Pearl Engineering Polymers Ltd Management Discussions

PEARL ENGINEERING POLYMERS LIMITED ANNUAL REPORT 2010-2011 MANAGEMENT DISCUSSION AND ANALYSIS Highlights of Financial and Business Performance During the year under review, the Company faced operational difficulty at its plant at Kurkumbh due to the abnormal market conditions and price volatility in addition to financial liquidity constraints that stained the continuous raw material supply. In order to counter the said problem, the operations at the plant were kept rigid and controlled and the LIQUID POLY operations in the plant had to be temporarily suspended which resulted in the shut down of a part of the Companys Plant at Kurkumbh for a few months. In consequence of the reduced production of 15492.936 MT during the year, your Company has reported a turnover of Rs. 10509.71 lacs against turnover of Rs. 13954.18 lacs in the previous year. The net loss of the Company for the current year is higher at Rs. 1051.07 lacs against previous period loss of Rs. 592.17 lacs owing to lower throughput. Amidst various constraints, your Company has attempted to revive the plant operations and recover from the situation during the current year. Based on the actions that will follow as per the planned action mechanism instituted, the Company continues to strive for stability and improvement in spite of the deterring factors and is expected to reap benefits out of the decisions and initiatives planned by the management for the year ahead. Dividend In view of losses, your Directors regret their inability to recommend dividend on Equity Shares of the Company for the year ended March 31, 2011. Industry Structure and Business PEPL is a manufacturer and supplier of Polyethylene Terephthalate (PET) Resin (Bottle and Super Bright Textile Grade) and has its production facility located at Kurkumbh, Pune in Maharashtra. Companys PET resin finds application in the packaging of mineral water, carbonated soft drinks, edible oil, personal care products, diary & alcoholic beverages, pharmaceuticals, toiletries etc.and is widely consumed by the manufacturer of PET container. PET is very inert material that is resistant to attack by micro-organisms and does not react with food products. On account of attributes like hygiene, strength, light weight, unbreakable and economical, PET resin has become the worlds packaging choice. Health-safety agencies around the world approve PET as safe for packaging foods and beverages. Economic Scenario and Outlook Despite the relative sluggishness of the past years, PET remains the packaging choice for new products or for conversion from other packaging materials, due to its excellent mechanical and barrier properties and its good recycling capability. Emergence of new applications, changing lifestyles have also added to the rising demand of plastics & particularly that of the plastic packaging. During the year under review, demand for Pet Resin in India is estimated at around 550k TPA against total World Pet Resin demand of 16,529k TPA. With increasing population, urbanization and health awareness among the people around the world, global PET resin demand is expected to clock a growth rate of around 7% by 2015, from a growth rate of 2% in 2008. However, relentless increase in feedstock purified terephthalic acid (PTA) and monoethylene glycol (MEG) values has resulted in a hike in PET spot prices around the world. Opportunity and Threats Pet packaging industry has grown and the consumption of PET is projected to increase owing to its cost, convenience, energy saving benefits and changing demand dynamics. The Indian PET packaging industry is presently at about USD 1 bn, growing at 22%-25% per year & is expected to sustain the growth rate due to wider scope of increased penetration in carbonated soft drinks, mineral water, fruit juices, health care and agro chemical segments. Some of the key threats to PET industry include sharp fluctuation in crude prices and PTA/MEG prices, which are the primary raw materials for the PET resin industry. Risk and Concerns Risks and prospects are indivisible components of the Companys business. The Directors and the Management of your Company keep this in mind in taking all decisions such that the stakeholders interests are not adversely affected. The Company has also put in place a risk management framework to identify, assess, prioritize and alleviate risk. The risks are periodically assessed and reviewed and corrective actions are taken to mitigate effects. Internal Control System PEARLs internal control system is commensurate with the nature of its business and the size & complexity of its operations. The system is designed to ensure that the assets of the Company are safeguarded and protected against loss and that all the transactions are properly authorized, recorded and reported. The internal audit function team comprises of well-qualified experienced professionals who control regular audits across the Companys operations. The management duly considers and takes appropriate action on the recommendations made by the Statutory Auditors, Internal Auditors and the Independent Audit Committee of the Board of Directors. Further the CEO/ CFO certification also confirms the adequacy of internal control system and procedures in the Company Human Resource/ Industrial Relation During the year, the Company continued with its initiatives to foster people development, harness their creativity and ensure a motivated and contended work team. The requirement of professionally qualified and trained personnel is regularly reviewed to obtain optimum results in all spheres of its activity. The Company also accentuate on training and development of its human resources and makes sincere efforts to ensure numerous opportunities for their growth in the organization. As on March 31, 2011, the Company had employee strength of 138 employees. The Industrial relations at all levels of the Company have remained cordial during the year. CAUTIONARY STATEMENT Certain statements in this section may be forward looking and be based on expectations/projections about the future. Companys actual results, performance could thus differ materially from those projected in any such forward looking statements. The Company assumes no responsibility to publicly amend, modify or revise any of such statements on the basis of subsequent developments, information or events.