MANAGEMENT DISCUSSION AND ANALYSIS
Forward Looking Statements:
The report contains forward looking statements, identified by words like plans,
expects, will, anticipates, believes, intends, projects, estimates and so on. All
statements that address expectations or projections about the future but not limited to
the Companys strategy for growth, product development, market position, expenditures and
financial results are forward looking statements. Since these are based on certain
assumptions and expectations of future events, the Company cannot guarantee that these are
accurate or will be realized. The Companys actual results, performance, or achievement
could thus differ from those projected in any forward looking statements. The Company
assumes no responsibility to publicly amend, modify or revise any such statements on the
basis of subsequent development information or events.
Global Economic Overview:
Varun Industries Limited is a leading manufacturer and exporter of stainless steel
cookware, kitchenware, housewares and general merchandise for several years. Global
recession has adversely affected our export business, but with the expected improvement in
world economy, demand for our products will be improve in future.
The global economy in FY 2012-13 improves slowly and did not recover to the extent
anticipated in the beginning of the year. Several European economies experience recession
due to high unemployment, banking fragility, fiscal tightening and sluggish growth. The US
economy improved marginally driven mainly by housing and the consumer sectors, however
capital investment remain sluggish. Among the Asian economies, China, going through a
political transition, experienced considerably slower growth. Deceleration in industrial
output and exports weakened Indias economic growth significantly. The weak macro
environment and slower growth caused the margin environment to remain volatile with
downward bias. Gradual recovery is likely to resume in the major advanced economies and
performance is expected to remain relatively robust in most emerging and developing
economies. At the global level, Asia is poised to take on a stronger and more dominant
role in future global economic developments. It is also likely to play an ever increasing
role in the stability of the International monetary system.
India is still maintaining its growth amidst the backdrop of elevated inflation and
higher interest rates. The economy is likely to remain weighed down by a combination of
the weaker global economy and higher domestic financing rates. As per industry sources,
the GDP which was initially expected to grow at around 7.5%, is now expected to grow at a
modest rate of about 7%. However, the year ahead promises to be interesting - both, in
terms of the challenges that will arise, and the policy actions that may be deployed to
address them.
Industry Structure and Development:
Indian Stainless Steel Kitchenware and Housewares is an old industry and was in
competition with utensils made of aluminium, brass, copper, plastic etc. Due to its high
durability, cleanliness, good looks, easy maintenance and the increased purchasing power
and modern lifestyles of the middle class, stainless steel has replaced other metals not
just in India, but across the world. With the advent of new technology, the Indian steel
industry has introduced upgraded and fashionable steel ware, which is in demand, both in
domestic and global markets.
Stainless steel is a value-added alloy containing a minimum of 10.5% chromium. It is
corrosion-resistant, strong, hygienic and fully recyclable. These properties make it an
ideal choice for a variety of demanding industrial and consumer applications. Several
life-cycle studies indicate that in many applications, the total cost of stainless steel
is lower than that of competing materials, since stainless steel needs low maintenance.
Stainless steel is used in various industries. The consumption of stainless steel has
been growing faster than any other metal in the world. It increases with economic
development, as both its properties and its aesthetic image are highly competitive in
terms of matching the highest standards of utility and design. Global stainless steel
demand for 2013 was estimated at 32 million tons. Over the last 5 years, global demand for
stainless steel has grown at a muted CAGR of 2.2 per cent. Demand growth declined during
2008 and 2009 due to economy slow down, leading to contraction in demand especially from
the developed countries. However, demand rebounded in 2010, growing by 24 per cent in tune
with the recovery of end user industries. The majority of the increase in stainless steel
consumption emanates from emerging markets such as China and India.
Indian Market Potential:
India is a huge market for kitchenware and housewares products mainly comprising Indian
manufacturers, exporters and suppliers. The stainless steel industry in India is in an
upbeat mood. Stainless Steel production in India is rapidly growing every year and
stainless steel in India is perceived as a "metal for utensils". Today about 75%
of the end use of stainless steel is in kitchenware and housewares segment. India being
such a culturally rich and diverse country has a special place for beautiful and
utilitarian pottery and kitchenware. The Indian Kitchenware industry continues to respond
to consumer demand for quality, durability, style and attention to health concerns.
