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 (LODR) 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 FY 2018-19 and hence it should be read in conjunction with the respective Financial Statements and notes thereon.

A. Economic Outlook:

As per International Monetary Fund’s (IMF) latest World Economic Outlook update, "India’s economy is poised to pick up in fiscal 20, benefiting from a slower pace of monetary tightening than previously expected, as inflation pressures eases". India’s economy is expected to grow by 7.5 per cent in fiscal 2019-20, keeping an upward trajectory as the rest of the world slumps and shall further build its lead as the world’s fastest-growing economy.

India’s GDP is forecast to expand 7.5% in fiscal 20 and 7.7% in fiscal 21. China’s growth is seen at 6.2% in both years while the global economy is projected to grow 3.5% in 2019 and 3.6% in 2020.

Growth forecast (% annual growth)

2018 2019 2020
World 3.7 3.5 3.6
US 2.9 2.5 1.8
Euro areas 1.8 1.6 1.7
India 7.3 7.5 7.7
China 6.6 6.2 6.2

India Advantage:

Interest rates tending to soften which is acting to ease domestic funding conditions;

Rupee has staged recovery;

Easing inflation to allow interest rates to fall.

As per PwC’s annual ‘Global CEO Survey’ – ‘India is the rising star on the list of most attractive investment destinations’

BEPL is quite bullish in the matter of good effects of the growth of Indian economy, which is a vital requirement to boost demand of Acrylonitrile Butadiene Styrene (‘ABS’), as it is mostly used for manufacture of lifestyle goods largely consumed by the individuals with high disposable income. On account of accelerating GDP growth rate of Indian economy, domestic consumption of ABS continuous to grow robustly. For last several years, global ABS capacity utilization was hovering around 70%, which in the last 3 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. The financial result of fiscal 2019 which is likely to be much better in 2020 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 2019 was in the region of 300 KTPA.

B. Industry Structure & Development:

Your Company has entered into a 50 : 50 Joint Venture Agreement with Nippon A&L Inc., Japan (NAL) and has incorporated a Joint Venture Company namely Bhansali Nippon A&L Private Limited which provides sales support and technical support to your Company.

Your Company’s business strategy continues to intensify its efforts to optimize its share of highly remunerative ABS market segment, especially from the automotive industry. This activity is fully backed by state-of-the-art R&D Centre at Abu Road, whose on-going work has since been completed on 15th January, 2019. Technical expertise, as and when required, will be deployed from NAL Japan, in the purview of the JV between your Company and NAL.

ABS is a performance polymer and its grades are specially developed for specific application required by the customers. This is precisely the reason that your Company has adopted the policy of focusing more on speciality grades which requires stupendous efforts in the beginning but once developed such efforts are highly rewarding, not only in terms of price but also 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. As a result of which, 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, BEPL’s 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 fully operational. While concluding we would like to emphatically mention that market outlook for BEPL’s products is bright, opportunities are immense, facilities and abilities are well in place and hence, the future will be brighter than the present.

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 two domestic manufacturers’ viz. BEPL and Styrolution; hence there is immense scope of growth, considering the existing supply and demand mismatch, taking domestic production into account.

Threats: The limitation arises out of deliberate decision 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 the risk of price fluctuations. This phenomenon became visible as monomer prices drastically dropped in the third quarter of the current fiscal under review resulting in a shrinkage of profits which could have been much more severe had the inventories of monomers been much larger.

D. Risk and Concern:

The 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, as there is no indigenous producer for these monomers. The only raw material which is indigenously available is Butadiene monomer, which constitutes 15 per cent (weight wise) of the total raw material composition.

E. Segment/Product Wise Operational Performance:

Your Company deals with single business segment viz. ABS and SAN polymers. During FY19 the gross sales of goods manufactured by your Company amounted to Rs 1,44,391.19 lakh as against Rs 1,20,455.38 lakh during last fiscal registering a growth of 19.87%. Moreover, the total Comprehensive Income for FY19 amounted to Rs 4,677.14 lakh as compared to Rs 9,941.53 lakh in FY18.

F. Internal Control System and its adequacy:

Your Company has an effective internal control system considering the size of its operations. It maintains its accounting records on SAP, a well renowned software. The financial transactions are properly documented in accordance with the policies & procedures, as set out by the management from time to time and are properly approved and authorized, as per the approval matrix and reported to the management in a prescribed manner.

Your Company has appropriate and adequate insurance cover for its immovable and movable assets. Both, the insurance cover and the assets are closely and consistently monitored by the management from time to time.

The Report on Internal Audit, carried by an independent Internal Auditor is placed before the management on quarterly basis, and requisite corrective actions, if any, are being taken. Observations of the auditors are properly reviewed and appropriate follow-up action(s) is/are taken by the concerned department(s) and reported to the management, who in turn, also reviews the sufficiency and effectiveness of the internal control system and monitors the implementation of audit recommendations, including those relating to strengthening of the Company’s internal policy and management practices.

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

Your Company firmly believes that an able, disciplined, motivated, trained and skilled manpower is the key for sustaining growth of an organization. Your Company organizes and provides requisite training to its employees from time to time. Periodical appraisal and rewarding systems are in place. Industrial Relations at both the plants of the Company at Abu Road, Rajasthan and Satnoor, Madhya Pradesh, as well as inter-se relationship between employer and employee at the head office at Mumbai has been cordial and conducive during the year under review. Your Company believes that in order to achieve its expansion programme requirement, more skilled workforce will be required and is taking appropriate steps in the said direction with emphasis on "Right Person for Right Job".

As on March 31, 2019, the permanent employee strength of your Company was 504.

The Key Financial ratios, in relation to the Company, as per Schedule V of SEBI (LODR) Regulations, 2015, have been disclosed in the Board’s Report, under the head ‘Financial Highlights’.

For and on behalf of the Board
M. C. Gupta
Place : Mumbai Chairman
Date : 3rd August, 2019 (DIN: 01362556)