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ECONOMIC AND INDUSTRY REVIEW
THE GLOBAL ECONOMY
The acceleration in global activity that started in 2016 gathered steam in 2017, reflecting firmer domestic demand growth in advanced economies and improved performance in large emerging market economies along with improved outcomes in both advanced economies and the EMEs. Confidence measures and levels of new orders for businesses remain strong.
This long awaited lift to global growth, supported by policy stimulus, is being accompanied by employment gains, and a moderate upturn in investment and a pick-up in trade growth.
Global growth is set to be just over 3.5% in this calendar year 2018, the fastest for seven years, with improved outcomes in both advanced economies and the Emerging Markets. Global demand has been improving, which should encourage exports and boost fresh investments.
THE INDIAN ECONOMY
r Indian economic growth is giving a positive signal for the current and future scenario. It is projected to strengthen to above 7%, gradually recovering from the transitory adverse impact of rolling out the Goods and Services Tax (GST) and measures to choke off the black economy, including demonetisation. Fiscal deficit for 201 7-18 is revised to Rs.5.95 lakh Crores at 3.5% of the GDP which is approximately the same as 2016-17 inspite of transformation in the economy. In addition to initiatives like; "Make in India", "Housing for All", "Digital India" government has also introduced "Sagar Mala" and "Bharat Mala" initiatives which is expected to boost the domestic growth of the country.
The Reserve Bank of India has estimated GDP growth in a range of 7.4% to 7.9% for the Financial Year 2019-2020. It is projected to strengthen to above 7%, gradually recovering from the transitory impact of the Goods and Services Tax (GST), which has benefitted organized players by improving their competitive power. Huge opportunities over the next few years are anticipated as Indias per capita income growth is expected to accelerate. Services expected to grow at 8% plus and Exports expected to grow at 20% in 2018-19.
RURAL INDIA GROWTH
Rural India is seeing robust growth. In its FY19 budget, the Union Government announced the MSP policy of 1.5x cost, with the aim of increasing farm income and to increase the contribution of agriculture to GDP from 15% to 20%. Coupled with the growth in non-farm income through the MNREGA program with a budgetary allocation of Rs.47,500 crores, these policies will serve to boost demand through increased income growth.
The Government is committed to the welfare of farmers and doubling farmers income by 2022. A healthy monsoon complementing such Government policies, will increase the discretionary income of the rural population over the next couple of years. The revival of agriculture growth will be instrumental in achieving sustainably high GDP numbers.
URBAN INDIA GROWTH
India will be one of the three countries to witness maximum urban growth by 2050 along with China and Nigeria, according to United Nations estimates. By 2050, India, China and Nigeria will account for more than a third of the projected growth in the worlds urban population.
Indias construction sector is considered to be the countrys second largest employer and contributor to economic activity after agriculture and accounts for the second highest inflow of FDI after services.
The construction industry has contributed nearly 8% to the national GDP during the last five years. The Indian construction industry is expected to grow at a year-on-year growth rate of around 5% from f 10.4 Lakh Crores in FY16 to f 11.4 Lakh Crores ($176 billion) in FY17. It is expected to reach f 17 Lakh Crores ($263 billion) in FY21 at a CAGR (FY16-21) of around 10%.
As per IMF projections, India needs to spend on an average 8.1% of GDP on infrastructure development per year from the current fiscal year to 2022, compared to just over 5% a few years ago. The policy framework is fast changing to attract private capital. Moreover, the government is finding innovative ways to finance these projects. Accelerated spending along with policy support and international financing could potentially transform Indias infrastructure landscape.
Indias per capita income showed a CAGR of 5.5% between 2010 and 2015 and is expected to touch USD 2,208 by 2019 as per a forecast by the International Monetary Fund as the urbanisation rate rises from 33% to 40%.
THE HOUSING SECTOR
Housing accounts for 5% of the GDP and is the 4th largest employment provider in India. There has been a high correlation of +0.5 between the performance of the building materials industry and the economy. With a total of 7 Crores houses to be built over the next 3 years, and with 67% of the population still residing in rural regions according to 2011 census, there is poised to be significant demand for various building materials products.
