The Management at Euro Ceramics Limited is pleased to present the Management Discussion
and Analysis Report which provides an insight of the Companys business, Industry
structure, developments, outlook, opportunities, concern areas and performance of the
Company with respect to the operations and other relevant information. This Report forms
part of the compliance report on Corporate Governance.
Global Overview
Financial Year 2017-18 has been advantageous for the Global economy with a notable
rebound in global trade. The global economy grew at an average of 3.7% (2017) as compared
to 3.2% (2016), and is expected to accelerate to 3.9% in 2018 and 2019. Investment
recovery in advanced economies, continued strong growth in emerging Asia, a notable
upswing in emerging Europe, and signs of recovery in several commodity exporters are some
of the key drivers behind strengthened growth. Although the global economy saw good
growth, there are risks emerging from increased protectionism and trade tensions between
major economies and from geopolitical developments in North East Asia and the Middle East.
Persistence Market Research digs deep into the global ceramic tiles market and offers a
comprehensive forecast and procures some key information through organized market
research. The report, "Ceramic Tiles Market: Global Industry Analysis (2012 2016) and
Forecast (2017 2025)" gauges the market and predicts the future demographics and
changes of the market. The report reveals that the residential segment will govern over
and above 66.9% market share and it will heave at a CAGR of 10.0% during the forecast
period (2017 2025)
It is anticipated that growth in ceramic tiles market could vary in co-relation with
the construction industry. Increasing residential construction requires indoor and outdoor
wall covering with ceramic tiles. Rising population will significantly boost construction
needs, in turn increasing demand for ceramic tiles. Furthermore, increasing commercial
construction is expected to drive the global ceramic tiles market. Increasing construction
in Middle East countries is expected to upsurge demand for ceramic tiles. Asia Pacific is
anticipated to dominate the global ceramic tiles market owning to positive outlook for
construction industry in major markets such as India, China, Australia and New Zealand.
Industry Overview
India has witnessed a major economic reform in terms of tax regime with introduction of
Goods & Service Tax (GST) from July 1, 2017. This tax regime, being at the elementary
stage, is expected to result in improvement in logistics and faster movements of goods on
one side and indirect tax reforms on the other side. The revitalisation of global economy
continued during the financial year 2017-18 and the global economy ended with a lower
benchmark owing to fears of trade work between developed economics.
The investors confidence in this volatile environment was reflected by being bullish
and taking an advantage of the correction phase of capital markets during the year under
review. And thus, the business growth has experienced good flow. Infrastructure, high end
architectures coupled with real estate development is a must for maintaining such
sustained growth and hence is on the highest priority of the Government making it to be
the focal point for our economy. Increasing per capita income resulting due to all round
economic high per capita spending affects the sale and off take of our products and we
foresee a prosperous future ahead. The Industry strike witnessed during the year for
reduction of GST Tax rates had a positive end with demand and purchases being rebounded.
The Indian tiles industry has been on a growth trajectory for the past few years and
its capacity addition keeps increasing along with additions to the varieties like wall
tiles, floor tiles, and vitrified tiles. As Governmental policies transform into on ground
realities (which have already started in a small way), they promise to open the floodgates
for business opportunities, especially for the Indian tiles sector, over the medium term.
India is the third largest tiles market in the world. While the global tiles production
grew at an annualized rate of 6.30% for the period 2006-2013, tiles production in India
grew almost double at 12% during the same period. Ceramic tiles that accounts for close to
60% of the total tiles demand in India is expected to grow at a CAGR of 8.70% for the
period 2014-2019.