Multi-versatile cookware that functions as bake ware, serve ware and dinnerware is
becoming increasingly popular as the casual entertaining trend continues. However, looking
at the existing market potential and growth envisaged, a paradigm shift has been witnessed
recently. This is marked by entry of many organized and corporate players in the market.
The total demand in the industry consists of new demand and replacement demand.
The process industry accounts for second largest share - 16 per cent of the consumption
of stainless steel. Its growth is also aligned with the investments in end-user Industries
such as pharmaceuticals, food processing and petrochemicals.
Strengths:
| • Experienced Management Team |
• Capability to execute strategy & projects • Innovation and
Technology |
| • Efficient cost of capital |
• Wide range of finished products |
Opportunities:
| • Growing domestic demand |
• Unexplored rural market and rapid urbanisation |
| • Increasing consumption of stainless steel in all sectors |
|
Threats:
| • China becoming a net exporter |
• Dumping by competitors |
• Market fluctuation |
| • Global economic slow down |
• Higher power tariff in India |
• The general Rising Inflation in the Indian economy. |
| • Protection of domestic industry in the West/ other countries |
|
• Low import duty on stainless steel in India |
| • Changes in political and social conditions in India. |
|
|
• Changes in laws and regulations relating to the industry in which we operate.
Key Challenges:
• Global slowdown and rupee devaluation.
• Delay in allocation of resources by regulatory authorities to enjoy the full
benefit of the integration chain.
Financial Statements - Consolidated:
The Companys consolidated financial statements include the financial performance of
the following subsidiaries:
• Varun Jewels Private Limited
• Shri Sai Jewels Private Limited
• Varun Petroleum Corporation Private Limited
• Varun Minerals Corporation Private Limited
• Varun Holdings Limited (Mauritius)
• Varun Mines & Minerals Limited (Mauritius)
• Varun Petroleum Limited (Mauritius)
• Varun International Trading FZE (UAE)
• Varun Global Trading Pte. Ltd. (Singapore)
Operational Performance (Standalone):
The Company, has for financial year ended 31st March 2013, achieved Revenue
of Rs. 339.99 crore. EBIDTA for the financial year ended 31st March, 2013 was
at Rs. 180.58 crore. Interest for the year ended 31st March, 2013 was Rs.
214.64 crore. The profit/(loss) before tax and profit/(loss) after tax for the year stood
at (Rs. 35.72) crore and (Rs. 34.48) crore respectively. The performance of the Company
was down, due to dollar fluctuation as well as global economic slowdown. The Company is
expecting to revive the business in near future subject to overall improvement in the
Indian, and Global Economy.
Risks and Concerns:
Varun is exposed to normal industry risk factors and manages these risks by deploying
prudent business and risk management practices. The Company has been undertaking
continuous modernization programmes to maintain efficient operation of its products and
engineering activities. The Company has also made efforts to mitigate risk by enhancing
the quality of its products, reduction in energy consumption and emissions and improved
productivity.
Internal Control System:
The Companys internal controls system is designed to provide a high degree of
assurance regarding the effectiveness and efficiency of operations, reliability of
financial controls and compliance with all relevant laws and regulations. The Policy also
encourages allemployees, officers and directors to promptly report any suspected fraud,
unethical behaviour or any violation of the Companys Code of Conduct within the
organization.
Clean environment by mitigating the carbon footprint:
The Companys plants comply with all norms set up by the competent authorities for a
clean and better environment. The Company undertakes regular checks/inspections including
certification for the maintenance of the environment.
Material developments in human resources / industrial relations front, number of
persons employed:
Varun always owes its accomplishments to its young and dynamic "Human
Resources". With a strong emphasis on nurturing a high performance workplace and
fostering an engaging environment, the organization believes in investing in people
development and process improvement, as aligned with companys vision and values. The
competency based recruitment practices followed at the company help in identifying key
talents with required management and technical skills to support and sustain an expanding
business of huge magnitude. The company undertook an organization-wide diagnostic process
and based on the results reviewed the organization structure design, defined each role,
evaluated unique jobs, and also aligned reward and recognition policies accordingly. The
Company has the Performance Management System (PMS) in order to create a more
differentiated performance system and to enable the ultimate objective of a high
performance workplace. Industrial relations continued to be cordial. The employee strength
as on 31st March, 2013 was 254.
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