The budgetary allocation for rural housing in Prime Minister Awas Yojana increased from Rs.16,000 Crores in FY17 to Rs.23,000 Crores in FY18, up 43% YoY; the allocation for urban housing sector is Rs.6,000 Crores in FY18, up 22% YoY. This move from kuccha to pucca houses, coupled with the Swacch Bharat Program will serve as a growth driver. Even in housing schemes where RCC houses are specified, there is expected to be an increase in the number and type of ancillary buildings such as cow sheds, poultry farms and building extensions.
BUSINESS SEGMENTS OVERVIEW
BUILDING PRODUCTS Roofing
Fibre Cement Roofing Sheets industry in India with a market size of Rs.3,900 Crores is an oligopolistic market with top six players accounting for 75%-80% of the size. The demand for the product is mainly driven by rural economy that is largely led by the method of housing construction, its affordability, and durability.
The demand for Fibre Cement Roofing Sheets is largely dependent on:
Structural demand drivers-moving towards pucca housing and housing for all.
Rural economy-prevailing Minimum support prices (MSP), wage rates and monsoon being key determinants.
Prevailing steel prices.
Preference over competing/alternative products
The demand for Fibre Cement Roofing sheets will be boosted by various factors on an industry-wide scale including improved discretionary income in the hands of rural population, reduction in tax rates, a healthy monsoon, increased farm productivity, nuclearization of families and Government focus on Housing.
In view of these positive economic sentiments Everest has undertaken certain initiatives -
Cost Control-Controlling overall costs was a priority of the Company this year. Logistics and material costs were reevaluated and learning from the Parivartan initiative and last years demonetization shocks have helped rationalize raw material and delivery costs.
Market Share-A focus on strategic markets led to a market share gain through deeper penetration. Our market share increased by 1.5%-2% in all our strategic markets.
Prices-Prices of roofing sheets to consumer came down on account of rationalization of GST rates from 27%-18%. This brought parity in the tax rates between metal roofing and fibre cement roofing. The benefits of this Government Policy decision has helped the poorest home builders in our country.
Our recently launched coloured roofing sheet, Everest Super is priced at a 25% premium to the regular fibre cement roofing sheets. With increased in income levels we expect high demand and an improvement in overall realization.
Customer Service-Brand recognition initiatives, market activities, increased dealer engagement and wall paintings were undertaken. Improved logistics to serve the dealer network reduced delivery time and cost. A focus initiative to resolve customer complaints led to a reduction of lead time from 45 days to 8 days. Our network has seen a surge in dealer confidence. Quality initiatives, undertaken at each plant, aim to push the consumer expectations even higher.
Production of Everest roofing sheets during FY17-18 stood at 6.38 Lakhs MT compared to 5.58 Lakhs MT in the previous year.
Boards and Panels
Fibre Cement Boards industry outlook is encouraging. Driven by growing awareness, increasing applications and rising preference over the competing products. Currently, non-asbestos cement boards and panel industry size is pegged at Rs.23,300 Crores and has been growing at 20-25% CAGR over the last five years. The boards and panels industry comprise key variants like fibre cement boards, calcium silicate boards and gypsum boards.
Increasing acceptance of Fibre Cement Boards over the last five years has seen its share increasing to 19% in FY17.
Fibre Cement Boards and Panels are superior to conventional building products such as gypsum boards, MDF and plywood. It is a revolutionary product which brings safety and speed to construction with multiple applications in the interiors and exteriors of buildings. The industry is today at Rs.1000 Crores and has grown at 1 5-20% CAGR over the last 5 years. The market is expanding and many peers have followed the trend of starting manufacturing Boards which has impacted our market share. However the market opportunity is huge and stands at Rs.50,000 crores, which is the plywood industry. Numerous Government initiatives such as Housing for All, Smart Cities, Swacch Bharat, etc. will supplement the demand for this product.
The Company possesses one of the widest bouquets of products in the Fibre Cement Boards and Panels category that see a wide range of applications such as ceiling, wall, cladding and flooring solutions. Everest has two manufacturing facilities for Boards and Panels.
Everest has added many value-added products to service the changing needs of consumers. Cement Wood Planks, Rapicon Walls, Designer Ceilings and Heavy Duty Boards are expanding the contributions per unit and serving consumer aspirations.
