Sreechem Resins Ltd Management Discussions

73.95
(4.18%)
Jul 24, 2024|03:40:00 PM

Sreechem Resins Ltd Share Price Management Discussions

1. GLOBAL ECONOMIC OVERVIEW:

Due to Russia Ukraine war, energy crisis happened worldwide resulting in higher prices of Crude Oil and Coal and Natural Gas. The prices of inferior quality of Coal increased tremendously over shooting the quality Coal due to European demand for alternative energy. This resulted in paucity of orders for the new products as the customers did not have inferior quality of Coal to consume.

Also due to higher inflation worldwide, Central Banks of all the countries of the World started raising interest rates resulting in higher costs.

2. INDIAN ECONOMIC OVERVIEW:

The Reserve Bank of India also raised interest several times, increasing interest costs during the last year. This resulted in higher interest and finance charges to the industries.

India has emerged as the fastest-growing major economy in the world, and is expected to be one of the top three economic powers globally over the next 8-10 years, backed by and strong growth of the economy.

3. INDUSTRY STRUCTURE & DEVELOPMENT:

The company manufactures Phenol based resins and other Allied Products. During the year, demand for resins remained depressed. Companys products are used by refractory units & steel plants. There was dumping of imported refractories by China. As such local industries suffered and there was tremendous competition between resins manufacturers.

Resin Industry in India: There are five six established manufacturers of Phenolic Resins in India. The industry is dependent on growth of Refractory Industry in the country. But due to imports of Refractories from China, Indian Industry is starved of orders, resulting in huge competitions between the Resin manufacturers.

4. OPPORTUNITIES&THREATS:

The Basic Raw-material Phenol is manufactured in India by a Government Undertaking and two Private Sector Units and is also imported. Normally there is no problem in procuring the same. But in the last few years H.O.C.L Unit remained closed intermittently and supplies remained erratic frequently during the year. The Company regularly supplies Phenolic Resins to various Refractory manufacturers and to Steel Plants. During the last few years there was huge competition from other Resin manufacturers resulting in lower net realizations.

There was increase in the prices of raw-materials, which the company tried to pass on to the customers. The Directors are taking every steps to improve both Production and Sales of the company and reduce the losses incurred in the last few months.

5. OUTLOOK:

Sales during the last three quarters of the Financial Year has come down drastically resulting in losses from the third quarter of the financial year onwards.

Due to mismatch in prices of good quality Coal and inferior grade Coal and non-availability of inferior quality coal, no fresh Orders for the new Products were received after first quarter of the financial year. The situation is still gloomy and there are no Orders in hand for the new Products presently.

The Basic Raw-material Phenol is manufactured in India by a Government Undertaking and two Private Sector Units and is also imported. Normally there is no problem in procuring the raw-materials. But in the last few years H.O.C.L Unit remained closed intermittently. The Company regularly supplies Phenolic Resins to various Refractory manufacturers and to Steel Plants. During the last few years there was huge competition from other Resin manufacturers resulting in competitive margins.

In-spite of best efforts by the Directors, the Company has not received any orders for the new Products during the last one year and the situation is still uncertain. The Directors are trying to secure orders for the new products, but till date they are unable to obtain orders for the new products. In view of the uncertain situations, the Directors have decided to curtail the expenditure by retrenching the newly recruited Labours and Staffs and also tried to reduce the other expenditure, wherever possible.

6. RISKS AND CONCERNS:

The company has not received fresh orders for the new products during the last financial year from July22 onwards. In-spite of best efforts by the Directors, the company was unable to obtain orders for the new products and the near future is uncertain.

FRESH ORDERS RISK: The Company is dependent on few customers for the orders of new products. There is risk in procuring regular orders resulting in low capacity utilization from august 2022 onwards.

RAW MATERIALS PRICE RISK: There are three manufacturers of our basic raw materials- phenol. Shut down of HOCL Plant intermittently pose a risk of getting supplies as well price increase. Besides that there is fluctuation in the prices of Phenol (basic raw material) as it is a crude oil base product, which is imported by the middle man. The Company tries to insulate from any fluctuations in price of basic raw-materials to the extent possible by passing on the increase / decrease in the prices of Raw-materials to the customers.

OTHER BUSINESS RISKS: There is a risk of imports of Refractories from low cost Chinese Refractories manufacturers as well as resins dumped by China and resulting in lower capacity utilization by the Refractory Units consequently the demand for resins was depressed. However, Company has long association with the Refractory Manufacturers, who are satisfied with the quality of the products of the Company. As such, the Company does not see much risk in marketing the Resin products of the Company. The depreciation of the rupee is a big challenge affecting the cost of inputs.

Any event like war, changes in prices of coal and also availability of inferior quality of coal at customers end and policy changes with the customer directly affects our production and sales of the newly developed products. Thus, the profitability may be affected due to said developments.

7. RISK MANAGEMENT & INTERNAL CONTROL SYSTEM:

The Company has a robust Risk Management framework to identify, evaluate business risks and opportunities. This framework seeks to create transparency, minimize adverse impact on the business objectives and enhance the Companys competitive advantage. The business risk framework defines the risk management approach across the enterprise at various levels including documentation and reporting. The framework has different risk models which help in identifying risks trend, exposure and potential impact analysis at a Company level as also separately for business segments. The Company has identified various risks and also has mitigation plans for each risk identified. The Risk Management Policy of the Company is available on our website http://www.sreechem.in/policy.php

The Board has adopted the policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to the Companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial disclosures.

The Company is dependent on few customers for sale of the new products. Thus, the management is trying to increase the customer base.

8. DISCUSSION ON FINANCIAL PERFORMANCE:

During the year under review, the Company has made Net Profit of Rs. 81.63 lacs as compared to Rs.310.03 lacs in previous year. The reduced profit is due to lower sales from second quarter onwards and higher initial expenses for development of new products during the financial year. Sales of the company came down substantially after the first quarter of the financial year for want of orders for the new products. The company turned into losses from the third quarter of the financial year onwards. In spite of efforts by the Directors, the Orders for new products were not received from second quarter onwards during the financial year. The Directors are taking every step to procure orders for the new products, improve the sales, and turn the company back into profits from losses.

KEY FINANCIAL RATIOS:

Particulars 31.03.2023 31.03.2022 Reasons for Change of 25% or more
Debtors Turnover 18 Days 49 Days Prompt Payment from Customers
Inventory Turnover 22 Days 36 Days Due to Better management of Inventories
Interest Coverage Ratio 1.78 6.35 Due to reduced Profit during Financial Year 2022-23
Current Ratio 1.89 1.74 -
Debt Equity Ratio 0.08% 0.29% Due to prepayment of Term Loan.
Operating Profit Margin 2.08% 5.12% Due to increase in Cost of Raw materials & other expenditure
Net Profit Margin 1.07% 4.27% Due to increase in Cost of Raw materials & other expenditure
Return on Net Worth 7.14% 29.20% Due to increase in Cost of Raw materials & other expenditure
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9. HUMAN RESOURCE:

The Company firmly believes that human resources is an important instrument to provide proper communication of the Companys growth story to its stake holders and plays vital role in the overall prospects of the Company. The Company takes every possible step for the welfare of its manpower. The employee relationship was cordial throughout the year. The company as on 31st March, 2023 had 80 permanent employees on our rolls.

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