ANNEXURE ‘VII TO DIRECTORS REPORT
1. Brief about Operations
Polygenta currently operates from a plant near Nashik in the state of Maharashtra in
India. The plant is 100% integrated from feedstock (using post-consumed waste PET flakes)
through to the manufacturing of sustainable polyester filament yarn ("SPFY")
and is currently operating at about 27- 28 tons per day capacity depending upon the
product-mix. Based on the current operating capacity the plant processes in excess of 2.5
million plastic bottles a day. These bottles are transformed chemically into a molten
polyester polymer which in turn is spun into a raw yarn ("POY") and then
texturized to make a finished draw texturized yarn ("DTY"). Polygenta
customers knit and/or weave this DTY into fabric for various applications including
garments (e.g. sports apparel, women apparel, denim, casual wear, and uniforms), home
furnishings, luggage, automotive fabrics, etc.
The products have received GRS (Global Recycle Standard) Certificate (for recycling
content) from Control Union, Netherlands. The products also have been certified by the
Hohenstein Institute, Germany with Oekotex Standard 100 Product Class I certificate,
certifying that the products meet human-ecological protective standards for clothing for
infants and young children.
2. Discussion on Financial Performance with respect to Operational Performance
During the financial year 2018-19, the operational efficiency significantly improved
resulting in improved product performance thereby resulting in increased sales in premium
segment to global brands. The Company is gradually becoming the preferred choice for some
of the global brands for the supply of recycled yarns. It has also developed newer
products (e.g. finer denier yarns, speciality yarns etc.) and identified new markets and
geographies for its products. Development of such newer products and markets has enabled
further penetration of high value fashion brand segments, contributing to increased sales
volumes with better pricing margins. Due to these initiatives, the sales in the branded
segment increased to 4873 MTs (from 2994 MTs in the previous year i.e. 2017-18).
Similarly, year-to-year, total sales volume of all products (i.e. Partially Oriented
Yarns, Draw Texturised Yarn, and Polyester Chips) increased to 7190 MT (from 5872 MT in
the previous year i.e.2017-18).
During the year, the Company has also received equipment that it had ordered for making
Fully Drawn Yarn ("FDY"), a higher margin yielding speciality yarn. The Company
plans to install these equipment during the second quarter of the financial year 2019-20.
The Company expects its operational and financial performance to significantly improve
post the commissioning of these equipment.
3. Industry Structure Overview, Opportunities and Threats
Recycling of all waste is a priority today to safeguard the environment. Worldwide,
over half of post-consumer PET bottles, millions of metric tons of valuable
petrochemicals, albeit in waste form, are not recycled at all ending up in land-fill
sites, the ocean, or being burnt for energy. This failure to achieve higher levels of
recycling causes unnecessary generation of greenhouse gases and other environmental
damage. Fortunately, societal awareness and pressure to change from all segments
(consumer, business, and governmental) has been increasing, for example the Paris
Agreement within the framework of the United Nations Framework Convention on Climate
Change.
Of those post-consumer bottles which are collected and recycled globally, more than 50%
is made into low end staple fibre. Most staple fibre producers use mechanical recycling
processes, superficially cleaning and then flaking PET bottles, melting the PET flakes
(and residual contaminants) at high temperature and then extruding staple fibre. The
quality of the products produced by this method is relatively inferior and these products
are normally sold at a discounted price compared to staple fibre made conventionally using
virgin petrochemical feedstocks derived from crude oil. There are very few companies
globally which have the know-how and technology to produce efficiently and consistently
high quality filament yarn products from post-consumer plastic bottles. Your company is
the only one in India that has the technology to produce high quality environmentally
beneficial, sustainable polyester filament yarn from post consumed PET bottles using
chemical recycling process.
4. India Overview and Industry Outlook:
The Government of India has started the Swachchha Bharat Abhiyaan and also cleaning of
Indias rivers. A major pollutant in rivers is plastic waste including post-consumer PET
bottles.
During the previous year, the government of Maharashtra introduced total ban on plastic
bags as well as several guidelines on collection of used PET bottles for mineral water /
soft drinks / juice manufacturers wherein they shall be required to participate in
ensuring that these bottles are collected and recycled. The involvement of organised
sector manufacturers in the bottle collection is a welcome change for companies like
Polygenta and it shall lead to the ethical bottle collection / sourcing in near future. We
have already started discussions with various stakeholders in association with our flakes
manufacturer to initiate the process.
