Gujarat Foils Ltd Management Discussions.

INDUSTRY STRUCTURE & DEVELOPMENTS

In India, Indian Aluminium Foil Industrys growth is presently driven by the strong performance of end-user markets of Fast Moving Consumer Goods (FMCG) and Pharmaceuticals Industry, in which domestic consumption increased significantly and which resulted in greater demand for Aluminium Foil Packaging, one of the most preferred flexible packaging category. Aluminium market in India is still growing at a rate of 9 to 10% over the last five years and it is expected to remain so in the near future. Aluminium Industry in India is one of the leading Industries in the Indian economy. The growth of the Aluminium metal industry in India would be sustained by the diversification and exploration of new horizons for the Industry.

India is richly endowed with bauxite resources, which is the basic raw material for aluminium production. As per recent NITI Aayog Report, estimated bauxite reserves of the country (proven and probable) stand at 593 million tonnes. The country occupies 7th place in the world in terms of bauxite reserve base.

India has a very low per capita consumption of aluminium with just 2.2 kg against the global average of 9.2 Kgs. Even if India reaches half the world average by 2020, it would imply aluminum consumption of 5.5 Million Ton / Annum, as against current estimated aluminum consumption of 1.9 Million Ton.

We are aware that Aluminium Rolled Products i.e. "SHEET & FOIL" are commonly used by Pharma Industry, Food & Beverage Industry, Liquor Industry for packaging. Further to that Indian pharmaceuticals market is the third largest in terms of volume and thirteenth largest in terms of value, as per a report by Equity Master. India is the largest provider of generic drugs globally with the Indian generics accounting for 20 per cent of global exports in terms of volume.

The Indian pharma industry, which is expected to grow over 15 per cent per annum between 2015 and 2020, will outperform the global pharma industry, which is set to grow at an annual rate of 5 per cent between the same period. The market is expected to grow to US$ 55 billion by 2020, thereby emerging as the sixth largest pharmaceutical market globally by absolute size. India has also maintained its lead over China in pharmaceutical exports with a year-on-year growth of 11.44 per cent to US$ 12.91 billion in FY 2015-16, according to data from the Ministry of Commerce and Industry. In addition, Indian pharmaceutical exports are poised to grow between 8-10 per cent in FY 2016-17.

From the above reports it is evident that Indian pharma market will continue to register a strong double digit growth rate till 2020 & onwards. Based on above report, we assume that current foil requirement by Indian pharma industry is approximately around 60,000 MT / Annum & the same is expected to be 1,12,000 MT / Annum by 2020.

In addition to pharma sector, according to the Indian Institute of Packaging (IIP), the packaging industry is expected to grow at a CAGR of 12.3% during the forecast period, to become the fourth largest global market, with sales of USD 43.7 billion in 2016. Indias per capita consumption of packaging is only 4.3 kgs whereas neighbouring Asian countries like China and Taiwan show about 6 kgs and 19 kgs, respectively. The low per capita consumption offers a huge business opportunity for packaging companies.

OPPORTUNITIES & THREATS

Opportunity

Aluminium Foil is most preferred packaging material for these Pharma & FMCG products due to its excellent barrier properties. Since Pharma & FMCG industry is growing at very fast pace, this is resulting in continuous increase in demand for aluminium foil industry. Gujarat Foils Limited (GFL) strongly believes that availability of good quality foil in Indian market would also result in increase of demand further. Further to that with imposition of anti dumping duty by Govt. of India, imports from CHINA is going to be expensive, which will further leverage the demand & profitability of Indian Foil Industry.

GFL having State of Art Foil Rolling & Converting facility under one roof with strong technical team to provide after sales service gives GFL edge over their competitors in the market. With the quality of product, timely delivery & customer orientation backed up by after sales service, today GFL is perceived as one of the leading supplier of aluminium packaging material to the pharma industry in our country.

Threats

With the growth of Indian Health care industry, Pharma industry, Packaging Industry demand in Foil Industry started showing great signs of growth. This sign of growth & imposition of anti dumping duty on foil imports from China will lure new entrants to enter in the market. Availability of good quality foil stock & its pricing in local market is also a major area of concern. The Company has to cope-up with these threats through a combination of cost reduction, adopting technological innovations to improve productivity & continuous innovation from the technical team.

Product wise performance

GFL is presently dealing in Manufacturing and supply of Aluminium Sheet, Aluminum Foil - Bare, Aluminum Foil - Coated (Plain & Printed), Aluminum Foil - Laminated (Plain & Printed), House Foil, Containers for Food, Pharmaceuticals & Packaging Applications.

Today, GFL sheet products are positioned as quality products in Indian Market & are comparable with international quality standards. Your Company had taken some measures in order to ensure better services to its customers & improving the realisation from this product portfolio. The details of corrective measure are as under:

• Industry had witnessed unprecedented metal price fluctuation during F.Y. 2016 - 2017. In order to safeguard the interest of our customers & the Company, GFL has entered in annual MOUs for both foil stock & hot rolled coils. This policy will ensure the mitigation of risks associated with metal price fluctuation & also have a transparent pricing mechanism.

• Your Company is continuously evaluating the product wise sales price realisation under this product portfolio. Products with lower sales price realisation had been phased out in a systematic manner & they have been substituted with value added options.

• Your Company had already started exports from this product portfolio in order to have global presence.

In our Aluminium Foil Business, during the F.Y. 2016 - 2017, the focus was to maximise the sales of value added products..

