Gontermann Peiper India Ltd Management Discussions

OVERVIEW

During Financial Year 2016-17 the global steel consumption marginally increased by 1% on year- on- year basis. Mainly the consumption started improving from the second quarter onwards. Underutilisation of steel manufacturing had its negative effect on the roll consumption.

During the year, the global economy growth showed at 3.1 % on year on year basis was short of expectations due to slow down in key emerging markets and developing economies. India GDP growth rate has moderated in FY 2016-17 to 7.1% from 7.9% recorded in previous Financial Year. This happened largely due to demonetisation initiative that led to temporary de-circulation of money, however situation has been subsequently normalised.

The Roll Manufacturers globally are facing challenge of subdued demand and pressure on margin. Couple of roll manufacturers are on the verge of closing their operations due to severe liquidity crunch.

The Roll industry in India is facing severe financial crisis and also cut throat competition from China and Russia. The global reverse bidding by the leading Indian steel manufacturer has put roll prices under severe stress. The manufacturing costs have followed inflationary trend thus reducing contributions drastically. Lower demand, longer manufacturing cycle and reduced margins has weakened the cash flow position, leading to adverse performance of the roll industry as a whole.

OPPORTUNITIES & THREATS

The global economy is expected to grow at 3.5 % in 2017 and 3.6 % in 2018 mainly owing to Emerging Markets and Developed Economies (EMDEs).

The Indias economic growth is expected to bounce back to 7.2 % due to various Government policy initiatives such as Goods and Service Tax (GST) and Foreign Direct Investment (FDI) and ease of doing business etc.

The Global Crude Steel production grew at 0.8 % year-on-year basis in 2016. However, the growth in second half of the year was at 3.3 %. The steel consumption in Emerging and Developing Economies is expected to increase by 4 % to 452.7 million tonnes. As for the Developed Economies, the consumption is expected to grow by 0.7% to 401.5 million tonnes.

The Indian steel industry maintained its position of third largest producer of crude steel, only behind China and Japan. India also stood at third position as the largest consumer of finished steel in the world. The steel industry in India contributes 2% to the GDP of the nation and provides more than 6 million jobs (as per Ministry of Steel) in the country. The Government has put in place various trade measures to protect the Indian Steel industry from cheap imports. The other Growth drivers for the steel industry are Rural demand for Steel, Automobiles, Housing and Renewable energy etc.

The Roll industry is depending upon Steel industry and therefore the expected overall growth in steel industry will help Roll industry to recover and stabilise.

GPIL is the only Indian roll manufacturer having both Horizontal & Vertical Centrifugal Casting machines and having 50 years of rich experience in roll manufacturing. The company was a profitable organisation till 2011. Thereafter the Company has been making continuous losses mainly due to recession in Steel sector, cheap imports from China & Russia, reduced margins and consequent liquidity crunch. Subsequent lower production has also resulted in poor financial performance. The continued cash loss has eroded the companys net worth as on 31.03.2016. In view of the complete erosion of the net worth of the Company, the Board of Directors at their meeting dated November 11,2016 decided to refer the Company to Board for Industrial and Financial Reconstruction (BIFR) in terms of Section 15(1) of The Sick Industrial Companies (Special Provisions) Act, 1985.

Further the Company on November 22, 2016 submitted the application for reference to the Board of BIFR but due to repealment of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) with effect from 1st December, 2016 , the Companys application was not registered with BIFR Board.

The Promoter has been extending financial support to the Company. Despite the relentless efforts and continued support from all stakeholders, especially the Promoter and Associate Companies, the volatile external environment and continued sub optimal performance has resulted in continuous losses.

OPERATIONAL PERFORMANCE

CAST ROLL DIVISION

Production during the year under review decreased to 4401 MT (Metric Ton) as against 5309 MT during the year 2015-16. Cast Roll Sales decreased to 4391MT as against 5481 MT during the year 2015-16. Consequently the total revenue from the Cast Roll Division decreased to Rs.5363.63 Lacs as compared to Rs. 7,093.40 Lacs in the previous year.

FORGED ROLL DIVISION

Production during the year under review decreased to 291 MT as against 873 MT during the previous year. Forge Roll sales decreased to 316 MT as against 897 MT in the previous year 2015-16. Consequently, the total revenue from the Forged roll division was Rs. 768.47 Lacs compared to Rs. 2,003.49 Lacs in the previous year which reflects a marginal decrease.

FUTURE OUTLOOK

The Global economy is expected to grow by 3.5% in the year 2017. The overall macro economic factors looks better compared to the previous year. The Global Steel Industry continues to face issues like subdued demand scenario, over capacity, dumping of steel at predatory prices by some countries and volatile input prices. However, steel industry will stabilise owing to improved growth momentum in advanced and key emerging market and broad basing of trade remedial measures.

As per the World Steel Associations, the global steel consumption is projected to grow by 1.3% to 1.54 billion tonnes in 2017. Eventually with the expected stability in Steel industry worldwide, roll manufacturers are also expected to consolidate their position with working capital infusion.

FINANCIAL PERFORMANCE

The Company prepares its accounts in compliance with the applicable Accounting Standards and all other relevant provisions of the said Act.

The summarized financial results for the year ended 31st March, 2017 are as under:

(Rs. in Lacs)

Particulars	Year ended 31st March, 2017	Year ended 31st March, 2016
Total Revenue	6419.69	9240.77
Total Expenditure	10927.01	12887.02
Profit/(Loss) before Exceptional and Extraordinary Item & Tax	(4507.32)	(3646.26)
Add: Exceptional Items	15.47	11.12
Profit/(Loss) before Tax	(4522.79)	(3657.37)
Provision for Taxation
- Current Tax	-	-
- Deferred Tax	(1385.29)	(1,126.45)
Net Profit/(Loss) after Taxation	(3137.50)	(2,530.93)

During the year under review, the total Income was Rs. 6419.69 Lacs as against Rs. 9,240.77 Lacs in the previous year representing decrease in total income. Net loss after providing for interest, depreciation and tax increased to Rs. 3137.50 Lacs as against net loss of Rs. 2,530.93 Lacs during the previous year.

The management is hopeful of achieving higher level of production during the coming financial year.

RISKS & CONCERNS

Risks and opportunities are inseparable components of the Companys business. The Company has clearly identified and segregated its risks into various categories like strategic, operational, financial etc. and constituted an internal Risk Management Committee, comprising of heads of departments, to effectively manage the risks. The Company has also constituted a Risk Management Committee of Board of Directors.

The identified risks are prioritized in terms of likelihood and impact after discussion with the Risk Owners and ranking assigned to each risk. The internal Risk Management Committee meets periodically to identify and assess new risks, formulate mitigation plans, review the updates on the identified risks and implementation of the mitigation plans etc. The risk identification process and mitigation plans are subject to review by the Board of Directors.

Fortune of Roll Industry is associated with that of steel. The cyclic nature of the steel industry is and will continue to remain always a cause for concern. The Company faces the challenges posed by the World economic crisis leading to a loss of export business, an uncertain foreign exchange market and price volatility of some of the major inputs (ferro alloys, nickel, nickel magnesium, melted flux etc). The company also faces challenges posed by increase in competition and fast changing technology. Wherever necessary, the Company takes adequate insurance coverage of its assets for safeguarding from unforeseen risks.

QUALITY ASSURANCE

The Company continues to have ISO 9001:2008 accreditation from the Indian Register Quality Systems through commitment to quality and technological excellence. The Company is committed to maintain the highest quality of its products and stringent quality control procedures.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has in place systems of internal control which are commensurate with its size and the nature of its operations. These have been designed to provide assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use or losses, executing transactions with proper authorization and ensuring compliance of corporate policies. The internal control system provides well documented standard operating procedures, guidelines, authorizations and approval procedures.

The internal control systems are regularly reviewed for effectiveness. The Company has engaged professional firm of Chartered Accountants to conduct internal audit. The internal auditors review the adequacy of control systems on a continuous basis to monitor their effectiveness with the objective to provide to the Audit Committee and the Board of Directors an independent, objective and reasonable assurance on the adequacy and effectiveness of the organizations risk management, control and governance processes.

