Garware Hi Tech Films Ltd Management Discussions

1. Company Overview & Economic Environment

Garware Hi-Tech Films Limited (Formally Known as Garware Polyester Limited) is the pioneer and the largest exporters of polyester films in India. Also it is the sole manufacture of Solar Control window films in India and among the only two companies in the world having patented technology for manufacturing the UV stabilized dyed films and perhaps the only Company in the world with backward integration for manufacturing of its own raw material and all components for manufacture of Solar control window films. The Company is the trend-setter in Solar Control Film industry with a history of more than 3 decades of technological development. The Solar Control window films are sold under the well-established brands of the Company that is SUNCONTROL window films and Global window films.

The Company has streamline its production of Surface protection Film / Paint protection film at Waluj Aurangabad and the product quality was tested and approved in the International Market.

The Company also has backward integration through establishment of Batch Process Polyester Chips plant which ensures a steady stream of supply of variety of specially designed chips for the BOPET Film Lines. The Company produces wide range of products having variety of end applications. The Company manufactures Bi- axially Oriented Polyethylene Terephthalate (BOPET) / Polyester Films, Sun Control Films, Thermal Lamination Films and Specialty Polyester Films also manufactures premium grade heat rejection films. Idle assets held for sale were monetized during the year.

During the financial year major challenges were managed on account of Container Supply shortage, which has resulted in the increase in Ocean freight too. There was slowdown in China Production due to shut down of Manufacturing facilities, port etc mainly due to reoccurring of Covid. Russia Ukraine war has also impacted global supply chain in the international market. Covid impact on the demand supply was very negligible due to Vaccinations drives taken globally and omicron was not in fatal in nature.

The basic raw material that is PTA and MEG has seen rise in the prices based on Crude prices and demand / supply situation. The Company has long term agreement on import parity price for supply of main raw material. The specialty chemicals prices has seen increasing trend.

The Company has come out with many new products for label films to help environment protection and recycling of the film with bottles and developed range of Shrink films for label application. The Company has also developed films for better seal and peal strength application for proper lidding of any type of containers (Universal). The Company?s strength lies in its integrated manufacturing facilities, R&D Centre and portfolio of value-added specialty products for various applications.

The Company has achieved full capacity utilisation of its Polyester film plants and Solar Control window film plants.

2. INDUSTRY STRUCTURE AND DEVELOPMENTS

The Industry is catering to Packaging, Yarn, Coated films for specialty applications and thick films for insulation and shrink label application.

The Company has developed products considering speciality of each manufacturing line capability and catering to speciality applications such as shrink label, Electric Insulation, Sequin, Reprographic and digital printing and reduced reliance on packaging.

The High heat rejection films are very well accepted by International Market. The Laminated Surface Protection films are also very well accepted by the International Customers.

The Company has a well-developed marketing network throughout the world and it has developed wide network of dedicated customers across the globe i.e. USA, Europe, Russia Far East, China, Middle East, Africa, South America, Australia, New Zealand etc. by appointing marketing executives. In order to expand the business and offer better services to the customers of Consumer products in overseas market, the Company has Subsidiary Companies situated in USA and UK. There was no change in the nature of business of the Company during the year under review.

3. OPPORTUNITIES AND THREATS

The demand for PET film was there throughout the year as capacities were available in domestic and International Market. The packaging market may shift to higher micron thickness films and there will remain an opportunity for higher micron packaging films to protect environment as per new environment laws in India.

The PET film packaging will grow as it?s a hygiene packing and usage of packed food is likely to grow. On Global front, due to the commoditized nature of BOPET films, the industry remains highly competitive with pressure on margins.

The Company is making all efforts to cut down on costs to meet the challenge of excessive capacities and price competition in India and international market. The strategy of the Company continues to focus on the specialty films, PCR products, increase the share of value-added products, and reduce the volumes of commodity films.

The Company derives its strength from its integrated manufacturing facilities, established track record, experienced management, diversified customer base across the globe, wide range of products, focused R&D, specialty products and well recognized brands which shall lead future growth of the Company.

