Southern Gas Ltd Management Discussions.

India has emerged as the fastest growing major economy in the world as per the Central Statistics Organisation (CSO) and International Monetary Fund (IMF). Indias GDP is estimated to grow 6.6 per cent in 2017-18 and is expected to grow 7.3 percent in 2018-19.

Manufacturing has emerged as one of the high growth sectors in India. Recent initiatives by the NDA Government such as Make in India, Digital India, nation wide road-building program, Ease of Doing Business, etc. will boost and uplift the manufacturing sector. India is expected to become the fifth largest manufacturing country in the world by the end of year 2020.

The Union Budget for FY 2018-19 announced by Mr Arun Jaitley, Union Minister for Finance, Government of India will focus on uplifting the rural economy and strengthening of the agriculture sector, healthcare for the economically less privileged, infrastructure creation and improvement in the quality of education of the country. This years budget also unveiled worlds largest government funded health care programme, a new National Health Protection Scheme under which a health coverage of up to Rs 5 lakh per family will be offered for secondary and tertiary care hospitalization. The government is also committed to establishing 1.5 lakh Health and Wellness Centres under the Ayushman Bharat program.

Industry Structure and Developments

The medical gases market size in India, in volume terms, is forecast to witness a two folds increase by 2019, exhibiting a CAGR of about 15% during 2014-19. The medical gases market in India is highly dominated by region-specific players, which are offering a stiff competition to multinational companies. Indias specialization in cardiology, orthopedic surgery, etc., is expected to drive healthcare demand, particularly for medical oxygen and nitrous oxide, which are vital requirements of any healthcare setup. Currently, the northern region, followed by the southern region, is the leading demand generators for medical gases, particularly medical oxygen gas.

(Source: India Medical Gases Market Forecast & Opportunities, 2019)

India industrial gases market was valued at $ 2.1 billion in 2017 and is forecast to grow at a CAGR of over 11% to surpass $ 3.9 billion in 2023 on account of growing demand from metal industry, particularly steel. Nitrogen, Oxygen and Argon are the most commonly used industrial gases. They are used in a wide range of industries, which include oil & gas, petrochemicals, chemicals, power, mining, steelmaking, metals, environmental protection, medicine, pharmaceuticals, biotechnology, food, water, fertilizers, nuclear power, electronics and aerospace.

(Source: Industrial Gases Market Forecast 2023)

Moreover, regular capacity expansions by automobile, refinery and chemical companies coupled with increasing number of new applications of industrial gases is further augmenting demand for industrial gases in the country. Additionally, continuing growth in the countrys healthcare sector and booming food & beverages sector is anticipated to augur well for the industrial gases market in India through 2023.

Like other sectors, the overall manufacturing growth is expected to result in increased demand for industrial gases over the years. The market for gas is broadly categorized as captive users and merchant market and the growth is steady in both segments.

The prominent development in recent years is introduction of Lower Capacity Tonnage Plants of China make, which likely to be popular for captive users this is changing the dynamics of gas market, especially the gas supplied in cylinders.

Opportunities and Threats

This year our Company has been successful in bidding Railway Tenders in Hubli and Mysore which added major quantities to our business. We believe that application of industrial and other gases will grow in all areas of manufacturing industry. With the increase in the competition, businesses are looking to explore for the latest dynamics and trends which will have positive impact on their business.

However, hyper competition amongst small manufacturers, entry of MNCs and over capacity remains a concern. Owing to increasing demand and rising competition, an increasing number of industrial gases companies in India are investing heavily on capacity additions at existing as well as new end user facilities.

Segment-wise or product-wise performance

The Company operates in only one segment i.e. manufacturing of gas. The products include Oxygen used in medical and industrial applications, Argon, Hydrogen, Nitrogen, etc. The performance of the company in the segment is satisfactory.

Outlook

With increasing government initiatives towards developing Indias manufacturing sector, coupled with rapid industrialization, demand for industrial gases is anticipated to grow steadily. Also, effort to meet the expectation in terms of quality and price would govern the sustainability of growth over the years.

Risks and Concerns

Continuous competition and reduction in prices in the market by the MNCs inorder to grab the business remains the major concern for our company.

So also the inherent risks in the industry continue to be cylinders transportation and safety, thereby adding to cost. Main input being electricity, the quality and cost of power is major concern.

Internal Control Systems and their Adequacy

The Companys internal control system is commensurate with its size, scale and complexities of its operations. Company has an effective internal control and risk-mitigation system, which are constantly assessed and strengthened with new / revised standard operating procedures. The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of the internal control systems and suggests improvements to strength the same.

Discussion on financial performance with respect to operational performance. Operational Performance Highlights:

(Rs. in Lakhs)
Particulars F.Y. 2017-2018 F.Y. 2016-2017
Revenue from Operations 2733.21 2937.02
Expenses:
Cost of material consumed 1065.27 1248.32
Gross Profit 1667.95 1688.70
Gross Profit 61.03% 57.50%

*the above Operational Performance Highlights should be read in conjunction with the Financial Statements, the schedules and notes thereto.

The revenue from operations during the year under review has fallen by 6.93 % mainly on account of lower sales. However, despite of fall in turnover, gross profit percentage has improved due to increase in selling prices and better product mix composition.

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

Industrial relations across the companys plants were cordial during the year under review. The Company employed 13 employees during the year.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the Companys 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 the difference to the Companys operations include raw material availability and its prices, cyclical, demand and pricing in the Companys principle markets, changes in Government regulations, Tax regimes, economic developments within India and the countries in which the Company conducts business and other ancillary factors.

For and on Behalf of The Board of Directors

Gautam V. Pai Kakode Motilal S. Keny
Managing Director Director
Margao - Goa DIN:02395512 DIN: 06813111
28th May, 2018