Texmo Pipes & Products Ltd Management Discussions.

The Indian economy displayed positive growth trend over the past few years on the back of various Government initiatives and reforms. The growth outlook was optimistic prior to the unexpected Corona virus (COVID-19) outbreak. However, owing to the massive impact of COVID-19, almost all the major economies of the world have gone through some form of lockdown or social distancing. The lockdown in India disrupted the economic activities in the fourth quarter of the financial year. Indian economy grew by 4.2% in the FY 2019-20 as compared to 6.8% in FY 2018-19.

However, to combat the impact of lockdown, the Government implemented various measures. These measures included reduction in repo rate and reverse repo rate, moratorium on repayment of term loans among others. The Government also provided wage support, in- kind and cash transfers to lower-income households and deferral of tax payments. The Government along with the RBI released a stimulus package of Rs. 20 trillion (mid-May 2020) which is approximately 1 0% of GDR The package aims to boost private investments, increase liquidity support and infrastructure.

OUTLOOK

Significant monetary and liquidity measures taken by the RBI and fiscal measures taken by the Government are expected to mitigate the adverse impact of COVID-19 and help reinvigorate the economic activities. The stimulus package is expected to foster long-term employment and opportunities that will strengthen the economy further. On a positive side, the agriculture and allied sector functioned smoothly despite the health crisis, displaying a growth rate of 3.7% during the 2019-20 fiscal. And several initiatives taken by Government to boost rural income and infrastructure are now fructifying to boost business in several segments which are catered by the Company. There are a number of factors like low per capita consumption, manufacturing focus, end use industry growth, increasing urbanization, changing lifestyle, promoting growth of plastic industry in India. The Company, therefore, envisaged a faster growth in business from upcoming years.

INDIAN PIPING INDUSTRY OVERVIEW

Over the past five years, domestic plastic pipe industry Has clocked a 10% CAGR and now its market size stands at 30,000 crores. Wherein, the 60-65% market share accounts to organised players and remaining to the unorganised ones. The major driver behind the growth is Government infrastructural spending, increasing constructions, industrial production, irrigation sector, replacement of aging pipelines, among others. Besides, its superior properties and economical cost makes plastic pipes favorable over metal pipes. Amongst all plastic pipes, the 65% of the industry demand is for Unplasticised Polyvinyl Chloride (UPVC), 15% for Chlorinated Polyvinyl Chloride (CPVC) and remaining constitute to others. There has been growing adoption in PVC/ CPVC pipes owing to its corrosion resistant, flame resistant, easy to install & handle, environmentally sound and durability features. Along with this, increased focused by the Government in the end user application will be the major contributor in the growth. Consequently, it is also creating upsurge in the demand for solvent cement used in the fitting and attaching of pipe.

OPPORTUNITIES AND GROWTH DRIVERS

Consolidation in the industry

Post GST era, the unorganised players in the plastic pipes industry were already finding it difficult to gain advantage on the price. Now with COVID-19 scenario, the companies with high debt and weak cash flow are bound to head towards consolidation. This will allow organised players with opportunities to acquire regional players at lower valuation.

CHALLENGES

Cost of raw material

The higher raw material prices can increase the production cost of the players operating in the industry. However, the increase in raw material prices does not impact pipe manufacturing players as the higher cost is passed down to the downstream industry users.

Risk Management

The Company has an effective risk management framework in place to primarily control business and operational risks. The maj or risk areas are periodically and systematically reviewed by the senior management. Comprehensive policies and procedures help identify, mitigate and monitor risks at various levels. By taking such proactive measures, the Company ensures that strategic business objectives are achieved seamlessly. During the financial year under review, the Company was reaffirmed ‘BWR BBB rating for fund based facilities. Higher finance cost is still a concern to the Company and Company is still striving hard to get more improved ratings for more reducing the finance cost. Further, your Company has an intricate Risk Management procedure which depicts business risk and operational risks that are supported by policy framework.

