Bhansali Engineering Polymers Ltd Management Discussions.

The Management Discussion and Analysis Report has been prepared in accordance with the provisions of Regulation 34(2) (e) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 read with Schedule V(B) thereto, with a view to provide an analysis of the business and Financial Statement of the Company for F.Y. 2017-18, hence it should be read in conjunction with the respective Financial Statements and notes thereon.

a) Economic Outlook:

The global economy is showing the sign of recovery, specially the US economy. European economy, which was severely affected by heavy lending to Turkey and Greece especially by Germany and France, is also showing the sign of smart recovery. It is equally contextual to observe that BREXIT has little effect on the rest of the European economies. So far as Japan is concerned, its economy is no longer presenting recessionary trend and therefore, in the year 2018 onward its GDP will start growing, though at a snail pace. The Chinese economy, which was the worlds fastest growing economy, has been overtaken in terms of annual GDP growth rate by India. Since 2017 onwards, India continues to remain worlds highest growing economy.

Indian economy has presented strong macro - economic fundamentals in fiscal 2018 viz. current account deficit at 1.3%, fiscal deficit at 3.5% and GDP growth rate at 6.6%. In fiscal 2019, as per the IMF forecast and Niti Ayogs working, the GDP growth rate is likely to be around 7.4%. In the previous year, Union Government had taken the risk of remonetizing high denomination currencies and predicted dip of GDP growth rate by 0.5%, which in reality has proven true. The recovery of Indian economy is distinctively visible on account of strength it is exhibiting not only in terms of macro - economic fundamentals but inflow of net FDI of 26.10 billion dollars, which is the highest any country has received in the world in fiscal 2018. Remonetization of high denomination currencies has been a remedial measure taken by the Union Government to eliminate the ill effects of parallel economy in existence for long period, as continuance of it would have had highly deleterious effect on account of stagnant tax to GDP ratio. Buoyancy in direct tax revenue of fiscal 2018 well proves this point. Long pending introduction of GST is getting well implemented due to dynamic approach adopted by GST Council, specially constituted through amendment of Indian constitution. We in India love status quo and take time to adapt ourselves to newly emerging reality that parallel economy ought not to continue as it corrodes the health of the economy and the government is incapacitated to boost public spending for the welfare of the society, specially who are placed in the lower strata of the Indian economy.

BEPL is quite bullish in the matter of good effects of the growth of Indian economy, which is a vital requirement for boosting demand of ABS, as it is mostly used for manufacture of lifestyle goods largely consumed by the citizens with high disposable income. On account of impressive global economic growth scenario as well as relatively highest GDP growth rate of Indian economy, world over consumption of ABS has grown robustly including that of India. For last several years, global ABS capacity utilization was hovering around 70%, which in the last 2 years has ramped up to 90%. As a result of this phenomenon, there is a global shortage of ABS consequent where upon practically each and every ABS producer in the world is making good money, which they have not witnessed over last two decades. BEPL is no exception to this phenomenon, as it indeed has earned substantial surplus in the last couple of years, unlike its struggle for existence in the last two decades. The financial result of fiscal 2018 which is likely to be much better in 2019 onwards is largely attributable to the phenomenon mentioned in the foregoing. ABS market in India continues to grow at around 15% CAGR and the consumption in the fiscal 2018 was in the region of 3,00,000 MT.

b) Industry Structure & Development:

It was forecasted in the text of Industry structure & development section of MDAR forming integral part of the Boards Report of Fiscal 2017 as under:

"The current financial year holds a brighter promise as BEPL will be in a position to increase the sales quantity in tandem with the present production capacity without changing its marketing strategy, i.e. focusing on high margin business and refraining from competing against cheap imports."