Everest has seen lot of traction coming from Government departments for its Boards & Panels products because of their superior functional properties including faster and hassle free construction. Several Government buildings like The Supreme Court of India, AIIMS, IIT Hyderabad etc. now use the Fibre Cement Board range of products of Everest. The Ministry of Housing and Urban Poverty Alleviation, Government of India, recently used one of the projects of Everest as example to promote fast and cost effective method of construction on its official Facebook page. The post showcases the project of construction Janta Darbar", the official public meeting place of Chief Minister of Bihar. The meeting place is built using dry construction methods with no use of brick, sand and stone on the walls. Everest Heavy Duty Boards and Everest
Cement Wood Planks were used to make the walls on steel framework while Everest Designer Ceilings were used to make the false ceiling.
Exports continue to be weak due to slowdown in the markets we serve. There is a focus to initiate entry into new markets and the results will be seen in the following year. The Company has made in-roads into new international markets, mainly Europe.
Production of Everest boards and panels during FY17-18 stood at 1.19 Lakhs MT compared to 1.14 Lakhs MT in the previous year.
Influencer initiatives-This year the focus has been on training applicators, engaging with influencers to expand the usage and create awareness of the superior benefits of our products. Architects and Designers are key influencers in the specification of our products. Everest has engaged and partnered with more than 4000 architects and designers on various platforms like Festival of Architecture & Interior Designing (FOAID), Design Perspective, ET Acetech, ET A&D Summit etc.
Further, we have organized various training programs to increase awareness, improve workmanship and create a better rapport between our sales team and contractors/installers:
Pehchan: This programme creates awareness and expansion amongst contractors. It establishes a relationship between installers and our sales team. In 2017-18 we engaged with 5,500 contractors and plan to quadruple these numbers in the following year.
Kaushal: This is a skill enhancement programme to provide hands-on training to increase efficiency and application quality. In 2017-18 we trained 2,529 contractors through Kaushal and this will be tripled in the next year.
Innovation-The company is evolving from the product manufacture to a design-oriented solution provider with a deep understanding of consumer needs and dissatisfaction with current conventional building techniques. The company has improved its product and solution mix and test marketed new-offerings for interior and exterior designer partitions, ready-to-install cladding solutions and a unique solution for damp-proofing of walls. These efforts will translate into commercial offerings in the coming year.
Aesthetic Finishes-Our boards and panels plants in Nashik and Roorkee are being upgraded with state-of-the-art finishing and painting equipments. This will provide consumers with a wider range of finished products and colours.
Steel buildings are the fastest systems of construction today and are gaining popularity worldwide. It is technology driven, contemporary, versatile, economical and environment friendly. In India, steel buildings have become mainstay for industrial structures such as factories, warehouses, metro stations, shipyards and logistic parks.
Everest offers end-to-end solution in this product segment and has completed over 2,200 projects. Having emerged as one of the leading PEB players in India, Everest on an average delivers one PEB per working day. In addition to PEB structures for industrial usage, the company also offers Smart Steel Buildings, a Light Gauge Steel Frame (LGSF) structure that sees multiple applications across residential and commercial segments.
During the year, the company completed 143 projects covering more than 6.93 Lakhs sq. mts. The order book of the company stands at 30,000 MT at the year end.
Production of Everest steel buildings during FY17-18 stood at 58,000 MT compared to 53,000 MT in the previous year.
In FY2017-18, Everest delivered some remarkable PEB projects which included a 9,98,890 sq. ft. factory for Patanjali Ayurveda in Assam in just 4 months overcoming difficult climatic conditions and logistic challenges thrown by the remote location. The Company also delivered a 4,41,321 sq. ft. retail warehouse for Reliance Industries in Haryana, which is one of the largest retail warehouses in the country. We have also completed construction of one of the largest modular manufacturing yards in India for Technip in Gujarat. The 1,23,784 sq. ft. building was constructed in 6 months.
This is high growth business and we are committed to growing our footprint and brand position through efficiency and responsiveness to our customers. Volatile steel prices have adversely affected this segment. We believe that steel prices will stabilize and that such unpredictable volatility will be reined in. A host of efficiency initiatives in design and manufacturing will also help improve profitability. Training and safety has been a key focus area to enhance the contracting skills and site execution capabilities.