Growth Drivers
The ceramics industry is a high-energy intensive sector and its demand in India and
abroad is growing due to various factors. The key factors that are affecting increased
tile off-take in India are as follows:
Urban housing shortage: According to the whitepaper, Indian Housing Industry by
research and consultancy firm RNCOS, it is expected that the shortage of urban housing
across the country will increase to an estimated 3.41 Cr units by 2022, mainly on the back
of a demand-supply gap and rising levels of income among the working class seeking to
purchase houses. Besides, migration of working class people from rural to urban areas is
also generating the demand for affordable housing. Between 2015 and 2031, Indias pace of
urbanisation is likely to increase at a compounded annual growth rate (CAGR) of 2.10%,
which is estimated to be almost double of Chinas growth rate.
Increased spending: Aggregate consumer expenditure is likely to increase from Rs.
45 trillion in 2010 to nearly Rs. 150 trillion by 2020, a more than threefold increase in
10 years. This will be accompanied by an increase in affluent and aspirer households from
48 million to more than 100 million in the same time period.
Governmental initiatives: The ambitious Swachh Bharat enterprise intends to build 6
Cr toilets covering 4,041 statutory towns by 2019. The periodic maintenance of this
infrastructure will catalyze demand for tiles. The Housing for All programme proposes to
build around 6 Cr homes by 2022 4 Cr in rural India and 2 Cr in urban India. Under the
Smart Cities programme, the Central Government has selected 20 cities to launch its
large-scale urban makeover plan. It proposes to invest . 50,802 Cr. on these cities in
the first phase of an ambitious plan to set up 100 smart cities.
Indias low per capita tiles consumption 0.5 sqm versus global average of 1.4 sqm.
Potential in the rural market: Only 4% of Indias rural population lives in houses
with tile flooring and 63% lives in houses with mud flooring, entailing a huge opportunity
for the tile industry.
Export Potential: The vitrified tiles market is one of the most dynamic in the
world in terms of the kind of demand it generates. There is high demand for both high
quality-high priced tiles and at the same time there is demand for economical and cost
effective products. The market is currently in the growth stage of the life cycle and it
is not expected to saturate in the near future. But as the market progresses a continuous
shift is expected in marketing and distribution activities. As the market witnesses
increasing competition alongside the rise of the substitutes, suppliers will be forced to
look for innovative ways to sustain market conditions. Significant growth across all the
countries in the region means vast opportunities for growth. It is, however, important to
identify fast growth markets which offer abundance of growth potential.
Boom in Real estate demand: With boom in the real estate sector, the ceramic tiles
market is expected to see further growth in the coming years. The report also notes the
expanding production and consumption patterns of ceramic tiles in India, which is now the
third largest producer in the world. With the introduction of modern technology in
designing and manufacturing, the market has opened up new segments such as 3D tiles,
germ-free tiles and artistic designer tiles.
SWOT Analysis
Strengths:
• State of the art manufacturing facilities
• Emphasize on Quality Products
• Established Brand
• Infrastructure and Locational Advantages to Plant
• Retained trained and skilled Human Resources
Weakness
• Liquidity Crunch and shortages of Working capital
• Low Capacity utilization affecting the cost.
Opportunities
• Expected boom in Real Estate sector
• Demand from housing, commercial sector
• Increasing infrastructure and development.
• Governments initiative for basic sanitation with Swachh Bharat Abhiyan, make in
India, Housing for All, Interest subsidy etc
• Industrialization and Urbanization
• Export Opportunities
Threats
• Changing technology
• Brand recall due to low spending on branding and sales promotion
• Competition from New entrants and established players
Future Outlook
Indias economy is well placed to grow at a robust pace over the next five years owing
to strong domestic consumption and increase in Government spending on infrastructure. The
implementation analysis and review of Goods & Service Tax (GST) mechanism will further
simplify the supply chain and improve the operating environment and will act as an
additional driver of consolidation at all levels market.
The Company is alert and in touch with the ground realities of the business dynamics
and is confident of increasing its market share in all the spheres emerging as a leader in
its segment. The overall business outlook for the Company is promising with improvement in
the economic environment. Efforts towards optimisation and higher operational efficiencies
are continuing. The Company examines the possibilities of revival to grab the attractive
opportunities.
