Aditya Birla Chemicals India Ltd Merged Management Discussions

OVERVIEW AND OUTLOOK

For financial year 2014-15, your Company reported a growth of 4% in production volumes on account of additional volumes from the newly commissioned plant at Karwar, having a capacity of 59400 tonnes per annum at Karwar.

During the year under review, the realisations declined due to the very low level of chlorine realisation and a marginal decline in caustic realisation in line with international prices. Regional imbalances in Chlorine demand and an increase in its availability kept chlorine prices under pressure.

Caustic demand in India is driven by high demand from key consuming sectors like Alumina, Fibre, Textile and Paper industries, etc.

Caustic prices are expected to remain stable during the year. Availability of Chlorine is expected to remain high as new capacities would put extra chlorine into the markets resulting into pressure in Chlorine prices.

The Business expects to maintain high capacity utilisation given the favourable demand outlook. The Business will continue to take energy conservation measures to reduce power consumption.

The full benefit of the Karwar Caustic Plant will accrue in F.Y. 2015-16 as production is gradually ramped up. The acquisition of Jayshree Chemicals Limited located at Ganjam, Odisha will strengthen our presence in east India and increase our Pan India presence.

FINANCIAL AND OPERATIONAL PERFORMANCE REVIEW

The financial data of your Company for the previous year is inclusive of the financial data of the Karwar Chemical Division and the Singach Salt Works from the post acquisition period i.e. 1st September 2013; hence these are not fully comparable with the current year’s financial data. Revenue from operations for the year under review was Rs. 1251.78 crores as compared to Rs. 1182.42 crores in the previous year, an increase of 6%. Profit before interest, depreciation and tax was Rs. 265.49 crores. After providing Rs. 109.34 crores for interest, Rs. 63.31 crores for depreciation and Rs. 55.55 crores for taxes, net profit for the year was Rs. 37.29 crores.

The production of Caustic Soda in 2014-15 was 239,977 metric tonnes (MT) against 231,221 MT in F.Y. 2013-14. The net turnover at Rs. 1076.82 crores, against Rs. 1001.41 crores in the previous year, reflects an increase of 8%. This positive performance is due to the optimum utilization of plant capacity, optimization of process parameters and various cost reduction initiatives.

Earnings per share was Rs. 15.95 compared with Rs. 21.27 last year and return on net worth was 8.38 % vis--vis 11.84% last year.

RISKS AND CONCERNS

Risk arises from the probability or threat of damage, liability, loss, or any other negative occurrence that can be caused by vulnerabilities. These risks can be mitigated through preemptive action. Risk management refers to the practice of identifying potential risks in advance, analysing them and taking precautionary steps to reduce the risks. Your Company has institutionalised the process of identifying, minimising and mitigating risks. These processes are periodically reviewed. Risk Management forms an integral part of your Company’s operations. The common risks inter alia are: regulations, competition, business risk, technology obsolescence, investments, retention of talent and expansion of facilities. Business risk, inter-alia, further includes operational risks, safety, health & environmental risks, financial risks, political risks, fidelity risks, legal risks, etc. As a matter of policy, these risks are assessed and appropriate systems and steps are taken to mitigate the same.

Increases in energy costs will continue to be a major concern for the industry. Your Company will focus on optimisation of cost, reduction in power consumption and increase in capacity utilisation. Frequent movement disturbances due to bandhs, etc. in Jharkhand and excess availability of Hydrochloric Acid in the Eastern region shall also remain areas of concern.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has in place adequate internal control systems commensurate with the size of its operations. The internal control systems comprising of policies and procedures are designed to ensure reliability of financial reporting, timely feedback on achievement of operational and strategic goals, compliance with policies, procedures, applicable laws and regulations, safeguarding of assets and economical and efficient use of resources. The system is reviewed periodically. The Internal Audit team continuously monitors the effectiveness of the internal control systems. It reports to the Audit Committee about the adequacy and effectiveness of the internal control system of your Company. Your Company has a risk management plan, which is regularly reviewed to ensure that it accurately reflects the current potential risks to its business.

HUMAN RESOURCES / INDUSTRIAL RELATIONS

Your Company strives to foster a culture of high performance. Measuring such as ongoing learning, aligning HR systems in line with global bench-marks and aligning rewards and recognition with performance, have enabled your Company to sustain its reputation of being a meritocratic organization. The Group’s Corporate Human Resources function continues to play an integral role in your Company’s talent management program.

Your Company had a committed work force of about 1219 employees as on 31.03.2015. Your Company enjoys a congenial and healthy industrial relations environment and there were no disputes.

CAUTIONARY STATEMENT

Statement in this "Management Discussion and Analysis" describing the Company’s objectives, projections, estimates, expectations or predictions may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company’s operations include global and principal markets, changes in Government regulations, tax regimes, economic developments within India and the foreign countries and other factors such as litigation and labour negotiations. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent development, information or events or otherwise.