Manaksia Coated Metals & Industries Ltd Management Discussions.

FY 2018-19

ECONOMIC OVERVIEW

Global growth, as per World Economic Outlook report remains subdued. The reduced growth rates are attributed to lower global expansion caused by US - China trade tensions. Global technology supply chains were threatened by the prospect of US sanctions, Brexit related uncertainty continued and rising geopolitical tensions roiled energy prices.

Against this backdrop, global growth is forecast at 3.2 percent in 2019 picking up to 3.5 percent in 2020. The projected growth pick up in 2020 is precarious, presuming stabilization in some stressed emerging market economies and progress towards resolving trade policy differences.

In the United States, 2019 growth is expected to be 2.6 percent, moderating to 1.9 percent in 2020 as the fiscal stimulus unwinds

China is expected to slow down to 5.5 % by 2024 as it moves towards increasing private consumption and services and regulatory tightening.

Indias economy is likely to grow below 7.0% in 2019-20 and is expected to accelerate to 7.3 % growth this next fiscal and to 7.5 % in 2022-23.

Sino US Trade differences, initially expected to be confined to these two countries has somehow effected global growth. Against this backdrop, the steel industry was also affected with steel firms being unable to raise prices to a level that will be comfortable for them to operate. Moreover, the economy also slowed down in the second half of last year due to weaker rural sector thereby affecting consumption which also affected the steel companies.

A prospect for the steel sector in India, however, is seen to be bright. Production capacities are set to increase manifold in the coming years. Government initiatives like "Make in India" campaign; higher spend on Infrastructure and focus on rural development will spur steel demand.

The steel body also sees growth coming for the Industry from investments in railways and infrastructure. Indias comparatively low per capita steel consumption is expected to rise with increased investments in Infrastructure/ Construction/Automobile/Railways sectors.

INDUSTRY STRUCTURE AND DEVELOPMENTS

Metal Products: Colour coated (Pre-painted) steel and aluminium sheets:

The market for Colour Coated Steel Sheets is ever increasing with consistent demand for their usage in Industrial construction. Besides, growth is observed in Cold Storage facilities which require Sandwich Panels. Even in the Appliances sector the usage of Coated Metals sheets is now gaining acceptance. Consequently, the requirement of these Coils have increased manifold during the last several years.

In the construction sector, colour coated sheets have made considerable progress towards replacement of traditional asbestos and un-coated galvanised iron roofing sheets. Colour Coated Coils have very effectively replaced other roofing materials in the Construction Industry as well, gaining wide acceptance in designing the interiors of office establishments where these materials are replacing the wide usage of wood and other construction materials. Colour coated sheets are therefore attracting much greater attention today and affecting its usage positively.

Household Products: Domestic Insecticides - Mosquito Repellent Coils & Ultra Marine Blue Powder

With mosquitoes believed to be the major cause of various vector borne diseases, India has a large and growing market for mosquito repellants. Many methods are used in households for dealing with the mosquito menace. In spite of the pervasiveness of the mosquito problem, the use of repellants in India is fairly low. Coils were the first mosquito repellants to be introduced in the Indian market.

The demand for mosquito repellent coils is understood to be growing fast in the rural areas, whereas in urban areas the vaporizers and aerosols are replacing coils.

Ultramarine Blue Powder is an optical brightener and is used for improving whiteness of clothes and white washing/ painting of walls in urban & rural areas. This product is in use since many decades in India and neighboring countries.

BUSINESS

Business of your Company mainly consists of Colour Coated (Pre-painted) Steel & Aluminium Sheets and Coils and Household Products as Domestic Insecticides in the form of Mosquito Repellent Coils and Vaporizers.

OVERVIEW OF OPERATIONS

Results

During the year under review, the revenue of your Company stood at Rs. 25104.11 Lacs, as compared to Rs. 23602.88 Lacs during the year ended on March 31, 2018. However, the Company earned the profit of Rs. 27.11 Lacs during the year as compared to a profit of Rs. 278.16 Lacs during the year ended on March 31, 2018.

Key Financial Ratios

In accordance with SEBI (Listing Obligations & Disclosures Requirements) Regulations 2015 (As Amended), the Company is required to give details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key sector -specific financial ratios including Debtors Turnover, Inventory Turnover, Interest Coverage Ratio, Current Ratio, Debt Equity Ratio, Operating Profit Margin(%) and Net Profit Margin(%) and details of any change in Return on Net Worth as compared to the immediately previous financial year along with the details explanation thereof.

Debtors Turnover Ratio increased from 6.45 times in 2017-18 to 9.36 times in 2018-19, represents the better realization of debtors during the year. Inventory Turnover Ratio decreased from 4.53 times in 2017-18 to 2.86 times in 2018-19 was mainly due to increased inventory maintained to have continuous flow of materials for Galvanizing line. Net Profit Margin Ratio decreased from 2.05% in 2017-18 to 1.11% in 2018-19, was mainly due to enhanced interest on the term loan availed for New Continuous line and the additional depreciation impact on the same. It is to be noted that we had commenced the commercial production in March 2018. Return on Net Worth decreased from 5.40% in 2017-18 to 3.12% in 2018-19, this is also due to decrease in the profit on account of enhance interest on term loan availed on Galvanizing Line and additional depreciation thereon.

