Manjushree Technopack Ltd Management Discussions

Manjushree Technopack Limited (hereinafter referred to as Manjushree or your Company) now reports the financial results and other insights into best in class industry practices, market developments and the latest happenings during the period April 2013 to March, 2014 with respect to your company.

A few years ago we took a visionary look at how our business and the overall market will develop upto 2020. Basis the analysis we developed a 2020 Vision Document to drive the organization towards its goal. We are glad to share with you that this vision coupled with the hard work and dedication of our 300 employees, PAN India, have led to our turnover exceeding Rs 437Crores and better profits than ever before. We have not only generated better value for the Shareholders, but have also looked at sustainability and environment, which is explained further in the report.

1) MACRO INDUSTRY OUTLOOK AND THE LATEST TRENDS IN THE PLASTIC PACKAGING BUSINESS:

The Plastic Packaging Industry in India is one of the most upcoming sectors and is valued at about $ 15.6 billion (INR 85,000 crore) and maintains a CAGR of about 13 15% per annum. In the next five years, this sector is expected to triple to around $ 60 bn. The total polymer demand in India stands at about 15 mmtpa and plastic packaging occupies almost 1/3 of this demand. To give you an idea of the per capita consumption of packaging, India consumes less than 4 Kgs of packaging per capita, compared to 65 Kgs in Europe, 90 Kgs in America and over 115 kgs in certain South American countries. With specific reference to our business, PET packaging demand is increasing at a steady 15% 20% over the years and other polymer packaging demand is just a tad lesser. Overall a healthy 12% 15% growth has been coming every year.

Your Company has always believed in world class innovation to beat this growth curve and stay ahead of the competition. In sync with our belief, the company converted over 57,000 MT of PET resin last year, which is roughly about 10% of India s PET consumption. Last year we reported 9% of India s consumption. It is apprehended that your Company s long term vision and business strategy is in sync with the growth of the industry and the growth story of India.

2) STRATEGIC ALIGNMENT WITH OUR CUSTOMERS:

We believe that the company can only grow, if it understands the needs of its customers and align its business strategy in line with that of its customers. Your company understands this very well and precisely the reason why it set out to completely upgrade its facilities and strengthen its relationship with key costumers.

a) Successful commissioning of the PET Preforms Division at Bidadi Industrial Area, Bangalore

To take advantage of world class manufacturing practices and locational benefits, your company successfully commissioned its PET Preforms Production Facility at Bidadi Industrial Area, Bangalore. The State of Art Manufacturing facility saw its full year of operations this time around and played host to a number of global visitors from across the beverage industry including global heads of various MNC majors. This facility is perhaps, regarded as one of the top most manufacturing facilities of its kind in the world, which includes high class automation, building management systems and a lean workforce. Your company plans to certify this factory as India s first Leed Gold Certified PET Preforms Production Facility in this year.

b) Brown Field expansion of facilities and unification of operations at Blow Moulding Division:

The two factories at Bommasandra Industrial Area, which came under the Blow Moulding part of business, has now been unified to take advantages of bigger economies of scale, centralization of equipment for immense power saving and, of course, to avoid duplication of work. The unification is underway and is expected to complete within the first quarter of FY 2014-15. Highlights of this plant include a total Clean Room environment in its entire facility, cleaner and hygienic conditions for manufacture of packaging containers and syncing with global standard of manufacturing practices in the Food packaging Industry.

All of the above will help us build better partnerships with our customers, which in turn, will drive growth for your company.

c) Innovation and Business development:

Your company has introspected with respect with its customer base and greatly recognizes the need for innovations and new product developments to drive growth and better margins. It is for this reason that we embarked upon full scale R&D a few years back. We set up our own design department complete with tools for computer aided design and manufacturing and built up our own tool shop. Your company takes immense pride and pleasure to inform you that we are now an accredited R&D facility from the Ministry of Science and Technology, Government of India. Although we have been working on R&D from many years earlier, the official status will help us pursue our passion with greater effect of time, effort and money. I am sure, we will realize great benefits in the years to come with this recognition.

