MANAGEMENT DISCUSSION AND ANALYSIS
OVERVIEW
Since the failure of many a banking and financial institutions from October 2008, the
developed economies the world over have continued to face economic problems. We were lucky
that the Indian economy did not suffer recession, though its GDP growth rate slowed down
since then and of late experiencing over all slowdown in economy. Still GDP for the
current financial year is expected at ~ 4.5%.
BUSINESS SEGMENT
Flexible Packaging Industry
Packaging is the science, art and technology of protecting products from the overt and
inherent adverse effects of the environment.
Flexible packaging not only protects the products, it has several advantages over the
traditional packaging materials like glass, metal, paper, etc. It is light weight, easy to
handle, needs less storage space, cost effective and better aesthetic and appealing value.
The World Packaging Organization’s (WPO) slogan, "Better Quality of
Life Through Better Packaging", sumps up the important place that flexible
packaging occupies in a modern economy.
Global Flexible Packaging market is expected to grow at about 5% annually and reach $90
billion in 2016. Asia’s share is 42% and is growing at higher rate of about 7%.
Within Asia, the fastest growing region is Southeast Asia and Oceania driven by high
demand in India with 15-20% annual growth rate.
A number of factors contribute to such robust growth.
Flexible packaging has helped FMCG companies to penetrate the untapped/under tapped
huge rural markets with small-serve packs. High economic growth, growing income level,
growing urbanization & organized Retail Industry, increasing health consciousness,
changing food habits amongst Indians are the other important contributors to the
spectacular growth of the flexible packaging industry.
Market researcher Nielsen estimates that the country’s rural FMCG retail landscape
will grow from $12 billion in 2011 to $100 billion by 2025, as per its CONSUMER 360 REPORT
of November, 2011. It further states the rural mindset is open to consumption of newer,
more contemporary food categories and as a result, drives consistent growth.
The research firm has identified four key trends that it says will drive consumption:
premuimisation, consumer switching from commodity to brands, from indulgence to regular
consumption and acceptability. While small sized packages are vital for entry in to the
market, as purchasing power increases, rural consumers are increasingly buying larger pack
sizes to share with family and friends.
The marker researcher added that Indian shoppers will increase spends on fast moving
consumer goods (FMCG) at modern retail stores from $1.8 billion to $5.0 billion by 2015.
The Indian consumer is clearly enjoying the modern trade shopping experience and is
increasingly shopping there.
Further recent move of the Government to allow 51% FDI in multi-brand retail and to
increase the FDI limit to 100% in single brand retail will boost the organized retailing.
Because of all the above factors and since per capita consumption of flexible packaging
in India is among the lowest in the world, and also with introduction of innovative new
products, it is expected that Indian flexible packaging industry will continue to grow at
15-20%CAGR.
OUR BUSINESS
The main business of the Company is flexible packaging laminates which contains
multi-layered laminated sheets / rolls of single or combination of substrates like
Polyester (PET), BOPP, POLY, CPP, BONN, Metalized and Hologram films and others, either
supplied in roll from or pouch form of various formats (zipper, standby, retort, etc.)
involving manufacturing of rotogravure cylinders for various types of rotogravure
printing, shims for Holographic embossing, manufacturing of sealant layer films like
3-Layer Polyethylene film, Cast Poly Propylene film, 5-Layer Nylon Polyethylene film. This
business is very customized business as per the needs of the customer. The Company
provides complete solution under one roof for the packaging needs of the customers and has
a very impressive marquee clientele. The Company is one of the major players in flexible
packaging laminates in India and enjoys a dominant position in certain market / product
segments.
The Company has developed several new packaging solutions for various applications
suitable for Food Industry & Personal Care, thus achieving World-Star accolades and
recognition for its valuable contribution to the products success in the market. The
Company’s strategy for constant product innovation, with thrust on cost effectiveness
and quality enhancement with improving services, has led to a promising growth in its
sales volumes and a preferred supplier’s position with its marquee clients.
Keeping its tradition of product innovation to suit a specific product and
simultaneously keeping in mind legal and environmental aspects, the Company has developed
new types of Laminated Multi-colour Printed Laminates based on Aluminum Foil &
Specialty Paper based Laminates to seize this additional business opportunity, the Company
has expanded its capacity from 10000MT to 14000MT in the previous year; the benefits of
which are available from the year under review onward.
The Company has in-house cylinder manufacturing capabilities for captive consumption.
Printing cylinder is at the core of the Rotogravure Flexible printing and the Company has
capabilities to provide complete solution starting from Artwork/ Mock up stage to
producing final printing cylinders. The Company has world class and state-of-art total
expertise and facilities integrated with best software to produce good quality cylinders.
Holograms produced by the Company are of world class quality being accepted widely in
domestic markets. The Company is benefitting in terms of volume growth with the help of
Holographic solutions, as this will make the business difficult for spurious manufactures,
thereby increasing the business of the Company’s clientele and help the Company to
register further growth. Also the Company has an edge over many a competitors as it offers
one stop holographic solutions mainly due to its integrated production facilities.
The Company also produces a new form of laminate containing extruded laminated
polyethylene that accelerates the shelf life, package body and appeal and exclusive
barrier properties to retain products freshness of snacks industry.
