Metrochem Industries Ltd merged Management Discussions

METROCHEM INDUSTRIES LIMITED ANNUAL REPORT 2009-2010 MANAGEMENT DISCUSSION AND ANALYSIS A. INDIAN ECONOMY & THE REAL ESTATE SECTOR: In recent years, India has been amongst the fastest growing economies in the world. The productivity growth rate of Indian economy is estimated to be around 8% and it is expected to sustain until 2020. Moreover, at this rate of GDP growth, India is poised to become the second largest economy in the world after China. Further, the World Bank has ranked India as one of the top economic reformers worldwide in the last decade. India has simpli?ed business registration procedures, cross-border trade and payment of taxes. It has eased access to credit and strengthened investors interest. Factors like rapid industrial growth, Foreign Institutional Investments and Foreign Direct Investments in?ow, balance-of-payments metrics, merchandise exports, invisible accounts and foreign-exchange- reserves have made a substantial contribution towards the growth rate of Indian GDP. Real Estate sector witnessed a complete turnaround with signs of economic stabilization and moderate growth in global economic performance in second and third quarter of 2009. Property markets in India began to exhibit signs of revival during this time. With the return of liquidity in the real estate sector and firm prices in the recent months, cash flows of realty players improved- resulting in renewed construction of stalled projects and a few new launches as well. The investment environment, however, remains challenging. Private equity transactions in 2009-10 fell by over 6070% compared to peak volumes reported in 2008-09. Activity in 2009-10 remain focused primarily towards residential, with disappointing flows into commercial properties. With the liberalization and opening of the economy, larger numbers of companies have entered into the housing construction activities. In the changing scenario the players in the housing industry have become not only highly competitive but also customer-centric, which has enormously benefited the ultimate consumer. Using the latest technology, methods and providing superior service to clients has become concomitant of the Real estate industry. Your Company has also diversified and made investments in the Realty and Infrastructure business. Your company has acquired land and entered into partnerships with established Realty developers to launch new residential projects. Your Company has increased its investment allocation to the Realty and Infrastructure business. B. INDUSTRY STRUCTURE AND DEVELOPMENT: The year 2009-2010 has been an eventful year in which your company has de- merged its major manufacturing unit of Padara, Vadodara to Baroda Textiles Effects Limited and subsequently it has been acquired by Huntsman International India (Private) Limited w.e.f. appointed date April 01, 2009 and Scheme becoming effective on June 22, 2009. Indias investment in infrastructure business during the last three years is about 3 % to 4% of the nations GDP. The government has now plans to take it up to 12% by the end of 2012. Your Company has changed its Main Object Clause and added new business of Realty and Infrastructure development, manufacturing of paper and its products, manufacturing of soft drinks, etc. by way of special resolution passed by postal ballot on September 30, 2009. Your Company has made investments in the Realty and Infrastructure business. It operates its Realty business through Special Purpose Vehicles (SPV) and also by partnering with renowned and established developers in the same field. Your Company has acquired land at prime location off CG Road, Navrangpura, Ahmedabad and launched luxurious 4-BHK residential apartment project under the name of Metro Luxuria. Your Company has also made investment in land at prime location at Bhat Village on Gandhinagar Highway through a SPV named Ornet Infrastructure Private Limited whereby it holds a stake of 35.34%. Your company has also entered in partnership with Metro-Samved Engineers and launched 2-BHK high-rise residential apartment project under the name of Alpine Heights at the prime location near Income Tax office on Ashram Road, Ahmedabad. Your company has also acquired land at Village Gota (Town Plan-32), Ahmedabad in partnership with Simandhar Construction Private Limited for putting up a residential apartment project under the name of Simandhar Metro. C. OPPORTUNITIES AND THREATS: Your Company has given an undertaking while de-merging its Vadodara facility that they shall not for a period of three years from the Closing Date by itself or through its affiliates (directly or indirectly) engage in activities competing with the Business. So there is no scope available for the development in Dyes and dyes intermediates industry. Your Companys business may be subject to many other significant Opportunities and Threats including the following: Real Estate - Opportunities: Despite the slowdown which plagued economies across the world, the current economic environment offers new windows of opportunities. Indias realtors see an impetus in this segment from renewed home buying and government infrastructure contracts and from public and private sector banks announcing attractive package for home loan borrowers in various categories. In recent years, various reforms have been initiated at the Central as well as State level which have led to greater organization and transparency in the real estate sector. Some of these reforms include the liberalization of Land Laws, modifications in the rent control statutes, rationalization of property taxes in a number of States and the permission of FDI in the real estate sector. Accelerated growth of the Indian economy combined with the revival of the global economy and improvement in the liquidity scenario are the key factors that are expected to signal a revival in demand for residential real estate. A large proportion of the demand for residential developments, especially in urban centers is likely to be for high-rise residential buildings which shall in turn lead to a faster growth rate than the traditional urban housing segments. Real Estate - Threats: The instability of the economy coupled with a cautioned approach of the buyers has resulted in a major shift in the buying patterns of the end customers. In India, land ownership is usually fragmented with multiple owners resulting in low availability of large contiguous land parcels with a single owner and reduced availability of land with a clear title. The Indian real estate sector is highly fragmented with many small builders and contractors accounting for a majority of the housing units constructed. As a result, there