Oriental Trimex Ltd Management Discussions.

Industry Structure and Development

Marble is a metamorphic rock that forms when limestone is subjected to the heat and pressure of metamorphism. It is composed primarily of the mineral calcite (CaCO3) and usually contains other minerals such as: clay minerals, micas, quartz, pyrite, iron oxides and graphite.

The global marble market is worth over $50 Billion, according to a survey. The industry is highly fragmented in terms of products, end uses and suppliers, but its markets can broadly be categorized as construction and decoration, statuary and monuments, furniture and others. Until 2016, EU overall was the dominant producer and exporter of marble, but strong growth in emerging markets, especially in China, Pakistan and India, means that Asia is assuming dominance as a producing and exporting region. In 2016, the world production of marble reached 816 Million Sq.m. The worlds top ten natural marble producers include China, India, Iran, Turkey, Italy, Spain, Brazil, Egypt, Portugal and Greece.

Marble is a highly-fragmented industry with a variety of manufacturers ranging from large multinational corporations to small privately owned companies. The top ten producers account for just c 3.76% of the market. Marble can be classified based on the colour. Beige and Cream marbles are assumed to be the prevalent kind of marble, considering the large stock of beige marble in Europe. The production of black marble, white marble and green marbles are also considerable.

A key variable in the performance of marble producers is raw material costs, specifically the speed at which any increase can be passed through to customers. According to U.S. Geological Survey (USGS), stone resources of the world are sufficient to cater to foreseeable needs. Nevertheless, resources can be limited on a local level or occasionally on a regional level due to the lack of a particular type of stone. Marble resources are mainly located in Italy, China, Turkey, Philippines, France, Brazil, USA, India, Morocco, Austria, Russia, Japan, Portugal and Greece. Italy has abundant resources of high quality marble, positioning the nation as a key marble producer and exporter in the world. Turkey is located at the worlds richest natural stone Alps area. There are a mass of marble resources from Anatolia to the Thrace region. The materials of marble include marble blocks, to some companies, marble block can be satisfied with own production, while to others, marble blocks have to be purchased from other suppliers. The price of marble tile follow the marble block price, with a lag, and movements can inject volatility into producer margins. In general, most producers structure the majority of their contracts to include a ‘pass through clause that smooth the impact. The largest consumption area of marble is Europe, which accounted for 29.05% of world marble consumption in 2016. The consumption of marble in USA, India and China are also considerable. The global marble production value will increase to 64 Billion USD in 2023, from 52 Billion USD in 2016. It is estimated that the global marble demand will develop with an average growth rate of around 3.01% in terms of revenue from 2106 to 2023.

The worldwide market for Marble is expected to grow at a CAGR of roughly 3.0% over the next five years, will reach 62100 million US$ in 2024, from 52000 million US$ in 2019, according to a new GIR (Global Info Research) study. Presently, despite recession trend in construction industry, the import of marble and marble products including Travertine etc has increased up to Rs. 2,02,967.03 million in F.Y. 2018-19 as per the records available with Ministry of Commerce, Govt. of India. If we compare this figure of F.Y. 2018-19 with Rs.74,362.08 of F.Y. 2009-10 then we will find that the import was just 40% in earlier years in comparison to present imports. Earlier the natural stones like marble were considered as luxury product whereas during these years there is mass consumption of these products in residential houses, apartments, farm houses, hospitals, hotels & shopping malls etc. The consumption has increased due to prosperity among middle class in society and in tier-2 and tier-3 Cities. India has shortage of raw materials and therefore the only solution lies in imports. Natural stones are the essential ingredient for good and long lasting construction. Natural stones are strong, durable which make them lasting and popular building material. These have been used for thousands of years in both interior and exterior applications. Being hard in nature, these are resistant to staining and have excellent moisture repellent quality. There are many alternate products like porcelain tiles and quartz stones but natural stones give altogether a different feel and ambience.

THE INDIAN CONSTRUCTION MARKET

An extended survey, by Hina Latif, prepared for The Big 5 Construct India about the construction market of India is presented in The big 5 hub.

The report states: $1.3 trillion Indias current GDP, the economy is predicted to grow by 10% per annum by 2020, with a savings rate of 37% Indias domestic savings fuel most of its investment requirements, 10% of Indias GDP is based on construction activity, 7-8% construction industry growth in the next 10 years, $1 trillion – investment in infrastructure (2012-2017), $ 650 billion – investment in urban infrastructure in the next20 years, $ 250 billion- investment in the power sector (2015-2020), Indian stock market has generated investment returns of over 15% per annum for the last 10 years and experts expect this rate to increase in the next decade.

OPPORTUNITY AND THREATS

While the long awaited construction boom in India is nowhere on the horizon, there is some improvement in construction activity in some parts of the vast country. Bangalore and its surrounding area, the NCR (National capital region) and some other cities are places where stone people are selling more than before. But there are also thousands of unsold up market flats in buildings in major cities like Mumbai, Delhi NCR and many building companies are in serious financial trouble. A nationwide construction boom is still some years away.

The disruptive effects of implementation of the GST are now gradually ebbing and the reduction of the tax rate for finished marble from 28% to 18% has brought some relief to the industry.