GFL are among very few companies in the country who have integrated state of art foil rolling & foil converting facility under one roof. Our technical team & after sales service makes GFL an established leader in the market. GFL has set a very stringent quality benchmarks which is complemented with continual improvement. Today GFL is considered as a preferred supplier of Light Gauge Foil, Coated & Laminated Foil. Our battery of Gravure Printing Machines are capable of printing up to 5 colours & are truly state of the art. These Printing Machines are equipped with advance turner bar for reverse printing & also equipped with auto registration system. These battery of printing machines are operated under positive pressure at work place to avoid injection of external contaminant at work place. Such an ideal manufacturing work environment had been provided with state of art Ventilation System installed at our Printing Section as well as Converting Section.

Today most of the major Pharmaceutical companies are in our fold & our products are been used for supplies to regulatory markets. During the F.Y. 2016 - 2017 by retaining the existing customers on one hand your Company had been able to successfully add few more prestigious pharma companies in our clientele. Further in order to improve the profitability from foil business, your Company is continuously monitoring every element of operational cost at micro level. Suitable measures to control the overall operating cost had been taken in various processes which has added to the bottom line of your Company.

RISK AND CONCERNS

Your Company faces risk with similar to those faced by Companies operating in the non-ferrous metal sector. The volatility of the primary metal LME linked price on account of fluctuation in $ and LME continues to be a key issue and the success or failure is linked on how effectively companies are able to manage their purchase to tide over these critical periods. Profitability may also be affected on account of competition from existing and prospective manufactures of the same products and cheaper import from China.

QUALITY MANAGEMENT:

GFL had been accredited Certificates of Registration for following from renowned agencies:

Certification System Certifying Agency
INTEGRATED MANAGEMENT Management System (ISO 9001) BSCIC
SYSTEM Environmental Management System (ISO 14001) BSCIC
Occupational Health & Safety Management System (OHSAS 18001) BSCIC
D.M.F. Type - III D.M.F. No. Assigned : 25725 for Strip Foil U.S.F.D.A.
D.M.F. Type - III D.M.F. No. Assigned : 25585 for blister Foil U.S.F.D.A.
Good Manufacturing Practice (GMP) GMP with reference to ISO 15378 : 2011 BSCIC

SAFETY, HEALTH & WORK ENVIRONMENT

• First of all your Company feels proud to announce again that there was not a single major accident reported in your company during the F.Y 2016 - 2017. This became possible only because of our continuous focus on safety. Your Company conducts training & counselling sessions for its employees under the umbrella of Good Manufacturing practices & OHSAS 18001 on regular basis. GFL has also taken steps to arrange regular health check ups for employees as a measure to have a healthy environment at factory premises.

ENERGY

The Company has a strong commitment towards energy conservation for the benefit of the nation and itself. Efforts to optimize process parameters, modernize & upgrade technology as well as equipments, with the objective of increasing energy productivity are continuous and ongoing. In addition, approx. 15% of our power consumption is generated using non-conventional source of energy i.e. our Wind Mill located at Shikarpur, Gujarat.

It is a fact that conventional source of energy is limited in this universe. In this context it is prime responsibility of all of us to ensure optimum utilisation of energy. There are two fold benefits by ensuring the same:

• Every unit of power saved is equivalent to same quantity of power generated without any additional cost & without generating Green House Gases.

• Such savings helps us in reducing our cost of production.

Following actions had been initiated to have continuous mapping on consumptions during the F.Y. 2016 - 2017:

• Your Company is continuously monitoring machine wise power consumptions in all the processes. This type of monitoring is helping us to identify machine wise power consumption in form of KWH / MT or NM3 / MT processed from individual machine centres further enabling us to find out product wise energy consumption. Increased energy consumption / MT of processed material will clearly indicate us about the health of equipment at very beginning stage.

• Your Company feels proud to announce that we at GFL continued to take Credits from UGVCL for consistently maintaining our power factor up to 0.97. We also feel proud to announce that your Company had taken the credit from UGVCL amounting to Rs 4,43,127/- in F.Y. 2016 - 2017 on account of maintaining power factor consistently as per the set out regulation.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company views Internal Control as a tool for improving operational performance and ensuring reliability of reporting mechanism. The Company is equipped with adequate internal control systems for its business operations which determine the efficiency of its operational strengths in financial reporting and ensure compliance with applicable laws and regulations. The Company continuously monitors the effectiveness of the internal controls with an 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 Company also assesses opportunities for improvement in business processes, systems and controls; provides recommendations designed to add value to the organization and follows up on the implementation of corrective actions and improvements in business processes after review by the Audit Committee and the Senior Management. The internal control systems are supplemented by extensive audits conducted by internal auditors. These have been designed to provide reasonable 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.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

Employees are vital and valuable assets for any organisation. They have always been part of success stories experienced by organisations. Your Company recognizes people as the primary source of its competitiveness and continues to focus on people development by leveraging technology and developing a continuously learning human resource base to unleash their potential and fulfill their aspirations. It believes in creating a favourable work environment which can lead to innovative ideas. The Company has an optimum process of recruitment and awarding its human resource which leads to attraction and retention of highly qualified and productive individuals in the organization. The Company believes in promoting and nurturing work environment which is conducive to the development and growth of an individual employee, by employing the best HR practices such as performance management, reward and recognition policy, open work culture and effective employee communication.

The total number of employees in the Company stands at 292 (including employees employed on contract basis).