Supreme Petrochem Ltd Management Discussions.


Indian economy grew at estimated 6.6% during 2017-18, a three year low mainly due to destocking ahead of GST implementation. The debt overhang and associated banking sector credit quality concerns have executed a drag on investment in India. Effects of Real Estate (Regulation and Development) Act, 2016 (RERA) and implementation of the Insolvency and Bankruptcy Code 2016 (IBC) were greatly felt keeping the economy subdued during the year under review.

In the year 2018-19 a turn around in the economy is seen with negative effect of demonetisation and implementation of the GST wearing off and increase in the consumption. The improvement seen in the Industrial production numbers since last few months suggest that the Indian economy has now moved on recovery path. Revival in investment activity is visible from the sustained expansion in capital goods production and rising imports. The growth in sales of two wheelers and tractors reflect buoyant rural consumption. Private consumption appears to be improving as seen from the rising sales growth of passenger vehicles and upturn in the production of consumer durables. Continued implementations of financial reforms initiated by the Government are expected to help India move towards greater formalisation of the economy and to raise potential output and private investment.

India being a domestically driven economy most investors-domestic and international-remain positive about its economy. It is evident from the recent rating upgrade of the Indian economy by one of the global rating agencies that the Indian economy is poised for growth. World Banks Ease of Doing Business Index is helping build optimism in India and consequently attracting more investors to the country.

The India Metrological Department (IMD) predicted Southwest Monsoon to be normal at 97% of the long period average during the current year. This shall help agriculture and rural consumption. One of the major priorities of the present Government has been focus on public infrastructure projects particularly in the road sector.

International Monetary Fund (IMF) in its latest forecast has projected an accelerated growth in Indian economy in the current and next fiscal years. Indian economy is forecast to grow at 7.4% in 2018-19.

Concerns of rising crude oil prices, increase in trade deficit, and fear of trade wars put downward pressure on the rupee towards the end of the fiscal year.

World economic growth is anticipated to rise to 3.7% in 2018 since world economy is now enjoying an upswing. Recovery in global economic conditions will help increase Indian exports and boost fresh investments.

Rising trade protectionism, increasing crude oil prices, volatile market conditions, foreign exchange currency risks, increasing global stress, global warming and rapid climatic changes are areas of concern in the time ahead as these may cause headwinds in the economic recovery.


Styrene Monomer (SM):

SM the main raw material for your Companys products saw price fluctuations to the extent of 30% on several occasions during the year. These sharp movements in SM prices and consequent effect on the prices of Companys products affected demand in both the domestic as well as the export market as the customers waited for price stability. The falling SM prices caused large inventory loss in the first quarter of the year under review.

There was some disturbance in supply chain of Petrochemicals during August-September 2017 due to severe storm Harvey which disrupted a third of U.S. chemical production. Unusually severe cold weather during winter Storm Inga in U.S.A. in January 2018 caused equipment failure at many SM plants causing them to shut and declare force majeure. Situation in the US Gulf coast plants normalised by March 2018. China announced anti-dumping duties on SM imported from the USA, Korea and Taiwan due to which global trade flow of SM had to be re-defined. The traditional suppliers of SM to India from Singapore, Saudi Arabia and other Gulf countries found China a more lucrative market. Your Company with its extensive and long relationship with Global suppliers of SM was able to quickly re-adjust to the emerging situation with no disruption in sourcing of raw material.


Disruption in traditional global trade flow of SM gave an impetus to your Company to look for alternative sources for SM that has resulted in new partnerships which further strengthened your Companys position. Chinas continued efforts for selfsufficiency in petrochemicals building blocks, including SM, is expected to strengthen position of India as major SM market for global producers, which augurs well for your Company.

Polystyrene (PS):

The domestic market for PS showed different patterns in the different quarters of the year due to movement in SM prices making processors reduce their lifting while waiting for price stability. The destocking by customers prior to rollout of GST from July 1, 2017 as also the initial weeks of GST implementation slowed down the demand for your Companys products. The seesaw pattern in domestic demand continued in all quarters. Overall the domestic PS market for the industry as a whole registered a marginal growth of only 2.6%. Your Companys volumes however, were flat. In the last quarter of the year it was observed that there was increased flow of PS from Iran at lower prices. Your Company has initiated steps for ensuring that imports, take place at ruling market prices.

Export volumes of PS were adversely affected not only due to volatility in SM prices but also due to loss of business from Middle East and Turkey-a major export market for your Company-due to sale by Iran at highly discounted prices to these markets. Lower exports pulled down the total volumes of PS sales for the year by 9.5% compared to the previous year.


Aggressive expansion plans of established and relatively new players in appliance business due to evergrowing demand for air-conditioners, refrigerators, air coolers and in other applications such as writing instruments and stationery, home interiors, house-hold and personal use items etc. is expected to give a fillip to growth in PS demand in coming years.