In our both the divisions, we have launched numerous new products and some very innovative ones such as the 2 Ltr Handle Bottle (first time in India), Ultra lightweight PET preforms, assorted range of promotional merchandise etc. Global events such as the Cricket World Cup, the FIFA Football World Cup 2014 etc. will help the industry with sustained demand from the customers and your company has geared up to meet this demand.

3) PEOPLE AND CULTURE FOCUS:

Your Company strives the employees the best tools across the industry and provides them with meaningful employment, rewards and growth opportunities wherever possible. We are proud to state that your Company is today the employer to choice in the plastic packaging industry. The work culture and dedication of our people has helped us win numerous awards and recognitions in the year

a) HUMAN RESOURCE / INDUSTRIAL RELATIONS:

Your Company realized many years back that the only thing which drives the company forward, are its people, the rest are all tools, which are used as growth drivers. Hence, Manjushree continues to invest on its people and undertakes several measure for employee engagement and entertainment, and, at the same time, strives towards optimizing its organization chart too for a robust performance based appraisal system where ample opportunities are provided and great performance is rewarded to the deserving individual. Your Company is proud to inform you that we have achieved more number of training hours per employee than ever before and have made this as a key achievement area, goal for all employees.

b) AWARDS AND RECOGNITIONS :

Keeping up with the tradition, your Company has again been awarded the Gold Supplier award by Coca-Cola for 4th year in succession. In May 2013, Outlook Business Magazine has featured your company as one amongst 30 fastest growing Mid-size companies of India . In October 2013 the Inc 500 Magazine has featured your Company as one amongst the top 500 best performing Mid-size Companies of 2013. Apart from across industry recognitions, your Company has again won numerous India Star Awards for Packaging Excellence and has been duly recognized by many of its customers for being the Vendor of Choice for their supplies.

c) CORPORATE SOCIAL RESPONSIBILITY:

The careful balance of our economic, environmental and social impact is another key to Manjushree s enduring success in this year. In 2013 your company took great advantage of its commissioned Wind Mills, which generated almost 60 Lakh Units of Power. This helped your company realize better energy efficiency and meet sustainability targets. The Manjushree Scholarship Foundation continues to fund students education in plastic related course to raise the bar of the industry overall. During the course of the year, your company has undertaken a lot of research projects of lightweight containers successfully, which have helped in our goal of reducing greenhouse gas emissions, and of course, your company also contributes to a healthy corporate culture for the overall development of our country.

d) INTERNAL CONTROL SYSTEMS AND ADEQUACY:

Your Company has put in place an independent internal audit system conducted by a professional firm that conducts regular audits to ensure adequacy of internal control system, adherence to Company policies and compliance. The Company has in place effective internal control system to ensure accurate, reliable and timely compilation of financial statements while safeguarding the assets and interests of the Company and ensuring compliance with the policies and regulations. The leadership team has vast experience in corporate affairs which is evident from their vision, guidance and control. The Finance Department is well staffed with experienced personnel who play an important role in implementing and monitoring the internal control environment and compliance with statutory requirements. The Audit Committee is well equipped to address significant issues and challenges faced by the Company.

4) MICRO INDUSTRY ANALYSIS

a) OPPORTUNITIES AND THREATS:

The beauty of our country lies in its democracy and the tremendous opportunities that it brings. Your Company has a very clear vision and strategic plan to capture the latest happenings and trends in the industry and align with them to gain maximum advantage from it. This is, perhaps, the reason why Manjushree continues to grow by leaps and bounds year after year and maintain its market leadership.

The Company s graph of industry mix is now well balanced and focused around including Healthcare, Pharmaceuticals and Personal Care business. On one hand where democracy brings opportunities, it also induces fiercely heavy competition, and your Company is not exclusion of it. The very unstable economy brings huge amount of foreign exchange fluctuation and volatility in Raw Material Prices, which are capable of eroding away the major stack of profits of the Company. Add to this is the extreme misery of having un-skilled manpower. These threats are being carefully examined and solutions are being derived thereof. Centralized operations, implementation of ERP systems and training and development of personnel are being continuously undertaken to make sure that your company stays ahead of the curve and is able to wad of such threats.

b) RISKS AND CONCERNS:

Your Company has a well-structured risk management system. An efficient management team identifies various risks and takes necessary mitigation action against the same. The inventories of risk affecting your Company are:

i. Volatility of raw materials prices and influence of currency fluctuations on them is an area of concern. Moreover, changes in statutory legislation also have a bearing on business performance.

ii. Macro-economic factors like general economic slowdown, and sluggish demand conditions, unforeseen political and social upheavals, natural calamities etc. are likely to affect the business prospects of your Company as also the industry at large.

iii. With competition intensifying in all segments of the industry, increasing the market share and consumer base is a continuing challenge. Developments in the technology - both hard as also soft are also other critical areas.

iv. The use of plastic products on various issues is being discouraged in the country by various government / non-government organisations, which is an area of concern.