New Initiatives-Everest is evolving from a product company to a solutions company and so erection and contracting have become an important part of our business. Strengthening the contracting team and faster real-time management of contracts will lead to reduction in costs and better realization. An initiative to increase information flow between the client and the site is also helping improve customer satisfaction scores.
We have launched Indias first technical manual on Pre-Enginereed Buildings, which has facilitated engagement with structural consultants and architects. It was unveiled by an eminent panel of Structural Consultants, Architects and Construction Experts. The manual, developed by Everest in close consultation with industry stakeholders like leading consultants, architects, engineers, project managers, Govt. Institutions and industry experts, will be used by architects, design engineers and project managers as a technical orientation and reference guide and training tool for designing, detailing, manufacturing and erection of PreEngineered Steel Buildings.
Everest understands the evolving Green Energy need of its Industrial customers. We now offer solar compliant pre-engineered buildings. We also offer a one-stop solution to our PEB customers for rooftop Solar. We expect this offering to grow into a large business for the company in years to come.
Raw Material Impact-Steel price volatility and unrealistic price increases continue to have an adverse impact for the entire industry. Import restrictions have affected profitability. The Indian government imposed an emergency Minimum Import Price (MIP) measure in Feb 2016 for the second time in history. MIP has since been replaced by long-duration Anti-Dumping Duties (ADD) applicable till 2021. Gradual changes in steel prices get factored into our contracts but sudden changes have adverse effect on profitability.
OPERATIONAL QUALITY IMPROVEMENT
Various quality control initiatives at our factories on reducing transit breakage and handling were undertaken this year. Product quality and flow improvement initiatives have helped enhance productivity and capacity utilization in the last quarter. These efforts will be sustained in future.
Our efforts on improving quality in our operations at all our plants have won accolades from the industry. Everest participated in the Manufacturing Today Awards held in September 2017 in 5 categories and was selected in the Top 5 in each of its respective categories.
The year 2017-2018 started with a backdrop of demonetization and the unclear impact of GST implementation. The insecurity of not being able to avail of the GST credits kept the first quarter to a similar turnover as the year before despite the steps taken by us. This resulted in improvement in demand in the second and subsequent quarters as the impact of GST implementation became clearer. The markets have since stabilized and are displaying healthy growth rates.
The Government recognized that the roofs that our industry delivers are the most cost efficient and also corrected the anomoly where our roofs were subjected to effective 27% rates of taxation while metal roofing was subject to a 18% effective rate by applying a common rate of 18%.
This helped us to reduce the market price of the product. GST reform also helped improve cycle time to deliver to the end customer. The challenge of reducing demand in the first quarter was met by excise registrations of all our depots so that we could issue an excise invoice from all our depots in order that our dealerships could take the advantage of the entire taxes paid by them on the inputs they received from us under the transitional provisions of GST Law. Everest was the only Company in the industry to be able to do this.
Turnover after GST implementation declined for our tax exempted plants. This also impacted profitability.
IND AS became applicable to us during the current year and we were among the first few companies to roll out the financial statements under IND AS in our industry.
We prepaid Rs.67 Crores of term loans, the repayment schedule of which, was upto March 2022. In addition to these we renegotiated existing loans. This enabled us to bring down our interest cost which declined from Rs.20.8 Crores to Rs.12.5 Crores. The debt equity ratio of the Company reduced from 0.51 to 0.16 due to decrease in the debt.
Forex rates continued to be stable over the period.
As a result of the conscious effort on credit control, trade receivables reduced by over 33% from Rs.99 Crores to Rs.67 Crores.
During the latter half we implemented the latest version of SAP (SAP S4 HANA) which was implemented in a record time of 100 days.
The year also saw rationalization of our tax rates as we were able to realize the benefit of MAT credit due to improved business performance.
Our subsidiary company Everest Building Products LLC, under which the Fibre cement boards project in the UAE was being setup, has since discontinued operations and deregistered. As a result, all funds invested in the project through the subsidiary has been remitted back to India as a reduction of share capital.
Our focus on cost optimization resulted in lower cost of production and lower other expenses which declined from Rs.25.4 Crores to Rs.23.5 Crores. Total cost of manufacturing per unit declined by 6% due to better utilization of plant capacities.
