Hindustan Photo Films Manufacturing Company Ltd Management Discussions.

Management Discussion and Analysis Report Industry Structure and Developments

Report Industry Structure and Developments:

The Photographic Products Market in India is controlled by the Indian Front Companies (IFCs) of MNC giants like KODAK, FUJI, KONICA & AGFA, which are involved only in Conversion of Imported Coated wide stock of Photographic Products. Products of China Lucky Film Corporation too are available in the Market. HPF is the only Company having integrated manufacturing facility with Government investment of about rs. 700 Crores.

Photographic Product Market in India is estimated to be about Rs. 1663 Crores including Colour Products with Annual Compounded Growth Rate of 10%. For the Black & White Products manufactured by HPF there is a market of about Rs. 412 Crores. With technological advancements, Digital Products have taken a Lions Share in the Consumer I maging Segment. But in the Health Sector the pace of Digitalization is not that steady resulting in continuous generation of demand for conventional Health Imaging Products where HPF has a strong & notable presence. HPF has also made progress in Digital products. HPF has a strong presence in the Government Sector where the requirement is about 100 Crores. The Company plays an importance role in controllingthe selling price

Opportunities and Threats:

Opportunities:

• Growth of Indian Economy and growing Photographic Market with positive growth rate

• Steep increase in price of important raw materials

• Increased Health Awareness

• Increased Government allocations to Health, Infrastructure & Heavy Industries, Defence etc. wherein HPFs products are patronized

• Closing of operations in Black & White Photographic Products by MNCs

• Existence of Export potential for Black & White products.

• Development of Digital Media Products

• Customer preference for INDU Products

Threats:

• Government Policy in favour of traders and against indigenous manufacturer

• Gradual invasion of Digital Products in Health Sector

• Unfair Competition in the Market Place

• Existence of Grey markets and irregular imports

• Technological obsolescence

Outlook:

• The Company has reoriented its strategies to keep pace with Technological advancements by introducing advanced products like Red Scanner Films, Digital Imaging Films etc.

• Improvements in Production Operations and R&D efforts to result in Low Coating Weight of Silver in Medical X-ray & Industrial X-ray Films giving betteryield

• Reduction in expenditure through introduction of Industrial Automation

• Efforts to enter into Joint Ventures for marketing digital products Risks & Concerns:

Risks:

• Age of Plant & Machineries andTechnologygap

• Digital Innovations

• Continuous reduction in importdutiesforfinishedfilms

• Ageing ma npower without fresh recruitment

Concerns:

• Non level playing field conditions against MNCs due to lowering of duties

• Tax holidays availed by MNCs operating in Tax free zones

• Lowering of Selling Prices by MNCs beyond realistic level

• Steep escalation in Silver prices which has a direct impact on profitability

• Lack of policy support for HPF, the only domestic Integrated Manufacturing Plant in the Country

• Lack of specialized manpower

Future Prospects:

• Future prospects of the Company largely depend on implementation of financial restructuring and revival through fund infusion by Government

• Policy support requested from the Government, if given, for creating a level playing field in the market will improve the future prospects of the Company

• The products of the Company have enough demand in the market for some more years to come

• In the scenario where MNCs are switching over to Digital Products, HPF being the only manufacturer has a good opportunity for survival with the existing products.

• With introduction of new products, indigenisation of base and reduction in coating weight, the Company can take up challenges thrown by the Competitors in terms of quality, price and supplies

Productwise performance 2010-11

Volume : Lakh Sq.m

Value : Rs. In Lakhs

Product

Production (own)

Sales

Volume Value* Volume Value
Medical X-ray 10.42 2730.88 8.497 2187.92
Graphic Arts 1.15 199.01 1.373 236.56
Industrial X-ray 1.11 961.62 1.361 1137.63
B&W Films incl. Cine Films 0.15 67.82 0.148 69.31
Processing Chemicals(Tonnes) 48.61 60.45 68.413 84.41
Others 3.31 51.46 0.012 2.49
Total
Lakh Sq.m 16.13 11.393
Tonnes 48.61 4071.24 68.413 3718.32

* Sale value of production Internal Control Systems

The Company has an adequate system of Internal Control for safeguarding its assets. This is supplemented by periodical audits conducted by the Internal Auditors M/s Karthikeyan & Jayaraman. The Audit Committee regularly reviews the significant findings of the internal audit department.

Discussion on Financial Performance with respect to Operational Performance Operational Performance

The Company has been facing severe working capital shortage over the past many years and this has resulted in declining capacity utilization. Non-level playing conditions and increased cost of Raw materials has resulted Ln the capacity utilization dropping to just around 2-3% during the past few years.

During the year 2010-11 too, the Company was constrained to plan operations with limited resources and has lost some orders due to inconsistency in supplies. Consistency in supplies will enable HPF to regain its market share. It is relevant to note that inspite of these constraints, the Company achieved. Production and Sales oR 40.78 Crores and Rs. 37.18 Crores as against the MOU target of Rs. 73.51. Crores.

Financial performance

In view of the Companys continuing sickness, there has not been any material change with regard to the Companys financial position. Steep escalation in the price of silver added to the increase in the price of other major inputs has led to substantial increase in material cost.

Interest and depreciation continue to be the major components contributing to the net loss. The Company looks forward to financial restructuring by way of One Time settlement of its dues and revaluation of its assets, which are otherwise over-capitalized. In spite of the increasing trend of net losses, the Company has reduced its operational losses to around X 11.84 Crores.

Major portion of the accumulated losses comprise of accumulated interest and unabsorbed depreciation. The Networth of the Company remains negative on account of these factors. The financial condition of the Company can improve only with implementation of financial restructuring. The Company is taking all out efforts to improve operational as well as financial performance in the coming year and has entered into a MOU with the Govt, involving Production / Sales target of Rs. 81.50 Crs. each, among other parameters.

The summarized financial performance of 2010-11 compared with 2009-10 is given below (X In Crs.):

Particulars 2009-10 2010-11
Sales and Other Income excl. provisions Rs. 6.25 42.11
Expenditure excl. Interest, Depreciation and provisions 39.71 53.94
Operating Loss 13.46 11.84
Interest 954.99 1115.25
Depreciation 32.12 31.66
Net Loss after prior period adjustments 1009.22 1156.65

Material developments in Human Resource/Industrial Relations

In continuance of its exercise of manpower rationalization, the Company relieved 45 employees on VRS during the year 2010-11. In the scenario, the available manpower is being put to the best possible use through retraining and re-deployment. Emphasis has been laid on avoiding Denuding of Talent at all levels. The employees were well informed on the precarious financial position of the Company and the efforts of revival being made.

Future Prospects

The Company is gearing up to face challenges posed by the liberalized economy. All out efforts are being made to achieve higher productivity, reduction in expenditure. Consequent upon the Revival plan having been favourably recommended by the BRPSE, the Company awaits early adoption of the same by the Cabinet.