Deccan Cements Ltd Management Discussions.

Despite the lockdown imposed due to pandemic situation prevailing in the country, which severely hampered the working conditions, the Company has shown a stable and improved performance with a good bottom line (profit after tax) during the year under review.

We summarise below the Management’s view on the Performance of the Company for the year 2020-21 and on the future outlook for the Company:

Industry Structure and Developments:

India is the world’s second-largest cement producer.

Cement production in India stood at 294 million tonnes (MT) in FY 2020-21 as against 334 million tonnes (MT) in FY2019-20.

However, due to the increasing demand in various sectors such as housing, commercial construction and industrial construction, cement industry in India is expected to reach 550-600 million tonnes per annum (MTPA) by the year 2025. Cement demand is closely linked to the overall economic growth, particularly of the housing and infrastructure sector. Increasing demand from affordable housing and for other government infrastructure projects like roads, met-ros, airports, irrigation etc. are demand drivers which support cement industry.

The demand as well as price of Cement during FY 2020-21 was good. However, due to country wide lockdown imposed by the Central and State Governments, to curb the spread of COVID-19, production and dispatches during April 2020 and first half of May

2020 were severely hampered.

Cement consumption is also growing strong in the rural, semi-urban and retail markets. There has been a spurt in construction in rural infrastructure and low cost housing sectors.

Also there has been a steady off take in housing and government infrastructure projects which has resulted in reviving demand across the markets even in urban India in the later months of the FY.

Further, the Indian Government has approved various investment schemes, which will help strengthen cement consumption. Some of the initiatives taken by the Indian Government are:

As per the Union Budget 2021-22, the government outlaid Rs.1,18,101 crore for the Ministry of Road Transport and Highways.

As per the Union Budget 2021-22, National Infrastructure Pipeline (NIP) expanded to 7,400 projects from 6,835 projects.

The Union Budget allocated Rs.13,750 crore and Rs.12,294 crore for Urban Rejuvenation Mission: AMRUT and Smart Cities Mission, and Swachh Bharat Mission, respectively and Rs.27,500 crore has been allotted under Pradhan Mantri Awas Yojana.

The continued emphasis on infrastructure projects is expected to lead to a steady demand for cement country wide. Various other initiatives and projects of the Governments have shown results in the form of improved off take of cement and are expected to give further fillip in the years to come.

Opportunities and Threats:

Infrastructure development is widely acknowledged as the key to achieving growth, which has also been the focus of the government of India in its recent plans and policies.

Indian cement companies reported a healthy growth in earnings and demand for the industry increased on the back of resuming construction activities post COVID-19 lockdown imposed by the government.

Opportunities:

Government announcements in November De-cember 2020 regarding key infrastructure projects such as National Highway projects in Na-galand, Rajasthan, Karnataka and Telangana.

Opportunities available in areas such as housing, dedicated freight corridors, ports and other infrastructure projects.

Various government projects to fuel the economy, the domestic cement industry is poised for a volume surge.

Threats:

Excess production facilities in a region may lead to cut throat competition.

The cement industry greatly relies on construction activities. Therefore, any problem in construction activities will affect the cement industry to a large extent.

Scarcity in supply of raw material, such as limestone, coal.

However, at present the demand of cement is encouraging and expected to continue in future.

Outlook:

Considering the overall situation and the developments taking place in Industry, the outlook for the future is expected to be reasonable.

The eastern states of India along with the Border States will be the new demand drivers for cement companies and will contribute to their bottom-line in future.

The capacity overhang is expected to be consumed in the next few years, though regional capacity-demand mismatch would continue to have its influence on the prices.

The efforts of the company on cost-optimisation would provide relief in terms of reduction in costs and with a better management of the available resources.

The Company operates in a single product segment and the product is a generic one with small variations in the form of OPC, PPC, SRC etc., and it does not require much elaboration on segment wise / product wise performance.

During the year under review the Company has commissioned its Waste Heat Recovery Plant (WHR project) in December 2020, and started generating energy. The WHR was planned in order to reduce the energy cost of the Company.

Your Directors have approved the proposal to increase the cement production capacity by 2.2 Million Tons. The management of your company is working on the same proposals.

Risks and Concerns

The company can be said to have the following risks and concerns which are commonly applicable to any cement unit.

