Deccan Cements Ltd Management Discussions.

The Company has once again shown a stable, sustained and improved performance with a decent bottom line (profit after tax) during the year under review. However, there were periods of concern with fall in prices as well as demand for the product during the year. With the drop in demand and price, the companys PBT level has come down compared to the previous financial year.

We summaries below the Managements view on the Performance of the Company for the year 2019-20 and on the future outlook for the Company:

Industry Structure and Developments

Cement production in India reached 334.48 million tonnes (MT) in FY20. 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.

Further, In order to help private sector companies, thrive in the industry, the Indian Government has approved various investment schemes. Some of the initiatives taken by the Indian Government are:? The Union Budget has allocated Rs. 139 billion for Urban Rejuvenation Mission: AMRUT and Smart Cities Mission. Governments infrastructure push combined with housing for all, Smart Cities Mission and Swachh Bharat Abhiyan is going to boost cement demand in the country. The move is expected to boost the demand of cement from the housing segment. ? As per Union Budget 2019-20, Government planned to upgrade 1,25,000 km of road length over the next five years.

? An outlay of Rs. 27,500 crore has been allotted under Pradhan Mantri Awas Yojana in the Union Budget 2020-21.

The demand as well as price of Cement during the first quarter of FY 2019-20 was good. However, due to general election, change of governments in various states, non availability of sand in AP and ambiguity in policy decisions of the respective governments on various infrastructure projects, the demand of Cement had come down during second and third quarter of FY 2019-20. Accordingly, the price of Cement also went down during that period. The demand of Cement picked up during the fourth quarter of FY 2019-20. However, due to country wide lockdown started during the last week of March, the industry and your Company could not achieve the targeted sales of Cement during FY 2019-20. The continued emphasis on infrastructure projects is expected to give further boost to the momentum achieved in the consumption of cement country wide. Various other initiatives and projects of the Governments have started showing 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. In fact, the government of India has set its ambition to become a US$5 trillion economy by

2024. It is therefore unsurprising to find that at the heart of all the planned infrastructure development is the cement sector, and as part of the countrys bouquet of eight core industries, the cement sector is key for laying the foundation of a new India.

However, the COVID-19 pandemic has taken an unprecedented toll on the Indian real estate sector and the construction industry. The nationwide lockdown has slowed down the real estate and infrastructure projects, and the allied cement industry has also suffered a setback. Since cement is a primary construction material, it has experienced a considerable dip in the overall demand ever since the announcement of the shutdown. The demand of cement has improved since May 2020.


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

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 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 commissioned its Packer-4 as well as the Railway Wagon Loading system, which was planned to enhance and speed up the packing and loading capacity for both road and rail dispatches. This will also help in reducing overhead cost and demurrage charges for railway wagaon dispatches.

The Waste Heat Recovery Plant (WHR project), which was planned to be commissioned during the FY 2019-20, could not be completed due to COVID-19 lockdown. The same will be completed in FY 2020-21. The WHR was planned in order to reduce the energy cost of the Company.

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 companys 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 audit 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 controls. All parameters in all operations / activities are monitored regularly to ensure desired results.

Financial and Operational Performance

During the year under review, the Companys operational performance was not as good as of FY 2018-19. During FY 2019-20 the Company has sold 14.70 Lakh MTs of cement, as against 17.40 Lakh MTs during the year 2018-19, which is about 15.52% less in FY 2019-20 with comparison to FY 2018-19. The revenue from Cement sales in FY 2019-20 stands at Rs. 54,890 Lakh, as against Rs. 64,414 Lakh in FY 2018-19, which is about 14.79% less in FY 2019-20 with comparison to FY 2018-19.

The business scenario of demand for the product and the price fluctuations can be gauged from the fact that the decrease in volume of sale by 15.52% has translated into 14.79% decrease in the revenue from cement during the year. While a Tonne of Cement has fetched an average price of Rs. 3,702 per MT during 2018-19, it fetched Rs. 3,734 per MT during the year 2019-20.

Details of the Companys 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 decrease in the Volume of sales, the revenue from operations came down by 14.67%, consequently

EBIDTA margin decreased by 16.40%, Profit before in operations / reporting and

Tax and Exceptional items reduced by 19.83%. Inspite of drop in revenue during FY 2019-20, the

Profit After Tax for the year stood atRs. 5,664.38 Lakh compared to Rs. 4,606.00 Lakh for the previous year (an increase by about 22.98%).

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) along with a detailed explanation thereof.

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

Particulars (Ratio) 2019-20 2018-19 Variance
Debtors Turnover Ratio (in Days) 20.90 8.21 154.75%
Inventory Turnover Ratio (in Days) 67.20 56.37 19.23%
Interest Coverage Ratio 9.88 10.71 (7.75%)
Current Ratio 1.85 2.66 (30.57%)
Debt Equity ratio 0.15 0.06 139.84%
Operating profit Margin ratio 12.04% 12.71% (5.23%)
Net profit margin ratio 10.19% 7.07% 44.12%
Return on Equity 13.23% 11.94% 10.84%

Due to country wide lockdown during fourth week of March, the receivables as on the closing date is more than the normal, which resulted in high Debtors Turnover Ratio.

Similarly, due to country wide lockdown the company was not able to pay some of the dues by the end of the year. Further, the repayment of term loan availed by the company will start form FY 2020-21. Accordingly, the amount payable during FY 2020-21 is earmarked as current liabilities. Therefore, the Current Ratio decreased by more than 25%.

During the year the Company availed Term Loan for various projects of the Company. Accordingly, the Debt Equity Ratio increased.

The Net Profit margin increased by more than 25%, because of change in tax rates and timing difference in provision for depreciation.

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 rationalisation of work methods, have improved employee productivity and morale. The Companys Health and Safety Policy aims at providing a healthy and safe work environment to all employees. As on 31st March 2020, the Company has 323 employees who are engaged in its units and offices.

Cautionary Statement

Statements in the "Management Discussion & Analysis Report" which seek to describe the Companys 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 Companys operations include demand-supply conditions, increase in installed capacities prices of input materials, cyclical demand, pricing in the Companys 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



Executive Chairman DIN: 00016652

Place: Hyderabad Date: 25th June 2020