GDP growth of the country has a positive impact on the demand in our industry. India GDP rose by 6.5% while our output grew by 10%. Better utilization of our resources and optimisation as a result of previous years project Parivartan has had a positive impact and it will be sustained in years to come.
HEALTH & SAFETY
At Everest, health and safety is paramount to all our business operations. We take special care of health and safety of all employees, associates and customers of the Company. We take best of the safety measures at Pre-Engineered Building sites during installation. Further, safe work place practices are followed strictly at all our plant locations and erection sites.
There are many misconceptions about one of our raw materials-asbestos. We use white asbestos (Chrysotile) fibre bound in a cement matrix while manufacturing AC Roofing. Chrysotile is naturally occurring mineral, mined and imported in pallets. Since it is not sprayed, fibre emission is fully controlled. Fibre concentration at our production facilities is better than international norms and we ensure zero discharge of industrial effluent. Regular health check-ups for all . of our employees confirm the absence of any asbestos-related disease over decades of service. We ensure the highest level of safety for our employees and the community. Living and working under an Everest Roof is safe.
The company continually focuses on research and development activites and has always had a philosophy of introducing new and improved products in the marketplace.
We have a 6-member R&D team for new product development for Building Products in Lakhmapur, Maharashtra. Under our Steel Buildings division, the company has a 99-member highly skilled design team that operates out of our Design Centres at Noida and Roorkee.
Our average annual spend on R&D has been Rs.1.19 Crores in last 3 years. Our most recent success in the R&D department was the development of Everest Super, a water repellent coloured roofing sheet-a unique product in todays marketplace.
All salespersons are now equipped with tablets and a new sales ERP to give better real time information. This has improved the flow of market data.
Globally, we are one of the earliest adopters of the latest SAP S4 HANA 1709. The project was initiated mid-December and fully deployed in a record 100 days, which is one of the fastest implementations of SAP S4 HANA. The new ERP makes our system more agile and faster with better data analytics that in turn helps us service our customers faster than ever.
Shortage of sand and skilled labour is pulling back on the growth potential of construction activity across the country.
Weakness in export markets in Boards has impacted capacity utilization. Local production in Middle East has made the product unviable, therefore we have started focusing on supplying value added products.
Steel prices are volatile and severely impact profitability in Steel Buildings. We continue to face challenges on quality of erection labour, site conditions and underdeveloped logistics in the country. But these are all changing for the better.
Motivating employees through regular up-skilling and providing collaborative work environment that fosters ethical behavior, mutual respect and responsibility is integral to the Companys HR policies and practices. Currently Everest employs 1628 managers and workers. The Company provides a happy work environment and compensation to its employees. Average salary of all employees is Rs.5.81 Lakhs per annum and average employment service of 10 years, which is a sign of high loyalty and trust.
Everest is always looking out for the right talent to join its pool of resources through lateral entry as well as fresh recruitments. For identifying and recruiting young talents, the company has robust campus recruitment program which covers many top management and engineering colleges in the country. During the year 285 new people joined the Company.
SOME OF THE KEY HR DEVELOPMENT INITIATIVES OF THE COMPANY ARE -
Middle Level Management Development Program : In order to identify and develop junior management resources in their career progression a Middle Level Management Development Program titled Everest Pratibha has been started. 16 highly talented employees completed the program in 2017 and a fresh group of employees is being identified for the next batch in 2018.
Performance and Goal Management System : Human resources development at Everest is driven towards enhancing performance and individual. A new performance management and goal management system on SAP-Succesfactor platform has been introduced at Everest.
Rewards and Recognition : The Employee Stock Option Scheme for senior management grants them the option to acquire shares of the Company. During the year, 241 employees got ESOPs of 1,60,000 shares. The employees are also rewarded for achieving targets under Everests Excellence Bonus Scheme. Loyalty is rewarded through the Long Service Award program existent in the Company.
Employee Engagement : Participation in various competitions within and outside the Company as 5S Activities, Kaizen improvements and Quality Circle activities are encouraged. Team members are involved in various recreational activities like inter-corporate cricket tournaments, sports tournaments within the Company, which help them engage and build trust amongst themselves.