The Management Discussion & Analysis Report has been included in adherence to the spirit enunciated in the code of Corporate Governance approved by the Securities and Exchange Board of India. The report Contains forward looking statements identified by words plans, Expects, Will, Believes, Projects, Estimates and so on. These statements are based on the assessment of the current environment which may vary due to economic and other developments in the universal arena, in the month to come. Since these are based on certain assumptions and expectations of future events, the Company cannot guarantee that these are accurate or will be realised.
INDUSTRYSTRUCTUREANDDEVELOPMENTS
In past few years the Polyurethane industry in India was believed to be in its infancy but due to the changing dimensions of the corporate giants and their expansion plans, the whole of the PU Foam industry is moving gradually to a boom in India. Although this industry is characterized by the fact that the per capita consumption is among the lowest in the world, as compared to developed and developing countries, but the recent steps taken in liberalizing the Indian economy and overall improvement in business environment has given a positive impetus to the PU Foam industry. Also the high growth phase of the Indian economy has reflected a steady improvement in infrastructure thereby creating an ample demand of products of the PU Foam Industry and this industry is registering double digit growth.
India will consume 1 kg of polyurethane (PU) per capita by 2020 at 1200,000 tpa,as per a conservative estimate by the chairman of the Indian Polyurethane Association (IPUA). Current per capita PU consumption in India is about 200 grams. The 1 kg per capita target will be possible, depending mainly on easing bureaucracy by the government that will speed up some of the processes and make it easy to set up factories and help to build infrastructure, as well as initiatives by the industry. At annual consumption levels of 180,000 tons of Polyurethane (PU)in 2007 , India has just about 1.5% share of the global PU consumption of 11.25 m In tons. In the last few years PU has grown at over 15% pa, and is expected to continue to be robust at an average rate of 15%.
Recent government reforms of the banking sector in India allow an environment where people feel more confident about investing. There is a classic trend in Indias rising wealth and itsdistribution, where availability of wealth is not only because of foreign investment, but mainly because of domestic entrepreneurs and businesses that are creating their own wealth within the economy. Increased consumer spending power of Indias evolving middleclass is fuelling the demand growth for foam products. India has a population of over one billion people, of which it is estimated less than 10% sleep on foam based mattress. Hence there exists a good growth potential growth for PU foam in India. However, the dominance of natural bedding products, at times subsidized or protected by import duties on substitute materials, has also hindered the market penetration of PU foams at times. The Indian bedding market is substantial and dominated by low cost coir (coconut fibre), latex and cotton mattresses, but people are increasingly looking to upgrade to higher quality products made from or incorporating PU foam. As their wealth increases, the comfort of PU foam mattresses is also becoming increasingly important along with rising standards of living in India.
COMPANYS PERFORMANCE AND OUTLOOK
The Companys products find wide usage in varied industries like automobile, garments, mattresses, electronics, packaging, leather, shoes, transport, furniture, hospitality etc. The booming Indian economy, the growth of the infrastructure segment, the increased amount of disposable income in the hands of the consumers had added to the demand picking up, creating in its wake bigger markets, volumes and realizations. The Company is constantly striving to provide quality products. The Companys products have been well established in the market over the years and our brand "Arvind" has a substantial recall value, creating an edge over other competitors. The Company is planning and endeavoring to increase its sales by implementing better policies. Your Companys endeavor to provide high quality products aiming to grant full value of money to the customer, are expected to take place.
The Company has taken measures expected to yield positive results in the coming financial years. With the increased production capacity, the future outlook of the company should be considered very positive leading to expanded top line. The profitability however, will have to reckon with several factors such as competition in the domestic and export market, exchange rate fluctuations and overall global economic developments within and outside the country. From the last few years company has taken a number of initiatives to re-structure and re-engineer the operations to enable the company to compete better in the profound competitive regime.
The strength of the brand, the enhanced product range, excellent distribution network, loyalty of customers and consumers, the booming market conditions- all such factors are expected to act as synergies having potential of propelling the working of the Company in the years to come by.
MARKETING AND PROSPECTS
Proximity of the Companys manufacturing units to the most potential maiket in the northern part of the country greatly helped the company to compete effectively with other established producers of the country.
