Today's Top Gainer
Note:Top Gainer - Nifty 50 More
Your Company is engaged in the manufacture of Metallized Paper/Board, Metallized and Coated Films, Metallic yarn and Metallized films with an installed capacity of 8900 tons per annum at its plant located at Haldwani, Distt. Nainital, Uttarakhand.
Metallized paper is used mainly in the labels and the gift-wrap segment. Traditionally, metallized paper had never been looked upon as a packaging product because the barriers were not as good as plastic packaging. When the ban on use of plastics for packaging of chewing tobacco was introduced in 2011, metallized paper was used in a big way for 3 to 4 months prior to its replacement with aluminium foil.
We are trying to improve the barrier of metallized paper with the aim of introducing it in the packaging segment as a replacement for foil in applications were very stringent barriers are not required.
Metallized and coated films are used in flexible packaging, insulation, glitter powder and metallic yarn/zari applications. Metallized films are used in the packaging segment.
2. INDUSTRY STRUCTURE, DEVELOPMENTS AND BACKGROUND
Traditionally, the industry had a distinct three tier structure with no backward or forward linkages: a. Film manufacturers b. Metallizers c. Printing Convertors
Initially, large printing convertors had backward integrated into the metallizing arena which had an impact on a reduced market size for standalone metallizers like us. This threat, at that time, was successfully countered by increasing exports of metallized film.
As reported earlier, polyester film manufacturers who forward integrated into the metallizing business around the year 2002/2003 have continued to expand capacity continuously and now completely dominate the plain metallized film packaging segment - both domestic and exports.
This has virtually rendered the plain metallizing packaging segment unremunerative for standalone metallizers since film manufacturers price the metallized film at variable cost plus levels as they view the value chain, right from DMT/PTA/chips to the metallized film realization pushing standalone metallizing companies out of the packaging segment. As a result of this phenomenon, standalone metallizers and players in the unorganized yarn segment made a foray into the coated product segment (film for metallic yarn) as a result of which margins eroded significantly in the coated film segment also.
Another major advantage that polyester film producers with metallizers enjoy in the export market is in terms of the import duty and freight cost advantage as many of them have set up units all over the world closer to the customers and are located in advantageous free trade zones.
Both these backward integration by our customers and forward integration by our suppliers hit our plain metallized film business hard which segment was given up because it became unremunerative at prices from the integrated metallizers. The only way to ward off this challenge is to either backward integrate into film making which entails a very huge investment, forward integrate into printing and flexible packaging or focus on specialty niche products. Your company has chosen the latter option as production of such products does not require any major capital investment and such products can be produced on the current equipment.
2.1 Recent Developments:
As the World and India becomes more environmentally conscious, metallized paper and metallized board which are environmentally friendly could be the turn around products for the company in the future: Moves by the Government showing concerns for the environment by passing some legislation banning the use of plastics and encouraging the use of bio-degradable products:
a. The first move was by the Ministry of Environment and Forests, banning the use of plastics for packaging of Pan Masala, Gutkha and Tobacco products effective 1st March 2011 through a Notification No. S.O.2400(E) dtd 4.2.2011.
b. This was followed by the Government of the National Capital Territory of Delhi, Department of Environment, banning the use of plastic including non wovens for carry bag applications in Delhi through a Notification No. F.8(86)/EA/Env/2008 dtd 23rd October 2012.
c. More recently, the Himachal Government has banned the entry of consumer durables packed in non biodegradable material effective 1st July 2013.
Many corporates are also planning to "go green" in the future.
There is, therefore, a clear evidence that the company should focus on improving the barriers of metallized paper with the aim of introducing this into some packaging applications where business volumes would be consistent with a good long term potential. Being environmently friendly and bio-degradable, metallized paper with improved barriers, has a huge potential in the large volume packaging segment.
Further, if plastic is eliminated from laminated whisky and liquor cartons, a huge market will open up for metallized plastic free board.
2.2 Advantages to integrated polyester film producers with metallizers against standalone metallizers like us:
A. As a consequence of their integration, have the ability to price plain metallized films at variable cost levels and use metallization as a means of selling their film.
B. In the export segment, Indian polyester film producers with metallizing plants have a distinct advantage in terms of quicker delivery and freight costs, since they are now located in different parts of the world (Thailand, Dubai, Turkey, Mexico, Poland and USA) and are closer to the major markets.