In India, of the various kinds and grades of PET bottles which are collected and
recycled, approximately 50% are used in producing polyester staple fibre.
There is a growing trend of leading global apparel, footwear and home furnishing brands
to increase their use of high quality sustainable filament yarns in the manufacturing of
their products because of: Increases in consumer demand for products (without compromising
quality) with the use of recycled and/ or renewable source feedstocks so as to minimise
harm to the environment.
Polyester filament yarn has become the leading fibre of choice to meet global textile
demand due to the rising world population. Producing sustainable polyester filament yarn
from waste plastic (PET) bottles directly :
a) reduces the number of waste PET bottles which end up in landfill sites or the ocean;
and
b) Decreases greenhouse gases, water consumption, and the use of crude oil whose
by-products are used to manufacture traditional polyester.
Various brands have declared quite ambitious targets for increasing usage of recycled /
sustainable products in their product basket by 2022. Some of the major brands like
C&A, Target USA, Inditex, H&M, Adidas, Ikea, Decathlon, The North Face have
targets ranging from 20% to 100% for converting current conventional polyester consumption
to recycled polyester
Emerging government initiatives and regulations requiring retailers to provide
labelling indicating and quantifying the environmental impact of the manufacture of
products (e.g. aspects such as carbon footprint, waste, water consumption, chemical use).
In India, as the second largest country manufacturing polyester textiles worldwide,
these global trends find themselves also reflected in the Indian polyester filament yarn
sector and, indeed, in Indian consumer demand as well. Steadily increasing demand for high
quality recycled sustainable polyester can be observed in all segments of textile
applications from sportswear to apparels and home textiles.
Apart from global brands, India-centric brands also are choosing recycled polyester for
various product ranges. This signals that the favourable outlook for sustainable apparel
is not only limited to the traditional geographic markets of global brands.
With the increasing costs in China and growing concerns about over-dependency on a
single national source, India is becoming an attractive alternative source for procuring
woven and knitted fabrics for brands and retail chains. As a combined effect of all these
factors, we witnessed a major shift in the approach of brands and the support for
sustainable products has become more active. This has helped to have a very healthy order
book for 2019-20. Company is confident of achieving of more than 7000 MT premium sale
during 2019-20 which shall lead to a positive outlook for the company. The Company has
entered into a Contract for setting up facility for production of Fully Drawn Yarn (FDY) ,
a product with better margin. FDY Project is expected to start commercial production from
Q2 of FY 2019-20.
These trends and a favourable future outlook comprise the bedrock for Polygentas
singular strategic focus on manufacturing and selling polyester filament yarn made solely
from sustainable post-consumer bottles. To help ensure a successful pursuit of this
strategy, Polygenta is committed to being an enterprise that excels in transparency,
technology innovation, environmental sustainability, the empowerment of its staff, and
building mutually rewarding partnerships with all of its stakeholders.
5. Risks and Concerns:
While there is a bright outlook for the sustainable yarn and specialty segments of
interest to Polygenta, the Company is cognizant that particularly in a sector such as
polyester, one needs to be vigilant in identifying and actively and prudently managing
risk inherent to the business.
Generally, the Company identifies its risks in terms of market risk (including
feedstock and product pricing, interest rate and foreign currency fluctuations), credit
risk, infrastructure risk (hardware, software and IT) and operating risks (including but
not limited to health, safety, environmental risks, and transactional/ integrity control
risks).
The Company is constantly seeking to manage its overall exposure to product, feedstock,
and margin fluctuations. Similarly, the Company is actively pursuing export markets for
its products first and foremost because of the excellent opportunities that the management
believes those markets hold. Further, with the improvement in the product quality, the
Company is working towards increasing sales in branded segments which unlike the polyester
filament yarn made conventionally from petrochemicals, are affected less by fluctuations
in the prices of crude oil prices.
With respect to operating risks, the Company continues to diligently strive for health,
safety, and environmental performance levels that rank at the upper levels of its peers.
With respect to transactional and integrity control risks, over the last year, the Board
and management have taken a number of steps to review and strengthen operational and
financial controls. These include identifying areas for improvement in financial controls,
operations, SOPs, and protocols and authoritys matrices and implementing measures to
strengthen accordingly, recruiting experienced and proven senior management and new
finance and accounts personnel, and arranging for relevant additional training for Company
personnel.