4. OUTLOOK FOR EXPORTS:

Plain Film:

The Company has maintained its record of being the top exporter of polyester films and continuously bagging the top exporter award from Plexconcil. With introduction of high-quality variety of product offerings and its satisfied customer base across the globe, the Company is fully confident of maintaining its strong position in exports. The Company continues its efforts to foray into newer markets and further increase the customer base in USA, Europe, China, Far East, South America, Africa, Middle East, Australia, New Zealand etc. as these remains key markets for the Company?s BOPET products.

Sun Control Film:

The Company is one of the premier Solar Control window film manufacturers and have been a trend-setter in sun control/window film industry with a history of more than 30 years of technological development. Apart from India, the Company has been catering to customers across North America, South America, Russia, Europe, China, Far East, Middle East and Africa. The Company is the marketer of the brand ‘GLOBAL WINDOW FILMS? which is registered in the US and is one the most popular brands there. The Company?s share in matured markets like USA and Europe have grown exponentially. Currently the Company export to about 88 countries worldwide. In continuation of Company?s focus in Exports, the Company have posted the Sales persons in strategic and important markets like USA, UK, Russia, Brazil, UAE and Australia to develop and grow the business. In addition to this, the Company also market its film in "Garware Sun Control" brand. In the domestic market in India, the Company is market leader and have a strong brand recall. The Company also sell laminated material under neutral/customized packaging, dyed film and release liner, thus offering marketing opportunities to distributors world-wide.

The Global Solar control film market is growing due to increasing awareness of advantages of solar control films, reduction of energy costs & carbon footprint, reduction of ultra-violet (UV) rays and infrared emissivity. The Company has also introduced Paint Protection Film / Laminated Surface Protection Film a year ago and the product has found good acceptability in the market.

Company is in the process of capacity expansion of sun control films considering the export demand in global market.

Thermal Film:

With variety and high-quality product offerings in thermal lamination films, the Company is enhancing its share in the export market and has developed Glitter & Feather feel films at this division and focusing on increasing exports volume for these specialty products. The capacity utilization has gone up during the year.

Domestic Market:

Growing Retail sector, increasing preference towards packaged items, liberalization and rising middle class is expected to increase the consumption of BOPET Films thereby adding to growth of this segment in the domestic market.

Increased usage of window films in offices, commercial buildings and malls will continue to add to the growth of the Company?s business in the premium segment of window films.

5. REVIEW OF OPERATION

The financial statements have been prepared in compliance with the requirements of the Companies Act, 2013 and the applicable Indian accounting standards.

(Rs in Lakhs)

Particulars	2021-22	2020-21	Change
Net Sales	126,396.53	96,038.64	31.61%
Other Income	3,954.72	1,562.76	153.06%
Profit before Interest, Depreciation	26,781.41	22,273.58	20.24%
Interest & Financial Charges	1,715.24	1,836.74	(6.61%)
Depreciation	2,806.92	2,383.54	17.76%
Profit before Tax	22,259.25	18,053.30	23.30%
Provision for Tax	6,238.72	6,183.58	0.89%
Profit after Tax	16,020.53	11,869.72	34.97%
Other Comprehensive Income (OCI) Net of Tax	348.28	3,366.94	(89.66%)
Total Comprehensive Income For The Year	16,368.81	15,236.66	7.43%
Earning Per Share (Basi/ Diluted)	68.96	51.09	34.97%
Market Capitalisation	161,976.25	162,510.60	(0.33%)

Details of significant changes in key financial ratios:

Sr. No. Particulars	2021-22	2020-21	Change
1 Debtors Turnover No of Days	32.47	28.88	12.43%
2 Inventory Turnover No of Days	36.06	36.38	(0.88%)
3 Interest Coverage Ratio	15.61	12.13	28.76%
4 Current Ratio	2.29	2.35	(2.36%)
5 Debt Equity Ratio	0.08	0.07	(14.29%)
6 Operating Profit Margin (%)	21.19%	23.19%	(8.64%)
7 Net Profit Margin (%)	12.67%	12.36%	2.55%
8 Net Worth	168,789.69	154,744.12	9.08%

6. Internal Control Systems and their Adequacy

The Company has sound systems of internal control and checks, which are supplemented by a regular internal audit commensurate with the size of its business and nature of its operations. The Audit Committee of the Board meets at regular intervals and actively reviews the internal control systems, which are reflected in the internal audit reports. Suitable corrective actions are initiated wherever necessary.