C. They also enjoy tariff barriers and import duty advantage against companies exporting from India because they are located in various free trade zones all over the world.
D. Since endusers buy both plain and metallized polyester film, they prefer a single source who can supply both.
This has had a serious impact on both the domestic and export plain metallized film business as plain metallized film constituted almost 90% of our metallized/coated film export business.
2.3 Rawmaterial prices:
Polyester film along with paper is one of the major rawmaterials. Polyester film prices rose from a level of around Rs. 100/kg. basic in March 2012 to a level of Rs. 115/kg. basic in August 2012. After remaining steady for a couple of months, the prices declined to a level of around Rs. 95/kg. basic in Nov/Dec. 2012. Despite the domestic demand of polyester film being low, the prices once again increased from a level of around Rs. 95/kg. in Nov./ Dec 2012 to a level of around Rs. 115/kg. in March 2013 as a result of polyester film producers curtailing production.
2.4 Worldwide market geographical breakup and product wise growth / decline:
The world market for metallized materials is estimated at 11,00,000 tons. The Indian market size for metallized products is estimated at around 1,10,000 tons. The approximate breakup of the world demand for metallized products is:
|Rest of the World||08%|
The world metallized / vacuum coated product wise demand is estimated at:
2.5 Indian market growth:
The domestic metallized film market is growing at around 15% with most of the market captured by film producing integrated metallizers.
3. STRATEGIC VULNERABILITY:
Way back in 1994, the company had explored possibilities of backward integration into polyester film production. This option was dropped at that time because of investment constraints as also the much acclaimed management mantra of sticking to core competency. Your company followed this percept and focussed on metallizing and coating and on the strength of its quality made inroads into major global markets becoming a top exporter in this product segment.
Despite these positives, with hindsight, the vulnerability of this strategy has been exposed because of forward integration by our suppliers and backward integration by our customers into the metallizing business. By not integrating forward or backward, the companys metallized film expansion initiatives gave the desired results only till the time that film producers had not decided to enter the metallization business. So the success of this strategy depended on others not making a foray into the metallization business.
With radical changes in the industry and developments, it is obvious that the product mix will need a radical shift to specialty coated products and metallized paper where there is no imminent threat from polyester film producers with metallizers. This change has already been made with a shift in focus to specialized coated film products and metallized paper which film producers with metallizers do not produce.
With the world and India becoming more environmentally conscious, metallized paper, a product that the company specializes in, can be the product for the future if the barrier properties can be improved, since it is a more environmentally friendly product compared to plastic or aluminium foil.
4. BUSINESS AND FINANCIAL PERFORMANCE:
The business performance of the Company is appended below :
|Film : Domestic||182||221||(18)|
|Export (Deemed & Direct)||661||790||(16)|
|Paper : Domestic||11||328||(97)|
|: Export (Deemed & Direct)||8||0|
|Combined Quantity||Sales (Tons)||Growth|
|Export (Deemed & Direct)||669||790||(15)|
|Value||Sales value (Rs. In lacs)||Growth|
|Film : Domestic||244||292||(16)|
|Export (Deemed & Direct||1172||1581||(26)|
|Paper : Domestic||1||441||(100)|
|: Export (Deemed & Direct)||13||0|
|Combined Value||Sales value (Rs. In lacs)||Growth|
|Export (Deemed & Direct)||1185||1581||(25)|
5. FINANCIAL PERFORMANCE:
The loss of the metallized paper business had a very negative impact on the financial performance and this was the worst financial performance in the last 4 years considering the fact that in the 3 preceding years i.e. 2009-10 till 2011-12, despite a capacity utilization of between 14 to 18%, we could generate either a positive EBIDTA or a marginally negative EBIDTA.
The EBIDTA and capacity utilization comparison for the last four financial years is:
|Rs. in lacs||% (rounded off|
6. OPPORTUNITIES AND THREATS:
a) The ban on plastics effective 1st March 2011 for packaging of Pan Masala, Gutkha and Tobacco products by the Ministry of Environment and Forests. This was followed by the Government of the National Capital Territory of Delhi banning the use of plastic including non wovens for carry bag applications. Recently, the Himachal Government banned the entry of consumer durables packed in non biodegradable material effective 1st July 2013.