Risk & Concerns
For sustainable development in the global market one must be ready for some level of
uncertainty. Greater the uncertainty the higher is the risk and to mitigate such risk the
Company has adopted various risk management policies. The risk management function is
integral to the Company and its objectives include ensuring that critical risks are
identified, continuously monitored and managed effectively in order to protect the
Companys business. Some of the possible risks identified by the Company are loss of
consumer, branding, slower demand risk, technology obsolesces and for mitigating the said
risks a formal reporting and controlling mechanisms is in place which ensures timely
information availability and facilitate proactive risk management. These mechanisms are
designed to cascade down to the level of the managers so that risks at the transactional
level are identified and steps are taken towards mitigation in a systematic manner.
Opportunities & Threats:
There are diverse opportunities in Marble & Tiles industry due to large scale
investment in Infrastructure, modern day architecture, interior designing, construction
reforms and real estate activities. The constant growth of the Industry has escalated the
demand for marbles and tiles substantially both in domestic and international markets.
Further, the World is indeed becoming a Global city. Your company believes that niche
opportunities exist in the Global arena which, if exploited, would yield positive results.
The company has accordingly built a business model tapping these opportunities and is also
aligning its strategies to utilize opportunities in the domestic market. Your company
deals in special range of Sanitaryware & Marbles having exquisite textures, designs
and colors for which the overseas and domestic markets, both are very demanding.
The increasing growth in construction sector has escalated the demand for marbles
sanitaryware and tiles both in domestic and international markets. Your Company has the
necessary expertise and flexibility to quickly adapt to the changing market condition and
capture the growth in sales leading to growth for the Company.
Internal Control
The Company has adequate internal control system in place which is necessary for
business efficiency and safeguarding assets of the Company. It is in commensurate with the
size of the Business as well as complexities of the Business and reasonable to provide the
financial control and operational control. The Management of the Company is responsible
for ensuring that Internal Financial Control has been laid down in the Company and that
controls are adequate and operating adequately.
Internal audit is carried out by the external professional firm of Chartered Accountant
and Audit Committee reviews the same on regular basis to ensure its effectiveness.
Human Resource, Health and Safety and Environment :
The Company endeavor towards building a strong bonding with the employees and to try to
develop a healthy work atmosphere with its transparent policies. It has maintained a
cordial relationship with the employees and keep motivated them by exposing them to
different roles, assigning tasks and skill development and rewards for the improvisation.
The Company has policy for Safety. It believes in Safety at the first. It conducts
program for health and safety awareness among the employees. The Company has also taken
initiatives for clean and green environment by planting trees, using ETP plants for proper
discharge of waste and reusing waste heat and water. As at March 31, 2018, the Company had
strength of more than 120 employees.
Financial Statement Analysis:
Key Financial Information
During the year the Company primarily generated revenue from its marble division.
Regardless the sanitaryware division being sold during the FY 2016-17, the Company still
earned revenue in the current FY by utilizing the division for undertaking trading
activities. The Vitrified Tiles, Wall Tiles and Aluminum Section plants were non operative
during the year due to shortages of working Capital. There was no business from Realty
Division.
Revenue
Net sales from continuing operations, for the financial year 2017-18 were Rs. 1,935.44
lakhs against the previous years net sales of Rs. 1,069.08 lakhs, recording an increase
by Rs. 866.36 lakhs.
Export revenue contributed around 2.34% in the total revenue during the year against
4.82% of previous year, showing a decrease in export sales. The total export turnover for
financial year 2017-18 was Rs. 45.19 lakhs against Rs. 51.51 lakhs in the previous year.
Other Income of Rs. 142.06 lakhs during the financial year 2017-18, comprises of
Interest on fixed deposits kept as margin money, rental income, profit on sale of fixed
assets, foreign commission received and liabilities /provisions no longer payable written
back. The other income for the year was decreased by 60.02 lakhs compared to previous
year.
