MANAGEMENT DISCUSSION AND ANALYSIS  

[A] Introduction

Kansai Nerolac Paints Ltd. (KNPL), a subsidiary of Kansai Paint Co. Ltd., Japan began its journey in the year 1920 as Gahagan Paints and Varnishes Company Ltd. at Lower Parel, Mumbai.

With an aim to provide technologically advanced, cutting edge products to its customers, KNPL has always worked hard towards making customer satisfaction and customer delight as the Company’s top priority. It is this ethos to constantly strive to improve customer experience that has enabled us to enjoy a leading position in the industrial sector and emerge as a perceptual leader in the decorative space.

KNPL services customers in both decorative as well as industrial segments. The Company has coating solutions across the Decorative, Wood Coatings, General Industrial, High Performance Coatings, Powder Coatings, Automotive, and Auto Refinish market segments.

The Company serves its customers through a network of four manufacturing facilities strategically located at Lote in Maharashtra, Bawal in Haryana, Jainpur in U.P. and Hosur in Tamil Nadu and around hundred strategically located depots. KNPL’s manufacturing prowess, combined with a vast network of geographically distributed depots allows the Company to be responsive in meeting the high service level expectations of its customers.

Along with the existing capacity, the Company has also announced plans for setting up two new state-of-the-art facilities in Gujarat and Punjab, which will be a shot in the arm for product delivery and order fulfilment capabilities. Along with manufacturing units, KNPL is also setting up a world-class R&D facility at Navi Mumbai in order to develop cutting-edge and futuristic product offerings to customers.

Apart from the Indian business, KNPL also conducts business outside India through successful joint ventures. The Company has a JV in Nepal with Kansai Nepal, which caters to customers in Nepal, and has been growing at a steady pace. KNPL also has a JV in Sri Lanka with Capital Holdings Maharaja Group to set up the paint business in Sri Lanka.

In the process of shifting of its manufacturing operations from Chennai to Gujarat, during the year, the Company has sold its factory land and building in Chennai for a total consideration of Rs. 537.86 Crores. Proceeds from monetization of assets of Chennai plant will be utilized for setting up plant at Gujarat.

Information Technology plays a pivotal role in the overall strategy formulation and execution at KNPL. The Company works closely with SAP and makes use of latest systems, including SAP HANA.

Digitalization rebrsents a huge opportunity for industry.

Keeping in mind the immense potential offered by it as well as the fact that KNPL has always viewed IT as strategic, KNPL has embarked on a digitalization drive and has created a roadmap for the same. This year the focus was on internal operations and hence the theme of this year’s Annual report is Digitalization of Operations.

Being committed to the cause of environmental brservation and sustainable manufacturing, KNPL has a robust EHS framework which is followed across all facilities. The Company publishes an Annual Sustainability Report and all plants are Zero Discharge Units, brventing environmental damage.

The multiple awards and accolades bestowed upon us annually are a testament to the fact that the endeavors to offer highest quality products to customers have been recognized and apbrciated by the industry.

[B] Industry Progress

Continuing with the brvious year’s trend, year 2015-16 has been positive yet challenging for the Indian economy. Infrastructure slowdown and a weak demand across major industry segments like Automotives, Consumer Durables kept demand subdued. Factors like poor monsoons, high interest rates, uncertainty due to geo political events all contributed towards subdued demand. The Industry is estimated to be around Rs. 39,000 Crores as at March 2016.

On the cost front, the industry benefitted from lower crude oil prices. Derivative prices, however, have not gone down by the same proportion and therefore raw material prices have not come down significantly for the industry. Rupee volatility also contributed to uncertainty on the cost front.

Going forward, the economy is expected to grow in much the same manner in FY 2016-17 as in FY 2015-16. While there are some positives, negatives like drought could impact the economy. The economy has shown resilience amidst global slowdown, and continues to progress. GDP is growing at a steady pace, outpacing China and other developing economies. Positive sentiments from the market, coupled with a positive monsoon forecast released by IMD, are big positives which could impact demand favorably. Favorable policy decisions on key legislations expected to be taken up by the Government of the day are also expected to impact the industry positively.

