Murli Industries Ltd Management Discussions.

Management Discussion And Analysis

The global economic passed through challenges one more year. The output growth in the year 2013-14 was around 3.00% which was less than 3.20% the year in 2012-13. The slowdown can be experienced everywhere whether it was developed, developing or under develop countries. The Indian Economy also experienced slow down in the GDP this financial year. The GDP of the country was around 4.5% during the Financial Year 2013-14 which was less than the predicted. The decrease in the value of Indian Rupee and lack of clarity in the Govt. Policy also affected all the industries. The final budget presented by the new Govt. gives some hopes for the growth in the GDP and recovery in the performance of the industries in the upcoming period.

The slowdown affected across the board and none of the industry could escape from it.

Agro Products : The country witnessed an all time high production in the food grain during the financial year 2013-14. It achieved 263 million tones of production which means it was higher by 2.4% as compared to the previous financial year 2012-13. Rice and Wheat was the major part of the production and the growth was 1% in rice and 2% in wheat as compared to the last FY 2012-13. The Oilseed also witnessed 7% growth over the production of previous year.

Global Soya bean production could maintain the increasing trend in this year too. During the current FY 2013-14 the production was approx 284 million tones as compared to 268 million tones in the previous year 2012-13. The growth was around 6%. The global growth was mainly due to better production in the USA, Brazil and Argentina.

The soya bean production in India was very low during the current FY 2013-14 as compared to FY 2012-13. The availability of the soya bean in the market was very poor and the trading was very less. The company like yours suffered a lot due to higher production globally. The price of the finished product was less and due to non-availability of soya bean in the local market, the production cost became higher.

The Solvent Extraction segments of the company could not operate throughout the season. The Solvent extraction plant could not operate in the previous financial year due to shortage of fund. The management decided to start the operation in the financial year in question during the season. The lower production of the soya bean resulted less availability of soya bean in the domestic market and the price goes up. On the other hand the higher production in the global market the cost of the finished product was soft and hence company suffered on both side. The management decided to discontinue the operation shortly after the start of operation of the plant.

The Paper & Paper Board Segment : The global demand for paper and paper board marginally increased by 1% in the financial year 2013-14 as compare to the preceding financial year 2012-13. This is continuing third year when the demand for the product increased in globally even though the weak economical condition.

The performance of the paper & paper board was appreciable in the domestic market. When country was facing slow down in the GDP and other industries were struggling the paper and paper board grew by 6%. The demand for the writing & printing paper also increased by 10% during the same period in the domestic market.

The trend is showing that the market will witness a consistent growth of around 6% in the coming five years on year to year basis. The demand for the superior quality of the paper packages product will be higher as comparison to the other types of paper product because of the growth in demand of branded apparel industry, FMCG and organized retail industry.

The Cement : The cement industry of the country faced tough time during the current year. The Govt. took some harsh step to reduce the current account deficit of the country which impacted negatively to the domestic industry particularly related to infrastructure project. Due to the parliamentary vote, the government also could not take the major policy decision. Further due to surface of the coal scam the production of the coal dipped and availability of coal in the market was less, hence the price increases in the open market which resulted in the rise of cost of production. The Indonesian coal was available in the market but the depreciation in the value of the Indian Rupee affected negatively in that too. The starting of operation by new plants and addition of capacity by existing plants added the production capacity higher as compare to the increase in demand of the cement. Hence maximum plants are operating at capacity which is far less than its actual capacity that also affects the cost of production as well as profitability of the company. During the last year the monsoon also prolonged which was resulted the decrease in demand in cement. The manufacturers are also facing the higher cost of transportation due to rise in cost of road transportation and railway freight due to rapid increase in fuel price.

The sign of positivity can be seen in the policy of new government and in the budget. The declaration of govt. related to investment in the infrastructure projects look better prospect for the industry but it will take time to impact in the industry.

The financial year 2013-14 was consisted of nine months while the FY 2012-13 was of fifteen months hence the comparison cannot be reasonable. During the financial year under review the revenue of the company was Rs 24,680.34 lacs. The Profit After Tax was negative during the current year and the amount of loss was Rs 22,831.33 Lacs. The company achieved the revenue which is less than projected by the management. The negative result of the company was mainly due to lower capacity utilization of paper unit and Cement Unit, and non – operation of Solvent plants. The company has been facing cash liquidity problem and it was one of the main reason for affecting the result of the Company. Even though the scarcity of the fund, the company could manage to operate the Paper units and Cement Unit for partial period which helped to achieve the revenue mentioned above. The Cement Unit of the Company is performing at around 40% capacity and the management has been taking all necessary steps to improve the capacity utilization of the said unit but due to shortage of funds not able to take the effective solutions. We are sure that the problem will sort out shortly and it will achieve its true capacity. It is also a great pleasure for us to inform you that the cement product of your company established a niche market in the central and western India.