Human Resource

The Human Resource division of the company plays a vital role in hiring, training, managing and retaining employees to build a group of talented workforces. So that they can reach their full potential and work diligently towards the growth of the organization. The Company has created a level playing field space, whereon equal opportunities to all employees is provided. With this belief, it has enhanced employee morale, boosted productivity and reduced people absenteeism. As of March 31, 2020, the Companys total work force is 541 employees.

Product Wise Performance

Companys major products are PVC, HDPE, Fittings and Trading. Performance of various products at a glance is as under:-

(Rs. In lakhs)
Particulars 2019-20 2018-19
HDPE Pipe 14,134.84 10797.13
PVC Pipe 13,218.80 14554.19
CPVC fitting 724.56 647.54
Moulding fittings 2,783.29 3006.06
Trading Sale 1,933.07 1969.53
Total 32,794.55 30974.45
Less excise duty - -
Add Sell Fit Charges - -
VAT/CST subsidy for Industrial promotion - -
Installation Charges - -
Total revenue from operation as per audit report 32,794.55 30974.45

Note - The Previous year figures have been regrouped/ reclassified wherever necessary to make them comparable with current periods figure..

Internal Control System and their adequacy

The Company considers that internal control is one of the key supports of governance which provide freedom to the management within a outline of appropriate checks and balances. Texmo Pipes and Products Limited have a strong internal control framework, which was instituted considering the size, nature and risk in the business. The Companys internal control environment provide assurance on efficient conduct of operations, security of Assets, prevention and detection of frauds/errors, accuracy and completeness of accounting records, timely preparation of authentic financial information and compliance with applicable laws and regulation. The Company uses SAP - Enterprise Resources Planning software as its core IT system. The Internal Auditor is a Chartered Accountant has been entrusted the job to conduct regular internal Audits at all the units/Branches and report to the management the lapses, if any and submitted Report on quarterly basis to the Board of Directors for their review and comments. To ensure efficient Internal control system, the Company has a well constituted Audit committee who at its periodical meeting, review the competence of internal control system and Procedures thereby Suggesting improvement in the system and process as per the changes of Business dynamics. The system and process are continuously improved by adopting best in class processes, automation and implementing latest IT tools.

Discussion on Financial Performance with respect to operational performance

On a standalone basis your company recorded a turnover of Rs. 32,794.55 Lakhs for the year ended 31st March, 2020 as against Rs. 30,974.45 Lakhs in the previous year which shows an increase of 5.88%.

On a standalone basis, the profit before interest, depreciation and tax for the financial year is Rs. 1,796.89 Lakhs as against Rs. 1,491.91 Lakhs recorded in the previous year. The profit before tax for the financial year stood at Rs. 615.76 Lakhs compared to Rs. 399.60 Lakhs of the previous year. The profit after tax & exceptional item for the financial year at Rs. 432.56 Lakhs compared to Rs. 333.91 Lakhs of the previous year.

On a standalone basis your company recorded Production of 28,194.93 MT for the year ended 31st March, 2020 as against 30,680.48 MT in the previous year which shows an increase to 8.82%.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS:

There were no significant changes, i.e., change of 25% or more, as compared to the immediately previous Financial Year in key financial ratios pertaining to the Company.

RETURN ON NET WORTH:

Details of change in Return on Net Worth as compared to the immediately previous Financial Year as follows:

Particulars Ratio as on 31 March 2020 in Ratio as on 31 March 2019 in % of Change Explanations
1 Return on Net Worth 4.73% 3.84% 23.23% Increase in Net Profit

Cautionary Statement

Some of the statements in this Management Discussion and Analysis, describing the companys objectives, projections, estimates and expectations may be ‘forward looking statements within the meaning of applicable Laws and Regulations. Actual results might differ substantially from those expressed or implied. Important developments that could affect the Companys operations include changes in economic conditions affecting demand, supply and price movements in the domestic and overseas markets in which your company operates changes in the Government regulations, Tax Laws and other Statutes or other incidental factors. The company assumes no responsibility in respect of forward-looking statements, which may be amended or modified in future.