K C P Management Discussions


(A) Indian Economy overview

Indian GDP recorded a growth of 7% amid challenging global geo political and macro economic conditions. The prolonged continuation of Russia Ukraine conflict not only impacted the commodity prices adversely, but also impacted the overall economic performance of countries world wide.

The global political turmoil, not only affected the supply demand for commodities and their prices directly, but also changed the dynamics of logistics resulting in indirect demand for commodities internationally, there by affecting the prices. In the Financial Year 2022-23, the Indian economy, witnessed inflation at 7.8% April 2022, easing out to a level below 6%, and averaging out at 6.8% for the Financial year 2022-23.

This lead to the monetary policy measures by Reserve Bank of India, in order to balance the money in circulation coupled with interest rates adjustments. The Indian Economy witnessed steep rise in the interest cost. The repo rates increased from 4.4% in May 2022, to a level of 6.5% in March 2023, significantly borrowing cost for both short and long term funding for corporates. The INR moved from the level of Rs 75.97 in April 2022 to a level of Rs 82.16 at the end of the financial year 2022-23. The INR stayed at levels closer to Rs 80 since the later part of Q1 for FY 2022-23, further depreciating to a level of Rs 82.16 during the end of the FY 2022-23, Resulting in the average INR USD exchange rate to be at the levels over Rs 80 for the year.

Coal Price Movement-

The Global Coal price index was at its peak at a level closer to 590 based on 2016 as the index year. The FY 2022-23 witnessed the imported coal prices reaching to a level over USD 300/Mts. The geopolitical disruptions added to the momentum in the increase in the coal prices as the EU nations that used Russian Gas as input for their power moved to the use of Coal again as feed stock for Thermal power Generation.

The disruptions in logistics globally, caused shortage of vessels Keeping the logistics cost at a higher level, which added to the woes of the coal importers globally. The table below exhibits the movement in the coal price index , with 2016 considered as the index year.

Cement industry in India-

Whilst the volume in cement industry continued to grow on the back of demand from infrastructure and housing, the cement industry in India faced impacting big the impact due to the raising cost of Coal imports . Plants which had their thermal generation units based on coal as input , felt the extra impact. The adverse movement of INR USD rate further impacted the cost of coal imports.

Outlook of cement Industry

Indian Cement industry is expected to grow at a CAGR rate of around 6% for the next 5 year. The FY 2023-34 looks promising on the back the governments union budget announcement , which laid out a spent of Rs 10 Lakh crores on infrastructure. The Indian Economy is set witness spending in infrastructure projects, which would stimulate the demand for Cement in the coming year.

(B) KCP Segment wise performance

(1) Cement performance

The KCP Limited Cement Sales for the FY 2022-23 showed an improvement of around 3% as compared to the last financial Year. The Sales in southern part of India was characterized by tough competition from other regional players, some of players in southern part of India, consolidated their positions by adding additional capacities. (Amounts in Rs. Lakhs)

Particlulars FY 2022-23 FY 2021-22
Revenue 1,52,446 1,48,507
Profit Before Interest & Tax (3,375) 19,001

The impact of international coal prices increase was the single major factor, which affected the cement industry across india, and KCP also felt the impact of the steep rise in the imported coal cost.

Risks

Whilst the outlook of the cement industry in India looks good on the back of the expected spend on the infrastructure by the government, the performance of cement division of KCP would largely depend on thecoolingoffeffect on the coal price, regional competition and cost management at the unit level.

(2) Heavy Engineering

The performance of Engineering Segment was marginally better as compared to last year. The losses were lower as compared to previous year, the unit still has to cross many hurdles to its way to profitability. Some of the challenges faced by the unit is the competition from unorganized sectors, advancement in machining technology, managing the delivery timelines to the customers.

(Amounts in Rs. Lakhs)

Particulars FY 2022-23 FY 2021-22
Revenue 11,740 8,454
Profit Before Interest & Tax (584) (1,888)

The unit was selective in the business and took up projects that had high engineering value additions as well as focused on exports. The Engineering Division manufactured and exported the most critical part of Atox Grinding Station i.e. Atox Mill hydraulic cylinder to customer in middle east. In the Process Equipment segment, The Engineering Unit made MC Naphtha, LC Naphtha Splitters and Benzene Removal Columns, for a reputed refinery in India. The unit is also trying to upgrade some of its key machinery to a newer technology with optimal investment given the losses being incurred so far.