These bans indicate that metallized paper, being bio-degradeable, after technical developments relating to improvement in the moisture and oxygen barriers could be a promising packaging medium in the future, since the world and India are becoming more environmentally conscious.
b) The desire of several corporates to Go Green in the future by reducing the use of plastics.
c) Additional investment for forward integration in select niche segments like metallic yarn, glitter and holography.
d) Additional investment for forward integration into flexible packaging.
e) Additional investment for backward integration into film production.
f) Product and market development initiatives in paper based products. g) New product developments of specialized products.
a. While the Law of the Land as on date, bans the use of plastics for packaging of pan Masala, Gutkha and Tobacco products, several litigations are pending with the Honble Supreme Court including some for ban of the end product. The ban on the end product which has already commenced and implemented in several states, will impact the opportunity.
b. The metallized paper market will be focussed upon by more standalone metallizing companies, since they like us cannot compete in the plain metallized film business.
c. A standalone metallizer with coating facilities has backward integrated into polyester film production and this may put pressure on coated polyester based products in both the domestic and export markets.
d. Though the threat from the unorganized sector is receding because of a reduction in excise duties which are currently at 12% and 6% respectively on film and paper, this threat still exists. There has been a need to implement the Rule of Law to instill fear into those not following the laws of the land and bring such people and entities to the book, so that those following the law of the land have an advantage rather than a disadvantage in terms of business opportunities.
The companys offer to the secured lenders for a one time settlement, backed by an investor is currently pending for consideration by the lenders. It is obvious that while the company has been able to continue operations right through the prolonged period of sickness for over 7 years, without any bank support or working capital, this cannot go on indefinitely.
It is imperative that a one time settlement is achieved with the secured lenders and financial infusion made to rehabilitate the company. The company depends on the investor and the lenders in this crucial area.
On the business front, the company is still confident that because of its strength in coating and capability to produce specialty coated film and metallized paper, it can stage a financial turnaround after the financial restructuring is in place.
As reported earlier, the focus has been only on the production of value added products. More value added products can be developed once there are no financial constraints which can take the company in a positive direction.
8. RISKS AND CONCERNS:
Despite having identified a co-promoter who is willing to participate in the Rehabilitation of the company, as a result of no settlement with the lenders, the Honble BIFR has formed an opinion about the winding up of the company under Section 20(1) of SICA.
The Honble BIFRs opinion was sent to the Honble High Court of Uttarakhand.
Parallely, the company had filed an appeal against the Honble BIFRs order dtd 20.7.2012 before the Honble AAIFR on 21.9.12. The Honble High Court of Uttarakhand adjourned the hearings keeping in view that the appeal was still pending with the Honble AAIFR.
In between the bench at AAIFR was not operative. After the bench at AAIFR becoming operative, our appeal came up for its first hearing on 13.3.13.
Since a revised, enhanced offer for a One Time Settlement, backed by the investor had already been made to the lenders on 7th March 2013, the Honble AAIFR adjourned the admission hearings on 13th March 2013 and 3rd May 2013 to 18th July 2013. On 18th July 2013, the Honble bench noted that the company was operational. Since the State Bank of India, one of the two major lenders, made a written submission conveying that the offer was under consideration, the Honble AAIFR adjourned the hearing till 4th October 2013, giving an opportunity to the company to try and achieve a settlement with the lenders.
In case the One Time Settlement does not go through, there is a threat of the company being wound up.
9. INTERNAL CONTROL AND THEIR ADEQUACY:
The Company has a proper and adequate system of controls in order to ensure that all assets are safeguarded against loss from unauthorised use or disposition and that all transactions are checked, verified, recorded and reported correctly.
Internal Audit checks are carried out to ensure that the responsibilities are executed effectively and that proper adequate systems are in place.
The Board of Directors has constituted an Audit Committee with its Chairman as an Independent Director. The Committee meets periodically. The observations and recommendations of the internal and statutory auditors are addressed.
10.HUMAN RESOURCE AND INDUSTRIAL RELATIONS:
After the heavy exodus of management and supervisory personnel in the earlier years, only a core management and supervisory team remains in the company. It is because of this core team that we have been able to manage operations in very adverse conditions during the 7 years that the company has been sick. Because of a very difficult financial situation, all employees have been facing stressful times,especially because salary payments have been delayed, generally by around 2 months. Delayed salaries also lead to a workers agitation between 29th November 2012 till 2nd January 2013. This issue was resolved peacefully and amicably through negotiations.