Industry Structure & Developments
The COVID-19 outbreak has triggered a world economic disruption of significant
magnitude with an escalating pace, resulting in steep recessions in many countries. The
COVID-19 pandemic has caused an unprecedented global economic impact at an astonishing
rate, leading to rapid economic downturns in many countries. Despite exceptional policy
support, the baseline forecast envisages a 5.2 percent decline in global Gross domestic
product (GDP) in 2020, the deepest global recession in eight decades. With the widespread
social-distancing initiatives, sharp contractions of financial conditions, a slip down in
foreign demand depress activity is observed. Advanced economies are expected to shrink by
7 percent. In 2020, Emerging Markets and Developing Economies (EDME) GDP was predicted to
contract by 2.5 percent. News findings present a dismal picture of the number of affected
supply chains. With more than 90% of EMDEs indicated to encounter per capita income
contractions this year, several thousands of people are likely to slip back into poverty.
The global economy is undoubtedly lead to a halt with the outbreak of coronavirus.
According to IMF 2020 estimates, global GDP growth for 2020 was projected to be 1.6
percent, a figure that was 2.9 percent in 2019. The United Nations Conference on Trade and
Development estimated that the viruss spread 2020 could cost the global economy up to $2
trillion. The pandemic could cause a recession in some countries, causing global economic
growth to fall below 2.5%. Ever since 1870, the global economy has experienced 14 global
recessions. Current projections suggest that the worldwide recession of COVID-19 would be
the fourth deepest and most extreme since the Second World War during this time. It is
estimated that per capita output contractions are involved in an unprecedentedly high
proportion of countries.
Although in 2021, current vaccine arrangements have raised expectations of a turnaround
concerning the economic impact later this year. However, renewed surges as well as the new
variants of the virus pose problems for the viewpoint. Amid the sparse uncertainty, the
global economy is forecasted to rise 5.5% in the year 2021 and to 4.2% in 2022.
India is second largest producer of cement in the world. Indias cement industry is
vital part of its economy providing employment to more than a million people directly or
indirectly. The housing sector is the biggest demand driver, accounting for about 68% of
total consumption in India. The other major consumers of cement include Infrastructure at
22% and Industrial development at 10%. According to CLSA (institutional brokerage and
investment group), the Indian cement sector is witnessing improved demand. Cement
production reached 329 million tonnes (MT) in FY20 and is projected to reach 381 million
by FY22. However, the consumption stood at 327 MT in FY20 and will reach 379 MT by FY22.
The cement production capacity is estimated to touch 550 MT by 2025. The industry has been
on a sustained growth path adding capacity, driven largely by the construction sector and
the ambitious infrastructural projects announced by the government from time to time. The
infrastructure segment is a key propeller for the Indian markets, contributing
significantly to the growth of the national economy. Consequently, the Government of India
lays special emphasis on this industry, initiating and establishing several regulatory
structures to ensure the advancement of this sector. This sector further received impetus
with increased Government spending on infrastructure projects under Bharatmala and
Sagarmala for roads and dedicated freight corridors for railways. The housing and real
estate segment received impetus from housing for all / Pradhan Mantri Awas Yojana
initiative in rural areas and affordable housing in urban areas.
But the coronavirus (COVID-19) pandemic has dented the prospects of the Indian cement
sector. Besides materially dragging the sectors improving utilisation curve, the virus
outbreak has also pushed ahead the emerging pricing power of companies in north and
central India by at least two years. However, In the second quarter of FY 2020-21, Indian
cement companies reported a sharp rebound in earnings and demand for the industry
increased, driven by rural recovery. With the rural markets normalising, the demand
outlook remained strong. For FY 2020-21, CLSA (institutional brokerage and investment
group) expects a 14% YoY increase in EBITDA in the cement market for its coverage stocks.
Amid the second wave of COVID-19 in the country, leading credit rating agency India
Ratings and Research or Ind-Ra revised the real gross domestic product (GDP) growth
forecast for the financial year 2021-22 to 10.1 per cent. The earlier GDP growth
projection by the agency for the fiscal was 10.4 per cent. The credit rating agency said
that the impact of the second wave of the pandemic will not be as disruptive because the
administrative response may remain confined to the regional or local lockdowns and
containment zones. Additionally, unlike the first wave of COVID-19, the response of the
administration is not abrupt and is evolving gradually in a graded form. The demand side
component of the GDP - which are government final consumption expenditure, private final
consumption expenditure, as well as gross fixed capital formation are expected to grow in
the financial year 2021-22. The real GDP in the financial year 2021-22 is estimated to be
Rs 148.2 lakh crore which is 10.7 per cent lower than the fiscal years trend value.