The Profit of the Company was negative during the period hence there is no transfer of any fund in the General Reserve during the year. During the current year the company referred to the BIFR under the provision of Chapter III of Sick Industrial Companies (Special Provisions) Act, 1985 for determination whether the Company is a Sick Industrial Company or not. The same is under process before the BIFR.

Business Segments:

Solvent Extraction Plant

The Solvent Extraction business of the company was the main back bone of the business of the company since its inception till few years back. The company has been suffering through shortage of fund. The solvent extraction segment has suffered most due to the said problem. The company started its operation at the beginning of the season but could not continue for long and had to discontinue the operation during the season itself. The availability of soya bean in the domestic was lower as compared to other years and hence the price was higher. The production of the soya bean in the global market was better than as compare to preceding years so the price of the finished products was soft. Hence the company was facing hit from both sides and it affected the operation of the units. The lower revenue of the company during the period in concern is mainly due to non – performance of this segment.

Agro Unit I :

The Agro Unit I of the company achieved revenue during the financial year 2013-14 (consist of nine months) was Rs 575.26 Lacs and the net loss was Rs 2,869.61 lacs. The comparison with the preceding year not possible because the preceding year consisted of fifteen months and the current financial year was of nine months and the figure given in the table below is for better information only. The depreciation, interest and wages are the major factor of the loss amount.

The Summarized Financial Result is as under :

Sr.No. Particulars Financial Year Financial Year
2013 - 2014 2012 - 2013
(For Nine Months) (For Fifteen Months)
1 Sales 575.62 3,765.32
2 Profit Before Depreciation and Amortisation (2,420.02) (508.86)
Expenses, Finance Cost and Tax Expenses
Less: Finance Cost 437.23 685.90
Depreciation And Amortisation Expenses 11.52 23.53
Profit Before Tax (2,868.76) (1,218.29)
Less : Current Tax (Earlier Years) 0.85 0.41
Add: Deferred Tax (Assets) 0.00 360.06
Profit for the Year (2,869.61) (858.64)
Less: Prior Period Item 0.00 0.00
Add: Balance in Profit & Loss Account 3,269.69 4,128.33
Closing Balance 400.08 3,269.69

Agro Unit II

The story of this Unit is also not different from Agro Unit I. During the period under review the revenue of the Agro Unit II was Rs 840.52 Lacs and the profit of the company was negative to Rs 2,576.92 Lacs. Depreciation, interest and the wages was the main factor of the loss.

The Summarized Financial Result is as under:

Sr.No. Particulars Financial Year Financial Year
2013 - 2014 2012 - 2013
(For Nine Months) (For Fifteen Months)
1 Sales 265.25 3,920.55
2 Profit Before Depreciation and Amortisation (2,085.34) (317.15)
Expenses, Finance Cost and Tax Expenses
Less: Finance Cost 450.68 666.90
Depreciation And Amortisation Expenses 40.54 79.94
Profit Before Tax (2,576.56) (1,063.99)
Less : Current Tax (Earlier Years) 0.36 0.23
Add : Deferred Tax (Assets) 0.00 315.40
Profit for the Year (2,576.92) (748.82)
Less : Prior Period Item 0.00 0.00
Add: Balance in Profit & Loss Account 6,516.38 7,265.19
Closing Balance 3,939.46 6,516.38

Paper Segment

During the financial year ended on 31.03. 2014 (consist of nine months) the company could manage to earn Revenue of Rs 11,362.68 Lacs. The company earned negative profit during the period in consideration. The negative profit was Rs 3,052.14 lacs.

Duplex Unit

During the period in the consideration the Duplex unit of the company achieved revenue of Rs 1,438.54 Lacs for the financial year (consist of nine months) ended 31.03.2014. During the period in consideration the said unit suffered through loss. The loss before depreciation, interest and tax was Rs 639.61 lacs and loss after tax was Rs 745.46 Lacs.

The Summarized Financial Result is as under.