Your Company has, however, not been significantly impacted by these risk / concern factors due to the market equity commanded by the Company through patronisation of its institutional customers, continuous introduction of technologically superior value added products and a strong marketing network backed by a technically strong management team midst of continuous growing demand for the product which has no substitute compels the consumers to buy our products.

OPERATIONAL PERFORMANCE:

In 2011, the dream of world class units was envisaged by the management and at the end of March 2014, this dream was realized. Your Company completed the Green Field Expansion and Brown Field Unification to form two Ultra-modern Manufacturing facilities, which has become our competitors envy and Manjushree s pride. Overall installed capacity is now 83,384 MTPA, which is roughly about 15% of India s PET demand. The Preform Division produced 49,265 MT as against its installed capacity of 68,663 MT and similarly the Blow Molding Division produced 10,204 MT as against its installed capacity of 14,721 MT.

COST STRUCTURE:

	% to Turnover
COST STRUCTURE	31.03.2014	31.03.2013
Material Consumed (%)	64.09	61.32
Manufacturing Expenses (%)	15.32	14.57
Depreciation (%)	9.83	8.84
Administrative and Selling Expenses (%)	3.20	3.77
Interest and Financial Expenses (%)	4.95	3.33
Taxes (Income tax and Deferred Tax) (%)	2.95	3.78
Net Operating Margin (PBIT) (%)	12.43	12.99
Cash Operating Margin (PBDIT) (%)	22.27	21.83
Return on Capital Employed (%)	20.55	19.14
Return on Net Worth	17.84	19.60
Receivable Turnover Ratio(Days)	66	66
inventory Turnover Ratio (Days)	92	49
Net Working Capital Turnover Ratio (Days)	31	14

FINANCIAL PERFORMANCE VIS--VIS OPERATIONAL PERFORMANCE:

The Net Turnover for FY 2013-14 was higher at Rs.43,769 Lakhs compared to Rs.36,122 Lakhs of 2012-13, reflecting an increase of 21%. The Net Profit of the Company increased only by 9%, primarily on account of heavy pre-build of saleable stocks, to be sold in the high summer season. Added to it was the financial strain of having expanded into a new Green Field Facility and up-gradation of the existing facility. But, of course, the operational profits increased from Rs.7,887 Lakhs to Rs.9,746 Lakhs in 2013-14.

SEGMENTAL PERFORMANCE:

The Company has only reportable segment that is the manufacturing plastic containers in terms of AS-17 issued by the Institute of Chartered Accountants of India.

OUTLOOK:

With the coming of the new Government in full majority, the overall macro-economic outlook for the industry is positive. However, practical problems related to inflation, foreign exchange volatility and low consumer spending need to be addressed in the long term to establish sustainable growth and profits. Raw Material prices continue to be in the highest range and are expected to remain firm for the major part of the year. To overcome these difficult times, the company is actively investing in light-weighing plastic containers, R&D on better and innovative packaging to stay ahead of the competition barring any unforeseen situation, which are beyond its control. Your Company is expected to deliver better solutions and profits thereof.

CAUTIONARY STATEMENT

Some statements in the report describing the projections, estimates, expectations or outlook may be forward looking that set forth anticipated results based on management plan and assumptions. These statements are likely to address the Company s growth strategy, financial results, product approvals, product potential and development programs. Actual results may differ materially from those stated on account of internal factors affecting the Company s operations as well as external factors such as changes in government regulations, tax regimes, economic developments within India and the countries with which your Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply.

		for and on behalf of the Board
Bangalore,	Vimal Kedia	Surendra Kedia
May 21, 2014	Managing Director	Executive Director