While the COVID-19 impact on volume is still uncertain, the demand is likely to fall in
the first quarter of the Financial Year 2021-22 for the industry, assuming a return to
normalcy post monsoon.
Opportunity & Threats
Speedily hiking real properties enterprises in India is anticipated to push the demand
for cement. The new city development undertaking will cognizance on the improvement of
cities and towns of Spiritual and traveler significance, thereby hiking up the demand for
cement. Adoption of cement over bitumen: Use of cement instead of bitumen for the
construction of all new road projects will add to the growth of the industry, developing a
niche market for RMC (Ready Mix Concrete). With the proposition to assemble one crore
houses for the homeless as per PM Awaas Yojana, smart cities mission and Swach Bharat
Abhiyan peered a boom in the demand for cement. The governments newly introduced National
Infrastructure Pipeline (NIP) which is to enable the country to meet its target of
becoming a USD 5 trillion economy by 2025 is a detailed roadmap focused on economic
revival through infrastructure development.
Coal is one of the main raw materials required within the cement enterprise. In the
last few years, there was a steep drop in the delivery of coal to the cement industry
specifically due to the diversion of coal to the power region. Cement agencies, therefore,
were pressured to open market buy or imported coal. With the increasing cost of coal and
different input material together with diesel, and many others, the production value of
cement has gone up considerably high. The amended Mines and Minerals (Development and
Regulation) Act, 2015 creates hurdles and difficulties for allotment and renewal of mining
leases. The high rates of taxation in the form of Royalty and different mineral rates etc.
results in cost pressure and lower profitability. Cement and power industry being majorly
dependent upon availability of raw materials at affordable cost. Policies of the
Government as well as Central and State Laws may adversely affect the availability of lime
stone, coal etc. Any major changes in Governments Environmental and Forest regulations
may affect limestone availability to cement plants.
The Company has opportunity to expand its marketing net-work into the entire West
Bengal, Bihar & Jharkhand.
Segmentwise, Financial and Operational Performance
Since January, 2017, your Company operates in Single Segment i.e. Cement Segment. The
discussion on Financial Performance with respect to Operational Performance forms a part
of the Directors Report.
Future Outlook
The outlook for Cement should be reasonable and strong considering the overall
situation and the developments taking place in Industry. The capacity overhang is expected
to be overcome in the next few years, though regional capacity-demand mismatch would
continue for some more time to come. The improvement in the industrial environment and
consequent increase in investible surplus with the people should also help the growth in
demand for Cement.
The Indian economy is expected to grow further at good pace owning to series of policy
measures, improvement in rating on "ease of doing business", "global
competitive index", "logistic performance index" and "global
innovation index" and India being one of the Top-10 FDI destinations. The various
initiatives like Pradhan Mantri Aawas Yojana, Development of Smart Cities, Swachh Bharat
Mission, Concrete Highways, Coastal Road Development (Sagarmala), Western and Eastern
dedicated freight corridor, bullet train, metro rail, power projects, port development to
double handling capacity, Make in India, Special Investment Region (SIR), National
Infrastructure Pipeline(NIP) etc. are likely to propel growth in housing, infrastructure
and industrial construction.
With a stable government at the Centre, we expect a renewed thrust on infrastructure
development through the construction of roads, metro rail projects, airports renovation,
irrigation projects etc. and the company is looking for a progressive growth in future.
Risk & Concern
I. the Indian Cement Industry is becoming intensely competitive, with addition of new
entities and existing companies expanding its capacity inorganically. This could
potentially impact the sales volumes, market share and profitability of your Company. Over
capacity of cement versus the demand is resulting in very volatile market conditions and
profitability of cement business.
II. Increase in cost of raw materials, energy, delivery cost, Upward revision in
international crude prices, duties and taxes are pushing the cost of production without a
corresponding increase in the price realizations due to excess supply, which will pose a
threat to improving the overall scenario in cement sector. The increase in costs may be
difficult to pass on to the customers as the prices would remain under pressure due to the
excess capacity.