SEGMENT-WISE PERFORMANCE

Metal Products: Colour Coated (Pre-painted) Steel and Aluminium Sheets and Coils Segment During the Year 2018-19 Coated Metals business has shown improved profitability.

With increased material costs and bottlenecks in availability of material from domestic sources, the production remained under severe pressure, thereby effecting capacity utilisations and Sales/Margins

The Company has been aggressively working on Cost Control Measures and we could very successfully reduce costs due to stringent internal controls on quality assurance/process wastage and an effective procurement policy.

The impact of depreciation as per revised norms under Companies Act was much higher last year. This is gradually becoming streamlined and in the year under review, the deprecation is much lesser compared to last year.

House Hold Products

Mosquito repellent coil business had been dull throughout the year, registering a negative growth.

We have installed Machinery & Equipments for the commercial production of Ultra Marine Blue Powder in March19 at our Mandideep, Bhopal Unit. This product will be made exclusively under contract manufacturing agreement with Reckitt Benckiser (India) Pvt Ltd for their brand "Robin Blue" with 100% Buy Back arrangement.

RISKS AND CONCERNS

Your Company is cautious while looking for growth opportunities and also for new markets in its product segments. The Company faces several market risks arising in its normal course of business. These risks include variations in raw material prices, fluctuations in foreign currency exchange rate and changes in interest rates which may have an adverse effect on the Companys financial assets, liabilities and/or future cash flows. The Company continues to mitigate these risks by careful planning of optimum sales mix, product diversification & innovation and penetration in domestic and international markets and active treasury management. Further cost saving measures across all segments of the Company, would help in improving the margins in an otherwise difficult market.

OPPORTUNITIES AND THREATS

A varied product portfolio and wide geographical reach and presence, both within and outside the country, have helped the Company to try and de-risk its business and meet such risks with suitable safeguards. Improvement in safety performance is of highest priority, for which the Company has regularly been taking steps to avert accidents. Several manufacturing units in various states of the country have enabled the Company to meet customer needs, meeting delivery schedules at prescribed locations. The Company has wide network of sales and technical servicing offices at Mumbai, Delhi, Ahmedabad, Hyderabad, Guwahati and Bhopal. Multi locational presence has also reduced distribution and inventory costs and delivery times.

FUTURE OUTLOOK

Your Company has taken innovative steps in strict negotiation for Raw Materials sourcing, improved inventory management and increasing Domestic Sales. This helped us improve operational performance of the Company.

With introduction of Goods & Services Tax as a single tax the Company is able to expand the distribution network for increasing domestic sales.

The new continuous Steel Galvanizing line at the Kutch, plant in Gujarat, is also operational now and we expect a much better turnover and profitability in the metals business in the coming years.

In keeping with the initiatives taken by your Company for increasing investments in capacity expansion, we are also in the process of establishing a new Cold Rolling Mill of sizeable capacity. This would help increase business volumes exponentially as we would then cater a much wider market segment.

This major backward integration programme would also help the Company source its material requirement from effectively from major global sources, besides availability from domestic suppliers.

Plans are also underway for installing another State of Art Coating Line at Kutch to augment the sales of Coated Steel

Products which is an ever increasing market as well penetrating the niche areas such as Appliance sector/Auto Sector. These are highly quality conscious segments and offer a much higher return. The demand for Steel products in the market is definitely improving and expected to rise further. With all these investments, your Company is expected to do much larger business volumes in the coming years.

INTERNAL CONTROL SYSTEMS

The Company has an effective internal control system which helps it to maintain both internal control and procedures to ensure all transactions are approved, recorded and reported correctly and also ensures disclosure and protection of physical and intellectual property. The Company has appointed Chartered Accountants firm as Internal Auditors who independently evaluate the adequacy of the internal controls on a regular basis. The management duly considers and takes appropriate action to maintain transparency and effectiveness, based on the recommendations made by Statutory Auditors, Internal Auditors and by Management Committee/Audit Committee of the Board of Directors. The company is operating on SAP Platform in order to have proper internal control procedure with required approvals and "maker and checker" concept. This helps in correct recording of transactions, timely rectification and elimination of errors. The Company has appointed consultants/ professionals to conduct Secretarial Audit and Cost Audit and their observations, if any, are reviewed by the Management periodically and remedial actions taken. The Company incorporated necessary changes in the ERP system required for migration to Goods & Services Tax implemented from 1st July, 2017.

HUMAN RESOURCES

Employee relations have generally remained cordial throughout the year and recruitments were made commensurate with the needs of the business. The Company employs about 270 people in all its facilities.

FINANCE COST

Finance Cost, during the year under review stood at Rs. 1376.33 Lacs, as compared to Rs. 543.96 Lacs during the year ended on March 31, 2018, due to multiple sourcing requirements. The availability of material during the year under review was under severe pressure with continuous price fluctuations.

Our day to day monitoring of cost control measures would help in reducing the financial cost thereby improving the Profitability.

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis, on the companys objectives, outlook and expectation, may constitute "Forward Looking Statements" within the meaning of applicable laws and regulations. Actual results may differ from those expressed or implied expectations, projections etc. Several factors make a significant difference to the companys operations, including climatic conditions, economic scenario affecting demand and supply, Government regulations, taxation, natural calamity and other such factors over which the company does not have any direct control.