The company is now focusing its attention to the fast growing segment of low-value items with higher demand in volumes and better margin prospects. With this view, the Company has introduced two new products in last year are Ecstasy and Desire, the demands of which is expected to grow further. The Company has also installed some advance equipment for production of value added products like Fire retardant Foam, Peeled Foam, etc which will bring a change in the customers profile.
OPPORTUNITIES, THREATS, RISK & CONCERN
Due to change in business policies the Company is facing various risks internally and externally. India as a country with enormous potential ,hence new foreign and domestic investments in the polyurethane industry will accelerate competition through higher growth, and measures by Indian government to encourage Investments. The external business risks include fluctuation in raw material prices, entry of new manufacturers, introduction of advanced technology by existing manufacturers of Polyurethane products and shortage in the flow of raw material. The internal risk consists of operational efficiency and ability to withstand marketing competition.
Foam production in India is still fragmented and localized, with many small players, while transport infrastructure and distances involved makes it difficult for regional producers to expand. The market still requires a lot of development in terms of appropriate products, logistics and technical and marketing expertise. Standards in foam production vary widely among the small players, and need to be regulated. PU foam mattresses in India are generally restricted to low and medium density foams that contains lots of fillers. Indian PU market is very price sensitive in relation to alternative, value added products, hence better understanding of the technical issues around efficient, consistent production of good quality foams is also required.
The main threat is from the unorganized sectors comprising of low grade products which leads to quality problems in the domestic market these are the key risk factors which PU industries has to tackle in the future.
SWOT ANALYSIS
1. STRENGTH S
The Company has most strategically located plant with varied and advanced production techniques being adopted.
The Companys products have been very well established in the market over the years having their reach to every class of customers.
The Company has an excellent customer base and an efficient Dealer/ Distribution network.
2. WEAKNESS
The products of the Company are raw material intensive, constituting about 80% of its cost of production, so the profitability of the company depends mostly on the movement of the prices and availability of the raw material.
3. OPPORTUNITIES
Due to expansion of the manufacturing base of the company, there will be substantial increase in demand of Companys products.
There are opportunities to explore geographical insights of the country.
There are opportunities to increase distribution network for better penetration.
There are opportunities to increase sale of different range of products manufactured by the company by way of association/tie-ups with retail outlets, super market, retail stores, marts etc.
4. THREATS
The cost of Marketing, Advertising and after sale services are on an increasing trend. ,
Due to stiff competition, prices are continuously reducing and if the costs are not controlled then it may prove to be a threat and margins will be under pressure.
There are no entry barriers and hence, the new manufacturers may pose a threat to the Company in short and medium term by fragmenting the market that company has created.
The company is also dependent on imported raw material. Due to increased amount of competition, the company is open not only to normal risks of price fluctuation but also in fluctuations of exchange rates and other related items.
Negative changes in Govt. Policies.
INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY
The company is in the process of designing and putting in place new internal control system for all the key departments including production, purchase , finance with specific thrust on material wastage, environmental issues and regular compliances at all levels. The Company has expanded its system to other departments with recruitment of managerial cadre personnel more exhaustive reporting and rigourous follow up actions where any signs of shortcomings. Further internal Audit system will also be placed and proposed to be carried to check the implementation of of the internal system.
DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
The Financial Statements have been prepared incompliance with the requirements of the Companies Act, 1956andGenerallyAcceptedAccountingPrinciples(GAAP) in India.
MATERIALDEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIALRELATIONS
In order to achieve substantial growth, Arvind International Limited manages a lean organization structure. The Company has an experienced and motivated team of professionals. For the benefit of the Company, it is necessary to empower the skills of their personnel. Looking to this, the Company provides appropriate training and conducting development programmes to improve the skills and efficiency of their employees. The Companys human resource activities are focused on building talent to meet future challenges.
SOCIALRESPONSIBILITY
The Company is conscious of its obligation towards health safety and environment to meet the norms of local pollution control.
CAUTIONARY STATEMENT
Statement in the management, discussions and analysis describing the company objectives, projections, estimates and exceptions 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 difference to company operations include economic condition affecting demand/ supply and price conditions in the domestic and overseas market in which the company operates changes in the government regulations, tax laws and other statutes and other incidental factors.
FUTURE OUTLOOK
Company has made a right issue to expand its business which will enable the company to have more money and to avail the emerging opportunities in PU Industries.
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