III. The cement industry is associated with significant negative externalities, notably
high CO2 emissions - By 2030. The increase in emissions is difficult to handle
or the industry have to buy carbon credits.
IV. The impact of Covid 19, will affect the ability of cement manufacturers to sustain
prices at the current levels.
Internal control system and its Adequacy:
Your Company has in place an adequate system of internal controls, with documented
procedures covering all corporate functions and hotel operating units. Systems of internal
controls are designed to provide reasonable assurance regarding the effectiveness and
efficiency of operations, the adequacy of safeguards for assets, the reliability for
financial controls, and compliance with applicable laws and regulations. Adequate internal
control measures are in the form of various policies and procedures issued by the
Management covering all critical and important activities viz. Revenue Management,
Operations, Purchase, Finance, Human Resources, Safety, etc. An external audit has been
successfully conducted to monitor energy efficiencies, safety and security as well as
audits of hygiene standards in the hotel. During the year, the Standard terms of reference
for Internal Audit which defines the framework for conduct of Internal Audits was updated
incorporating latest changes to regulatory requirements and the evolving business context.
Moreover, the Audit Committee of the Board reviews the findings of the Internal Auditor
and closely monitors the implementation of their recommendations by reviewing the
compliance reports furnished.
Development in Human Resources & Industrial Relations
The Company continues to maintain a very cordial and healthy relationship with its
workforce. The number of people employed by the Company on its pay roll as on 31st March,
2021 was 101. To attract and retain good employees in the company, we are ensuring the
best place to work. We at Burnpur Cement Limited are striving towards attracting,
retaining, training, multiskilling employees and working towards the welfare of our
resources. In the meantime all efforts are being made to control cost so as to maintain
present level of profitability. Industrial relations remained stable throughout the
financial year 2020-21.
Details of Significant changes in Key Financial Ratios
(i) Interest Coverage Ratio:-
The interest coverage is -0.38 times. It shows significant negative change of -181%
during the current financial year as compared to the previous financial year. The reason
being cumulative interest is being charged on secured loan and repayment trend is very
low.
(ii) Inventory Turnover Ratio:-
The inventory turnover ratio for the year is 5.14 times. It shows significant positive
change of 34 % during the current financial year as compared to the previous financial
year (i.e. 3.82 times) .The reason being, there is a promotion of 59.53 % YoY in sales
value of the company with a comparative increase in the Cost of goods sold as compared to
the previous Financial Year.
(iii) Current Ratio:-
The Current ratio for the year is 0.09 times. It shows significant change of 28% during
the current financial year as compared to the previous financial year (i.e. 0.07 times).
The reason includes the impact of provisioning of finance charges for Rs. 5618.83 lakhs
for current year.
(iv) Debt Equity Ratio :
The Debt equity ratio for the year is -1.90 times; whereas it was -2.61 times in the
previous financial year. It shows significant change of 27% during the current financial
year as compared to the previous financial year. The reason being decrease in
shareholders fund (-55 %) because the company has incurred losses of INR.7920.66 Lakhs
during the current financial year whereas, the significant change in debt is only 13.29 %
in comparison to 55 % in shareholders fund. Thus, resulting in significant change of 27%
in Debt Equity Ratio.
(v) Operating Profit Margin :
The Operating Profit Margin for the year is -0.19%; whereas it was -0.10% in the
previous financial year. The Operating profit margin shows a change of 90% during the
current financial year as compared to the previous financial year. In the current
financial year, the revenue has increased by 59.53 % but there is a amount written off of
Rs. 1133.03 lakhs against loss of sale of asset of Asansol Unit, which highly impacted the
Operating profit margin.
(vi) Net Profit Margin :
The net profit margin for the current financial year is -0.64 %. It shows significant
positive change of 62 % during the current financial year as compared to the previous
financial year (i.e. -1.69%). The reason being, there is a promotion of 59.53 % YoY in
sales in comparison to previous year.
Cautionary Statement
Statement made in the Management Discussion and Analysis, describing the Companys
objectives, projections, estimates, predictions and expectations may be forward looking
statement with the meaning of applicable laws and regulations. Actual results might differ
materially from those either expressed or implied.
|
For and on behalf of the Board |
| Place : Patratu |
Indrajeet Kumar Tiwary |
Ritesh Aggarwal |
| Date : 02.06.2021 |
Wholetime Director |
Director |
+91-9892691696