The imports of marble blocks have increased dramatically since the liberalisation of import policy. Greater competition due to the entrance of many more Indian companies selling imported marble has meant there has also been a decline in retail prices. The export oriented granite industry continues to struggle, due to ever increasing competition from artificial stone.

The Indian stone industry is steadily becoming more inward looking. Till a decade ago it was exports that determined the growth and investment of the stone companies. Now it is the local market that has become the main motor for growth of most stone companies.

Segment-wise or product wise-performance

The company operates in single segment "flooring Product Segment". It undertakes trading and processing of imported marbles. The main products of company are marble slab, marble tiles and cut to sizes slabs as per specification of the buyer.

The Companys performance during last 3 years is as follows::

Year Turnover (Rs. in Millions) Increase in %
2016-17 574 13%
2017-18 545 -5%
2018-19 727 33%

Business performance of the company is directly related with real-estate sector & infrastructure. Presently the market conditions in these sectors are very slow because of sluggish market conditions. However, company has started improving its sales from previous financial year, by concentrating more on working with dealers and few developers only.

Outlook

Company being for long time in this business has contacts with many dealers/ shopkeepers of marble in various cities. These dealers keep on visiting and buying which may not happen in every month but on alternate month basis, hence this is one channel available to the company for sales of its product. There are few dealers franchisees to whom company initially helped them in establishing their business in their initial stages who keep on exclusively buying for their requirements from company. Company has its devoted team of marketing people for retail and project sales. In past, company has dealt with all developers in India so as and when, there is a requirement from their side on receiving such information, companys marketing staff starts follow-up with their purchase department, arrange their visit to our factories and finalise the transaction. Participation in exhibition and other platforms are also additional ways to reach customers.

As such company has no capex plan in near future. However, company have future plan to export its products in Middle East countries for which company was in touch with various buyer and project people in past two years. Company will make exports from its units near Kolkata and Chennai.

Since International airport at Jewar in Greater Noida has been approved by Union Cabinet and now tenders have been invited, companys one unit being in near proximity, it will be in advantageous situation for company. Further, announcement of 100 smart cities in Union Budget will certainly going to help this industry.

Risk impact

Recent global meltdown in reality and housing sector and Industry downturns might impede infrastructure development in user industries like real estate, SEZs, industrial, urban infrastructure, aviation, adversely affecting the Companys business and earnings.

Risk mitigation

Over the last several decades, the Indian marble and granite industry has been greatly modernized to meet global standards. Natural and Engineered/Fabricated stones, sculptures and monuments processed in India have been used in large scale by the large infrastructure companies has immensely helped in revival of the marble and granite industry in India. Companys all three units have state of art imported machineries and further company has started to focus on development work and also retail customers.

Risk measurement

The Companys share in the premium quality marble flooring industry is likely to increase considerably as it is the only company having processing units in National capital Region very near to Delhi. Similarly, one of few units in or around Chennai and Kolkata.

Internal Control Systems & their adequacy

The Company has state of art marble processing plant at Greater Noida in Uttar Pradesh, Gumidipoondi in Tamilnadu and Singur in West Bengal, which are comparable to the best in the Country, equipped with requisite machinery. A strict 100% inspection system is adapted right from selection of rough blocks to final inspection. The Company maintains best quality standards to meet the ever changing expectations of buyers country-wide, be it in terms of product quality or delivery.

The Companys processes are ISO certified and it is a member of the Chemicals and Allied Products Export Promotion Council, Associated Chamber of Commerce and Industry of India, Federation of Indian Granite and Stone Industry, All India Granites and Stone Association, Centre for Development of Stones and CAPEXIL.

The Company is having Internal Audit System, Which derive the scope and authority from the Audit Committee. The Audit Committee reviews the adequacy and effectiveness of internal control.

Statutory Compliance

On obtaining confirmation from the various units/departments of the Company of having complied with all the statutory requirements, a declaration regarding compliance with the provisions of the various statutes is made by the Managing Director at each Board Meeting. The legal & secretarial department of the Company ensures compliance with SEBI regulations, provisions of the LODR. The Compliance Officer for prevention of insider trading ensures compliance with the Companys Guidelines on Insider Trading.

Contingent Liabilities

Details of contingent liabilities are given in Note 22 to the Notes on Balance Sheet and Profit and LossAccount.

Material developments in Human Resources/Industrial Relations front, including number of people employed.

The key personnel manning the marble processing unit, mining operations in Orissa, Marketing, Finance, Legal, Planning are technically and professionally qualified. Continuous in-house training programs are conducted in various disciplines, which help in achieving the organizational growth in right direction. The Company maintains cordial relation with its employees and takes all possible care for their welfare.

Shareholder value commitment and philosophy

The Company expects to protect and enhance shareholder value through several initiatives. The comprehensive nature of the Companys financial and business disclosures reflect its increasing transparency.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates including changes in the Government regulations, tax laws.

MEHRA WADHWA & CO. 26/25, Bazar Marg,
Chartered Accountants Old Rajinder Nagar,
New Delhi - 110 060.
Ph: 25739582 25813730