[C] Marketing Initiatives – OUTLOOK

Decorative:

Marketing at KNPL is all about maintaining strong connect and healthy communication channel between the Company and its customers. The Company keeps the customer at the heart of all its service offerings and operations, and believes in communicating the Company’s latest initiatives to its stakeholders through efficient marketing channels

The Company has initiated many strategic initiatives aimed at strengthening the Nerolac Brand. These have contributed to helping the Company achieve strong growth in the decorative segment and be well positioned to take advantage of the improvement in the demand climate expected.

In FY 2015-16, lower crude prices reduced the overall costs for the paint industry. KNPL proactively took lead in passing on part of the cost benefit to customers. In one of the major developments of the year the Company launched a second brand called Soldier in the Decorative market. The brand aims to capitalize on the opportunities in the volume driven, fast growing bottom of the pyramid space of the market. The brand is being retailed through a different distribution network. In a short span, the brand has managed to generate great consumer interest as well as strong market acceptability.

The financial year saw KNPL strategically increasing its media brsence. The overall spend on marketing activities this year was increased substantially, which led to KNPL aggressively promoting its brand of products across media channels, recording increased air time, higher visibility, and improved top-of-mind recall.

Active promotion of its key products like Imbrssions, Suraksha, Excel, and others across a variety of media like TV, print media, radio, as well as social media were done. The ad campaigns were broadcasted during the cricket events of the year and major movie releases.

KNPL has always maintained an active social media strategy, employing new and innovative ideas to engage consumers and to reach out to as many consumers as possible. This year too, these online endeavors were a huge success, with ‘Imbrssions HD Stories’ campaign and Nerolac DubSmash contest being big hits with the consumers. The ‘Imbrssions HD Stories’ campaign witnessed thousands of consumers from across the country sharing their Imbrssions HD stories through their social media accounts and winning prizes.

The Company re-launched the famous signature Nerolac Jingle during the Diwali season amidst much fanfare. The iconic jingle was splendidly received by customers, with the ad commercial becoming the most viewed paint commercial in India on YouTube. Similar feats were achieved by the Company’s Facebook fan page, which today stands at the highest fan base among Indian paint companies

The Imbrssions HD campaign launched this year, has garnered a lot of acceptability on the market. This season the Company launched a new campaign for Suraksha brand. This campaign was themed around consumer’s emotional need for status and recognition, highlighting how Suraksha painted exteriors have become a status symbol for the house owner KNPL’s marketing initiatives were highly apbrciated, not only by valued customers, but also by industry groups. The ‘Rang De Patang’ initiative was awarded the Kyoorius Design Award ’15 for ambient media category.

KNPL won Nielsen Consumer Survey – ‘Most Innovative Product of the Year’ award for Nerolac Imbrssions HD, indicating the love and apbrciation bestowed upon the Company’s revolutionary products by its customers. Winning the award for the fourth time is a testament to the rigorous innovation and quality standards maintained at KNPL year on year.

When it comes to marketing campaigns, KNPL has always had the flair to come up with unique customer connect initiatives. The Company recently unveiled a unique coffee table book, celebrating the culture and colors of Bengal with brand ambassador Shah Rukh Khan in Kolkata. KNPL’s involvement in industry events also remained high, with KNPL participating in Ace Tech 2015 in Mumbai. In addition, KNPL along with Correa Foundation also launched a Coffee Table Book at Ace Tech as a tribute to renowned Indian Architect Charles Correa

Industrial:

KNPL is the market leader in industrial coatings, and has managed to retain its leadership position over the years owing to innovative product and service offerings to industrial customers.

This year, KNPL further improved its leadership position in the Automotive and Industrial Coatings Segments. By focusing on new products and solutions, KNPL continued to provide a number of value added offerings to all its customers.

Technology has always been the cornerstone of KNPL solution to customers and KNPL has continued to focus on technology providing High Quality, Cost Effective and Sustainable Solutions to its automotive customers. Quality standards have been consistently enhanced by the Auto OEMs in their crusade to provide better value to their consumers. Client interaction and business acquisition remained high this year, with the Company bagging repeat business from its esteemed clients, as well as winning new business from clients.