Your Company has continuously invested in the high quality speciality segment and a diversified range to stay the preferred supplier in our country and the countries where we export our products. Considering the above factors your Company estimates the domestic PS markets to grow by around 5% in 2018-19.

The reinstatement of GSP by USA upto 2020 should increase exports to USA. Long term contracts for supply of PS are under discussion with customers in the USA. Your Company is also reinforcing its presence in Europe and in the Middle East markets to boost export sales.

Expandable Polystyrene (EPS):

The domestic EPS market grew by only 3.4% during the year under review attributable mainly to de-growth in the grape boxes market and lower than anticipated demand from the cold storage industry. Sangli, Satara and Pune which were affected by cyclone suffered a loss of grape crop reducing the demand for grape boxes. The expected demand from cold storage industry did not materialise as the planned cold storage capacity was not implemented during the year. The anticipated growth in EPS usage in construction industry and particularly in mass affordable housing did not materialise due to slow start by developers in this field. The demand for fish boxes and supply to original equipment manufacturers saw an increase of 12% and 10% respectively. The EPS demand in March 2018 was subdued due to the issuance of Maharashtra Plastic and Thermocol Products (manufacture, usage, sale, transport, handling and storage) Notification 2018 issued by Government of Maharashtra.

With the demand remaining subdued in the later part of the year and increased material availability, the industry faced intense competitive environment on the pricing front particularly in the Northern region. Your Company witnessed a marginal growth of only 1.6%.


Major growth drivers such as appliances, industrial protective packaging, climate controlled fish transportation, cold storages and insulation segments are expected to have robust growth in line with our GDP. It is expected that development of mass housing projects will gather pace in the current year which shall help growth in usage of EPS in this segment. Setting up of two major units for 3D Panel with technology from advanced technology suppliers from Europe augurs well for growth of EPS in housing construction. The entire development effort of your Company is focused on this segment.

Notwithstanding the ban on plastics by the Maharashtra Government we expect domestic EPS market to grow by 7.5% in the current year.

Speciality Polymers and Compounds Business (SPC):

The SPC business grew by 39.2% during the year under review. The SPC business has started contributing to the Companys growth. Application Development Team has been strengthened to shorten the cycle of development and reaching the product to the market place as development of new grades is an ongoing process.


Focus will continue to be on compounds and master batches. Various initiatives taken in the year under review such as increasing the range of masterbatches, introduction of SMMA and ABS compounds specialising in fire retardant compounds etc. is expected to result in about 40% growth in sales of SPC in the year 2018-19.

Extruded Polystyrene Insulation Board (XPS):

Your Companys products were specified in most new projects announced during the year under review. However, since there has been a slow down during the year in the building construction industry the sales were muted. The construction of institutional buildings like the new IITs, IIMs and AIIMSs planned in several states are not progressing as per schedule.

The implementation of Real Estate (Regulation and Development) Act, 2016 (RERA) by all states during the year mandating all developers to compulsorily register new and ongoing projects above a minimum size slowed the start of new projects which not only impacted the sale of XPS boards but also to some extent EPS. Since RERA aims to bring about a fair transaction between buyer and seller with accountability and transparency it is expected that the construction industry in coming years will make buyers more confident in turn helping the industry grow.


Your Company expects that with the stabilisation of the RERA regime and developers becoming comfortable with its provisions, construction activities will pick up in the coming years resulting in increased sales of XPS.

Considering the vagaries in project sales and as mentioned in the previous years report, an exclusive team is now setup to create a network for retail and micro project sales. We plan to implement this in stages to create a pan India network. This initiative will give us a steady base load over and above project sales. For the year 2018-19 a growth of about 35% is targeted based on above initiatives.

Styrene Methyl Methacrylate (SMMA):

SMMAwhich has been introduced for the first time in the country by your Company made a slow start in the year under review. Mixed responses were received from the market after the initial production was tested for various applications. Overall there were good words about the product in the market. Recipes are being reworked based on the feedback and new batch will be introduced soon. SMMA has the potential to replace certain applications of Polycarbonate and PMMA. Efforts are on to introduce new grades and compounds in the current year. Light guide plates for TV sets, mobile phones & other house-hold devices have emerged as the major application for SMMA in the Asian markets. These higher end applications are your Companys targets for growing SMMA business in the years to come.


Your Company continues to remain debt free. Total capital expenditure of V19 crores incurred during the year under review was met from internal accruals. Available surplus funds are judiciously deployed for improved returns and minimal risk of principal to the Company.


The Goods and Service Tax (GST) is a landmark reform which will bring a lasting impact on the economy and business with reduced internal barriers to trade, increase efficiency, reduce logistics cost and improve tax compliance. This will provide stimulus to the business.

