable business segment viz. engineering goods &
services, which is being considered as the primary segment. Disclosures as to the
secondary segment, i.e. Geographical Segments are given below:
|
Outside India |
Within India |
Total |
|
Rs. |
Rs. |
Rs. |
| 1. Segment revenue |
|
|
|
| Sales and income from operations |
94,964,929 |
26,773,205 |
121,738,134 |
|
(37,568,420) |
(72,011,229) |
(109,579,649) |
| 2. Carrying amount of assets by geographical location of assets |
|
|
|
| Segment assets |
24,540,117 |
180,643,017 |
205,183,134 |
|
(1,135,257) |
(234,971,272) |
(236,106,529) |
| 3. Additions to fixed assets |
|
|
|
| Additions to fixed assets |
- |
144,164 |
144,164 |
|
(-) |
(558,958) |
(558,958) |
Notes:
1) Secondary segments are identified by the management as per the requirements of
Accounting Standard (AS) -1 7 Segment Reporting" taking into account the
organisation structure as well as the differing risks and returns.
2) The segment revenue and assets include revenue and assets, which are identifiable
with each segment and amount allocated to the segments on a reasonable basis.
3) Figures in brackets are corresponding figures for the previous year.
OPPORTUNITIES & THREATS
The Company has access to the latest technology and systems as well as markets in
China, Europe, South America, Africa and other parts of the world, where the Promoters,
Terruzzi Fercalx SpA have a presence and has sub-contracted part of the orders received by
them in Zambia & Mongolia to the Company.
The aggressive competition by international and local companies in the area of Lime
Kilns and Furnaces in the Indian market continues to be a major problem, especially while
bidding for large public sector projects which has significantly reduced the order load.
The Company has been exploring all avenues to reduce overheads, develop new markets and
introduce new products and services. Concerted marketing efforts are also being made and
which has started to show results and to improve the order position.
Due to various reasons, inspite of all efforts made by the Company, the erection and
commissioning of two large public sector projects under execution have still not been
completed which has affected the Companys cash flow and profitability. The paucity of new
orders is a matter of grave concern.
However, sourcing from India by Terruzzi Fercalx Group is expected to grow in the
future. The Company with the help of Terruzzi Fercalx Group has expanded its geographical
footprint into the international & domestic market and has taken a number of
initiatives which are expected to yield good results in the forthcoming year.
Apart from downturn in the Indian economy, which is the reason for major projects not
being finalized, India is a very price sensitive market, which was also a cause for
paucity of orders. This has been addressed by changing the strategy of importing key
equipments from the Parent Company. Instead, we are now manufacturing them in India and
this has resulted in the Company being more competitive. The Company has won 2 orders for
hydration plants which will be manufactured in India.
INTERNAL CONTROLS
The Audit Committee of the Board of Directors meets on a regular basis to review the
control systems and to take stock of the situation. Any significant findings by the
Internal Auditor are reviewed by the Audit Committee.
The Company has also set up internal systems and control mechanisms to ensure:
• On going risk assessment, identification of new risks and implementation of
effective mitigation processes to safeguard the Companys interests.
• Transparency and efficiency of operations and resource management.
• Accuracy in financial reporting by implementation of systems framework for
detection of errors and frauds.
• La w andregulatory compliance.
As a subsidiary of an Italian Company, the Company has established rules with respect
to internal controls and reporting in close consultation with the Holding Company and the
Auditors.
RISK MANAGEMENT
The Company has set processes in place to ensure that it has a proper and continuous
identification and management of risk. tI has set up a Committee to monitor, evaluate
& mitigate risk.
INFLATION RISK
The continued inflationary pressure continues to be a major problem, though it has
eased as compared to the previous year it is still at a high level.
RISK MITIGATION
Efforts are being made to counter the inflationary pressure through both price
adjustments and elimination of operational inefficiencies as well as incorporation of
escalation clauses in longer period contracts, wherever possible.
FINANCIAL RISK
Financial risks include liquidity for working capital requirements and non-fund
facilities like Bank Guarantee limits required for large projects and the penalty clauses
in large public sector orders.
