MANAGEMENT DISCUSSION ANDANALYSIS REPORT
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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