MANAGEMENT'S DISCUSSION AND ANALYSIS REPORT A) INTRODUCTION This report addresses the Management's perception of the current business environment, opportunities available and challenges foreseen while analyzing the company's performance for the year under review. The report below also summarizes the company's control measures and human resources development plan. The report should be read in conjunction with the Director's report to the shareholders, financial statements and other notes included elsewhere in this Annual report. B) BUSINESS SCENARIO The automotive industry showed some signs of recovery and the passenger vehicle sales finally started showing some improvement in year on year sales. The sales remained Sluggish in growth as the interest rates remained high which did not attract buyer as originally envisaged. Inspite of this our business volumes grew by around 15% on year on year basis thanks to our focus on multiple markets and OEM's to reduce risk. Additional product offerings from our parent KINGFA also helped us to gain access to other industries. While our raw material prices remained firm with a marginal upward trend during the first 3 quarters we got a significant relief in the last quarter when the key raw material prices slumped by more than 25%. This was however short lived as the prices got back to almost peak levels by end of the quarter. C) COMPANY PERFORMANCE There was a marginal improvement in the production of passenger cars and this we could take some advantage of in building our volumes. Our efforts to focus on all OEM's and also additional manpower in the front end enables us to gain a larger share with the OEM's. With greater coverage at OEM's and market we have been able to add new accounts and new shares during the year which is reflected in increase in our volumes and Additional product lines of Engineering plastics. 1) Operations While the volumes went up by around 15% our turnover went up by around 23% thanks to focus on grades with improved prices and also operational efficiency. Price corrections due from customers were implemented on time and also added newer products. Engineering plastics line was added in Pune and another new line is under commissioning in Puducherry. Our Plant at Manesar was able to increase its production due to increased sales in North. 2) Optimization Initiatives Initiatives with a clear focus on reducing our input costs helped us meet the demands of the market. Formulation optimization, help from HQ in sourcing and testing helped us further optimize our cost of production. 3) Technology Upgradation Our Technical and Sales people skill sets were mapped and focused training was given and also exposed to newer Techniques at our HQ in China to brpare them to handle the latest demands from our customers and OEM's. We are seeing the benefits of this in newer business from OEM's. 4) HR & IR Training and tools along with periodic reviews and communication to all personnel on the company's focus and goals sustained throughout the year. We are seeing the benefits in increased urgency among the employees approach. 5) Business Initiatives Diversification of industry/Application remained the focus and would remain the focus as we expand our product basket and industry application areas. We are also looking at and expanding the general market grades which would help us stabilize volumes. Our focus on appliance segment is yielding some movement with major washing machine, air conditioner, television, lighting, and other manufacturers now working with us for development of material solutions. New raw material sources, new raw material types, manufacturing and planning process and flexible approach helped us reduce impact of raw material inflation and also our ability to meet the customer's requirements in difficult times. Our trading business clocked an imbrssive 20% year on year growth. We were able to add new segments like CPP and BOPP while consolidating our hold in FIBC segment. D) ENTERPRISE RISK ANALYSIS AND ITS MANAGEMENT The exposure of the Company to various types of risks is detailed below along with the strategy employed to manage / mitigate the same. Business risks These are of cyclical nature significantly dependent on customers ability to spend. The focus of the new government on MAKE IN INDIA is expected to increase manufacturing which in turn would result in increased demand for our products. The cycle of production and sales of the focus industries are being monitored regularly and steps are being reviewed regularly to ensure we are in tune with the demands of the market. Financial Risks The Company's operations and structure of inputs and outputs need significant alteration of working capital with due concentration required to be given to debtors management and control of the working capital employed in the business. To mitigate the consequent risks, debtors are managed through judicious payment terms. Inventories are also managed dynamically through lean management principles although tempered by the need to provide for input supply disruptions and swings in customer off-take from plan. The Company uses petroleum based polymers as the primary raw material. Primary prices are beyond the Company's control. These exposures are mitigated to certain extent by developing a multiple vendor base and raw material options. Capital costs in India is very high and has a big impact on margins. We with support from HQ have been able to reduce it . But the focus remains on controlling the receivables and creditor management. Foreign Exchange Risks The risk of incurring a loss on