Anjani Portland Cement Ltd Management Discussions.

Indian economic review and Developments in the Industry

The Indian economy can be best described as sluggish in the year 2019-20, with under performance recorded in most of the sectors. The problems with the Indian financial sector which is the driving force behind retail consumption was the main contributor for this under performance. All this contributed to around 5% growth in the Indian economy as against 6.50% the previous year.

Despite the under performance Indian economy has grown to be the 5th largest economy in the world and still has the potential to become the 3rd largest economy that it is aspiring for by the year 2025 due to the deeply rooted ancient tradition of wealth creation imbibed in Indian civilization.

India continues to be the worlds second largest cement producer though ironically the per capita cement consumption still continues to be around 50% of the world average. The Indian Cement Industry equipped with a production capacity over 500 million tonnes per annum has shown a reduction in demand of about 1% for the year 2019-20, the first time in this decade.

However the COVID-19 pandemic has given a body blow to the entire economy and its growth plans with Cement Industry being no exception to its cascading effects. In these circumstances it would be highly hazardous to forecast anything for the foreseeable future, still optimism being the foundation for success we continue to predict for the better times that would trigger the economic growth and bring India back into the reckoning to become a 5 trillion economy by 2025.

Opportunities, Threats, Risks, Concerns and Outlook

The spread of COVID-19 in India and its mitigation plan through nationwide lockdown from March, 2020 to June, 2020 and a possibility of further extension of lockdown by several State Governments, is likely to cause severe impact across various sectors of the economy and the Cement Industry is no exception. The magnitude and speed of collapse in economic activity that India has seen over the last few months is unprecedented and there is tremendous uncertainty about what the short term future holds for businesses and enterprises.

In the short term, the COVID pandemic could result in a further decline in Cement demand mainly owing to the sluggish implementation of the infrastructure proposals of the government of India and the declining real estate sector. The lower disposable income due to loss of jobs and reduction in salaries is going to be another factor of the decrease in demand for Cement.

In the long term perspective, the major driver for this growth in demand for cement industry is the Indian governments significant emphasis on infrastructure development with the aim of making 100 smart cities, expanding the capacity of our railways, upgrading 1,25,000 km of road length over the next five years and increasing the facilities for storage and handling of goods in order to reduce transportation costs. The initiative of Housing for All and Smart Cities Mission will be heavily reliant on the growth of the Cement Industry in coming years. We may also witness strong growth in rural housing and low-cost housing to amplify demand.

Various stimulants in the form of tax benefits, low interest etc. accorded by the Government for housing can also spur the demand for cement.

The effort of the Government to expand the capacity of Railways and ramp up its storage and handling capacities would go a long way in reducing the logistics cost of cement.

India has collaborated with Switzerland to develop low energy consumption methods of cement production which will help the Cement Industry cater to the large requirements of the Infrastructure sector at a more economical rate.

Segment wise or Product Performance

The Company has following business segments, which are its reportable segments during the year. These segments offer different products and services, and/or managed separately because they require different technology and production processes.

Reportable Segment Product/ Services
Cement Manufacturing and trading of cement
Power plant Generation of power

 

Particulars

Year ended March 31,2020

Year ended March 31,2019

Cement Power Cement Cement Power Cement
Segment Revenue 40,844 4,645 45,489 43,670 5,669 49,339
Less : Inter Segment Revenue - (4,596) (4,596) - (5,592) (5,592)
Total Revenue from Operations 40,844 49 40,893 43,670 77 43,747
Segment Result (Profit Before Tax and Interest) from each Segment 5,489 900 6,389 2,766 1,071 3,837
Less : Interest - - (33) - - (172)
Total Profit Before Tax - - 6,356 - - 3,665
Capital Employed (Segment Assets - Segment Liabilities) As on

March 31,2020

As on

March 31,2019

Segment Assets 31,280 7,923 39,203 27,740 8,094 35,834
Segment Liabilities 11,721 90 11,811 11,564 105 11,669

Internal Control System and their adequacy

The Company has got an adequate system of internal control in place commensurate with the size of its operation and is properly designed to protect and safeguard the assets of the Company. There is a proper system for recording all transactions which ensures that every transaction is properly authorized and executed according to norms.

The Company has also appointed M/s M. Bhaskara Rao & Co., Chartered Accountants as Internal Auditors to conduct the Systems and Compliance Audit of the Company.

Financial Performance in comparison to Operational Performance

During the Financial Year 2019-20, the Companys production level dropped by 16% year on year to 8.30 lakhs tons.

The volume of Cement sale was 10.50 lakh tons recording a drop (negative growth) of more than 9% even though the sale of Cement in Tamil Nadu and Kerala Market manufactured through its parent company has recorded a growth of 26%. Clinker sale during the year increased to 0.57 lakhs ton.

Cement Sales Revenue dropped to 40,893 lakhs in spite of increase in cement price realization, mainly on account of drop in sales volume.

The PBT for the year, however, increased to 6,356 lakhs, recording a growth of 73% over the previous year. The factors contributed to increase in PBT were increase in Clinker Sale, increase in cement sale price realization, drop in finance costs and reduction in imported coal price.

Material Development in Human Resources/Industrial Relations front, including number of people employed

The Industrial relation during the current year has been cordial and contributed to mutual development. The number of personnel in direct employment of the Company are 278.

Details of Significant changes (i.e. 25 % or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations thereof including -

Ratio FY - 2019-20 FY - 2018-19 Change % Reason for Change
Debtors Turnover 10.50 14.94 (29.70) Due to lockdown situation during last week of financial year, collection from Debtors could not be done as expected. As a result Debtors have increased by Rs 7.89 Crore resulting in decrease the ratio.
Debtors Turnover (Days) 34.76 24.44 42.24 Due to lockdown situation during last week of financial year, collection from Debtors could not be done as expected. As a result Debtors have increased by Rs 7.89 Crore resulting in increasing in Debtors Turnover (Days).
Interest Coverage Ratio 193.61 22.31 767.87 Decrease in interest cost by optimal utilization of cash credit limit. Secondly, EBIT has increased during FY 2019-20 substantially as compared to immediately previous financial year.
Current Ratio 2.13 1.37 55.98 Company has improved its Current Ratio as the surplus fund is parked in Deposits and there was reduction in current liabilities as the year end.

Details of any change in Return on Net worth as compared to the immediately previous financial year -

The return on net worth for the financial year 2019-20 has gone up from 9.58% to 14.73% as total comprehensive income for the year increased by 73% over the same of immediately previous financial year.

CAUTIONARY STATEMENT

The Management Discussion and Analysis Statement made above are on the basis of available data as well as certain assumptions.

Important factors that could influence Companys operations include global and domestic supply and demand conditions affecting the selling price of finished goods, availability of inputs and their prices, changes in government regulations, tax laws, economic developments within the country and outside and other factors such as litigations and Industrial relations.

The Company assumes no responsibilities in respect of the forward looking statements which may undergo changes in the future on the basis of subsequent developments, information or events.