KKalpana Industries (India) Ltd Management Discussions.

GLOBAL OVERVIEW:

Stagnant global trade, subdued investment, and heightened policy uncertainty marked another dificult year for the world economy. A moderate recovery is expected in 2017, with receding obstacles to activity in commodity-exporting, emerging markets and developing economies. Weak investment is weighing on medium-term prospects across many emerging markets and developing economies. Global growth in 2016 was estimated at 3.1% and is projected to rise to 3.5% in 2017. Although iscal stimulus in major economies, if implemented, mayoost global b growth above expectations, risks to growth forecasts remain tilted to the downside. Important downside risks stem from heightened policy uncertainty in major economies.

Global economic growth is generally interlinked to petrochemical consumption where plastic is an important partner. Plastic processing is the pillar of economy in most of the advanced economies. Per capita consumption of the world is 28 kg whereas India’s is11 kg and China 38 kg and Brazil 32 kgs USA, Germany, UK, Italy, Spain, Australia, Japan, Korea, Taiwan it is more than 100 kg. This means India has big potential to grow as India’s per capita consumption is one of the lowest in Asia.

INDIAN ECONOMY

According to The International Monetary Fund (IMF), the Indian economy grew at 7.1 per cent in 2016-17.Futher, it is expected to accelerate to 7.2 per cent in 2017-18 and 7.7 per cent in 2018-19. Demonetisation is expected to have a positive impact on the Indian economy, which will help foster a clean and digitized economy in the long run, according to Ms Kristalina Georgieva, Chief Executive Officer, The World Bank. India is expected to be the third largest consumer economy as its consumption may triple to US$ 4 trillion by 2025, owing to shift in consumer behavior and expenditure pattern, according to a Boston Consulting Group (BCG) report; and is estimated to surpass USA to become the second largest economy in terms of Purchasing Power Parity (PPP) by the year 2040, according to a report by Price Waterhouse Coopers. Also, the Prime Minister, Mr Narendra Modi has stated that India has become the world’s fastest growing large economy, and is expected to grow ive-fold by 2040, owing a series of to policy measures.

INDUSTRY OVERVIEW

The Indian cable industry is highly fragmented with a large number of producers. The market for cables and wires is mainly dominated by the unorganized sector controlling about 70% of the domestic demand for wires and cables. However, the situation is changing. With the slew of advertising and the publicity campaigns targeted at this segment, companies are getting more and more aware about the quality of products in this category too and making queries before deciding on the purchase of cables and wiring. The government has announced ambitious plans for infrastructure development including power which has signiicant demand for various types of cable.

INDUSTRY STRUCTURE AND DEVELOPMENTS

The company’s polymer compounds business is directly related to the fortunes of cable industry/packaging industry and footwear industry. If there is demand push in these segments of Indian economy, the top line and bottom line of Kkalpana will signiicantly increase.

The strong R&D facilities of Kkalpana, backed by competent R&D personnel, will help it to overcome many of the challenges, thereby increasing overall growth at a rate much higher to industry average. Kkalpana has been able to develop a number of products for domestic and international markets such as Medium Voltage XLPE, Medium Voltage Semi conducting grades and also grades suitable for Pipes.

Kkalpana has always focused in expanding its reach by servicing new areas as well as developing new products continuously. Regular and consistent exports, to almost 30 countries, of various products are testimony to our capabilities. The combination of good product quality and superior after sales services has allowed your company to penetrate markets across the globe and help it to retain and expand customer base in the times of intensiied competition.

COMPANY’S PERFORMANCE:

A. Financial Performance for 2016-17:-

Gross turnover for the year is Rs. 1957Crore againstRs. 1876 Crore in 2015 16.

PBIDT for the year Rs.94.89Crore as against 109.25Crore in 2015-16.

Proit before Tax for the yearRs. 37.37Crore against Rs.43.71Crore in 2015-16.

Capital Structure of the Company as at 31st March, 2017 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-

PVC Compound and Master Batches

The turnover from PVC Compound & Master Batches is Rs.60518.16lacs as against Rs. 42758.46 lacs in the previous year.

PE Compounds

Turnover from PE compound is Rs. 104384.13 lacs in the year under review year as against Rs. 107136.20 lacs in the previous year.

