midland plastics ltd Management discussions

MIDLAND PLASTICS LIMITED ANNUAL REPORT 2006-2007 MANAGEMENT DISCUSSION AND ANALYSIS Review of Performance and Finances: The sales and other income for the financial year under review increased by 16% to Rs.2499.25 lacs as against Rs.2153.27 Lacs for the previous year. In spite of the improved performance, the company has incurred a loss of Rs.126.90 Lacs during the year as against loss of Rs.128.46 Lacs in the previous year. However, the loss before extra-ordinary income and current year debit of Rs.25.00 lacs as bad debts written off is Rs.115.25 lacs as compared to Rs.163.79 lacs in the previous year. The losses incurred in the past few years have eroded the working capital funds of the Company to a great extent and this has also affected the current working of the Company. The liquidity problem has been further compounded by abnormal increase in prices of polymers. The losses of the manufacturing division have been offset to some extent by income of Rs.13.49 Lacs earned by the consultancy division (Previous Year Rs. 29.23 lacs). Since the net worth of the Company had been completely eroded, the mandatory reference under section 15 (1) of the Sick Industrial Companies (Special Provisions) Act 1985 was met with the Board for Industrial & Financial Reconstruction (BIFR). The BIFR vide its order dated 24-5-07, declared the Company as a sick industrial company in terms of Section 3 (I) (o) of the Act. State Bank of India has been appointed as Operating Agency and asked to prepare a revival scheme for the company within two months. A comprehensive scheme for modernization and financial restructuring is being prepared and will be submitted to the Operating Agency. Your Directors are confident that with the implementation of the scheme, the fortunes of the company will reverse for the better. Industry Structure, Opportunity & threats, risks & concerns: The Company is primarily engaged in the manufacture of HDPE/PP woven fabric, sacks and paper laminated sacks. The cement, fertilizer, sugar, rice and skimmed milk powder industry are the major consumers of the companys products. The demand for HDPE/PP woven sacks is restricted by the Government by the unjustified continuance of the Jute Packaging Materials (Compulsory use in packaging commodities) Act, 1987. The woven sack industry continues to be plagued by higher capacity and consequent low sale prices. The unbridled competition and various tax concessions available to units being set-up in states/areas like Uttaranchal, Himachal Pradesh, Kutch, etc. have also adversely affected the. sale prices. However, with the implementation of VAT tax by the Madhya Pradesh Government from April 2006, your companys competitiveness in Madhya Pradesh has improved vis-a-vis manufacturers of other states. The reduction in Central Sales tax to 3% will also have a positive impact on the Companys working. The boom in the cement and fertilizer industry and implementation of VAT are expected to have a positive impact on the working of the Company.