KNPL has worked closely with the Auto Industry and this year has introduced more enhanced products like a superior Mar and Scratch Resistant Clear Coat and High Solid Base Coats. KNPL also enhanced its range of colors for Car Interior Coatings, which are eco-friendly, free of Hazardous Air Pollutants (HAPs) and meet international coating standards. The Company also bolstered its "Customized Solution" offerings to provide best suitable paint system to the customer.

The Company has introduced a next generation CED with better corrosion resistance, high throwing power, low baking loss and reduction in consumption. With such sustained innovations and product improvements, KNPL managed to maintain its market leadership in the CED segment, with many new CED lines added this year. KNPL pioneered the practice of providing Technical service on Customer Production lines and has further strengthened its capability on this front. The Company continues to invest in solutions to constantly upgrade the solution quality provided to customers through the Technical Service Team. The Company provides its Industrial customers with Kaizens together with Value Additions and Value Engineering ideas aimed towards quality improvement and cost reduction.

KNPL has increased focus on the Oil and Gas, Offshore, Energy and Railways segment in Performance Coatings. During the year, KNPL has achieved significant milestones enhancing its brsence in the segment. With technologies like Moisture Cure Paints, DTM (Direct to Metal), 100% Solvent Free Epoxy Coatings and Tank Lining Solutions, the Company is targeting strong brsence in the Chemical, Petrochemical, Petroleum and Oil and Gas Segment. The Company has progressed significantly in the Floor Coating market and this year introduced number of product variants aimed at strengthening its base. The Company works closely with Industry organizations like NACE (National Association of Corrosion Engineers) and SSPC (Society for Surface Protective Coatings). The Company was well rebrsented at NACE, SSPC and CII events which ensured visibility and connect with key industry stakeholders

KNPL has a majority market share in the Powder Coating Segment and this year too, the Company has further strengthened its share in segments like Auto Ancillaries and Electricals. In keeping with the Company’s thrust of introducing high technology solutions, the range of products acquired through technology tie up with Protech, Canada are being rolled out allowing the Company to enter into new niche segments.

KNPL’s thrust in the Auto Refinish segment for the past few years is giving good results, with this year also seeing a surge in market share in the ARF segment. The Company is now gaining strong acceptability. The Company has launched many new products including Perfect Match Eco Clear Coats and enhanced its range of shades in this series. KNPL also introduced MasterMix Brand, a state-ofthe- art Mixing Machine Technology from South Africa in the Popular Polyurethane Mainstream Segment. KNPL solutions in the Auto Refinish Market focus on Environment Friendly High Quality technology providing users opportunities to improve productivity, reduce wastages and reduce costs.

The Company continues to take number of technology initiatives aimed at strengthening its market share in this segment.

[D] Opportunities and threats

Opportunities:

• Fastest growing economy With the Indian economy being the fastest growing world economy, there will be ample demand for paints and coatings in the coming financial year. With the economy poised to grow at a rate of 7.5%, consumer spending will get a huge boost, resulting in higher demand for paints Favorable demographics India’s young population rebrsents a huge opportunity as more and more young Indians join the workforce and will have disposable income available.

The trend towards nuclear family augurs well for the paint Industry.

• Infrastructure focus

With infrastructure sector reforms being the top priority of the current government and keeping in mind its Smart City initiatives, demand for coatings from the infrastructure sector is going to see healthy growth.

• Automotive industry

With a fast growing economy and improved manufacturing growth, both commercial as well as passenger vehicle segments are expected to grow at a rapid pace, thus increasing demand for automotive paints.

• Lower per capita paint consumption

Per capita paint consumption in India roughly about 4kgs, is extremely low in comparison to developed nations. This rebrsents a huge opportunity.

• Government reforms

The Government is expected to continue with its reforms agenda, with policy decisions like GST, Infrastructure, and Power Sector Reforms projected to be implemented in the near term. These reforms, if implemented, would provide great impetus to the economy as well as to the paint industry.

Threats:

• Below-par monsoon

With the economy reeling under the impact of two successive poor monsoons, a third consecutive draught can have adverse impact on customer spending, ultimately impacting paint consumption in a negative way.

