karur kcp packkagings ltd share price Management discussions

Annexure : 1

Review of Karur K.C.P. Packkagings LimitedRs.s Business

Your Company had achieved a Turnover during the year under review was Rs. 614.73 Crores as against Rs. 559.36 Crores for the previous year, a growth of 9.90% over the previous year. Increase in revenue was due to rise in volumes and prices as well. During the year under review, exports were higher by 30.12 % at Rs. 141.94 Crores.

The division wise turnover of the Company is shown hereunder:-

Sl. No.	Description	Turnover 2014 -15	Turnover 2013 - 14
	Division	(Rs. In Lakhs)
1.	Paper	26,415	24,687
2.	Paper Bags	17,617	16,467
3.	PP Bags	3,262	3,888
4.	FIBC Bags	14,179	10,894
	Total	61,473	55,936

Turnover of the Company for the year ended 31st March, 2015 was Rs. 61,473 Lakhs as shown in the below chart:-

• The FIBC division of the Company had performed extremely well in FY 2014-15 with the increased production and sales. The increase was mainly due to improved utilization of the available capacity and extra focus on marketing. The Company has started expanding the capacity of FIBC division to meet the potential demand from this segment. The turnover of FIBC division is expected to go up further in the current financial year 2014-15.

• The Paper bag division sales volume in FY 2014-15 had increased by 6.98% The increase in sales value was mainly due to increase in unit price and duty component.

• The ESK Paper division production and sales was increased both in terms of volume and value. 67% of its production goes for captive consumption.

We expect your Company to achieve higher growth both in terms of turnover and profit in the years to come.

a) Industry Scenario and Development:-

As the CompanyRs.s major products, namely, Paper bags and PP bags are supplied to Cement Industries; the growth of your

Company is directly proportion to the growth of the Indian Cement industries. Due to major infrastructure developments and growth in housing sector, the Indian Cement industries are growing at 7% to 8% on year to year basis. This growth will directly help your Company too for its growth.

b) Opportunities & Threats:-

The opportunities of the Company are:-

1. Growth in export market and generation of co-gen power will help the Company for its growth

2. With its available ESK paper production capacity your Company will be able to substitute the imported ESK Paper in Indian market. Also, the Company will have surplus ESK Paper to export to South East Asian countries.

3. Large and growing domestic paper bags market and polypropylene bags market.

4. Favorable Government policies and Public awareness about the environment will help the industry for its additional sales of paper bags.

5. Increasing demand for your CompanyRs.s products will increase the market share of the Company.

6. The better customer service to major cement industries will enable the CompanyRs.s growth.

The following are the threats to the Company:-

1. The wide fluctuation in the exchange rate, particularly against US Dollar has adversely affected the Company profitability. However, due to export earnings, the Company has a natural hedging against this fluctuation.

2. Paper manufacturing depends largely on availability of imported raw materials. Price movement of imported pulp, influenced by the local demand / supply equilibrium, is always a matter of concern.

3. The major players, alive to the fast emerging international threats, have been aggressively pursuing quality improvement programmes, coupled with cost management and capacity additions. Increasingly, more up-to-date technologies are sought to be implemented, with added focus on environmental regulations.

c) Segmental Information:-

The Company has increased its Paper and Paper Bag Division Turnover by Rs. 2,878 Lakhs The comparative segment-wise Production and Sales are given below:-

PRODUCT	2014-15	2013-14
PAPER DIVISION:-
Production (M.T.)	36,400	32,531
Sales (M.T.)	35,807	33,047
Sales - Including Others (Rs. In Lakhs)	26,415	24,687
PAPER BAG DIVISION :-
Production (Lakhs Bags)	966	928
Sales (Lakhs Bags)	966	928
Sales (Rs. In Lakhs)	17,617	16,467
PP & FIBC BAG DIVISION:-
Production (M.T.)	10,270	8,869
Sales (M.T.)	10,287	8,893
Sales (Rs. In Lakhs)	17,441	14,782

d) Outlook:-

The Company has a wide range of products, i.e., ESK Paper, Paper bags, PP bags and FIBC bags. This has given more flexibility to the Company for its growth.

The power situation in Tamil Nadu is very precarious. However, your Company has ventured into power sector at right time. The 10 MW Co-generation power plant helps your Company for uninterrupted operation, generate power at lower cost as against grid power and will also generate additional income by sale of power.

e) Major Risks and Concerns:-

The major risk the Company foresees is the foreign exchange fluctuation, particularly depreciation of Indian Rupee against US Dollar. As the Paper division raw materials, Wood Pulp and waste paper are being 100% imported, it will be a major concern to your Company.

f) Internal Control Systems and their adequacy:-

The Company is having adequate internal control systems to monitor the various activities of the business and to review the same periodically. Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 and 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities to ensure this, the Company has established internal control systems, consistent with its size and nature of operations. In weighing the assurance provided by any such system of internal controls its inherent limitations should be recognized. These systems are reviewed and updated on an ongoing basis. Periodic internal audits are conducted to provide reasonable assurance of compliance of these systems. The Audit Committee meets at regular intervals to review the internal audit function;

g) Discussion on financial performance with respect to operational performances:-

The Profit before tax is Rs. 415 Lakhs, which is 73.81%. higher when compared to the Profit of the previous year. However on account of increased cost of imports and reduced margins it is not commensurate with the expectations. Your Company adopts all the possible measures to reduce the cost and exploring new market segments and better product mix. A detailed discussion on financial performance has been given under Performance of this report.

h) Human Resources:-

Excellent cordial industrial relations are maintained with the employees of the Company at all levels. Various HRD and training programmes are conducted to develop the skills of the employees and their value contribution to the Company. Professional managers are employed to manage key positions in the Company. The total number of employees in Karur K.C.P. Packkagings Limited, as on 31st March, 2015 is 1449.

i) Wholly Owned Subsidiary Company:

The Company has a Wholly Owned Subsidiary Company in the name M/s. Shriudha Ventures Pte Ltd, which has been incorporated on 09th April, 2012 in Republic of Singapore for the purpose of carrying the business of importers, exporters, whole salers and agents of Urea, Packaging materials and other general commodities.

j) Cautionary Statement :-

Estimates & Expectations stated in this Management Discussion & Analysis Report may be within "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 could make a difference to your CompanyRs.s operation include economic condition affecting demand / supply and price conditions in the domestic & international markets, changes in Government Regulations, Import policies, Tax Laws, Statutes and other incidental factors.

	On behalf of the Board
Place : Karur	K. C. PALLANI SHAMY
Date : 7th September, 2015	Chairman