KKalpana Industries (India) Ltd Management Discussions.

REPORT GLOBAL OVERVIEW:

According to the International Monetary Fund (IMF), the global economy has hit the worst recession since great depression in 1930s, due to razing pandemic that has nearly stalled all economic activities across the world. Global economic growth which decelerated to 2.9% in 2019 is projected to contract sharply by -3% by 31st December, 2020.

Trade conflicts have erupted around the world especially among China, the United States of America (USA) & European Union (EU) countries. This scenario will affect the economy of many countries including the developing countries like India.

INDIAN ECONOMY

The Indian economy exhibited signs of slowdown during early part of the Financial Year 2019-20 with Gross Domestic Product (GDP) growth declining to 4.8% in the first half, bogged down with muted demand in core sectors.

Overall, the GDP growth for FY 2019-20 was 3.2%, however, the point of concern is that in respect of the quarter ended 31st March, 2020, the GDP growth was down to 3.1%.

India is among the handful of countries which is projected to cling on to a positive growth rate at nearly 2% for the Financial Year 2020-21. It is to be noted that Indias foreign exchange reserves stood at US $ 495 billion as on 31.03.2020. The strong foreign exchange reserve base is treated by financial analyst positively. However, merchandise exports and imports (in US $ terms) declined by 1.9% and 8.1%, respectively, in respect of the Financial Year 2019-20.

Industry Overview

Kkalpana Industries (India) Limited ("KKIL") mainly caters to cable and wire companies, packaging, footwear, pipes, automobiles, consumer durables, electrical appliances, electricals and light fittings and electronics. It is worthwhile to mention here that KKIL has to face tough competition from unorganized sector. This sector is a very big hurdle for the growth of KKIL. Further, the disruption in supply chain network because of COVID-19, will affect the production and productivity of KKIL in 2020-21.

Industry Structure and Developments

India will need to generate 0.5KW of electricity per person to provide reasonable level of living opportunity to its population. Based on current population, projection for 2025 will be 710GW as against 280GW presently. Therefore, the capacity increase for generating power/electricity must be 2.5 times approximately. The above scenario will benefit your company immensely. Since, it mainly operates in cable and wire industry.

Companys Performance:

Critical financial figures for 2019-20 are as under:-

• Gross turnover for the year is Rs. 1,775.92 Crore against Rs. 2,020.83 Crore in 2018-19.

• PBIDT for the year Rs. 87.89 Crore as against Rs. 114.33 Crore in 2018-19.

• Profit before Tax for the year Rs. 30.33 Crore against Rs.40.42 Crore in 2018-19.

• Capital Structure of the Company as at 31st March 2020 is Rs. 18.81 Cr comprising of 94072930 nos. of equity shares of Rs. 2/- each.

B. Product wise operational performance:-

Product wise, your company is engaged in manufacturing of the following products, the performance of which is discussed below-Poly Vinyl Chloride The turnover from Poly Vinyl Chloride is Rs 47,639.70 lacs as against Rs 48,310.54 lacs in the previous year. Polyethylene Turnover from Polyethylene is Rs. 115,668.21 lacs in the year under review year as against Rs. 122,807.20 lacs in the previous year.

Agglomerates, Reprocessed Granules, Scraps & Others Turnover from these items is Rs. 12,913.11 lacs as against Rs. 29,785.45 lacs in the previous year. Important Ratios in respect of the year ended 31st March, 2020 are as below:

a) Debt Equity Ratio- 0.23 in FY 2019-20 (It was 0.29 in FY 2018-19)

b) Current Ratio- 1.53 in FY 2019-20 (It was 1.34 in FY 2018-19)

c) Interest Coverage Ratio- 1.67 in FY 2019-20 (It was 1.70 in FY 2018-19)

d) Debt Service Coverage Ratio- 0.60 in FY 2019-20 (It was 0.59 in FY 2018-19)

e) Stock Turnover Ratio- 42.92 in FY 2019-20 (It was 56.39 in FY 2018-19)

f) Return on Equity (RoE)- 9% in FY 2019-20 (It was 8% in FY 2018-19)

Future Outlook

The current year scenario is not at all rosy. As per Industry forecast, the Financial Year 2020-21 will be very challenging with the financial landscape facing major turbulence and unprecedented downturn triggered by the pandemic threatening to decimate the fragile economy of the country.

SWOT Analysis

Strength

• Capability of large scale operation allowing economies of sacle of production. The company caters to cable and wire companies, packaging, footwear, pipes, automobiles, consumer durables, electrical appliances, electricals and light fittings and electronics.

• Geographical spread of operation in India allows movement of finished goods at the customers place, quickly with lower cost of transportation.

• Strong financial base

• Proper mix of workforce (skilled, semiskilled and diversified) Weakness

• The main weakness will flow from deceleration in Indian Economy

• The supply chain will definitely affect the production line Threat

• Borrowing from Bank will be difficult because of mounting NPAs (Non Performing Assets) of Banks

• Unorganised Sectors will also eat into the demand segment of the Company Opportunities

• The ongoing trade conflicts among major countries may be a boon for developing country like India and especially KKIL

• KKIL has established digital technology as a lever to enhance efficiency and productivity. This will expand the profit margins

Risks and Concerns:

Although the Company has comprehensive risk management in place, there is concern about:-

a) Supply Chain

b) Fall in Demand

c) Securing Finance at competitive rates.

The company has comprehensive risk management framework in place, which consists of

a) Process to identity, prioritize and formulate mitigation plans for risks and

b) A framework of rules and regulations for various officials/ employees and the Board, in discharging the risk management process, periodicity of reporting risk management.

As a part of this risk management framework, the company has identified for each conceivable risk and corresponding mitigation plan to ensure continuous risk monitoring and risk mitigation.

Internal Control System.

The Company always strives to strengthen Internal Control Systems and processes for smooth and efficient conduct of business and complies with applicable relevant laws and regulations. A comprehensive delegation of power exists for smooth decision making. Elaborate guidelines for preparation of accounts are followed for uniform compliance. Further, all the key functional areas are governed by respective operating manuals. In order to ensure that all checks and balances are in place and all Internal Control Systems are in work, regular and exhaustive internal audits are conducted by experienced firm if accountants in close co-ordination with the companys concerned accredited officials.

The Internal Financial Control are reviewed periodically and in particular the Internal Auditors ensure that the company as in all material aspects, laid down Internal Financial Controls including operational controls and that such controls are adequate and operating efficiently.

Human Resources and Industrial Relations

The Company appreciates performance of the employees for the year and anticipates much more for the years to come. Your Company believes in employee empowerment across the entire organization in order to achieve organizational effectiveness. The Human Resource policies are soundly drafted for all levels of employees to serve them motivation, transfer & promotions and to retain the skills. Over a period of time, your company has built and nurtured a dedicated and excellent workforce who consists of engineers, CAs, CSs, MBAs, and advance degree holders like PhDs having a big business portfolio. The Industrial relations of the Company was cordial and there were no instances of employee disputes arising during the year.

Your company has sufficient pool of talents in various operational fields. The Human Resource environment has been very smooth throughout the year.

The company takes special care about the safety, which is core value of the company and all necessary actions are taken in the company to keep safety as priority.

Cautionary Statement

Certain statements made in the Management Discussion and Analysis Report relating to the Companys objectives, projections, estimates, and expectations and others may constitute ‘forward looking statements within the meaning of applicable laws and regulations. Actual results may differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws, natural calamities and so on over which the company does not have any direct control.

For and on behalf of the Board of Directors
NarrindraSuranna
Place: Kolkata (DIN: 00060127)
Date: 29.06.2020 Chairman & Managing Director