Way Forward and Risks:

The unit is focused on getting some export business as a growth strategy, as well as continue to focus on high engineering value addition products. However the increase in logistics cost is a key concern while pursuing the export avenue for growth.

(3) Hospitality Segment-

The Hospitality industry showed signs of full revival in the financial year 2022-23. The Industry witnessed increased occupancy not only across India but also globally as there was increase in travel for both leisure as well as business. The Year witnessed many more corporate events held in the form of physical presence as compared to the preceding financial years. Mercure hotel in Hyderabad continued to show good prospects and growth. The KCP Mercure Hotel in Hyderabad, has positioned itself as a leading business hotel. (Amounts in Rs. Lakhs)

Description FY 2022-23 FY 2021-22
Revenue 2,852 1,361
Profit Before Interest & Tax 330 (424)

The Hotel saw increased occupancy level as it reached a high of 81% as average occupancy for the last quarter of financial year 2022-23. The Roof Top restaurant attracted many residents as well as non- resident guest. This gave a boost to the Food and beverage revenue, along with the room rent revenue growth.

Way forward and Risks

The Hotel is focusing on increasing its average occupancy rate, as well as focusing on the F&B revenues. Besides the business travelers the hotel is also targeting family travelers and staycation, through special offers and promotions for the week end guests. The revenue outlook for the hotel would depend on the external factors like any fresh curbs on travels due to pandemic, however the chances of occurrence of this seems remote.

(C ) SUBSIDIARY & ASSOCIATES

(i) KCP Vietnam Industries Limited- KCP VIL

Details 2022-23 2021-22
Crushing capacity (TPD) 11,000 11,000
Cane crushed (MTS) 960,718 653,124
Sugar produced (MTS) 96,963 83,447
Recovery rate (%) 10.09% 10.27%
Average sales realization (Rs./MT) 62,697 54,859
Turnover (Rs lakhs) 60,328 54,298
PBT (Rs lakhs) 14,818 15,457
Power sold to National Grid (MWH) IGN=RIGHT>69,930 58,728

The Season for crushing begins in January every year, The 2022 season also began in first week of January 2022.

Compared to previous year the raw material for 2022-23 was increased by 47.10%, the sugarcane area was increased by 34.26% , the average sugarcane yield was increased by 15% and the quality was lower by 1.9%. The company purchased the sugar cane at the highest price in the history based on the prevailing high prices of Sugar in the market. The realization per Mt of Sugar was also better compared to the previous year. The international and domestic sugar prices were maintained at high levels in the FY 2022-23 though continued imports of sugar from ASEAN countries posed the threat to the domestic sugar industry in Vietnam. The initiation of anti-circumvention measures by the MOIT during the year on imports from five ASEAN countries domestic sugar industry in Vietnam during the second half of FY 2022-23. The companys raw material zone received good rains and the farming community took initiative to plant additional area for sugarcane on back of good returns on sugar cane cultivation in 2021-22 season.

The Subsidiary received necessary approvals for setting up a plant in Son Hoa Province of Vietnam for producing fuel grade Ethanol from molasses. The plant would be setup after evaluating sugar cane availability. The Subsidiary had also received approvals for setting up 60MW biomass power plant in two phases and cogeneration plant with 30MW had already been set up in the first phase. One more 30MW plant in second phase would be set up based on the availability of surplus bagasse and biomass.

(ii) FIVES CAIL KCP LIMITED

Sales during the year under review amounted to Rs.17,523 Lakhs as against Rs. 20,208 Lakhs during the previous year. The Company recorded a profit from continuing operations of Rs. 344 Lakhs during the year under report as compared to a profit of Rs.123 Lakhs in the previous year.

Operations

The Company booked orders worth Rs. 21,500 Lakhs (Exports Rs. 4,750 Lakhs) during the year under report and the order backlog position is Rs.30,000 Lakhs (Exports Rs.10,900 Lakhs) as at 31st March 2023 in comparison with a backlog of Rs.24,280 Lakhs (Exports Rs.11,660 Lakhs) at the end of the of previous year.