Your Company has successfully implemented and upgraded to GST with effect from July 1, 2017.

Required changes in IT system, supply chain and operations have been made in adherence to the provisions of GST.


The ban on plastic products & thermocol by the Government of Maharashtra targets primarily the disposable products such as cups, plates, cutlery, usage for decorative purposes etc.

Over the years bulk of these disposable applications have moved to other competing materials wherever feasible and the presence of PS and EPS in this category is minimal. The estimated total market in Maharashtra in respect of items covered by said Notification is about 3500 TPA for PS and about 3000 TPA for EPS for the industry as a whole. Share of your Company in these categories is not material. The impact on your Companys business is therefore negligible.

Various convertor associations and producer/enduser associations are taking up this issues with Maharashtra Government, for possible exemptions. The outcome will be known in a couple of months.


Your Company incurred a total expenditure of V19 crores on various improvement scheme and replacement of old equipment. Automated particle size analyser for quality improvement in EPS plant, additional extrusion lines for colour MB production, improvement in primary treatment of waste water have been commissioned at the Maharashtra plant. Water conservation project for better utilisation of waste water has been commissioned at Chennai plant. The old equipment replacements have been prioritised based on cost savings and quality improvement achievable post replacement.

The proposed capital expenditure comprising of HIPS quality improvement project, debottlenecking and general facility improvement at Chennai, additional extrusion lines for compounds and master batches, repair/replacement of old equipment and water energy conversation projects for the year 2018-19 is estimated at V50 crores which shall be met from the Companys internal accruals.


International pricing and demand/supply risk are inherent in the import of Styrene Monomer, the main raw material. Your Company enters into procurement contracts for imports of Styrene Monomer on annual basis. The contracts specifies the quantity and attributes for arriving at monthly pricing. However, a part of the requirement is sourced on spot basis so as to float with fluctuations in the market and to guard against price volatility. Your Company has linked part of its sales to raw material prices so that any increase/decrease in raw material cost has an adequate cushion to protect the margin. Companys new vertical like SPC, XPS and SMMA provide additional cushion from Styrene Monomer price movement risks.

The global and Indian economic events impacting dollar-rupee parity has a direct effect on cost of imports and also pricing of your Companys products. To overcome these risk of cost and pricing due to foreign exchange volatility your Company hedges part of open foreign exchange exposure relating to imports so as to lessen the impact of foreign exchange rate fluctuations in respect of import of raw material. Your Company also has a natural hedge to the extent of its exports and pricing its products locally on import parity basis. Foreign currency exchange rates being dynamic, your Company constantly monitors them to decide on proper response measure.

Your Company has adequately insured its plant and machinery on a reinstatement basis. The Policies also cover stocks of finished goods, raw materials (at plant and while in transit) projects under erection and third party liabilities. Adequate loss of profit insurance policy to cover loss of gross profit if any, due to interruption has also been purchased by your Company. Your Company also has Credit Risk Insurance in respect of its receivables for one of its products. The management periodically reviews the adequacy of the insurance cover.


Human Resources are one of the most important ingredients for growth. Your Company therefore strives to align human resource policy and initiatives to meet business plans. Training of employees to maintain high level of motivation is an ongoing process. Industrial relations at all the units remained cordial during the year.


The internal controls system for safeguarding and protecting assets against loss from unauthorised use or disposition are in place.

Regular internal audits, review by management and documented policies, guidelines and procedures supplements the internal controls which are designed to ensure that financial and other records are reliable for preparing financial information and other data and for maintaining accountability of assets.


Your Company has received the following recognitions and

awards during the year 2017-18:

• NSCI Safety Awards-2017-Shretha Suraksha Purashkar, in recognition for developing and implementing highly effective management system & procedures and achieving outstanding performance in OHS.

• Greentech Safety Award 2017 (Gold Award)-From Greentech Foundation, New Delhi. For outstanding achievement in safety management.

• National Safety Council-Maharashtra Chapter- Longest Accident Free Period in the contest year 2016.

• National Safety Council-Maharashtra Chapter-Lowest Average Frequency rate in the contest year 2016.

• National Safety Awards, Ministry of Labour Government of India for Lowest Average frequency rate for performance year 2015-Runner Up.

• National Safety Awards, Ministry of Labour Government of India, in achieving Accident Free Year for performance year 2015-Runner Up.


Statements in the Management Discussion and Analysis describing your Companys objectives, estimates, expectations or projections may constitute "forward looking statements", within the meaning of applicable laws and regulations. Actual results may differ materially from those either expressed or implied in the statements.

Important factors that could make a difference to Companys operations include economic conditions affecting demand/ supply and price conditions in the domestic and international markets, changes in the Government regulations, tax laws and other statutes and other incidental factors.