Expenditure
The total expenditure for the continuing operational business were at 5,373.09 lakhs
in financial year 2017-18 as against Rs. 4,476.36 lakhs in the previous year, increased by
896.74 lakhs on account of purchase of stock-in-trade accounted in the sanitary division
and cost of material.
Staff Cost for the financial year 2017-18 was of 351.60 lakhs, lower by 72.62
lakhs, compared to previous years cost of 424.22 lakhs, due to reduction in number of
employees.
During the year Purchase of stock in trade was of Rs. 168.15 lakhs, against Rs. 13.03
lakhs of previous year, drastically increased by Rs. 155.12 lakhs due to trading
activities of sanitory goods.
In cost of production the second major cost is Power and Fuel cost which amounts to Rs.
175.20 Lakhs in the financial year 2017-18 against Rs. 159.34 lakhs, due to increase in
power consumption cost.
Finance Cost:
The Companys finance cost for the financial year 2017-18 was 44.14 lakhs, against
54.90 lakhs of financial year 2016-17, which mainly consist of interest on some of the
borrowings, interest on late payment of statutory dues, bank charges and some foreign
exchange fluctuations.
Depreciation:
There is no change in the rates of Depreciation in financial year 2017-18. The Company
has provided the depreciation of Rs. 1,971.88 lakhs for the financial year 2017-18 against
the previous years Rs. 1,969.44 lakhs, based on estimated useful life of the fixed
assets, for the continuing business assets.
Exceptional Item
During the year the Company has sold some of the land parcels and proceeds were used in
repaying the debt of the Company. The profit from such sale of land parcels is considered
as exceptional item. The total gain from such sale was 831.11 lakhs, shown separately as
exceptional item in financial reporting for the year 2017-18.
Sources of Funds:
Share Capital:
There is no change in the capital structure of the Company during the financial year
2017-18.
Reserves and Surplus:
The Reserves and Surplus as at March 31, 2018 was negative at Rs. 11,274.33 lakhs,
against negative Rs. 8,372.34 lakhs of previous year, increased by Rs. 2,901.99 lakhs, due
to net loss incurred by the Company during the current financial Year.
Long Term Borrowings:
The long term borrowings are increased by Rs. 66.12 lakhs as on March 31, 2018 on
account of deposits and loans regrouped.
Application of Funds:
Fixed Assets:
The Net Block of fixed assets stood at Rs. 17,152.89 lakhs with net reduction by Rs.
2,112.21 lakhs on sale of some of the properties during the year.
Investment and Long Term Loans & Advances:
There is no change in the carrying value of the Investment as at March 31, 2018
amounting to Rs. 134.10 lakhs.
Long term loans and advance were reduced marginally by Rs. 63.64 lakhs, from Rs.
4,846.33 lakhs as at March 31, 2017 to Rs. 4,782.69 lakhs in as on March 31, 2018.
Current Assets & Current Liabilities:
Current Assets of the Company as on March 31, 2018 was Rs. 8,323.31 lakhs, decreased
significantly by Rs. 1,991.73 lakhs due to decreased in Inventories and Trade receivables.
Current Liabilities of the Company as on March 31, 2018 was Rs. 33,404.71 lakhs against
Rs. 35,184.58 lakhs as on March 31, 2017, reduced substantially by Rs. 1,779.87 lakhs on
account repayment of debt of secured lenders, pursuant to settlement arrangement with
them.
Cautionary Statement:
Statements in this management discussion and analysis describing the Companys
objectives, projections, estimates and expectations may be forward looking statements
within the meaning of applicable laws and regulations. Actual results may differ
substantially or materially from those expressed or implied. Important developments that
could influence Companys operations include global and domestic financial market
conditions affecting the interest rates, availability of resources for the financial
sector, market for lending, changes in regulatory directions issued by the Government, tax
laws, economic situation, significant changes in political and economic environment in
India, applicable statues, litigations, labour relations and interest costs and other
unforeseen events, if any.
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