FINANCIAL ANALYSIS
A snap shot of the Income Statement for the last two accounting periods is given below:
|
(Rs. in Crore) |
|
Financial Year ended on |
| Particulars |
30.06.2013(9 Months) |
30.09.2012(12 Months) |
| Sales & Other Income |
222.17 |
100.00% |
221.12 |
100.00% |
| Manufacturing Expenses(Adjusted for change in stock) |
194.35 |
87.48% |
189.94 |
85.90% |
| Administrative & Selling Expenses |
1.44 |
0.65% |
1.99 |
0.90% |
| EBITDA |
26.38 |
11.87% |
29.19 |
13.20% |
| Interest & Finance Charges |
6.94 |
3.12% |
6.95 |
3.14% |
| Depreciation |
4.62 |
2.08% |
6.23 |
2.82% |
| Income Before Tax (Pre-Exceptional Items) |
14.82 |
6.67% |
16.01 |
7.24% |
| Prior Period Adjustments |
0.00 |
0.00% |
0.00 |
0.00% |
| Provision for Income Tax |
2.96 |
1.33% |
0.80 |
0.36% |
| Net Profit |
11.86 |
5.34% |
15.21 |
6.88% |
The net sales from operation for the period of 9 Months under review increased to Rs.
221.17 Crore from Rs.221.07 Crore in the previous year, an annualized rise of 33.71%.
Though the turnover increased in the year under review, profitability was under pressure
due to rise in raw material cost, increased financial cost resulting from higher
borrowings for working capital and higher tax provisions during the 9months period ended
30.06.2013 compared to 12 months period ended 30.09.2012.
OPPORTUNITIES & THREATS
Opportunities:
Flexible packaging has been one of the fastest growing sectors of the packaging market
over the past decade. Annual growth rate of 15-20% shows very broad perspective of Indian
flexible packaging industry and the opportunities it offers.
Flexible packaging that is a very versatile packaging form that can cater to any needs
of the customers and can be customized to specific requirements of the end application.
The inherent property of barrier protection of packaging substrates like PE, PET, PP, PA,
etc., offers fearless protection against environmental threats like moisture, heat and
chemical reaction. The convenience factor of handling and cost benefits are a few of added
advantages.
Factors driving growth of flexible packaging:
• Materials like metals are volatile, glass is becoming increasingly expensive,
wood is not eco-friendly, therefore posing excellent growth prospect for flexible
packaging.
• Flexible Packaging vies for conversion opportunities from rigid packaging and
already controls the foodservice area. In general, flexible packaging continues to provide
solid market penetration vs. aseptic and hot-fill rigid packaging, a trend most industry
pundits believe will continue.
• Flexible packaging also has a strong outlook for barrier packaging, including
stand-up pouches, non-retort stand-up pouches.
• A growing middle class population of over 400 million with high income.
• Changing Consumer habits in 1,2 & 3 Tier cities with working style of fast
economies like developed countries globally, therefore making life on a fast track. Thus
impetus given on easy, fast, convenient and flexible products, which is the prime
deliverance of Flexible Packaging.
• Rapid growth in globalization in FMCG segment.
• Emergence of organized retail and technological strides in food manufacturing
and processing is further fuelling the next growth trajectory for the food industry in
India.
Due to its constant efforts for excellent product quality, low cost manufacturing
acumen, broad gamut of product offerings, one stop solution format, complete integration
of conversion capabilities, hands on style management, motivated & skilled
professional taskforce, top marquee of clients, aggressive marketing strategies, etc. the
Company is poised for becoming a major and important player in the industry.
The Company’s established design development and cylinder operation with world
class softwares like Esko Artpro 10, Sonic speed engravers, automatics proofing and
mock-up machines has given the Company an added advantage over its competitors as
in-process flaws can be eradicated at the initial level of digital proof providing to the
clients.
Threats:
The industry is very dynamic but very fragmented at the same time. Unorganized sector
is still a very large part of the market. However, growing awareness for hygiene and
growing health consciousness and also rapidly expanding organized retail sector help the
flexible packaging companies in the organized sector to grow.
It is generalized as plastic industry globally and therefore perceived to be a
non-eco-unfriendly industry experiencing stiff opposition. However with technological
advances, flexible packaging has become safer for food products and now well accepted the
world over.
The Company faces competition from other domestic manufacturers. However, since the
market is growing at a high rate and because of the Company’s inherent strength this
factor is not worrisome.
FUTURE OUTLOOK
The Indian economy is growing at around 4.5%. Usages of flexible packaging are growing
at much faster rate due to its various advantages and other growth factors discussed
herein above. The Company has successfully turned around because of strenuous efforts put
in by the management of the Company. The Directors are therefore optimistic of brighter
future of the Company.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company has an adequate system of internal control related to all its functions
considering the size and nature of operations.
HUMAN RESOURCE DEVELOPMENT/INDUSTRIAL RELATIONS
The management of the Company puts greater value to its Human Resources. The Company
has been taking on a continuous basis necessary steps for strengthening organizational
competency through involvement and development of employees as well as installing
effective systems for improving the productivity, quality and accountability at functional
levels through upgradeation of the skill and knowledge level and providing appropriate
leadership at all levels, motivating them, inculcating the attitude for speed of action
and taking responsibilities as well as face challenges successfully. The relations with
its Human Assets at all levels remained harmonious throughout the year.
CAUTIONARY STATEMENT
Statement in this Management Discussion and Analysis describing the Company’s
objectives, projections, estimates, expectations or predictions 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 Company’s operations include
raw material availability and prices, cyclical demand and pricing in the Company’s
principal markets, changes in Government regulations, tax regimes, economic developments
within India and the countries in which the Company conducts business and other incidental
factors. The Company assumes no responsibilities to publicly amend, modify or revise any
forward looking statements on the basis of any subsequent developments, Information or
events.
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