MANAGEMENT DISCUSSION AND ANALYSIS REPORT
REVIEW OF MARKET, BUSINESS AND OPERATIONS
Your Company manufactures precision paper sacks and flexible laminates in its two
manufacturing divisions. The sacks division serves the packaging needs of business units
like tea, food, agricultural and industrial products. The flexible unit has made its own
niche and forayed into sectors like fresh and frozen food, beverages, dairy products,
pharmaceuticals, snacks and confectioneries.
FY 2023 was yet another challenging year. Business was disrupted due to unprecedented
volatility and shortage of input materials, supply chain disruption due to unrelenting war
in Ukraine and continued wage inflation.
Despite these challenges your company delivered revenue growth. We could continue to
navigate the mitigations plans and prioritized service to the customers over the cost, to
long term benefit to our customers. However, continued increase in material and freight
cost in post COVID-19 Pandemic environment with knock-on effect of Ukraine war led to a
drop-in margin.
Your company recorded an increase in the overall turnover during the year under review.
While paper sacks division recorded a reduced turnover, flexi division could achieve the
highest turnover. Due to effective cost control total expenditure was lower compared to
previous year inspite of increase in turnover on Y-o-Y basis. PBT was marginally reduced
as an effect of product mix in as much as margin in Paper sacks is comparatively higher
than Flexi. Effective price revision of the products while remaining competitive helped
the Company to maintain its margin during the year after absorbing additional input cost
due to frequent increase in bought out material price particularly in paper.
Segment wise Performance Review
Focused approach on the growing flexible laminate business continue to pay good
dividends. Flexible laminate business accounted for 47 % of the total revenue for the year
under review and which reflects improvement on 708 basis points in the share of total
revenue. Growth in the paper sack business impacted due to effect of Pandemic coupled with
higher competition in Industrial sector especially S.E.Z units. Revenue dipped by 7.37% on
Y-o-Y basis in this division. The summarised divisional results are set out below:
Particulars |
Paper Sacks |
Flexible Laminates |
|
FY 2022-23 |
FY 2021-22 |
FY 2022-23 |
FY 2021-22 |
Revenue from Operations |
7027.42 |
7586.87 |
6124.48 |
5211.15 |
Profit before tax |
982.28 |
1236.09 |
519.43 |
293.51 |
The dip in the volume of sales in mancozeb solutions and skimmed milk powder segment
had a denting effect on the revenue stream of Paper Sacks division. The mancozeb sector
was affected by the decrease in export orders from South American market. Milk powder
segment was effected due to higher competition in this segment. Lower export intake of
packaging solutions due to slump in the demand from EU counties as well as Middle East
posed challenges before Indian sacks manufacturers. After effects of lockdown and
container shortage affected paper availability at the beginning of the year. As a result
prices of paper increased substantially.
The situation further worsened due to outbreak of war as a significant portion of Kraft
paper pulp is supplied by European manufacturers. The rising paper price affected our sale
of paper sacks in some industrial segments as they shifted to alternate packaging.
However, we achieved significant growth in the tea sector and spur in the growth in carbon
black sector provided welcome relief. Carbon black is a huge market for paper sack
industry and it is expected that growth in this sector will fillip the revenue of the
paper sack division in the years to come. After installation of new tuber and bottomer
machine your company has developed new product lines with multicolour and attractive
printing which will help differentiating our products significantly from existing products
available in the market.
The revenue growth in the flexible packaging division was augmented catering the surge
in the demand from food sector particularly confectioneries and dairy segment and some
other consumer durable products. Your company could sustain its growth in the highly
competitive market by offering end-to-end solutions across flexible packaging spectrum.
Your company has continuously rejigged its product portfolio to cater to the needs across
various industrial sectors. Irrespective of multiple escalations in prices of Polymer
being the main consumption material of this division and lower export offtake of marine
products this division could sustain its budgeted growth by offering value added products
to its customers. Viable pricing of the products to absorb the increase in consumption
cost has reaped its benefit and the division could increase its profitability margin on
Y-o-Y basis.
Corporate Initiatives and Works
R&D activity took a key driver to your Companys growth. The R&D team alongwith
divisional heads successfully blended their knowledge in paper technology, polymer
science, conversion processes and engineering solutions into creativity and innovations
which has led to superior product offerings. This creativity and innovation has been our
key focus and driving force for our competitive advantage and growth over the years.
We have taken up a series of modernization programme in our plants at Balasore during
the last couple of years like installation of new poly plant with accessories in flexi
unit, new dyer unit in paper sacks division, which has led to superior product offering.
During the year under review new Tuber and Bottomer machines were installed in the paper
sacks division to gear up with the value added product differentiation. One polyliner
machine was also installed in the paper sacks division.
Installation of these machines have resulted in significant reduction in cost. Your
company is continuously strengthening its distribution channels to execute higher quantum
of orders at minimum lead time delivery.
Accreditations
The Company has been accredited with British Retail Consortium (BRC: lop) which is
acknowledged as a global benchmark for food safety, for its facilities at Balasore factory
besides ISO accreditations (DNV) in environmental, food safety and quality systems.
Finance
Despite increase in turnover and disruptions in supply chain, strict control over
receivables restricted the CC utilization during the year under review by less than 27% of
the borrowing power of the Company. Margin impact on interest cost arising out of
investment in CAPEX was controlled by sourcing repayment through internal accruals.
Average rate of interest was kept minimum by using appropriate mix of debt through better
negotiations. Financial parameters like, Debt Service Coverage Ratio, Interest Coverage
Ratio, Debt Equity Ratio were all at healthy levels during the year under discussion.
Faster realization from customers and better inventory management ensured stable cash flow
during the year. Directors are pleased to inform you that the Company continues to enjoy
CRISIL BBB/Stable rating for its long term bank borrowings.