Agglomerates, Reprocessed Granules & Scraps

Turnover from these items is Rs.48194.68 lacs as against Rs. 50650.46 lacs in the previous year.

FUTURE OUTLOOK

The Company continues to be the leading market player in manufacturing of polymer compounds. It has offered wide range of products to domestic and industrial users. In the years to come, the Company will come up with more new products to satisfy the diverse needs of the Customers. Kkalpana Industries (India) Limited is conident of accomplishing volume growth target and consequently the targeted market share in very near future. Your company, being the only domestic player for Medium Voltage cables,enjoys possibility of achieving higher volumes and margins. The marketing team is making incessant effort for increasing the presence in overseas market. Increased application of polymers and Performance polymers in the ield of Consumer durable, Automobiles and also in Altern ative &

Renewable Energy sector,provides ample opportunity to Kkalpana to enhance its business.

OPPORTUNITY AND THREATS

The use of plastic made products has gained considerable response from the customers. In number of items of Retail and Industrial consumption, it is found that the use of Plastic made products has replaced many other products as the best substitute product. This increase, in the use of plastic Products, will open many new areas for the Industry in the years to come.

The Indian Plastic industry has been growing at a rate of 12% over the years and with its true potential harnessed, is all set to reach the 12.5 MMT of consumption.To match this igure, India would require 42000 new machines and around US $ 10 billion of project investment by 2020. Packaging, Electronics, Telecommunication, Infrastructure, Transportation, Healthcare and Consumer durables are fast growing sectors of Indian economy, offering growth for plastics consumption.

Indian plastic industry is highly competitive. Moreover, the competition is increasing with the emergence of new global players and other domestic unorganized players. Increased competition might lead to price reductions, decreased sales, lower proit margins thus adversely affecting the business of your Company.

Despite growing competition which may cause downward pressure on prices and proit margins, the company has equipped itself to increase its top line and bottom line. The Company has its strong inancials. Apart from the rise in competition globally, inconsistency in the input prices and other routine business risks, your Company doesn’t envisage any major threats.

RISKS AND CONCERNS:

Risk is integral to virtually all business activities, though in varying degree and form. At Kkalpana, we have well deined risk management policy in place and the same is reviewed from time to time. The risk management policy is also monitored by executive management of the company. Irrespective of the type of risk or the activity that creates it, the Company’s fundamental approach to risk management remains the same.

BUSINESS RISKS

Besides other risks and concerns, the major concern, of the Company’s business is luctuations in the prices of Raw

Materials and entry of local and small manufacturers in the Industry. The business is always under margin pressure. However, the management is cautiously optimistic about the likely recovery in the global and domestic infrastructure industry. The Company’s focus on cost reduction, which has yielded positive results, will be the critical factor in mitigating margin pressures.

TECHNOLOGY RISKS

Product obsolescence risks are inherent in the business and the management continues to accord high priority to in-house research and development in order to ensure new product development as per evolving needs in the industry, technical enhancements and quality improvements of existing product offerings.

FINANCIAL RISKS

Since the export turnover, for the year under review, for your company is Rs. 36090 Lacs, the foreign exchange rate luctuations is one of the key inancial risk areas, affecting the ultimate bottom line of your company. Moreover, any upward revision in interest rate, in future, will also impact the bottom line of the Company.

INTERNAL CONTROL SYSTEM.

The Company has a well established internal control framework covering all functional areas. It includes independent review of control system by internal auditors, review mechanism by Audit Committee and periodic review by the management.

Currently all the operations of the company are carried out in conformity with the deined process. The Company also has policy of periodic reviews of all business activities viz. purchase, stores, marketing, personnel, production, maintenance, inance and accounts, IT systems. The Audit Committee of the Board periodically reviews the terms of reference and the adequacy of internal control system, signiicant observations and their disposals and remedies if any. Further, the Company has implemented Enterprise Resource Plan (ERP) to consolidate all its operation as well as strengthen its Internal Control System.

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.

CAUTIONARY STATEMENT

Certain statements made in the Management Discussion and Analysis Report relating to the Company’s 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 Company’s 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
Narrindra Suranna
(DIN: 00060127)
Chairman& Managing Director
Place: Kolkata
Date:30.05.2017