RISK MITIGATION
With the support of the Holding Company, M/s. Terruzzi Fercalx SpA, the Company is in a
stronger negotiating position with bankers and financial institutions. The working capital
of Company is being financed out of advance payments received from customers and credit
facilities from banks.
INTEREST RATE RISKS
The Company does not have any long term borrowings and therefore, does not face any
impact on account of interest fluctuations on this account. However, the Company has
cash-credit facilities sanctioned by the Bank and volatility in interest rates will have
an impact on the present and future credit facilities.
FOREIGN EXCHANGE RATE RISKS
The Company is exposed to foreign currency fluctuations on foreign currency assets and
liabilities. The Company proposes to absorb the effects of foreign exchange rate
fluctuations by following established risk management policies. The Company proposes to
enter into forward and option contracts which will not used for trading or speculation.
However, there are certain transactions which cannot be covered under forward and option
contracts, to which the Company is exposed to the risk of fluctuations in foreign
currency.
TECHNOLOGY OBSOLESCENCE RISK
The Companys ability to remain competitive depends on its ability to adapt to changing
technology and cutting costs.
RISK MITIGATION
With the association of Terruzzi Fercalx SpA, the Company is assured of access to world
technology for the group products.
RISK OF CYCLICAL BUSINESS
The business in the capital goods sector is cyclical in nature and the Companys
projects business is predominantly from sectors like steel and chemical which have
witnessed volatility.
RISK MITIGATION
The Company continually reviews significant developments taking place in the industrial
sector and also closely monitors the projects under execution. The Company is endeavoring
to reduce the impact of the cyclical business risks by developing other products and
services.
PROJECT MANAGEMENT RISK
Your Company faces risks associated with project execution with a large portion of the
business coming from few projects. As the duration of the project is 18 months or more,
delays can affect the Companys finances and reputation.
RISK MITIGATION
The Management reviews the risks related to key projects at all levels, on a case to
case basis depending on their size and complexity. The Management has established
processes and systems for reviewing the progress and costs of projects. The Company has
strengthened the existing processes and increased the Management bandwidth in these areas,
with resources dedicated to Project Monitoring & Control as well as by
strengthening/augmenting skills in areas like erection works.
CLIENT RISK
Excessive exposure to a few clients could impact the Companys revenues and
profitability in the event of loss of those clients.
RISK MITIGATION
The Company is developing long-term relationships with its major customers as well as
enlarging its customer base thus mitigating the risk of inconsistent revenues.
CLIENT LIABILITY RISK
A Client Liability Risk arises in the advent of a failure or deficiency in services
rendered to a client. Such failure or deficiency could result in a claim for damages
against the Company.
RISK MITIGATION
The Management pays adequate attention to the negotiation and documentation of
contracts wherein an effort is made to limit the contractual liability for damages.
HUMAN RESOURCE RISK
The Companys main asset is qualified, experienced and skilled personnel, since the
engineering industry is knowledge based. Attrition in human resources could drain valuable
knowledge and customer experience and thus have an adverse impact on revenues. As the size
of the Company is relatively small, there is a constant risk of trained ana efficient
personnel being recruited by larger Companies at remuneration levels which are not
economical for Companies of our size and turnover.
RISK MITIGATION
The Company creates and maintains a team of talented and experienced staff. The Company
imparts efficient and effective training to its staff, blending them into productive
resources by creating challenging opportunities on projects. The Company manages the
careers of its employees in order to groom them to assume higher responsibilities. The
Company also keeps abreast of HR practices and compensation levels in the industry. The
Management recognizes human resources as its greatest asset and makes a special effort to
train, develop and retain its employees. The knowledge and skills available with the
Holding Company are accessible to the Company arid the training is imparted by the Group
Companies, as and when deemed desirable.
CONTINGENT LIABILITIES
Details of contingent liabilities are given in Schedule 24 - "Accounting Policies
and Notes forming Part of Accounts" for the year ended 31st December, 2013.
STATUTORY COMPLIANCE
Compliance of SEBI regulations and the provisions of the Listing Agreement are ensured
by the Board of Directors.
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