Sr.No. Particulars Financial Year Financial Year
2013 - 2014 2012 - 2013
(For Nine Months) (For Fifteen Months)
1 Sales 1,438.54 4,382.18
2 Profit Before Depreciation and Amortisation (639.61) (695.49)
Expenses, Finance Cost and Tax Expenses
Less: Finance Cost 55.39 98.80
Depreciation And Amortisation Expenses 48.73 87.99
Profit Before Tax (743.73) (882.28)
Less : Current Tax (Earlier Years) 1.74 3.21
Add: Deferred Tax (Assets) 0.00 217.83
Profit for the Year (745.46) (667.66)
Less: Prior Period Item 0.00 0.00
Add: Balance in Profit & Loss Account 4.98 672.64
Closing Balance (740.48) 4.98

News Print Unit

The Govt. of India always encourages to the Indian manufacturers to produce more and more News Print paper and to reduce the dependence on imported news print paper with a view to save the valuable forex. During the current financial year (consist of nine months) the company earned a revenue of Rs 3,078.17 Lacs. During the same period the loss before the depreciation, interest and tax was Rs 69.32 lacs and loss after tax Rs 574.84 lacs. The depreciation and interest is the major part of the loss.

The Summarized Financial Result is as under :

Sr.No. Particulars Financial Year Financial Year
2013 - 2014 2012 - 2013
(For Nine Months) (For Fifteen Months)
1 Sales 3,078.17 6,732.08
2 Profit Before Depreciation and Amortisation 69.32 925.00
Expenses, Finance Cost and Tax Expenses
Less: Finance Cost 351.88 698.78
Depreciation And Amortisation Expenses 291.70 594.39
Profit Before Tax (574.27) (368.16)
Less : Current Tax (Earlier Years) 0.57 0.89
Add: Deferred Tax (Assets) 0.00 145.14
Profit for the Year (574.84) (223.91)
Less: Prior Period Item 0.00 0.00
Add: Balance in Profit & Loss Account (522.70) (298.79)
Closing Balance (1,097.54) (522.70)

Writing and Printing Paper Unit

The Government has launched several initiatives like Sarva Shiksha Abhiyan, right of Children to Free and Compulsory education, right to education for all etc. improved the literacy rate of the country and also boosts the demand of writing & printing paper in the domestic market. The consumption of the writing & printing paper is growing at a constant rate in the domestic market.

During the period is concern i.e. FY ended 31.03.2014 the revenue of the Unit was at Rs 5,179.45 Lacs. The revenue of the current period is concerned is lower as compared to the nine months in any of the preceding years. This is mainly due to less utilization of the capacities because of shortage of funds. This unit suffered through losses during the current financial year. The loss before depreciation, interest, and tax was Rs 770.71 lacs and loss after tax was Rs 1,404.71 lacs. Half of the loss is consist of depreciation and interest.

The Summarized Financial Result is as under :

Sr.No. Particulars Financial Year Financial Year
2013 - 2014 2012 - 2013
(For Nine Months) (For Fifteen Months)
1 Sales 5,179.45 11,259.56
2 Profit Before Depreciation and Amortisation (770.71) (670.83)
Expenses, Finance Cost and Tax Expenses
Less: Finance Cost 274.92 498.10
Depreciation And Amortisation Expenses 352.02 711.08
Profit Before Tax (1,397.65) (1,880.01)
Less : Current Tax (Earlier Years) 7.06 2.55
Add : Deferred Tax (Assets) 0.00 616.62
Profit for the Year (1,404.71) (1,265.94)
Less : Prior Period Item 0.00 0.00
Add : Balance in Profit & Loss Account (4,349.61) (3083.67)
Closing Balance (5,754.32) (4,349.61)

SBS Unit

The growth in the organized sector of retail market in India and increase in the use of pre-packaged goods playing important role in growing demand of the premium quality of duplex board i.e. SBS Board. The company failed to utilize the opportunity during the previous year due to non availability of sufficient fund. The revenue for the current financial year ended 31.03.2014 was Rs 1,666.52 Lacs. The profit before depreciation, interest & tax of the Unit for current period ended 31.03.2014 was negative at Rs 567.28 Lacs and profit after tax was negative Rs 2,204.61 lacs. The major part of the loss is consist of depreciation and interest.