7. Material Developments in HR / Industrial Relations

Your Company has a well-qualified and experienced team of professionals who have contributed to the performance of the Company. Labour relations at all Company locations continue to remain cordial with no industrial unrest during the year under review.

8. Enterprise Risks Management

Risk is an integral component of business. In today?s challenging and competitive environment, mitigating risks is imperative. Common risks include changing regulations, competition, business risk, technology obsolescence, investments, financial risk, environmental risk and retention of talent. For managing risks more efficiently, the Company has undertaken a detailed risk management exercise and has identified key risks that can have a critical impact on the Company?s performance. Some of the critical risks identified by Company are as follows:

Operational Risk: Operational risks like equipment obsolescence can impact production. To mitigate such risks, the Company continuously monitors equipment obsolescence and upgrades equipment from time to time and undertakes preventive maintenance measures. The Company has also made significant investment in equipment modernization.

Competition Risk: Company?s products are sensitive to changes in industry capacity and output levels, cyclical changes in regional and global economic conditions and changes in consumer demand. A significant addition in capacities by competitors has heated the competition.

Fluctuation in Raw Material prices: The Company?s major raw material is PTA & MEG which is by product of crude oil. Due to fluctuations in crude price raw material price also changes, your Company on regular basis asses the changes and passes on the increase to the extent feasible & required.

Market Risk: Your Company manages market risk by expanding its presence in different markets, deeper penetration into existing markets and by launching new products.

Logistics Risk: Logistic risks includes availability of adequate transportation vehicle to get material to factory location or ship material from factory to client. Your Company like other companies across the globe have been impacted on this front, after first wave of COVID 19 availability of ships / containers has been challenging due to which costs have increased across the globe, however, your Company is managing costs better by planning the requirement well in advance and we anticipate the situation to normalize by end of 2023.

Currency Fluctuation: The Company revenues are largely generated through exports. Company has appointed consultants to advice on changes in global economic events / outlook and its impact on currency risk as well as for needful coverage of the risk and Company hedges its net exposure well in advance by way of forward contracts, it is immune to a great extent from the fluctuation in currencies.

RISK MANAGEMENT AND MITIGATION

The Company has established a well-defined Enterprise Risk Management System which encompasses the identification, assessment, mitigation and monitoring of risk to achieve business objectives by implementing various internal control systems and response strategies well in advance. The Company recognizes that the risks need to be handled effectively and mitigated to protect the interests of the shareholders and stakeholders to achieve business goals and increase sustainable value and Governance.

The Company?s Board of Directors has overall responsibility for the establishment and overseeing of the Company risk management framework. Pursuant to Regulation 21 of Listing Regulations, 2015, Risk Management Committee was constituted to overall manage the companies risk management process.

The primary objective of the Committee is to control the various risks that the Company is exposed to, with a view to prevent unacceptable losses, to provide an effective means of identifying, measuring and monitoring risk exposure of the Company and to keep such risk at or below acceptable levels. The Company has framed an Enterprise Risk Management Policy (the "Policy") to help in this endeavor

Policy contains objectives of risk management, Company?s approach to risk management and the risk organization structure for identification, management and reporting of risks. The policy specifies the roles and responsibilities of key stakeholders and other key personnel of the Company with regards to risk management. The policy also aims to ensure and identify process of risk identification and management.

There are no risks, which in the opinion of the Risk Management Committee & Board threaten the existence of the Company.

9. Cautionary Statement

The statements in report of the Board of Directors and the Management Discussion & Analysis Report describing the Company?s outlook, estimates or predictions may be forward looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially.