Supreme Industries Ltd Management Discussions.

1. OVERVIEW

The year under review was the toughest in the history of the Company. It started with an extreme negative outlook. The Company had to keep operations of its 24 plants closed for most part of the month of April 2020 and could begin in a gradual manner from last week of April onwards complying the prescribed guidelines.

In the last 10 days, just before the closing of the year, the business has again witnessed tough situation as Covid - 19 second wave started affecting the general public with alarming speed. The situation has become further volatile due to steep increase in Polymer prices. The increase in prices of PVC was steepest. In the last 40 years, international prices of PVC have never reached to the levels seen in April 2021 especially in India, some other Latin American countries and Turkey.

The Company however has come out of these two extreme adverse situations with unparalleled performance where the profit of the Company was highest in its 79 years of operations. This was partly supported by more than R 200 crores inventory gain on account of raw material price increase which accrued in its operations for the year.

The Companys focus remained to penetrate maximum Tehsils with larger base of retailers to have its goods reach to the customers with ease and in a most economical manner.

The business in most of the segments of the Company starting from June 2020 remained positive, barring in the month of July 2020, where regional lock down in some parts of the Country affected smooth operations.

In spite of Covid-19 second wave, the Company is optimistic about further growth prospects. The countrys war against Covid-19 was strengthened with successful developments of vaccines by two local producers and more producers / suppliers may offer from India and abroad to implement massive vaccination programme undertaken by the country.

Even with temporary setback which the Company is experiencing in the month of April 2021, the Company has not reduced its Capex plan for the year 2021-22. In the current year, not only there will be brownfield expansion of capacities and new products at the existing plants but Company has also embarked on putting up three new greenfield plants in the states of Assam, Orissa and Tamilnadu during the current year.

2. PRODUCT GROUPS:

The product groups of the Company have been categorised as under:

Group Products
Plastics Piping System uPVC Pipes, Injection Moulded PVC fittings and handmade fittings, Polypropylene Random Co-polymer pipe system, HDPE Pipe Systems, CPVC Pipes Systems, Inspection Chambers, manholes, Toilets Bath fittings, Roto moulded Tanks and Fittings and Solvents, Industrial Piping System, DWC Pe Pipe System and Fire Sprinkler System
Consumer products Furniture
Industrial Products Industrial Components, Material handling System and Pallets - Roto moulded crates, pallets and garbage bins and Composite LPG Cylinders.

 

Packaging Products Flexible packaging film products, Protective Packaging Products, Cross Laminated Film products.

The net turnover (including other income) of the Company for the year under review was R 6373 Crores (including R 122 Crores by way of trading in other related products) as against R 5530 Crores (including R 33 Crores by way of trading in other related products and R 26 crores from sale of Premises) during the previous year.

The Company has sold 4,09,109 tons of Plastic products as against 4,11,521 tons of Plastic products in the previous year, reflecting a nominal de-growth of 1% in product turnover by volume.

The Company exported goods worth US$ 18.35 million as against US$ 18.29 million during the corresponding period of the previous year. Profit before interest, depreciation and exceptional items and taxes during the period under review have been at R 1300 Crores as against R 854 Crores during the previous year.

3. COMPANYS STRENGTH AND GROWTH DRIVERS

3.1 Manufacturing Sites

The Company is operating from 25 manufacturing sites across 12 states and Union Territories. The Company has initiated steps to put up two plastic products complex in the state of Orissa and Tamilnadu. The Company is also in the process to put up Plastic Pipe Systems manufacturing facility in the state of Assam.

3.2 Distribution network

The Company is committed to reach all the Tehsil areas of the Country. The Company is able to establish Dealer network in hundreds of Tehsils during the year, where Companys products reach was either not there or was very poor. The

Companys active channels partners strength increased to 4,034 Nos. in March 2021 from 3,567 Nos. at the end of March 2020.

The Covid-19 threw a dampener in Companys reaching new world markets, as international exhibitions for its products were mostly non-existent.

The Company continues to open more depots and fabrication facilities to service its customers in a cost efficient manner. The Company now has 37 nos. of depots and fabrication facilities for its various products group.

3.3 Growth Drivers

The Companys spend on TV advertisement in the epic serial Ramayana and Mahabharata and in IPL series telecast during the year strengthened its brand further. The Company extended financial help to 71,007 plumbers in the month of April / May 2020 to support their livelihood as their income streams were disrupted due to all India lockdown.

The Company has conducted large nos. of plumber meets with smaller groups to maintain appropriate discipline in Covid-19 atmosphere by keeping safe distance to prevent infection while providing training to Plumbers.

The counterfeit products are being introduced by some unscrupulous players in a large way in its Pipe System, Cross Laminated film and Furniture product segments. The Company is quite active in seeking legal remedy to protect consumers from getting cheated. The Company has been successful in addressing this menace which however looks to be a continuous process.

3.4 Renewable Energy - a way forward

The Company is committed and has taken very focused approach to ensure that it uses more and more green and renewal energy and becomes more environment friendly. Initial steps had been taken earlier by installing captive generation solar plants at Gadegaon and Kharagpur plants. Further Rooftop Solar plants have been operational / under installation at all three units at Malanpur (M.P), Hosur (Tamilnadu), Jadcherla (Telangana) and Gadegaon (Maharashtra) under OPEX Model.

The Company is also using wind and solar power through Captive consumer / open access mode. During the current year, the Company has committed R 35 Crores towards further installation of roof top solar plants at its various locations. The process of using more and more renewable energy shall be continued and the Company would continue to commit more capex every year for the same. The Company wishes to be carbon neutral at the earliest feasible and would pursue this vision in a focused manner by taking various effective steps and allocating more resources.

4. OPERATIONAL PERFORMANCE

4.1 PLASTICS PIPING SYSTEMS

The Company continues its objective to grow Plastic Pipe System business. The Company is leader in this segment as it has the largest portfolio of products, which is being continuously increased, to offer more systems as required in the economy.

The Company during the year under review registered an overall revenue growth of about 18.5% in Plastic Piping System made from different plastic materials. Overall the Company sold 2,94,357 Tons of Pipe System compared to 3,00,772 Tons in the previous year.

In the previous year the business was affected severely due to complete lockdown in April 2020 and then gradual lifting of

business in May 2020. The business was again affected in July 2020 due to intermittent regional lockdowns. This has led to de-growth in volume for the full year.

PVC is the predominant raw material in the Companys Plastic Pipe business. The prices of PVC were in downward trend from 18th March 2020 till first half of May 2020. Overall prices of PVC had gone down by R 13.50 / kg during that time. Thereafter beginning 18th May 2020 prices of PVC started continuously increasing month after month upto April 2021. The prices have increased by approx. R.70 per kg upto 31st March 2021. This has affected countrys PVC consumption which has seed de-growth by around 16% in volume for the year. The Company also had a de-growth of around 3% in PVC piping system by volume. This steep increase in prices have led to de-growth in Agriculture Pipe segment. The increase in prices has also resulted in inventory gain of around R 180 crores for the full year in the Companys working of Plastic Pipe system for the year.

The Government at the Centre and States has put the priority focus on Jal Jeevan Mission, Swatch Bharat Abhiyan, Sanitation and affordable houses to all and development of 100 smart cities on all India basis. NITI Aayog has declared following as growth drivers across the country:

• Government infrastructure spending

• Increasing construction

• Increasing Industrial production

• Rising demand from irrigation sector

• Replacement of aging Pipes

• Providing affordable house to all

• Heavy investment by Government in irrigation, housing and sanitization

Almost all the above growth drivers will boost the business of Plastic Piping System Division.

Real Estate Regulation Act (RERA) has created a major transformation the way housing construction for sale was in vogue in the Country. Many prominent Business Houses have made ambitious plans in this sector to grow geometrically with launch of their projects at multiple locations. For affordable housing segment Company has introduced customer friendly drainage system under the different brand name "Streamline" which meets all functional requirements of the affordable Housing sector. The growth tempo has now started and the Company expects good demand coming from the segment on continual basis.

The Company incurred Capex of R 225 crore in the year under reviewr in its various plants to build more capacities and increase range. Majority of them have been put to use.

The Company with objective of making its footprint for manufacturing at South Zone, for Plastic Piping Division, has got 50 acres of land allotted at Jadcherla-District Mahaboobnagar at Telangana. The production of PVC Pipes, cPVC Pipes, Water & Septic Tanks at this location has started. The machinery installation work for PEX system and Olefins moulded fittings are getting completed. The Company will launch these products at this location in July21-Sep21 quarter.

The plant at Kharagpur is fully operational. The Company has started necessary civil and machine ordering work for further increasing the capacity of HDPE and DWC Pipes at Kharagpur plant to cater to increased demand. The Company has also started manufacturing of Moulded Fittings at Kharagpur to service Eastern market cost effectively. Further capacity expansion of Moulded Fittings has been planned and civil

work is complete. Plant will operate with full capacity by third quarter of 2021-22.

To meet the increasing demand of HDPE Pipes in North India, the Company has put up the capacity in Malanpur Unit No.3. The commercial production of the same including expansion has started in full swing. Overall HDPE Pipe business had a de-growth of 5% by volume during this year.

The Company now manufactures Roto Moulded Products at all four geographies of country viz., North, South, East and West to service these market cost effectively. The Roto Moulded Business of the company has grown by 57% during the year under review. The Company has put plans in place to substantially increase the business of Water Tanks through different market strategy of servicing directly to retailers from the respective factories at many places. The same will be further acted upon this year to get the desired results. The Company is also going to start manufacturing of Roto Products at new locations to increase market share by cost effective servicing. The Company also launched Premium range of Water Tanks branded as "Weather Shield" with added features such as superior thermal insulation etc., from three locations with good market response.

The production of Double Wall Corrugated HDPE Pipes has started from Gadegaon and Kharagpur plants with BIS Certification. The Company is in process to educate various departments the benefits of putting in place a good quality DWC Pipes with latest technology and using virgin certified raw materials in terms of performance and longer life.

The Company introduced 154 nos. of variety of Injection Moulded Pipe fittings during 2020-21. They all have been well received in the market. The Company has plans of introducing further new items during the year as per system requirement. The total product portfolio in Plastic Pipe System has reached 8774 nos., thus adding 460 products to the range of various Plastic Piping System compared to previous year.

The Company manufactures the cPVC Pipes at four of its manufacturing locations and cPVC Fittings at two of its manufacturing locations. The production of cPVC pipes at Jadcherla plant is fully functional with necessary BIS certification. The cPVC system sales during the year under review grew by 13% in value over previous year.

The Company plans to start three new manufacturing units at new locations viz. Guwahati (Assam), Cuttack (Odisha) and Perundurai (Tamil Nadu) for Plastic Pipes, Water Tanks, Septic Tanks etc.. At Guwahati the Company will start production in rented premises. It is a green field project and entire construction is done as per Companys specification. Factory is likely to start in 3rd quarter of this year. At Cuttack the Company has already taken 29 acres of land and are in the process of further taking 4-5 acres of land which are plots in between and after taking these plots the land will become contiguous. The Company has already awarded the Civil and PEB contracts for same and construction is likely to start in May 2021 this year. The Company plans to start the first phase production at Cuttack unit by December21. At Perundurai (Tamilnadu) the Company has taken 32 acres of land from SIPCOT at their fully developed Industrial State. Various contracts will be finalized shortly.

The Company has started manufacturing variety of Specialized Valves such as Butterfly Valves, Swing Check Valves, Ball type non-return Valve etc. These Valves have been designed for different applications like Industrial, Agriculture and Plumbing segment. They are made of specialized materials to ensure reliability & longer life and also to meet best of global standards. The Company has received positive response from the market.

The Company intends to increase the range of Valves for Industrial usage in the current year.

The AQUAKRAFT Bath Fittings introduced by the Company is well established now including newly launched Chrome Plated range. There were 28 new items introduced during the year. The portfolio in Bath Fittings has reached to 124 items. Company continues to import some variety of Bath Fittings to service local market only for selected items. The Company plans to further complement the range during 2021-22 by introducing large varieties of products in Bath fittings. The Company also plans to enhance its manufacturing facility at Pondicherry at adjacent plot. The necessary work for same is likely to get completed by August21. The Bath Fittings sales during the year under review grew by 58% over corresponding previous year.

The Companys business to Export market during the year saw a de-growth of 44% in US $ terms more because of Corona Pandemic situation. The Company is continuously trying to boost its export business of Piping Systems in several markets.

The Divisions Value-Added Products sale was 39.7% compared to 38% in the previous year. The Company has also added further 154 direct business Channel partners during the year taking the total to 1368 Numbers. The Company continues to expand its reach by appointing new Distributors in areas where there is a gap in servicing. The Company has also started directly servicing retailers in selected markets for certain specific products of this division.

The Company has set up multiple Knowledge Centres across the country to train Plumbers and interact with Farmers, Architects and Plumbing consultants in respective zones. Currently, they are functioning at Gadegaon, Kochi, Malanpur and Kharagpur. Company expects to start such centres at more locations in near future alongside the new upcoming units.

With the help of specialists the Company has embarked upon a new activity with nomenclature as "Plumbing Workshop" which is a full day session with Plumbers. Here the sharing is of latest Plumbing techniques along with applications of new products introduced by the Company in the recent past in the range. The markets have well appreciated it and there is pressure on Company to increase the Plumbing Workshop numbers substantially. The Company could organize only 61 Plumbing workshops in the year 2020-21 owing to corona pandemic. Company plans to continue organizing the Plumbing Workshops based on situation during the year 202122. There are now more than 90,000 Plumbers connected with the Company.

Company has started monitoring data of retailers who buy regularly through its distribution channels. An action plan to increase the number of such retailers on all India basis has been worked out and is being tracked. There are now more than 35,900 retailers connected with Piping System Business on regular basis.

FlameGuard CPVC pipe system made by the Company is considered as a very safe material for the use in fire sprinkler system in many parts of the country.

Unlike plumbing system, a fire sprinkler system requires multiple approvals. In last financial year Karnataka issued approval order for the use of CPVC system in fire sprinkler system. This will help to promote the system in Karnataka market. The approvals are also obtained from Pune and Kalyan- Dombivali Municipal Corporations. In Gujarat the use of the system has started in Ahmedabad, Rajkot and Mehsana towns.

Higher cost of the system is still a major concern. To bring down the cost company has started manufacturing the compound locally and supply of locally made fittings in India.

The cost of the GI pipes for fire sprinkler has shown steep increase and the price gap between metal and CPVC system has reduced considerably. The system has limited success in a part of the country where MS pipe is still considered as material for installation in sprinkler system instead of GI pipe. The cost of the MS pipe is approximately 20-25% less compared to GI pipe system.

The revision of the Indian standards for this system is in stage of finalisation and are expected to be published in this FY 21-22. Real boost for the CPVC sprinkler system business is expected only after all standards are in place.

Product installation training for this system is a mandatory requirement before the actual installation starts to avoid hiccups. The Company provides the technical support by providing the Bill of Quantities (BOQ) from the sprinkler layout of the project. The Company also offers full support to the installer including the value engineering to reduce the cost without compromising the quality of the installation.

To support environment concern, Company is gearing up to meet with National Green Tribunal directive of phasing out Lead stabilizers from manufacturing of different types of uPVC Pipes. The Company has already started using lead free stabilisers in certain piping system. In other system a schedule has been drawn to phase out lead stabilisers.

4.2 CONSUMER PRODUCTS

4.2.1 FURNITURE

The Companys furniture business declined by 5% in value terms over last year and 10% in volume terms due to lockdown which had a severe impact on the furniture business for 1st Quarter. The sales of 1st Quarter declined by a steep 70% over last year same period. However, the business started picking up from 2 nd quarter and showed growth only from 3rd quarter onwards.

Furniture demand was adversely affected due to pandemic restrictions as a large part of furniture sales come from Schools, Colleges, Hotels, Restaurants, Decorators, Marriage Places etc and this segment had a severe impact on their business due to the pandemic. Even the Govt buying for furniture was restricted as the focus was on healthcare and most of the funds were diverted for the same. Some of the key markets remained partially closed during the 2nd & 3rd quarter with restricted activities. However, the Company could achieve similar sales in 2nd quarter as last year same period and had good growth in 3rd & 4th quarter indicating signs of growth for 2021-22.

The Company manufactures furniture made with all three different processes i.e Injection Moulding, Blow Moulding & Roto Moulding. The company has been manufacturing Injection Moulded furniture for 30 years and is a market leader in terms of its wide range & quality. Currently, the company manufactures injection moulded furniture at 6 locations viz Pondicherry (UT), Durgapur ( West Bengal), Guwahati (Assam), Gadegaon (Maharashtra), Lalru (Punjab) & Jadcherla (Telangana) to cater to customers effectively in different parts of the country. The Companys Jadcherla plant is now well established and will be able to cater to adjoining markets cost efficiently.

During the year, the Companys sale of Blow Moulded table range grew by 24% over last year driven by good demand of compact folding tables for Work From Home and sales through E-commerce. The companys range of Blow Moulded tables is now well established and poised for good growth. The companys plan for adding 2 new models in this segment was delayed due to pandemic and are likely to be introduced in first half of 2021-22.

The Company had started manufacture of Roto Moulded Furniture in Feb 2020 and thereafter due to lockdown this segment could not be properly marketed as Kindergarten Schools which is one of the largest customers of the product launched were closed all through the year due to the pandemic. The Company plans to launch variety of models in Roto Moulded Furniture catering to different segments and is in the process of identifying suitable furniture which can be made through Roto Moulding.

The Company introduced 5 new models during the year and all the models introduced were unique and cater to premium segment. Out of the 5 new models, 4 models were introduced with Gas Injection moulding technology using glass reinforced polymers. All these models are unique in their design, shape and usage. All the new models have been very well received and hope to give good growth in the coming year. The company plans to launch another 5 new models during the first half of 2021-22 which will help in overall growth in the coming year.

The Company is committed to make available its furniture across India and is aggressively working towards increasing its retail penetration. The Company currently has 13,650 retailers selling its furniture who are serviced through our network of 1,251 channel partners. The Company plans to add 1,400 retail outlets during the year. The Company has identified some of its weak markets and has planned to intensify the marketing activity in those markets for improving its retail penetration and increasing the number of channel partners in these markets.

The Companys furniture range is sold on various e commerce portals through a few dedicated channel partners. It grew by 100% during the year and the biggest spurt in sales was seen post lockdown when the markets were not fully functional and most of the people were operating from home. The consumer behaviour during the year showed a major shift towards online shopping and the company along with its channel partners geared up its infrastructure to meet the sudden rising demand. The company is focused on increasing its online presence and product offerings and sees this as a future growth driver.

The companys export business grew by 27% over last year in spite of very high shipping costs, low availability of containers and overall increase in freight costs . The growth was majorly attributed to acceptance of our product by a leading retailer from USA as well as middle east. The company will continue to focus on acquiring more customers and already in dialogue with some other leading retailers. However, due to very steep increase in sea freights and furniture being a voluminous item, the retailers are holding on to their decision for the time being.

The recent spate of increase in Covid cases across India amid restrictions and partial lockdowns have thrown up new challenges and the company will plan to overcome these challenges to ensure business growth in 21-22.

4.3 INDUSTRIAL PRODUCTS

4.3.1 INDUSTRIAL COMPONENTS

The year 2020-21 started with already imposed country wide lockdown for containment of Covid-19 Pandemic. Obviously, there was no good news on economic front. The Division mainly caters to Appliance and Automotive sectors and both these sectors not being Priority or Essential category, were not given any relaxation, thereby, these sectors were badly affected during first quarter with negligible sales revenue. Although, from latter part of May20, relaxations in lockdown were gradually eased in phased manner, it took long time to stabilize the Supply Chain of our customers, resulting in

massive de-growth of nearly 40% in both Value and Volume terms, during first half of the financial year.

Company decided to use this period to carry out all round improvements in the area of Productivity, Quality, Cost Reduction and People development. The No Production/Low Production period was utilized to educate team members on World Class Management Practices, Lean Manufacturing, Training on identified Skill Gaps, Soft Skills etc by series of Virtual Learning Programs, both by the Internal and External Faculties. Team members from both Staff and Associate category from various plants of the Division were involved in this exercise during this period. This training helped company to launch Cost Management Project, code named "Rainbow Project" for focused cost reduction. Strategy was made and its implementation started to develop new businesses to improve Capacity Utilization of certain underutilized Machines and Equipment. All these actions started yielding results when demand recovery started during second half of the year.

Recovery started during 3rd Quarter and got further accelerated in 4th Quarter. The recoveries in various sectors of Appliances like Washing Machines, Air Conditioners, Coolers and Refrigerators, segments where company has good presence, boosted the revenue during second half of the year. Demand recovery in Auto sector also helped Division for revenue growth with significant demand up stick in all the Segments of companys presence like Passenger Vehicles, Two Wheelers and Commercial Vehicles. This resulted in overall growth for the year. The Division posted decent growth, both in Value and Volume term at over 11% and 6% respectively during FY 20-21 over FY 19-20.

Until second half of March21, the Outlook for FY 21-22 was looking bright with the momentum which had already picked up in Q4 of FY 20-21. Things have become uncertain within a month with huge surge in Covid caseload in the country necessitating to put across stringent curbs by various state Govts. As it stands in short term, the situation is not very clear on Business outlook. However, company feels that Business scenario remains bullish in medium and long term with business friendly policies by the Govt. Company has planned need based Capacity Augmentation to handle the projected increased demand going forward. The new machines being planned are with the latest Technology, Energy efficient, and Robust Design for Excellent Quality and Repeatability. Company is also working on cost efficient Automation.

Overall rating of the company by its Customers meets or exceeds their expectations and the company is considered as one the most reliable suppliers in its area of expertise by the customers. This has helped the Division to get extra business from its customers whenever other suppliers failed to supply. Division is continuously striving to excel in all Operational Parameters as its culture. It helps company to remain cost efficient in this fiercely competitive supply chain to OEM Customers.

4.3.2 Material Handling Products

The financial year began amid chaos, confusion and uncertainty.

The most contributing sectors to this Material Handling Division were not operational due to lock down. The division took an aggressive approach and started focusing on sectors which were open under essential commodities, retail, FMCG etc. The efforts made in the initial periods of lock down paid off immensely as a result, the Division has grown by 12% in volume and 10% in revenue terms. The most heartening things have been the performance in sectors where the division was not doing well in the past.

Analysing the performance with deeper insights, the Division has done exceptionally well in industrial sectors, like Automobile, Engineering Consumer durables in later half of the year when majority of our users increased their production to meet the pent up demand due to lock down. This resulted in improved volume of Industrial Crates and Injection Pallets. The demand for one time Cargo Pallets was all time high due to increased exports by our customers. The Company is confident this trend to continue in next year as well.

As expressed earlier, the focused efforts in F & V, e-commerce, retail and FMCG to counter the negative effects of lockdown paid handsomely to your company and the division has grown phenomenally in F & V sector by over 38% over last year. Company also benefited due to inability of small players to keep up their supplies in the market. Company hopes to maintain increased share in this segment in the next year.

Company keeps strong focus on Fisheries Jumbo Crates. For last few years, Company has been aggressively working to gain the market shares in Fisheries Jumbo Crates. This year there has been a growth of 20%. Aggressive efforts will continue in this sector and for that the Company has started production of Jumbo Crates at its Jadcherla Unit in this year.

The Companys business to Dairy segment continues to be in good shape but without growth. The Companys crate quality is well established and appreciated by its customers. The Company is confident of a good growth next year.

The Roto moulded Crates and Dustbins have seen decline this year. There has been good demand for Injection moulded Dustbins by Institutions and Corporates. Encouraged by this, Company has decided to introduce many new models of Dustbins in the next year.

The Company also plans to introduce new models in Pallets, Crates and Ice boxes in Roto Moulding.

The Company explored opportunities for export of its Crates, Pallets, Silpack etc. The Company has achieved reasonable success and Company will aggressively pursue to further enhance exports in the current Year.

The Company is reputed for its high quality products and timely supplies which helps it to retain its top customers. With increased demand, the Division is augmenting its production capacities by expansion at its Lalru and Gadegaon Units for Crates and at Gadegaon for pallets with new models.

The Company has not only retained its regular customers but has also been able to increase numbers of customers who are patronizing Companys products regularly.

The Company has opened Fabrication facility at Chennai which is functional and serving the Automobile and Industrial sector customers in vicinity of Chennai timely and efficiently hoping to double its turnover next year.

The Company was not able to augment its Channel Network and widen its reach this year but aims to add across India more than 10% new partners in existing Channel Network in the current year.

4.3.3 Composite LPG Cylinder

The updated component design and improved plant processes following Poka-yoke system have yielded excellent results with no customer complaints received since Q3 2019. Repeated orders from multiple existing as well as new customers stood testimony to the excellent quality of the current product offering.

The Company continued its current business in Maldives and Somalia. New customer footprints have now been established in Western & Central Africa, Taiwan and the Caribbean islands.

Composite Cylinders fall under direct sales category. New customers could not visit India because of restrictions in travel due to Covid-19 which hampered our sales volume.

There was no progress in South Korean business as representatives of Korean Inspection Agency could not visit India. Our customer is setting up Testing Facility in Korea so that Korean Inspectors visit to India for quality checks will be obviated. Owing to the very high rejections of steel cylinders on account of human safety issues, marketing reports have forecasted a very bright future for composite LPG cylinders in Korea. The Company expects good business in current year after restrictions on travel eases.

The largest Indian Oil Marketing Company, M/s Indian Oil Corporation Limited, purchased small quantity of Composite Cylinders in March 2021 for marketing trials in 4 cities of India. This augurs well for the long awaited introduction of Composite Cylinders in Indian market.

Owing to the various favourable developments, the overall prospects for Composite Cylinders in the current year are significantly more promising for the Company.

4.4 PACKAGING PRODUCTS

4.4.1 PACKAGING FILMS

Performance Films Division (PFD)

The Performance Films Division has recorded 1.5% growth in Volume.

The Total sale achieved was 7,816 MT as against 7,722 MT in the last year.

The Domestic markets, had a growth of around 15%, particularly in the dairy & oil industry. The addition of New Value added Product in Dairy industry with the Lamination capability has enabled the Division to grow in many different applications. This also helped the Company in adding value added products to its portfolio. Continuous efforts to develop new products will help the division grow better this year

Exports have declined. Sales were only 1,343 tons as against 1,451 tons in the previous year, mostly because of the Covid situation all over. Till travel becomes normal, there may not be good growth in exports. However the division is committed to work on building its export portfolio.

The customer base will be sustained and further enlarged well supported by Companys quality, commitment and service. The Company remains optimistic in the current year in spite of challenging times and environment.

With available production capacity, improved product mix and focus on increasing customer base, the Company expects to achieve volume and value growth in this business in the current year.

4.4.2 Protective packaging division (PPD)

PPD Sales turnover was 3.2% lower at R 530 Crs in FY2020-21 vs. R 547.50 Crs in FY2019-20. Volume was lower by 7.6%. COVID played a spoiler in QI & part QII of last year but a consolidated team effort across functions in Sales/Marketing & Manufacturing & improved demand, the division was able to recover some lost ground in QIII & QIV

Packaging

Packaging vertical had de-growth of 2.3% in value with business of R 395 Crs in current year as against R 404.50 Crs last year and had de-growth of 8% in volume. Several new packaging applications were developed, resulting in a smart increase of business in fabricated products with increase value addition. This augurs well in the coming year

Civil

Civil business had a growth of 4.4% in value with sales of R 56 Crs in current year as against R 53.70 Crs last year. Volume growth was 9% primarily due to export of civil products which clocked a growth of 140%. This is expected to further increase, as Companys products find greater acceptance in several international markets.

Insulation

Insulation business had a de-growth of 19% value with Business of R 65.89 Crs this year against R 81.17 Crs. in the previous year.

CPD / Retail Division

Several new variants of yoga mats were introduced this year. Along with an ever increasing network, CPD achieved a sale R 10.57 Crs @160% growth for FY2020-21 as against R 4.08 Crs for FY2019-20. Companys FITSPREE brand of Yoga mats and allied products have been well accepted. The division added 74 new distributors & 3020 new retailers in the year under review. Moreover, the division started doing business with CPC (Central Police Canteen) and also expect to get an initial breakthrough with Canteen Stores department (CSD) with 4 products approvals.

Exports

From R 12.29 Crs exports last year, Division achieved exports of R 18.88 Crs. The Division has developed & is developing several new products for the export market. With the development of several new products, the Company expects significant growth in exports during 2021-22.

MANUFACTURING, INNOVATION & TECHNOLOGY Manufacturing

Jadcherla: The plant started its commercial production from July 2020 onwards. Capacity utilisation has been 50% in the 9 months till March 2021. The Company expects to touch 70% utilisation in the current year & over 80% thereafter.

Hosur: With the unit now well established, it is working on further improving its operational efficiencies. Several new products, have been introduced by the unit. This will create new export opportunities, besides increasing domestic business. This will further improve capacity utilisation in the coming year. Fabrication facilities are being adequately upgraded to offer cost effective solutions & wider range of products to our customers

Urse-2 plant (fabrication facility) is certified with SEDEX 4 pillar. A prerequisite for some of the export products. The same was renewed last year.

Innovation

The design of single screw foam extruder of 300 kg/hrs capacity in Urse plant has been modified with a unique screw design which has resulted in a 14.5% higher production capacity and also density reduction comparable with the latest version of Tandem Extruder which are installed at other units.

Through re-engineering by R&D team, the productivity of all foam extruders and lamination plants has been increased over the original equipment design capacity. The overall product density has been reduced by 0.5 kg/m3 without deteriorating the quality standards, which has resulted to material savings. All the units are working further for the reduction of density.

Through technological up-gradation, the existing crosslink extruded foam for Insulation application has been modified with reduced density matching the specified values as per BS 476 for Class 1 and Class 0.

By incorporating some design changes in the equipment of NBR plant of Malanpur, the unit has achieved 20% higher production in sheets, enabling it to be more competitive in the market. The unit is also working on improving output of tubes in a similar manner.

TPE Yoga mats have been developed as an import substitute and has been well received in the market. These products would also create additional export opportunities.

Technology

The Company has been granted a patent (Patent no. 347416, A Manufacturing process for block foam) for its innovative method of recycling the non-recyclable crosslink waste which, in-general, cannot be converted with conventional methods. This has enabled us to use our own cross linked wastage in larger quantities.

As a result, Crosslink block foam variants have been developed with 65% recycle material (cross linked waste).

This product is well accepted for some heavy duty packaging applications. Now R&D team is working on developing several new products by using high volume of recycled material. These are expected to be launched this year. The Company hopes to achieve almost zero sale of its cross linked scrap in time to come.

The Hot-melt Glue Adhesive coating machine has been modified from its original design for the use of the multipurpose usage as required which has enhanced our ability to make multiple products with significant cost savings.

The technical team reengineered the 2 stage block foam line resulting in increased productivity of 17% & wastage reduction by 5%

New Initiatives

New variant of interlock mat for various sports applications has been developed at Hosur by using recycled material which has facilitated to counter Chinese imports. The Company expects good business in the coming year

The division is working hard to use alternate energy sources like the solar & wind. Significant savings of the power cost have been achieved at Hosur unit and the process will be replicated at other units also during the current year.

While the new year has begun with Covid-19 raring its serpentine head again, The Company believes that, with all measures taken by the Company, this year would be a good one for the division.

4.4.3 CROSS LAMINATED FILM

The Business of Cross Laminated Film & Products recorded an impressive growth of 28.50% in volume terms despite challenging conditions posed by COVID-19 pandemic. The company lost sales of almost whole of April, 2020 due to lockdown but came back strongly to post remarkable growth in sales at the backdrop of robust demand for its products. The growth in demand was due to intensive market penetration by adding new channel partners and retailers, timely supplies, and introduction of additional varieties in made up products and boost in export volume.

The healthy order book at year end suggests the growth in demand will continue. To cater to the growing demand prospect, the Company has taken steps to expand the capacity from 27,000 MT to 30,000 MT per annum. The Company has already received some equipment and the balance will come during the current year. Increased capacity will be fully operational by January 2022.

As per weather forecast by SKYMET the monsoon in India is predicted to be normal with no La Nina scare. This will boost the demand for companys products in the coming year.

The sale of made up products has grown during the year. The Company expects the demand for made up products to grow and so has put up a new fabrication facility at Halol exclusively for production of these products. The Company has soft launched Bio-floc fish tanks in eleven States. There were some technical issues in those tanks. They are now being addressed. The Company will relaunch this product only after addressing those technical issues which must add value to its customers.

The Companys economy model of tarpaulin under the brand name "Supreme Sathi" is well established in the low cost Tarpaulin segment. The same is available from its generated reprocess granules.

The divisions exports posted a strong growth of 35% up from 1183 MT to 1600 MT in the year. The thrust in coming year in exports will be mainly on developing newer applications, entering new markets and targeting chain stores and super markets for sale through their online portals. The Company expects the exports to grow further in the coming year.

The intermittent lock down in the European countries completely derailed the preparation of drawings of various equipment required to put up the Cross Plastic Film project. The project will be taken in hand only after detailed drawings are ready. The implementation of that project is thus delayed.

5. FINANCE

1. A brief on borrowing levels and finance cost is given below :-

1.1 Summary

Particulars Measure F.Y. 2020-21 F.Y. 2019-20
Net borrowing level at the end of the year R in crores Surplus of 759.46 216.42
Average Monthly Borrowings R in crores Surplus of 247.94 205.02
Interest & finance charges R in crores 9.50 20.18
Average cost of borrowings at the end of the year % p.a. N.A. 8.35
Financial cost as a % of Turnover % p.a 0.15 0.36
Interest Cover No. of Times 137 42
Total Net Debt : Equity Ratio - - 0.10

1.2 In March 2020, Company had taken a conscious decision to avail short term borrowings to the tune of R 270 crores by way of Working Capital Demand Loans (WCDL), with a view to meet all its committed obligations in normal course in timely manner & with a view to create war chest to meet any eventuality in the situation arising out of lock down due to Covid-19 in the whole country. However with the improved business situation and cash flows, the company prepaid most of its loans by mid June 2020. All other loans were fully paid off as per schedule by December, 2020.

2. Working Capital Borrowing

During the year, Company dismantled its Consortium Arrangement and moved into Multiple Banking Arrangement

(MBA), with a view to achieve better efficiencies at optimum cost.

Company is thankful to its bankers for their unstinted support and also for having agreed to join the MBA on fully unsecured basis. As such Companys working capital facilities aggregating to R 1470.90 crores are totally unsecured either by way of Primary Security or by way of Collateral Security. This shows the confidence reposed by all the Bankers on the company and its management, supported by established track record of the company, improved operating margin, strong key financial ratios year after year. Company had already become debt free for its term debt in the preceding year. Now, during the year, it stopped borrowing for its working capital requirements as well, resulting in a paradigm shift from borrowing to investing its accumulated surplus cash into a) highest security mutual funds with sound parentage, high AUM (assets under management) and b) fixed deposits of highly rated and well established companies.

Company intends to use its surplus cash to continue to grow organically, while being open to explore the opportunities to grow inorganically through rightful acquisitions.

The Raw Material Prices have seen sharp upward trend during the year from May, 2020 onwards. In view of the healthy cash flow, Company could utilise its cash accruals to meet the increased working capital requirements as well as also plan its material procurement appropriately, which resulted in uninterrupted production and supplies to its customers.

Company continued to exercise strict control over its receivables and also by keeping moderation in inventory levels. Through better supplier credit management, it is monitoring its working capital cycle effectively & efficiently.

3. Dealers Financing

The Dealers Finance facilities provided to Channel Partners are proceeding well. Every year, more & more channel partners are joining the Channel Finance Scheme, in view of competitive rate of interest & unsecured facilities offered by the bank. Seasonal / peak business requirements are also taken care of by the Bank, by providing temporary incremental limits. Extended credit terms have also been provided to the Channel Partners in challenging time during lockdown due to Covid-19 pandemic last year.

4. CRISIL Rating

As per the latest review conducted in the last quarter, (a) the Rating for Companys Short term bank facilities were reaffirmed at "CRISIL A1 +" rating by CRISIL (which is the highest rating for the Short term instruments) and (b) Rating for Long Term Bank facilities were upgraded from "CRISIL AA Stable Outlook" to "CRISIL AA Positive". The outlook revision as explained by CRISIL is due to-:

• the improvement in the business risk profile, driven by healthy pick up in sales and operating margin, since the third quarter of fiscal 2021.

• Healthy rural demand and better realizations, amidst rising crude prices, have led to healthy sales growth.

• Operating margin has improved driven by better realisations, ability to pass on hike in raw material prices to customers and increased share of higher-margin value- added products.

• Financial risk profile is also robust, supported by strong capital structure and debt protection metrics outlook"

5. Capital Expenditure

5.1. Considering optimistic business growth potential, the Company has incurred Capital Expenditure (capex) of R 314 crores,

during the year under review. The entire capex has been funded through internal accruals only. The highlights of the capex incurred are as follows -:

(a) Putting Moulding shop to make pipe fittings at Kharagpur complex.

(b) Establishing capacity to manufacture PVC Pipe Systems/ CPVC Pipe System at Jadcherla.

(c) Adding new models of Injection moulded furniture, Crates & pallets in the Companys range of furniture and Material Handling Products.

(d) Installing additional extrusion line to manufacture Cross Laminated Film at Get Muvala Unit at Halol (Gujarat).

(e) Increasing PVC Pipe capacity at Kanpur and DWC Pipe capacity & range at Kharagpur

(f) Increasing HDPE & CPVC pipe capacity at Kharagpur

(g) To add varieties of new moulds in plastic piping division of the Company.

(h) To expand capacities in Industrial Product Division at Chennai moulding unit.

(i) To purchase required land for new greenfield plastic product complex at Odisha and Tamilnadu.

5.2 The Company has plans to commit capex of about R 400 Crores including carry forward commitments of R 198 Crs. at the beginning of the year. The committed / proposed capex is primarily for :-

(a) Putting new unit at Assam to manufacture PVC Pipes and Roto & Blow Moulded products.

(b) Putting up a plastic product complex near Cuttack in Odisha where required land has already been purchased and taken possession thereof

(c) Putting up a plastic product complex near Erode in Tamilnadu. The Company has already taken possession of about 33 acre land from SIPCOT.

(d) Establishing capacity to manufacture olefin Fittings/ PEX Piping System at Jadcherla.

(e) Expanding capacities of its bath fitting products at Puducherry

(f) Adding varieties of new injection moulded fitting products in its plastic Piping products

(g) To add new models of Injection moulded furniture, Crates & pallets in the Companys range of furniture and Material Handling Products

(h) Adding several capacities of Water Tank moulds and additional Roto Moulding machines.

(i) To increase capacities of Industrial Component moulding at various location in view of increased business opportunities

(j) To add necessary equipments at its Proptective Packaging and performance packaging division

(k) To install Rooftop Solar energy generation plants at its various locations

(l) To install balancing equipment at various locations

The Company envisages cash accruals to remain strong in view of better operating margins, better realizations, increased share of value added products & increase in its market share across segments. The company expects to meet its Capex requirements and working capital through internal accruals in medium terms.

The net borrowing of R 216.42 Crores at the beginning of the year has become net cash surplus by end of June, 2020 and

further strengthened quarter on quarter and was over R 759 crores at the end of the year 2020-21 and remained invested into various liquid fund schemes etc.

The companys persistent focus shall remain in, cost control and cost reduction, tight monitoring of working capital and better treasury Management.

6. INTERNAL CONTROL SYSTEM

The Company has adequate internal audit and control systems. Internal auditors comprising of professional firms of Chartered Accountants have been entrusted the job to conduct regular internal audits and risk based audits at all units/ locations and report to the management the lapses, if any. Both internal auditors and statutory auditors independently evaluate the adequacy of internal control system. Based on the audit observations and suggestions, follow up, remedial measures are being taken including review and increase in the scope of coverage, if necessary. The Audit Committee of Directors, in its periodical meetings, review the adequacy of internal control systems and procedures, interact with various internal auditors and suggest & guide for areas of improvements.

The Company has undertaken a detailed exercise to revisit its control systems in technical and other non financial areas to align them properly with Management Information Systems (MIS) to make MIS more efficient and result oriented. Information technology base created by the Company over the period is providing a very useful helping hand in the process. Needless to mention, that ensuring maintenance of proper accounting records, safeguarding assets against loss and misappropriation, compliance of applicable laws, rules and regulations and providing reasonable assurance against fraud and errors will continue to remain central point of the entire control systems.

7. HUMAN RESOURCES

The Company has been very proactive to support all its workforce at all the levels in best possible manner during the entire Covid-19 pandemic period. The Company has

disbursed salaries and wages during entire lockdown period to its staff, associates and contract work force. The Company has provided healthcare facilities and medical reimbursements to the employees who were infected with Covid-19. It also supported financially by allowing disbursement of full salaries during the entire duration of medical treatment. Few of the casualties amongst the employees was a matter of great pain and concern. The Company has promised to take care of the childrens education apart from providing one time financial assistance to the family of deceased employees.

The Company has also developed its infrastructure and facilities by which many employees are able to work from home. The Company has also advised all its sales force to travel through safest mode and take all precautions for safe & comfortable journey. This has helped the Company to continue to provide efficient services to all its stakeholders during the whole year marred by pandemic Covid-19.

Human resource is considered as key to the future growth strategy of the Company and looks upon to focus its efforts to further align human resource policies, processes and initiatives to meet its business needs. In order to focus on keeping employees abreast of technological and technical developments, the Company provides opportunity for training and learning within the country and abroad.

Industrial relations at all the units and locations are cordial. Cautionary Statement

Statements in the Management Discussion and Analysis describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities, laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that would influence the Companys operations include cost of raw materials, tax laws, interest and power cost and economic developments particularly in view of ongoing pandemic COVID 19 and such other factors within the country and the international economic and financial developments.