Godrej Industries Ltd Management Discussions.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The highlights of overall performance are as follows:

रCrore
Particulars 2018-19 2017-18
Revenue from Operations 2,143.99 1,986.32
Total Income 1,941.99 2,287.40
Total Income* 2,185.78 2,020.02
Profit/(Loss) Before Taxation* 152.99 (10.50)
Profit/(Loss) After Current Taxation* 152.99 (24.10)
Profit/(Loss) After Current & Deferred Taxation* 153.06 (25.87)
Profit/(Loss) After Current & Deferred Taxation (90.73) 241.51
Earnings per Equity Share (?)-Basic (2.70) 7.18
Earnings per Equity Share (?)-Diluted (2.70) 7.18
Profitability ratios are as follows:
PBDIT/Total Income* 20% 13%
PBIT/Total Income* 18% 10%
PBT/Total Income* 7% (1%)
PAT/Total Income (5%) 11%
Return on Net Worth (5%) 14%
The Financial risk ratios are as follows:
Net Debt/Equity 1.64 1.45
Debtors Turnover (Number of Days) 29.9 24.5
Inventory Turnover 61 61
Currnet Ratio 1.15 1.20
Interest Coverage 1.78 2.37
Without Exceptional Item

Operating margin has improved from 10% to 18%. This is mainly due to improvement in the Chemical Business margins and higher dividend received in FY 18-19.

Net profit margin for FY18-19 is impacted due to the one-off exceptional item of र243.79 crore being impairment on an investment in a subsidiary (the excess of its carrying amount over the estimated recoverable amount considering its business outlook).

Return on Net worth is also impacted due to the one-off exceptional item of र243.79 crore.

CHEMICALS DIVISION

The Chemicals division is one of Indias leading manufacturers of basic oleo-chemicals, surfactants and derivatives of oleo-chemicals. The division has a blend of domestic and international operations and is one of the leading suppliers in the Indian market. The division achieved export turnover of र534 crore in this fiscal, accounting for about 32% of its turnover.

The division is focusing on value added chemicals which have steady margins and also helps in de- risking the business.

The Chemical division in FY18-19 had a healthy growth of 47% in operating profits.

The product category-wise review follows:

Fatty Acids

The Fatty Acids portfolio, comprising stearic acid, oleic acid, as well as value-added fatty acids, accounted for about 41% of the turnover of the division. The division plans to enhance the sales of its value-added fatty acids in the domestic as well as export markets.

Fatty Alcohol

Fatty alcohol contributed 28% to turnover of this division. A good portion of the revenues for this category comes from exports. The division is also expanding the product basket by focusing on value-added fatty alcohol and also long chain alcohol.

Surfactants

Surfactants contributed 22% to the turnover of the division.

Our products have been approved by several multi-national companies and we can now strongly participate in their global sourcing programs. Effective sourcing of raw material and increasing customer base are important for improving margins. This product portfolio has done reasonably well on both these counts.

The division also has significant presence in Sodium Lauryl Ether Sulphate (SLES) and Alpha Olefin Sulfonate (AOS) market segments.

Glycerin

Glycerin accounted for 9% of the turnover of this division. Being largely a co-product, additional sales are mostly opportunistic, depending on market conditions. With the help of R&D, the division is now manufacturing value added glycerin products.

Other Initiatives

Your company continues to focus on use of renewable energy. In FY 2018-19 more than 42% of the total energy was consumed through renewable sources. We achieved this through use of biomass briquettes, Solar roof top and other initiatives.

Our Valia (Gujarat) factory has reduced its specific energy consumption by 27% since 2011. The Valia factory has been recognized and been awarded by CII with the ‘Energy Efficient Unit.

Outlook

The outlook for the coming year 2019-20 is good for the value-added fatty acids at this point in time. International demand is showing signs of improvement and procurement of indigenous raw material will be an edge over overseas competition.

Overall, we expect stronger demand in FY2019-20.

Finance and Investments

During the year, your company continued to earn return from its investments in the form of Dividend of र342 crore (previous year र199 crore).

Your company invested र76.6 crore in Natures Basket Limited and also invested र20.2 crore in Godrej Properties Ltd & र14.8 crore in Godrej Agrovet Ltd by purchasing shares from the secondary market. We have also provided an impairment loss of र243.79 crore on an investment in a subsidiary being the excess of its carrying amount over the estimated recoverable amount considering its business outlook.