Lower demand growth leading to Lower Capacity utilization;

Drop in realizations which may impact the margins;

Regular increases in cost of inputs leading to impact on margins;

Probable Uncertainties in Coal supplies and increase in the prices;

Upward revisions in international crude prices leading to Increase in transportation cost, for both input materials and finished goods;

Adverse Changes in Government Policies impact the costs, demand and supply;

Internal Control Systems and their Adequacy:

The internal control system in place in the Company has a process designed to take care of various controls and audit requirements. It aims at effectiveness in the operations and protection of the company’s assets from any possible loss and unauthorised use. It also helps proper and correct data being recorded, ensuring transparency. The design of the processes is such that there is an adequate, appropriate and need based control on the activities / business operations of the Company.

The Internal Control system is helped by an established Internal Audit System which is carried out by an outside firm of Chartered Accountants of repute and experience. The internal auditor carries out their reviews periodically to ensure robustness of the systems and control environment. The internal auditors submit their reports to the Audit Committee of the Board of Directors for their review. It is also ensured that the Internal Audit Scope is adequate and their reviews are well directed to achieve the desired objectives. The Committee also reviews the adequacy and effectiveness of internal control systems and suggests improvements from time to time.

The compliance to the legal and statutory requirements is given utmost importance as also to ensure efficiency in operations / reporting and controls. All parameters in all operations / activities are monitored regularly to ensure desired results.

Financial and Operational Performance

During the year under review, the Company’s operational performance was good in comparison to FY 2019-20. During FY 2020-21 the Company has sold 17.81 Lakh MT’s of cement, as against 14.70 Lakh MT’s during the year 2019-20, which is about 21.16% higher in FY 2020-21. The revenue from Cement sales in FY 2020-21 stands at Rs.75,079 Lakh, as against Rs.54,839 Lakh in FY 2019-20, which is about 36.91% higher in FY 2020-21.

The scenario of demand for the product and the price fluctuations can be gauged from the fact that the increase in volume of sale by 21.16% has translated into 36.91% increase in the revenue from cement during the year. While a Tonne of Cement has realised an average price of Rs.3,734 per MT during 2019-20, it realised Rs.4,215 per MT during the year 2020-21.

Details of the Company’s Performance on the basis of sale of products are given in the Note No.20 to the Financial Statements forming part of this Annual Report.

Due to increase in the Volume of sales, the revenue from operations went up by 36.49%, consequently EBIDTA margin increased by 111.67%, Profit before Tax and Exceptional items increased by 158.23%.

The Profit After Tax for the year stood at Rs.11,512.75 Lakh compared to Rs.5,664.38 Lakh Lakh for the previous year (an increase of about 103.25%).

As per the recent changes / new requirement, the company is required to comment upon the changes in the specified ratios beyond a threshold limit (i.e. change of 25% or more as compared to the immediately previous financial year) alongwith a detailed explanation thereof.

The details of ratios and the variance are as given below:

Particulars (Ratio) 2020-21 2019-20 Variance
Debtors Turnover Ratio (in Days) 17.55 20.92 (16.11%)
Inventory Turnover Ratio (in Days) 56.84 67.30 (15.54%)
Interest Coverage Ratio 21.92 9.88 121.90%
Current Ratio 2.00 1.85 8.30%
Debt Equity ratio 0.09 0.15 (38.28%)
Operating profit Margin ratio 21.48% 12.05% 78.17%
Net profit margin ratio 15.19% 10.20% 48.92%
Return on Equity 22.69% 13.23% 71.49%

Increase in profit resulted in high Interest Coverage Ratio, Operating Profit Margin Ratio, Net Profit Margin Ratio, and Return in Equity.

During the year the Company repaid Term Loan installments and other log-term debts. Accordingly, the Debt Equity Ratio decreased.

Human Resources & Industrial Relations

The Company believes that the people are its assets and continues its focused attention on nurturing and developing its human resources through continuous training, motivation and engagement initiatives. The relationship with employees continues to be cordial and harmonious and always provides a positive and conducive environment to improve efficiency. Emphasis on competency improvement through skill and capability development, training programs and nationalization of work methods, have improved employee productivity and morale. The Company’s Health and Safety Policy aims at providing a healthy and safe work environment to all employees. As on 31st March 2021, the Company has 379 employees who are engaged in its units and offices.

Cautionary Statement

Statements in the "Management Discussion & Analysis Report" which seek to describe the Company’s objective, projections, estimates, expectations or predictions may be considered to be "forward looking statements" within the meaning of applicable securities laws or regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company’s operations include demand-supply conditions, increase in installed capacities prices of input materials, cyclical demand, pricing in the Company’s markets, changes in Government regulations, tax regimes etc., besides other factors such as litigation and labour related issues.

For and on behalf of the Board
Sd/-
M B Raju
Place: Hyderabad Executive Chairman
Date: 11th June 2021 DIN: 00016652