acclaim industries ltd Management discussions

ACCLAIM INDUSTRIES LIMITED (FORMERLY KNOWN AS ELPRO PACKAGING LIMITED) ANNUAL REPORT 2010-2011 MANAGEMENT DISCUSSION AND ANALYSIS OVERVIEW During the financial year 2010-11, the Company has achieved healthy growth in sales and profitability and is poised to emerge as a stronger Company to deliver enhanced shareholder value over the coming years. Your Company registered a good performance during 2010-11 with a 293% growth in PAT to Rs. 22,715,911 which is exceptionally well and looking ahead to continue the same trend. (1) Global Economy The global economy has witnessed a sustained growth largely driven by the additional stimulus and bail out packages announced by various countries which has created liquidity and stimulated demand, leading to the recovery in the US and Europe. The Chinese and Indian economies have been the fastest economies. However, this has led to inflationary pressures which have forced central bank to raise interest rates. The steel industry has also seen a reasonable growth in demand and increase in production volumes especially in China and India. However, this has once again put pressure on raw material availability and prices. The floods in Queensland, Australia have put further pressure on the prices of Coking Coal which has increased from USD 200 per MT levels to USD 300 per MT levels. Due to the volatility in Coking Coal prices over the last couple of years, there has been a shift in pricing mechanism for Coking Coal from annual to quarterly to partly monthly benchmark prices. This has resulted in volatility in prices of iron and steel products as well. China continues to drive the global steel industry with a production of approx. 630 million tons in 2010 which equates to approx. 45% of global Steel production. Chinese Steel demand continues to be driven by large capital expenditure and government infrastructure projects across the country. However, it is expected that the production growth for steel in the current decade will slow down, which should reduce raw material prices. (2) The Indian Steel Industry The Indian economy grew at 8.6% in 2010-11 against 7.2% last year which shows a remarkable growth.The economy is likely to grow at over 8% over the next decade driven by the infrastructure (power, road, railways, ports etc.) and consumption (automobile, real estate etc.) sectors which will result in robust growth in demand for various iron and steel products. The States of Orissa, Chhattisgarh and Jharkhand which account for majority of the iron ore and coal reserves in the country will remain the most attractive locations for setting up iron and steel manufacturing capacity in the coming years. OPPORTUNITIES, THREATS, RISKS, CONCERNS AND OUTLOOK Opportunities Your Company is poised to seize the opportunities in the Iron & Steel Industry (both for steel & intermediary saleable products) through its strengths of locational and logistical advantages, raw material linkages, technology edge and management expertise. These opportunities will be linked directly to the growing demand from the automobile and auto components, infrastructure, construction and power sectors. Your Companys strategic location offer scope for seamless value addition in its manufacturing process from hot metal to stainless steel. Threats The threats for your Company would come from adverse fluctuations in input and capital costs, foreign exchange variations and taxes & duties. The buoyancy in the Iron & Steel Sector has attracted many players, resulting in reduced availability of skilled manpower and contractor workforce. Delay in implementation of project may lead to opportunity loss in revenue generation and rise in costs. Risk Management Your Company has identified major focus areas for risk management to ensure organisational objectives are achieved and has a well defined structure and proactive approach to assess, monitor and mitigate risks associated with these areas, briefly enumerated below: a) Project implementation - Project status is monitored on a regular basis by the project management team to counter slippages and reviewed on a monthly basis by the executive management. Consultants are present on-site for mitigating contingencies on the implementation front. Necessary coverage has been taken in the form of an extensive Erection All Risk Policy. b) Foreign Exchange - Your Company deals in sizeable amount of foreign exchange in imports of capital items and raw materials and exports of finished products. A comprehensive and robust forex policy has been formulated for insulating the Company by hedging foreign exchange exposure. c) Statutory compliances - Procedure is in place for monthly reporting of compliance of statutory obligations and is reported to the Board of Directors at its meetings. Outlook India has immense potential for creating new steel capacity. Indian per capita steel consumption is presently very low compared to world average which further re-confirms the opportunities for steel demand to continue accelerating in the times ahead. Your Company with a well diversified product portfolio is well poised to take advantage of the growth in the demand for Special Steel products, Coke and Ferro Chrome. PERFORMANCE OF THE COMPANY The Company had an overall good performance in the year ended March 31, 2011. The current business of the company is trading in steel and iron products including C.R. Coils & Sheets, C.T.D. Bars, H.R. Sheets & Plates and Hot Rolled Steel Plates, Ingot irons M.S. Plates, Angles, Channels, Chequered Plates, Wires, T.M.T Bars, Rebars and Tor Steel, Stainless Steel and other Alloy Steels. The Company is also importing and trading in Aluminum Scrap. The Company has established a Factory at Valsad, Gujarat during the year for manufacturing of Iron & Steel Products which will be operational shortly. This will help the Company for sustaining in the long run in the competitive steel industry. HUMAN RESOURCES The Company recognizes the need for continuous growth and development of its employees in order to provide greater job satisfaction and also to equip them to meet growing organizational challenges. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY: Internal Control Systems are designed to ensure the reliability of financial and other record and accountability of executive action to the managements authorization. The Statutory Auditors have evaluated the system of internal controls of the Company and have reported that the same are adequate and commensurate with the size of the Company and nature of its business. The internal control systems are reviewed by the top Management and by the Audit Committee of the Board and proper follow up action ensured wherever required. CAUTIONARY STATEMENT Statement in the Management Discussion and Analysis describing the Companys objectives, expectations, estimates or predictions may be forward looking within the meaning of applicable securities laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include global and domestic supply and demand conditions affecting selling prices of finished goods, input availability and prices, changes in Government regulations, tax laws, economic developments with in the country and other incidental factors. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements, on the basis, of any subsequent developments, events or information.