BEPLs business strategy continues to intensify its efforts to optimize its share of highly remunerative ABS market segment, especially from the automotive industry. This activity will be fully backed up by state of the art R&D Centre being established by the company, which will be operationalized by September 2018. Though for this very purpose, BEPL has established a JV company with Nippon A&L Inc., Japan (NAL) but its full impact will be visible after the R&D Centre gets established. This is because ABS is a performance polymer and its grades are specially developed for specific application required by the customers. This is precisely the reason that BEPL has adopted the policy of focusing more on speciality grades which requires stupendous efforts in the beginning but once developed such efforts are highly paying, not only in terms of price but perpetual continuance of business with the customers due to the position acquired in the supply chain established by the customer. India is becoming a global manufacturing hub of two wheelers as well as four wheelers. This is why international giants in the automotive field, viz. Suzuki, Hyundai, Honda, Toyota, Volkswagen, General Motors, Ford, Nissan, Renault, Fiat have established their respective manufacturing facility in India, with growing degree of indigenization of its components. For components manufactured out of ABS, BEPLs presence is well registered with all such international giants but its share of their outsourcing requirement has to grow more since it is still dominated by overseas suppliers of ABS, mainly LG and Lotte. It is reiterated that it will not be difficult for BEPL to tilt preference by such customers in its favour, once the R&D Centre at Abu Road is established. In this Centre, technical experts will be deployed from NAL Japan, in the purview of the JV Company between BEPL and NAL in India, functioning under the name and style of Bhansali Nippon A&L Pvt. Ltd. While concluding we would like to emphatically mention that market outlook for BEPLs products is bright, opportunity is immense, facility and ability are well in place. Hence future is brighter than already lustrous presence.

c) Opportunities & Threats:

Opportunities: So far as opportunities are concerned, it is an established fact that the consumption of ABS in India is voluminously larger than the combined output of the domestic manufacturers viz. BEPL and Styrolution; hence the scope is humungous due to present supply demand mismatch taking into account only domestic production.

Threats: The limitation arises out of deliberate decisions on the part of domestic manufacturers to keep low inventories of its imported key raw materials which is more than 85%, i.e. Styrene and Acrylonitrile monomers to limit their risk of foreign exchange fluctuation, which may result in huge loss, if the price of its monomers drastically falls in the international market, which happens many a times due to unpredictable reasons, i.e. fluctuation in prices of crude oil, benzene and ethylene.

d) Risk and Concern:

The typical nature of ABS business in India is exposed to the risk of Foreign exchange fluctuations as the key raw materials i.e. Styrene and Acrylonitrile monomers are import dependent, since there is no indigenous producer for these monomers. The only raw material which is indigenously available is Butadiene monomer, which constitutes weight wise only 15% out of the total raw material composition.

e) Segment/Product Wise Operational Performance:

The Company deals with only one business segment viz. ABS and SAN polymers. During the Fiscal 2017-18, the Gross Sales of goods manufactured by Company amounted to Rs. 1204.55 Crores as against Rs. 704.08 Crores during last fiscal registering a growth of 71.08%. Moreover, the total Comprehensive Income/Profit After Tax (PAT) amounted to Rs. 99.42 Crores in the F.Y. 2017-18 as against Rs. 35.07 Crores during last fiscal witnessing an impressive growth of around 183.49%.

f) Internal Control System and its adequacy:

The Company has an effective internal control system considering the size of its operations and maintains its accounting records on SAP, a widely renowned software. The financial transactions remain well documented and are done in accordance with the policies, procedures, parameters and the rules as set out by the management from time to time and are properly recorded, authorized and reported to the management in prescribed manner. There is an appropriate and adequate insurance cover for the Companys immovable and movable assets which are closely and consistently monitored by the management as deemed fit and suitable from time to time. The independent Internal Auditors carry out Internal Audit on quarterly basis and place the report before the management which takes requisite corrective actions. Observations of the auditors are properly reviewed and appropriate follow up action is taken by the concerned department and reported to the management, which also reviews the sufficiency and effectiveness of the internal control system and monitors the implementation of audit recommendations including those relating to the strengthening of the companys internal policy and management practices.

g) Material Development in Human Resources/Industrial Relations Front, including the number of people employed:

Your Company is of the firm view that an able, disciplined, motivated, trained and skilled manpower is the key to sustain the growth of any organization. The Company organizes and provides opportunity to the employees for requisite training from time to time and periodical appraisal/rewarding system are in place. Industrial Relations at both the plants of the Company viz. at Abu Road, Rajasthan and Satnoor, Madhya Pradesh and Employer - Employee relations at Head Office, Mumbai have been cordial and conducive during the financial year 2017-18. The Company believes that to meet its expansion programme requirement, it will require more skilled workforce and is taking appropriate steps for same with thrust on the policy of "Right Person for Right Job". The strength of the employees in the Company as on 31st March, 2018 stood at 456.

For and on behalf of the Board
M. C. Gupta
(DIN: 01362556)
Place : Mumbai
Date : 13th April, 2018