Technology
Even at a time when packaging industry is shying away from making additional investment
due to margin pressure your company continued to invest in new and improved machineries
while upgrading its existing facility with new tools to ensure best-inclass product is
delivered. Your company has taken a ‘Mantra to sustain to an error free workflow
with a vision to deliver ‘Zero-defect-products to its customers in time to
come. The new machineries are preferred processes due to high print quality, quick job
changeovers, ease in use and higher production speed.
Information Technology
Digital transformation is a major driver for growth and performance. We continue to
invest in new technologies to create an intelligent workplace. Due to exceptional length
of the Pandemic and physical distancing guidelines dependency on IT has further increased
during the last couple of years. At B & A Packaging, nurturing a digital culture has
become a key focus area of the management. To make our company more cost-efficient, nimble
footed, cloud- based and green, management has been able to instill a digital mindset
across the Company. The digitization journey so far has penetrated several key functions
of the Company like, sales and service network, supply chain, human resources and finance.
This initiative is helping the Company immensely to create data dashboards for real time
decision making. Data security continues to be paramount importance and your company
continuously evaluates its cyber security solutions keeping in mind increased cyber risks.
Our efforts are directed towards ensuring business continuity in case of any unforeseen
event.
INDUSTRY STRUCTURE AND DEVELOPMENTS
The packaging industry in India is one of the fastest growing sectors and it is
expected to register a CAGR of 12.60% during 2022 - 2027 as per available reports. The
demand for packaging in India has expanded drastically, spurred by the rapid growth in
consumer markets, especially in processed food, personal care, and pharmaceutical end-user
industries.
Over the last few years, packaging industry has been a key driver of technology and
innovation, contributing to various manufacturing sectors, including agriculture and the
fast-moving consumer goods sectors. The packaging industry is driven by the factors such
as rising population, increasing income levels, and changing lifestyles and it is
anticipated that each of these factors will drive consumption across various industries
leading to higher demand for packaging products. Moreover, demand from the rural sector
for packaged products is fueled by the growing media penetration through the internet and
television.
COMPANY OUTLOOK AND PROSPECTS
Your company steadily progressed over the years by engaging technical ability,
creativity and innovative skills to engineer packaging solutions across its product
spectrum which has resulted increase in its market share. As the packaging industry is
increasingly becoming technology oriented with innovations driving the market the efforts
of the Company has been directed towards investing in technology to increase shelf life
and reducing cost of its products to the extent practicable. Three-point key strategy that
will drive the Company forward are:
• Accelerate growth in the food segment business
• Building wallet share in paper based packaging
• Reducing offtake in low contributory sectors and sustain to multi-year projects
The following enablers will help us achieving our long term strategy:
• Segmented play: Strengthen niche portfolio
• Sustainability: Lead the vertical with product, process and people
• Cost saving: Drive a multiyear program for sustained savings
• Innovation: Introducing innovative product portfolio based on customer demand
OPPORTUNITIES, RISKS AND CONCERNS
According to the Indian Institute of Packaging (IIP), packaging consumption in India
has increased by nearly 200% in the last decade, from 4.3 kilograms per person per annum
in 2010 to 8.6 kilograms in 2020. Despite the sharp growth over the last decade, this
industry remains a large space for growth compared to other developed countries worldwide.
Furthermore, India is emerging as an organized retail destination globally. The presence
of e-commerce is increasing rapidly and is bringing around a revolution in the retail
sector, driving the need for quality packaging.
Retailers are now leveraging digital retail channels, thus enabling wider reach out to
customers with fewer amounts of money spent on real estate. Thus, organized retail
services and the boom in e-commerce offer enormous potential for the future growth of
retailing in India, which in turn is promoting the growth of the packaging sector.
However, the market is expected to be significantly challenged due to fluctuation in
raw materials pricing, dynamic changes in regulatory standards, growing environmental
concerns, limited effective recycling of mixed plastic waste, ineffective plastic
recovery, and a lack of modern and advanced machinery in India for the packaging sector.
The volatile trend in crude oil and demand for polymers in competing applications has an
increasing pressure on input costs that fluctuate raw materials prices. Recent disruptions
due to Russias invasion of Ukraine and Chinas stringent Zero Covid policy caused
substantial supply chain disruption and aggravated the challenges for the packaging sector
in India.
RISK MANAGEMENT
The Board of Directors of the Company ("the Board") and the Risk Cell
constituted with the senior management team led by the Managing Director review the
business risks to which the Company is exposed alongwith mitigation measures at periodic
intervals. The Risk Management Policy and the constitution of risk cell are available in
the companys website at https://www.bampl.com/ policy/risk-management-policy.pdf.
Key risk areas to which your company is exposed include:
Frequent escalation in raw material prices
To mitigate this risk the Company continues to identify and establish alternative
sources of supply and alternative materials to maintain uninterrupted supply and control
over material cost. Effective negotiations while procuring the materials kept a continuous
watch on the price movements barring enough stocks to execute orders.
Economic downturn-This could impact companys markets leading to business slowdown;
however, majority of companys products are linked with daily necessity of the consumers
and their demand generally are not much impacted with downturn.
Currency volatility-The paper based packaging mostly depends on imported paper
supplies which is exposed to currency rate fluctuations. Your company has the policy of
hedging the trade exposures through forward contract.
Competition-Your Company operates in a highly competitive market where retaining
long-term customer is a challenge. Your company always focuses on quality, shorter lead
time and after sales service to maintain high customer satisfaction.
Progressive wage increase-Your company has deployed asset productivity improvement
initiatives to manage accelerating employee cost.
Product pricing: Revision of pricing from time to time is required to absorb
additional cost to the extent practicable while remaining competitive.
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