The summarized financial result is as under :

Sr.No. Particulars Financial Year Financial Year
2013 - 2014 2012 - 2013
(For Nine Months) (For Fifteen Months)
1 Sales 1,666.52 9,376.61
2 Profit Before Depreciation and Amortisation Expenses, Finance Cost and Tax Expenses (567.28) 603.01
Less: Finance Cost 1,182.46 1,956.54
Depreciation And Amortisation Expenses 450.66 746.04
Profit Before Tax (2,200.39) (2,099.57)
Less : Current Tax (Earlier Years) 4.22 5.51
Add: Deferred Tax (Assets) 0.00 578.35
Profit for the Year (2,204.61) (1,526.73)
Less: Prior Period Item 0.00 0.00
Add: Balance in Profit & Loss Account (7,243.07) (5,716.34)
Closing Balance (9,447.68) (7,243.07)

Pulp Mill Unit

Due to technical and other unavoidable reason the Pulp Unit remained closed throughout the year.

Paper Power Unit

The paper plants of the company are having two power co-generation plants one is 3 MW and another is 15 MW. The power generations at these Units totally used for the captive purpose of all the paper plants of the Company. During the period in question, i.e. financial year ended 31.03.2014, the revenue of the Unit was at Rs 2,277.98 Lacs. The loss before depreciation, interest and tax was Rs 1,718.28 lacs during the same period ended 31.03.2014 and loss after tax was Rs 1,918.68 lacs. The higher cost of the coal in the open market is main reason for the loss.

The Summarized Financial Result is as under :

Sr.No. Particulars Financial Year Financial Year
2013 - 2014 2012 - 2013
(For Nine Months) (For Fifteen Months)
1 Sales 2,277.98 5,897.99
2 Profit Before Depreciation and Amortisation Expenses, Finance Cost and Tax Expenses (1,718.28) (1,399.21)
Less: Finance Cost 69.55 136.46
Depreciation And Amortisation Expenses 130.33 259.54
Profit Before tax (1,918.16) (1,795.20)
Less : Current Tax (Earlier Years) 0.52 0.00
Add: Deferred Tax (Assets) 0.00 0.00
Profit for the Year (1,918.68) (1,795.20)
Less: Prior Period Item 0.00 0.00
Add: Balance in Profit & Loss Account 1,832.75 3,627.95
Closing Balance (85.93) 1,832.75

Cement Captive Power Unit

The company is having captive power plant of 50 MW comprising of three Units of 16.5 MHZ each at the Cement Plant, Chandrapur. Two out of three units have started production. All the power requirement of Cement plants are fulfilled by these two units only. Both the units are performing at its full capacity. The power generation in these two units is sufficient for the time being. During the current financial year ended 31.03.2014 the revenue was Rs 2,930.70 Lacs. The profit was positive before depreciation, interest and tax was at Rs 1,067.74 lacs. The profit of this unit became negative after tax. Loss after tax was Rs 462.14 lacs. This unit has the positive PBIT. The performance could have been better if the coal would have available of better quality with ease in the domestic market.

The summarized financial result is as under :

Sr.No. Particulars Financial Year Financial Year
2013 - 2014 2012 - 2013
(For Nine Months) (For Fifteen Months)
1 Sales 2,930.70 5,163.64
2 Profit Before Depreciation and Amortisation Expenses, Finance Cost and Tax Expenses 1,067.74 1,993.38
Less: Finance Cost 1015.55 2,291.28
Depreciation And Amortisation Expenses 514.33 1,068.84
Profit Before Tax (462.14) (1,366.74)
Less : Current Tax (Earlier Years) 0.00 0.00
Add : Deferred Tax (Assets) 0.00 0.00
Profit for the Year (462.14) (1,366.74)
Less : Prior Period Item 0.00 0.00
Add: Balance in Profit & Loss Account (2,476.67) (1,109.93)
Closing Balance (2,938.81) (2,476.67)

Cement Unit

This unit is the flagship business of the company. The Cement unit has not been stabilized yet and yet to achieve its full capacity. During the financial year (consist of nine months) ended 31.03.2014 Cement Unit achieved revenue of Rs 12,477.14 Lacs. The operational loss of the unit was at Rs 1,276.55 lacs during the period in concern. The depreciation and interest burden of this unit is quite high and hence the loss after tax was Rs 9,803.31 lacs. The lower utilization of capacity and higher cost of raw material and transport is the main reason for suffering through loss.