Business Review

The total revenue for the year is Rs. 17,706 Lakhs as compared to Rs.20,331 Lakhs in the previous year. The Company recorded a profit of Rs.344 Lakhs during the year ended 31st March 2023. Potential for incinerator segment continues to be better as the Government is keen to increase the blending of Ethanol to optimize fuel costs. In fact, the Government has allowed production of ethanol not only from sugar but also from grains. Sugar Industry continues to be in the down ward trend in India. However, the company foresee encouraging scenario in International Markets both for sugar and incinerator segment this year. stabilizedthe The company have been operating fully compliant with the covid norms, SOPs in all the work places to ensure safety of the personnel.

(D) NEW PROJECTS UPDATE

Packing Terminal:

The company had set up a cement packing terminal in Arakonam. The unit packed around 1,57,900 Mts of PPC from this unit for the Financial year 2022-23. The PPC packed and dispatched from here had a cost advantage to service the customers in Tamil Nadu region. The company is in the process of stepping up the plant to bring it closer to packing about 1000 Mts per day. In this direction the company has installed a new packing machine. The company also plans to spend a further amount on debottlenecking the facility.

(E) Internal control systems and their adequacy:

The Company has internal financial controls backed by proper procedures, delegation of Managing Director, Joint Managing Director, Heads of hasclearlydefined the Units and Functional Heads. The Company is ISO certified and has quality and procedure manuals.

Statutory Auditors have further certified on the internal financial controls in their report which is part of this Annual Report.

(F) Accounting Policies and Procedures:

In the preparation of financial statements, the company followed all laid down guidelines and standards. The company has policies in line with the applicable accounting standards and a few significant polies have been disclosed as part of accounts which are part of the Annual Report. The Company has made all the disclosures in the accounts, as required under new Schedule III of the Companies Act, 2013

(G) Details of significant changes in Key Ratios

Ratio Numerator/ Denominator Ratio for FY2022-23 Ratio for 2021-22 Change Reasons for change by more than 25%
Current Rato Current Assets/ Current Liability 1.06 1.15 (8.30%)
Debt-Equity Ratio Total Borrowings/ Networth 0.71 0.75 (5.02%)
Debt Service Coverage Ratio EBIDTA/ Current Maturities and Interest 0.87 2.58 (66.37%) Unfavourable Change : Cement Margins were under pressure due to steep increase in coal and diesel costs leading to higher cost of production.
Return on Equity Ratio PAT/Equity (3.63%) 19.26% (118.85%) Unfavourable Change : Cement Margins were under pressure due to steep increase in coal and diesel costs leading to higher cost of production.
Inventory Turnover Ratio COGS/Average Inventory 7.07 6.57 7.72%
Trade Receivables
Turnover Ratio Sales/ Average Trade Recievables 22.34 26.80 (16.62%)
Trade Payable Turnover Ratio Purchases/ Average Trade Payables 13.68 10.19 34.26% Favourable Change : Purchase of large value of coal without credit period resulted in over all better average ratio.
Net Capital Turnover Ratio Sales/Working capital 58.84 21.23 177.17% Favourable Change : Lower Working Capital deployed as compared to PY, due to reduction in Current Assets.
Net Profit Ratio PAT/Sales (1.53%) 8.18% (118.74%) Unfavourable Change : Cement Margins were under pressure due to steep increase in coal and diesel costs leading to higher cost of production.
Return on Capital Employed EBIT/Capital Employed (Total Assets Minus CL) 0.14% 20.9% (99.32%) Unfavourable Change : Cement Margins were under pressure due to steep increase in coal and diesel costs leading to higher cost of production.
Return on Investment PAT+Dep/ Net worth+Gross FA 3.2% 14.9% (78.45%) Unfavourable Change : Cement Margins were under pressure due to steep increase in coal and diesel costs leading to higher cost of production.

Cautionary Statement:

Statements in the "Management Discussion and Analysis" describing the Companys objectives, expectations or predictions are as perceived currently. Actual results may differ statement. Important factors that could influence the Companys operations include domestic supply and demand conditions affecting selling prices of finished goods, input prices, changes in government regulations, tax laws, economic developments within the country, Global Geo political factors and other factors such as litigation and industrial relations.

For and on behalf of the Board of Directors
Place: Chennai Dr V L Indira Dutt
Date: 24th May 2023 Chairperson and Managing Director