As stated in the previous years Directors Report, the Company and its parent company
were in dispute regarding various matters and transactions with a former senior executive
who was associated with the Company until September 2013. During the year, comprehensive
consent terms were filed in the Court with respect to all outstanding disputes between the
parties. Accordingly, all disputes in relation to the senior executive stand settled.
Management is also aware that competition for talented personnel will only intensify in
the future and the Companys personnel are a core and vital asset. To help ensure full
develop and optimal retention of its this valuable asset, management is committed to
investing in its development and providing through an exceptional work environment and
training opportunities coupled with competitive and innovative compensation and incentive
schemes.
6. Segment wise Performance
All products relate to textile application and hence segmental reporting is not
applicable.
7. Internal Control Systems and their Adequacy
The Company is constantly enhancing its internal control systems commensurate with the
size and nature of its business. The Company has an external ‘internal audit firm
K.K. Jhunjhunwala & Co. which submits its quarterly report to the Audit Committee,
which in-turn reports to Board of Directors.
The Internal Auditor provides reasonable assurance to the Board of Directors that the
risk exposures the Company faces are understood and managed appropriately in dynamically
changing contexts. The Companys internal audit focuses on Management / Operational Audit
through transaction validation on value additions, systems improvement, and statutory
compliances.
8. Human Resource Development:
The Management strongly feels that the Companys core strength lies in its human
resources. Training and development of human resources is an ongoing priority for the
Company as it seeks to become a leading innovator in its sector and perform at a very high
standard in all aspects of its business and operations, particularly in a rapidly changing
external environment. In pursuit of such high standards the company achieved certification
for ISO 9001 (Quality); ISO 14001 (Environment) and OHSAS 18001 (Health and Safety). As on
31 March 2019, the Company had 241 employees on the payroll and 138 labourers on a
contract basis.
9. Details of significant changes (i.e. change of 25% or more as compared to the
immediately previous financial year) in key financial ratios, along with detailed
explanation:
| Sr. No. |
Particulars |
|
2018-19 |
2017-18 |
Increase / Decrease |
Detailed explanation in case of change in ratio more than 25% (N.A. in case change
in the ratio is less than or equal to 25%) |
| 1 |
Debtors Turnover |
Ratio |
5.81 |
5.01 |
16% |
N.A |
| 2 |
Inventory Turnover |
Ratio |
6.74 |
7.28 |
-7% |
N.A |
| 3 |
Interest Coverage Ratio |
Ratio |
-3.25 |
-14.49 |
-78% |
Since the Company continues to incur losses, the interest coverage ratio continues to
be negative, though negative interest coverage ratio has reduced as there is reduction in
interest and increase in EBITDA. |
| 4 |
Current Ratio |
Ratio |
2.79 |
2.24 |
24% |
N.A |
| 5 |
Debt Equity Ratio |
Ratio |
0.010 |
0.015 |
-34% |
The reduction in cash credit utilisation by 34% has resulted in reduction in Debt
Equity Ratio. |
| 6 |
Operating Profit margin (%) |
% |
-0.06 |
-0.36 |
-84% |
The operational efficiency has significantly improved during the year resulting in
improved product performance and thereby sales has increased by 53%. Although the company
continues to incur losses, the operating losses reduction (because of the improved sales)
has reduced the operating loss margin. |
| 7 |
Net Profit Margin (%) |
% |
-0.25 |
-0.89 |
-72% |
The operational efficiency has significantly improved during the year resulting in
improved product performance and thereby sales has increased by 53%. Although the Company
continues to incur losses, the net losses reduction (because of the improved sales) has
reduced the loss margin. |
| 8 |
Details of any change in return on Net worth |
Ratio |
-0.12 |
-0.26 |
-53% |
Since the Company continues to incur losses, the return on networth ratio continues to
be negative, though there is reduction in negative return on Networth. |
| FOR AND ON BEHALF OF THE BOARD OF DIRECTORS |
|
| Sujata Chattopadhyay |
|
| Chairperson |
Place: Mumbai |
|
th |
| DIN: 2336683 |
Date: 28 May 2019 |
+91-9892691696