payables due to adverse movements in the foreign exchange rates arises in view of the substantial imports of critical raw materials / components. The Company has opted for professional forex advisory services and uses a structured "Foreign Exchange Risk Management Process (FRMP)" to monitor and manage the risk arising from exchange rate movements. The objective of this process is: i) To reduce the probability and potential cause of financial risks by making the Company as neutral as possible to currency and interest rate fluctuations. ii) To create a stable planning environment by taking steps to reduce the impact of currency and interest rate fluctuations both in respect of short term and long term commitments. iii) Based on the advise received from the Forex advisories and also report on dollar views, hedging decisions are taken to hedge the foreign exchange exposures. This to a certain extent helped in mitigating the adverse currency fluctuation. Asset protection The Company has ensured that its assets are properly safeguarded against all insurable risks using appropriate valuation methods and the adequacy of the same is reviewed periodically with the assistance of independent outside agencies. Your Company exposure to the passenger auto segment with potential risks of recession resulting in reduced domestic car production and sales has been considered in our future plans for developing alternate markets like appliances, powertools, Electrical for packaging segment as well as identification of other segments which will have less volatility in volumes and pricing brssure. The opportunity to participate in the increasing production of cars for global markets requires greater degree of sophistication in the development of compounds to meet stringent specifications. Besides the Company is also exploring newer uses of its compounds in other automotive sectors. Your company is confident of rising up to this challenge and is taking appropriate steps to equip itself with the necessary tools for this purpose. E) INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY The objective of the internal control systems is to ensure optimal use of resources, safeguard the Company's assets, exercise control, and minimise system deficiencies and weaknesses. Internal Audit is carried out by an independent professional audit firm to review all aspects of the internal control system and adherence to policies and procedures. The Audit Committee of the Board of Directors reviews the internal audit reports and the implementation of corrective actions and also addresses all aspects of the Company's functioning from this perspective as required under SEBI and Company Law guidelines. F) FINANCIAL PERFORMANCE Revenues Sales Revenues of the Company grew by 23% over the brvious year, whilst the volumes grew by about 15%. Implementation of the price corrections due from customers, helped in improving the revenues. Trading volumes of Engineering Plastics products were significant in the first full year of operation. Orders booked and executed for the TOSAF's products also grew. Input Costs Polypropylene prices during the first three quarters were relatively bound in a price band. However, PP prices fell substantially during the last quarter of the financial year. However this benefit did not sustain for long, as the prices started firming towards the end of the fourth quarter. Financial Costs During the year, there was a change in the Banker to the Company, since the new Bankers were able to provide the credit facilities at a much lower interest rate. However, since the year witness high level of Inventor holding, besides higher Receivables funding, besides also funding the CAPEX requirement the overall utilisation of credit from the Bank also increased substantially. This led to high Interest costs. Further the Company had also to provide for debrciation of rupee value in the ECB component borrowed. G) ONGOING INITIATIVES AND FUTURE OUTLOOK a) Only if the trend in increasing offtake of vehicles is sustained will the volume of tonnage increases materialise. Such increased volumes and management of supply chain and logistics should help in bettering margins during the current year subject of course to the price behaviour of Polypropylene and other crude oil based inputs. b) New commercial vehicles call for increased usage of PP compounds on interior parts and your Company is already working with major companies in this segment to benefit from this approach. c) Control of receivables and inventory and improved process efficiency, should also contribute to the reduction of working capital requirement leading to a reduction in interest costs. d) Company's strategy is to broadbase its product offerings into other segments of manufacturing, viz, Electrical, Powertools, Appliances through aggressive marketing and also offer products higher in the value chain ( viz. Engineering Plastics). The overall outlook looks promising with the hope of stable Government at the Centre. Cautionary Statement Statements in the Management's Discussion and Analysis Report describing the Company's projections, estimates, expectations or brdictions may be 'forward-looking statements' within the meaning of applicable securities laws and regulations. Actual results could differ materially from those exbrssed or implied. Important factors that would make a difference to the Company's operations include demand-supply conditions, raw material prices, changes in Government regulations, tax regimes, economic developments within the country and other factors such as litigation and labour negotiations |