is less transparency in dealings or sharing of data between players. The legal and regulatory framework for land acquisition is complex. Inconsistent and overlapping state and union government laws lead to further complications and delays. Acquisition of land is essential for Realty Development business. Due to increasing number of entrants into the Realty & Infrastructure segment, the land prices have increased to exorbitant levels. Any fluctuation in market economy can cause a meltdown in the land prices causing a major threat to Realty development. Real estate developers face challenges in generating demand for projects. The factors that in?uence a customers choice of property is not restricted to quality alone, but is dependent on a number of other external factors, including proximity to urban areas, amenities such as schools, roads, water supply, electricity & other infrastructure, each of which is often beyond the developers control. Demand for housing units is also influenced by policy decisions relating to housing incentives. The real estate sector is dependent on a number of raw materials such as cement, steel, bricks, wood, sand, gravel, paints etc. As the revenues from sale of units are predetermined, adverse changes in the price of any raw material directly affect the profitability of the developers. D. OUTLOOK: Since Your Company has given an undertaking of non-compete to Huntsman Group while demerging the Vadodara unit, the turnover of its Dyes and dyes intermediates is very limited. Your Company entered into an exclusive toll manufacturing agreement with Huntsman Group. Hence Your Company is having turnover in Dyes and dyes intermediates only related to the Huntsman Group in the year under review. Your Company has also signed a Merger Agreement and approved a Composite Scheme of Arrangement in its Board meeting held on August 25, 2010 in the nature of Amalgamation for merger of Metrochem Industries Limited (MCIL) with Global Boards Limited (GBL). This is proposed in order to have efficient working, explore business possibilities for the benefit of the Shareholders and public at large. The Amalgamation of Metrochem Industries Limited would be subject to requisite approval of the shareholders and creditors of the Company, Statutory authorities including Approval/ Intimation to Bombay Stock Exchange, Honourable High Court of the applicable jurisdiction. The Company has also proposed to change its name in case of amalgamation to METRO GLOBAL LIMITED Your Company will continue to focus on the Realty Development business. It will continue to acquire land in prime locations and also continue to partner with established and prominent developers for development of new residential as well as possible commercial projects. Your Company is currently exploring opportunities of investing in to properties in other prime cities like Mumbai. E. SEGMENT WISE PERFORMANCE: The Company was engaged in the business of Dyes and dyes intermediates, Realty and Infrastructure and trading of Iron ore during the financial year under review. Dyes and Dyes Intermediates: The turnover of the Dyes and dyes intermediates during the year under review is Rs.12.12 crores as against Rs. 223.19 crores during the previous year due to the demerger of its Vadodara division to Baroda Textile Effects Limited. Hence the turnover figures of the current years are not comparable with the figures of the previous year. During the year Your Company has had Gain of Rs. 40.62 crores on account of de-merger of Vadodara Unit. Realty and Infrastructure : Your Company has made an investment of Rs. 32.29 crores in the Realty and infrastructure business during the year under review. Your Company has an income of Rs. 1.36 crores from the Realty and Infrastructure Segment during the year under review. It is hopeful to see better returns on the investments made and results in the coming years. Iron Ore : There was no sale of Iron Ore during the year as well as during the previous year. Others : Your Company has made in Investment of Rs. 89.30 crores in the Shares, Mutual Funds and Loan and Advances as Investments during the year under review. Your Company has an Income of Rs. 3.83 crores from the Shares, Mutual Fund and Loan and Advances as Investments during the year under review. The Investment in Shares are subject to Market Risk. F. RISKS AND CHALLENGES: Many issues like competition with similar business players which leads to price cuts and low operating margins, high instability in prices of major raw material such as cement, steel, etc. and labour shortage is the major risk in the Realty and Infrastructure business. In order to minimize the risks and smooth functioning of the company, planning and risks management becomes the main objective of Your Company. To minimize the risks and to keep cost escalation minimum, Your Company has entered in to long term arrangement with suppliers for requisite raw materials for each projects, thus ensuring continuous flow. The company also endeavours to maintain a healthy work environment and positive relationship with all employees. The Company ensures that the risks it undertakes are commensurate with better returns. The management is positive about Your Companys long term outlook. G. INTERNAL CONTROL SYSTEMS AND ADEQUACIES: Your Company has adequate internal controls for its business across departments to ensure efficiency of operations, compliances with internal policies and applicable laws and regulations, protection of resources and assets and accurate reporting of financial transactions. The internal control system is supplemented by extensive internal checking system, regular reviews by management and standard policies and guidelines to ensure the reliability of financial and all other records. H. HUMAN RESORCES: Your Company believes that it is the employees skills and capabilities which will provide the necessary cutting edge to face challenges and market competition. Your Company re-emphasizing philosophy that employee well- being is extremely important, welfare activities have been given a boost. Your Company strives to maintain a professional work environment where every employee feels satisfied and appreciated. I. CAUTIONARY STATEMENT: Certain statements in this report may be forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties like regulatory changes, local, political or economic developments, technological risks, and many other factors that could cause our actual results to differ materially from those contemplated by the relevant forward-looking statements. The Company will not be in any way responsible for any action taken based on such statements and undertakes no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.