The internal auditors assess opportunities for improvement in business processes, systems and control, provide recommendations designed to add value to the organization and follow up on the implementation of corrective actions and improvements in business processes after review by the Senior Management and Audit Committee. The observations arising out of audit are periodically reviewed and compliance ensured. The summary of the Internal Audit observations is submitted to the Audit Committee of the Board of Directors. The observations are reviewed by the Audit Committee and expeditious implementation of corrective action ensured. The Audit Committee also reports to the Board of Directors significant audit observations, along with the status of the corrective action taken / planned.

In addition, various professional auditing firms are also hired for specific assignments on need basis.

SAFETY, HEALTH & ENVIRONMENT

Your Company is aware of the impact of its activities, products and services on the Environment. The Company places highest priority to environmental protection and has consistently been able to achieve emission and discharge levels stipulated by the Environmental Regulatory bodies. Your Company gives top priority to hazardous waste management and waste recycling, Energy Management, Greenery development and others program and successfully achieve its commitment. Your Company continues to have ISO 14001:2004, and OHSAS 18001:2007 accreditations for its activities related to its operations. Your Company is committed to conform to the internationally established standards for Environment Management and Occupational Health and Safety Management Systems.

Your Company gives highest priority to the safety of employees and visitors. The Safety Management systems are constantly being monitored for improvement and up-gradation to compete with the best in the industry through training and Emergency Mock drill on safety, Fire fighting etc. All unsafe conditions and unsafe practices are identified and its eliminated systematically.

Your Company believes in good health of its employees. To pursue this objective, efforts are being made on both treatment as well as maintaining good health. Medical Officer have been appointed to take care of the employees health and awareness programmes is also being conducted on ill effects of smoking, chewing tobacco etc. Around the clock Ambulance Service is maintained by your Company to meet any emergency in the factory or in the neighbouring areas. Your Company also gives priority on hygiene through water potability test and SWAB test.

Your company organize motivational program like safety slogan & poster on the occasion of World Environment day, tree saplings were planted by the employees in the factory premises.

During the year under review, your Company also observed the National Safety day in which safety slogans, safety talk, drama and safety norms were propagated.

SOCIAL COMMITMENTS

GPIL philosophy believes that corporate responsibility extends beyond the ambit of a companys facilities and offices and that true corporate citizenship must include common cause with society. In keeping with this belief, GPIL encourages different social events and development of health programme and human capital initiatives.

Serving the local communities in and around the plant and promotion of sports and cultural events are some of the key activities undertaken by the Company.

The Companys social activities include Blood Donation camps, providing support for drinking water facility, infrastructural support to schools etc.

HUMAN RESOURCE DEVELOPMENT

Human Capital is valued as one of the most important asset by the Company. Your Company takes pride in the commitment, competence and dedication shown by its employees in all areas of business. Various Human Resource Engagement & Orientation Programs are taken to align the HR Policies to the growing requirements of the business. Your Company has a structured induction process and management development programmes to upgrade skills of managers. Objective appraisal systems based on Key Result Areas (KRAs) are in place for senior management staff (members).

In this competitive landscape your Company is focusing on Institutional Capability Building to put an effective and resilient work force to achieve the organization goals through various accreditation programs for individual development & Institution/organizational excellence.

Your Company has a culture of Learning & Development thereby giving its work force opportunity to grow with knowledge & Skill. In-house training and world class quality initiative such as TPM, Safety, Fire Fighting, Induction Training etc. are regularly conducted for employees and trainees throughout the year.

Your Company has earned appreciations, accolades & honors through innovative management for maintaining high quality output for it customers. Your Company has participated Chapter Convention on Quality Concepts (CCQC - 2016) organized by Kolkata Chapter and had been recognized and awarded as "Gold Category" (Kaizen).

Industrial relations continue to be cordial. Regular communication meetings are held with the workmen representatives to exchange views and to address mutual issues. It is noteworthy that not a single man day has been lost during the year on account of labour relations. The moral and commitment of the employees remained high through out the year.

CAUTIONARY STATEMENT

Statements in the Management Discussions and Analysis Report describing the Companys projections or predictions may be construed as ‘forward-looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that would make a difference to the companys operations include demand-supply conditions, raw material prices, changes in government regulations, tax regimes, economic developments within and outside the country and other factors such as litigation and other labour negotiations.