spartek ceramics india ltd Management discussions

SPARTEK CERAMIC INDIA LIMITED ANNUAL REPORT 2003-2004 MANAGEMENT DISCUSSION AND ANALYSIS During the year under review, a number of new players both in the organized and unorganized set up manufacturing facilities. The competition in general increased significantly and this exerted tremendous price pressure on the established companies. This took away to some extent sustainability of profitability levels achieved by Spartek during the earlier years. However there is a continuing boom in the real estate/construction activities in all the metros and tier 2 cities. Tiles Industry - Structure, Trends & developments The over all market size for Tiles was around 100 million Sqm with a value of around Rs. 2500 Crores. The Market is dramatically shifting to large size formats and intricate designs. The leading players in the Industry are now moving towards large format floor tiles -vitrified in particular. While some of the established companies have started to import tiles from Far East/ South East Asian countries, some others have set up new units which are mainly natural gas based plants. Business Review This has been dealt with in detail in the Directors Report to the Shareholders. Marketing & Distribution New Products Offering SPARTEK is positioned as a unique solution provider for the home for the discerning upper and middle class user providing convenience, flexibility and visible value for money. With this in view the Company plans to introduce superior Enhanced Products in larger sizes and Innovative product series. Distribution With the impending expansion plan and to spruce up the distribution network, the Company intends to: * Enhance the current Dealer Channel in terms of Availability, Merchandising and Servicing. * Create a separate Architects/Builders channel through technically savvy market professionals. Create a `New channel, complementing the existing ones. * Extend Distribution by 75% across the country through both new Areas and greater penetration in the existing areas * Create relationship orientation through exclusive Spartek Outlets especially in new towns (estimated at 20) Future Outlook The Tile Industry is fast transforming. The fierce competition in the domestic market has resulted in the players looking at product differentiation as the marketing mantra. This has also underlined the importance of export markets. Spartek has also realigned its marketing strategy on the above premises. The future plans of the Company have been accordingly drafted. These will result in reinstating the brand image of Spartek and leverage the same. Therefore the future is expected to be full of opportunities as well as challenges. The government policies continue to be conducive and the consumer behaviour is also holding out a lot of discernment and brand loyalty. Internal Control System The Company continues to emphasize the importance of a good internal control system that ensures transparency in operation, statutory compliance, reliable MIS and a built in correction mechanism. As a part of this, internal audit programme is conducted covering all the key areas of the operation. The top management and the audit committee on a regular basis review the internal audit reports. Financial Performance This has been dealt with in detail the Directors Report to the Shareholders Human Resources This has also been dealt with in detail the Directors Report to the Shareholders Risks and Concerns As mentioned in the foregoing paragraphs, the Tile Industry is going through some short term threats like cheap imported tiles, advent of low cost producers in the market and increased transportation costs. However these are not insurmountable and the companies should look at a medium term horizon to mitigate the risks. Constantly bringing in new & innovative products will provide the cutting edge of product differentiation for strong brand players like Spartek. Cautionary statement Statements in this Management Discussion and Analysis Report and Directors Report giving companys objectives, projections, estimates and expectations may constitute "forward looking statements" within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied.