Andhra Petrochemicals Ltd Management Discussions.

INDUSTRY STRUCTURE AND DEVELOPMENTS:

The year 2018-19 was reasonably a good year as Plant could operate at more than 113% capacity and Company could market products at a reasonably good price.

For the year Company posted a Net Profit of र69.83 crores (after Tax).

OPPORTUNITIES AND THREATS:

Estimated demand of Oxo-Alcohols at 2,50,000 MTPA, with healthy growth rate of 8% to 10% per annum, in general, is a good opportunity for the Company with existing capacity of 80,000 MTPA, considering the huge demand-supply gap in the country. With Hindustan Petroleum Corporation Limited (HPCL) able to meet full Propylene requirement it is expected that there will be no constraints in the Companys production capability. Sales realisation is also expected to improve on account of Anti-Dumping Duties imposed by Govt. of India on imports from certain countries.

Over and above the imports from existing destinations, imports from newer destinations like Taiwan, Brazil, USA and Japan has become a challenge to the Company.

However commissioning of BPCL Oxo-Alcohols plant at Cochin in 2019/2020, downturn in product price scenario internationally and dumping of the products and currency fluctuations may impact the Companys performance and recovery process to some extent.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

As required by the provisions of Companies Act, 2013, Internal Control Systems Report has been appended to Independent Auditors Report given by Statutory Auditors regarding Financial Year 2018-19. The Company has internal control systems commensurate with the size of the business operations. A Chartered Accountants firm is engaged to carry out internal audit covering the entire operations. The audit firm submits internal audit report periodically with their suggestions and /or corrections. Audit Committee critically deliberates and reviews such internal audit reports and ensures effectiveness of the control systems through necessary recommendations.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIAL RELATIONS:

In the area of Human Resources, the employees are being trained to meet the Plant requirements from time to time by motivating them in a positive way and the industrial relations continue to be cordial throughout the year.

The total number of employees employed as on 31.03.2019 is 297.

FUTURE OUTLOOK:

Companys performance capability is expected to be good as the Propylene supply from HPCL is good. Company has signed Natural Gas (NG) term sheet supply agreement with GAIL. Natural Gas (NG), which is expected to be available in the last Quarter (Q4) of 201920, may likely to bring down the cost of production. However, the cost benefit will be based on the NG prices which are going to be fixed once in six months. Mainly, the Companys performance to a large extent is dependent on international supply and demand for these products and their prices which are influenced by crude prices, exchange fluctuations and dumping by sources other than those covered by Anti-Dumping Duty.

RISKS AND CONCERNS:

The Company is dependent on a single source-HPCL Visakha Refinery for its major raw material i.e., Propylene. Crude prices, exchange rate fluctuations and political instability in the Gulf area are of major concern.

CAUTIONARY STATEMENT:

The statements describing the Companys outlook, estimates or predictions may be forward-looking statements based on certain assumptions of future events. Actual results may differ materially from those expressed or implied, since the Companys operations are influenced by external or internal factors. Your Company closely monitors all major developments likely to affect the operations and will respond to meet the potential threats and to gain from any possible opportunities.

DEPOSITS:

During the year under review, your Company did not accept any deposits within the meaning of provisions of the Companies Act, 2013 read with the Companies (Acceptance of Deposits) Rules, 2014.

SAFETY, HEALTH AND ENVIRONMENT:

Company has evolved Safety, Health and Environment Policy.

Safety:

Company has completed 13 million accident free man hours in the last 10 years.

• Total 8500 man-hours used for conducting Safety trainings for employees including contract workmen induction as well as refresher trainings.

Safety of Human and Plant assets are of top priority to the Company. Continuous training of personnel at various levels on safety and strict compliance of regulations is ensured which resulted in another accident-free year.

• Company has been awarded with Winner (Gold Trophy) for lowest Average Frequency Rate (2013, 2014, 2015 and 2016) and in achieving accident-free year-2016 in National Safety Awards (NSA) presented by the Directorate General Factory Advice Services and Labour Institute (DGFASLI), Govt. of India on 17.09.2018 at New Delhi.

Health:

Health monitoring of all employees including contract labour and canteen workers is done on regular basis.

Environment:

On line emission, Ambient air and effluent monitoring systems are in place. Data is being transmitted to CPCB and APPCB for monitoring.

INSURANCE:

All the insurable assets of the Company including Plant and Machinery, Buildings and Inventories are insured on reinstatement value basis.

LAND TAKEN ON LEASE FROM VISAKHAPATNAM PORT TRUST

Company has taken on lease 75.00 Acres of land from Visakhapatnam Port Trust on which Oxo-Alcohol Plant has been established. The land is located adjacent to HPCL, Visakha Refinery which supplies major Raw Materials. In this connection, a Lease Agreement was entered into on June 27, 1989 with Visakhapatnam Port Trust for a period of 30 years which expires on June 26, 2019. Your Company has initiated necessary steps to enter into a fresh Lease Agreement for a period of 30 years for continuation of the Lease.