Veg Oils

The veg oils business started direct sales of edible Oils under ‘Godrej Brand रin bulk and consumer packs from September, 2015. The business clocked a revenue of र114 crore and has a reach of 8000+ retail outlets in Mumbai Metropolitan Region (MMR) and 2000+ retail outlets in Western Maharashtra and Goa. The products of this business have been well received in the market. While the Bulk Pack business has been stable, consumer pack business recorded a steady growth.

Human Resource Development and Industrial Relations

Industrial relations at all plant locations remained harmonious.

The total number of persons employed in your Company as on March 31, 2019 were 1,123.

Policy to Prevent Sexual Harassment at the work place

Your Company is committed to creating and maintaining an atmosphere in which employees can work together without fear of sexual harassment, exploitation or intimidation. Your Company has strengthened its existing Policy on Prevention of Sexual Harassment at the workplace. Every employee is made aware that the Company is strongly opposed to sexual harassment and that such behaviour is prohibited both by the law and the Group. Structured sessions on prevention of sexual harassment at workplace were organized at all locations to spread awareness on security & safety of women employees as well as to apprise all employees of the legislative updates on prevention of sexual harassment at workplace.

During the year, the Company has reconstituted its Internal Complaints Committee, pursuant to the provisions of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The Company has formed two separate committees-one for the Head Office, factories in Maharashtra and branches in India and the other for the factory at Valia, Gujarat. Ms. Shefali Kohli is the Presiding Officer for both the Committees. While the Act is applicable only to women employees, our Company policy would be covering all employees and all premises of the Company in India.

No complaints were received by the committee during the year under review. Since the number of complaints filed during the year was NIL, the Committee prepared a NIL complaints report. This is in compliance with Section 22 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

Internal Control Systems and their Adequacy

Your Company has a proper and adequate system of Internal Controls, to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposal and that transactions are authorized, recorded and reported correctly. Your Companys Corporate Audit and Assurance Department, issues well documented operating procedures and authorities with adequate built-in controls at the beginning of any activity and revised procedures if there is any major change. The internal control is supplemented by an extensive programme of internal, external audits and periodic review by the management. The system is designed to adequately ensure that financial and other records are reliable for preparing financial information and other data and for maintaining accountability of assets.

Corporate Audit & Assurance Department during the year, facilitated a review of your companys risk management programme. The risks and mitigation measures were reviewed by your companys Risk Committee and corrective measures initiated.

During the year the Corporate Audit & Assurance Department carried out various reviews and provided assurance on compliances to lay down policies, processes and internal controls.

Information Security

Your Company accords great importance to the security of its information assets. To ensure that this gets desired focus and attention, a Chief Information Security Officer, who is attached to the Corporate Audit and Assurance Department, is entrusted with the task of ensuring that your Company has the requisite security posture.

Your Company has in place, all the procedures and practices that are in line with the ISO Security Standards.

Opportunities and Threats

The improved global demand situation in the product categories that we operate in provides an opportunity to grow our revenues. The political scenario in the coming year in view of the general elections and later on the State elections could impact the economic environment/economic policies.

Risks and Concerns

Your Company had put a risk management framework in place post a comprehensive review of its risk management process. Your Company has taken a fresh look at the risk management framework. The review involved understanding the existing risk management initiatives, zero-based identification and assessment of risks in the various businesses as also the relative control measures and arriving at the desired counter measures keeping in mind the risk appetite of the organization. The Risk Committee has periodically reviewed the risks in the various businesses and recommended appropriate risk mitigating actions.

The Commodity based businesses are likely to be affected by vagaries of the weather, demand for edible oil, oilseed production, etc. The business is exposed to commodity price risks relating to raw materials which account for the largest portion of the costs of both the Chemicals and Vegoils businesses. The Chemicals business growth will also depend on the growth of end user industries like polymer, detergent, cosmetic and personal care.

As a significant employer and chemicals producer, to ensure occupational safety, employment standards, production safety, and environmental protection, your Company maintains strict safety, health, environmental protection and quality control programs to monitor and control these operational risks.

Macro-economic factors including economic and political developments, natural calamities which affect the industrial sector generally would also affect the businesses of your Company. Legislative changes resulting in a change in the taxes, duties and levies, whether local or central, also impact business performance and relative competitiveness of the businesses.

Cautionary Statement

Some of the statements in this management discussion and analysis describing the Companys objectives, projections, estimates and expectations may be ‘forward looking statements रwithin the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Important developments that could affect the Companys operations include a downtrend in industry, significant changes in political and economic environment in India and abroad, tax laws, import duties, litigation and labour relations.