The summarized financial result is as under :

Sr.No. Particulars Financial Year Financial Year
2013 - 2014 2012 - 2013
(For Nine Months) (For Fifteen Months)
1 Sales 12,477.14 29,443.00
2 Profit Before Depreciation and Amortisation Expenses, Finance Cost and Tax Expenses (1,276.55) (4,173.91)
Less: Finance Cost 5,812.89 13,030.51
Depreciation And Amortisation Expenses 2,676.68 4,427.37
Profit Before Tax (9,766.13) (21,631.79)
Less : Current Tax (Earlier Years) 37.18 0.00
Add: Deferred Tax (Assets) 0.00 6,642.29
Profit for the Year (9,803.31) (14,989.51)
Less: Prior Period Item 0.00 0.00
Add: Balance in Profit & Loss Account (35,552.00) (20,562.49)
Closing Balance (45,355.31) (35,552.00)

POINT WISE REPLY TO QUALIFICATION INAUDITORS REPORT

1. The financial statements of the company have been prepared on the basis of going concern concept. During the past two years, the financial position of the company suffered due to variety of factors and huge losses. This has resulted in reduction of companies’ net worth. Consequently the company could not pay sales tax dues in time. Due to losses the company became "SICK UNIT" and it became difficult to conduct day to day business. Therefore, the company approached BIFR, Delhi under SICACT 1985 for declaration it a SICK UNIT.

Further, that Government of Maharashtra under Bombay Relief Undertakings (Special Provisions) Act vide Notification No.:[BRU-2013/CR169/13/Ins.10] dated 25.02.2014 has declared our company as a Relief Undertaking as a result of which for a period of one year commencing 25.02.2014 all rights, privileges, obligations or liabilities accrued or incurred before the said date (except those mentioned in the notification) and any remedy for the enforcement or enforced thereof stand suspended and all proceedings relating thereto pending before any court, tribunal, officer or authority, stand stayed.

2. The accounting for the same is being done on cash basis since inception of the company. To ensure consistency in the policy the accounting for employee benefits and foreign exchange is being done on cash basis. The company will carry out actuarial valuation in future so as to comply withAS-15 on Employee Benefits.

3. The Company has taken steps to get the confirmation of the balances from trade receivables and payables, lenders and loans and advances. The confirmation received by the company has already been submitted to the auditors.

4. During the year under review, the company, on re-examination of future profitability and as a consideration of prudence has decided not to account for the deferred tax assets. However till date Rs 226.95 Crores has been recognised under Deffered TaxAssets.

5. The Company has written off a sum of Rs 43.39 Crores under the head ‘Quality Rebate & Shortage’ in the profit & loss account pertaining to stock of Soyabean due to shortage accumulated for current period and earlier years and the document has already been produced to the auditors.

6. The company has given advances to m/s machinery supplier amounting to Rs 11.06 Crores. The machinery supplier has contravened the terms and condition as mentioned in agreement and we are trying to get refund back of our advances hence it has been not written off during the financial year.

7. The Company has capitalized expenses to the tune of Rs 25.40 Crores for PULP Mill unit till the date of last balance sheet as the said unit was not in operation since the last 4-5 years. All the expenses incurred were capitalized however no depreciation has been claimed during the year.

8. Comments of the Auditors have been noted with regard to impairment loss on account of inoperative pulp unit for future compliance.

9. Cash Credit and Term Loan classified as Non-performing Accounts by the bank. The accounting policy of the company have been maintained on accrual basis hence interest has been provided @10.50% as the rate applicable at the time of CDR however bankers have not charged the interest due to NPA.

10. The Company is in discussion with FCCB holders to buy back at discounted rate. Same yet to be finalized. Once it finalized the same will be repaid. Hence in this regard the provision of the same is being done on cash basis.

11. With regard to comment of the auditor on AS-5, some of the expenses have been booked on cash basis which may be related with previous year but the amount is not significant hence the impact is not material. However the company will comply the provisionAs-5 in future.

12. The company is recognised income on accrual basis on account of VAT receivable under PSI 2007 scheme issued by Govt of Maharashtra. It was shown under the head of " Short Term Loan & Advances because it is receivable in one year. In earlier years also same practice has been followed by the company.

13. Due to NPA account the same is not bifurcated.

14. The amount spent on Rajasthan, Karnataka shown under the Non-current assets of the company because based on the fact that the amount spent is of the nature of advanced related to upcoming projects.