• Input cost trend

Going ahead, FY 16-17 is expected to see a gradual upward trend in input costs. This rise may impact industry profitability in the longer run, affecting both top line as well as bottom line growth. 

[E] Segment Wise Performance

The Company has only one segment of activity named paints, in accordance with the definition of “Segment” as per the Accounting Standard 17 issued by the Institute of Chartered Accountants of India. The performance of the Company is discussed separately in this Report.

[F] Risks and concerns

a business environment that is constantly under churn, Risk Management becomes a top priority for KNPL in order to guard against any eventuality, while at the same time, being able to extract maximum benefit out of favorable conditions.

The Company follows a Risk Management framework, where the risk committee meets regularly to identify imminent and potential risks, as well as documenting risk mitigation measures to eliminate or reduce the event impact.

• Strategic Risk

These risks revolve around brand, technology and service strategy. Strategic risk identification and mitigation remains a top priority activity at KNPL, and contingency measures are put in place for any and all issues emanating out of the same.

• Operational Risks

While pursuing innovative product offerings and radical business models, there are certain risks associated with product delivery, Service Level Agreement adherence amongst others. In order to tackle these risks, KNPL has developed robust mechanisms that ensure that while being innovative, key operational parameters are never compromised and we deliver on the promise that we make to customers and stakeholders.

• Statutory Risk

With a network spanning across India and overseas, KNPL makes sure that the business operates within the ambit of law and necessary legal compliances are followed. Combining in-house expertise and knowledge of statutory compliances along with professional legal services, KNPL ensures that there are no lapses on the regulatory front, and the Company functions within the legal and statutory framework.

• Financial Risks

Finance risks originating out of currency fluctuations and market volatility have the potential to affect Company bottom line directly. Thus, these risks are dealt with advance planning, taking necessary steps for hedging against such outcomes.

• System Risk

With all operations conducted using business software, ensuring high availability of systems as well as proper controls to ensure that operations are not compromised remains a top management priority. The Company takes many steps proactively to ensure that potential risks are minimized.

[G] Research and Development

KNPL has incorporated its commitment to continuous innovation and Research and Development in the Company vision statement. The Company aims to leverage its advanced technical know-how, global knowledge network, and in-house capabilities for serving customers with superior products and service offerings.

KNPL believes in bolstering its Research & Development capabilities so as to offer technically advanced and innovative products to customers so that it will always remain the partner of choice for its valued customers. Committed to the cause, the Company’s R&D works round the clock to develop technologies that cater to creating customized, unique technology solutions aimed at meeting the ever evolving challenges of customers In the endeavor to promote R&D activities within the organization and in the industry, KNPL regularly participates in scientific conventions and industry events. Also, KNPL scientists frequently publish research papers in reputed forums and scientific journals, detailing the scientific breakthroughs they accomplished in product development, thereby driving cooperation and knowledge sharing in the scientific community

At KNPL, the R&D team focuses on the current and future trends in all market segments in order to stay ahead of the curve and be the frontrunner in bringing latest innovations to market. Working closely with customers and vendors the Company creates long term product maps for customers.

[H] Information Technology

Information Technology plays a pivotal role in the overall strategy formulation and execution at KNPL. Being the driving force behind the core functions, KNPL’s IT systems have evolved to provide efficient performance management and Key performance Indicator tracking mechanisms which leads to better decision making.

With Digitalization rebrsenting a huge opportunity, the theme for this year’s IT initiative was use of Digitalization for Operational and people Efficiency along with Mobility. Exploiting the power of the in-memory capability of SAP, the Company has been working on a vision to use IT capability to re-imagine business process capability, efficiency, decision making along with redefinition of response time to market in the areas of Marketing, Supply chain and Research and Development. In keeping with the theme, a roadmap was identified and several projects are underway to digitize operations.

Ensuring high data visibility and operational transparency is the cornerstone of KNPL’s IT strategy. In keeping with the organization maturity and system capability this year, the Company embarked on a strategic initiative of designing and developing next generation performance dashboards complete with exception analytics and 360 degree view capable of continuously providing inputs towards strategic parameter achievement.

We also have embarked on the journey to adapt the systems to mobile technology platforms. As a step in this direction, mobility applications were developed to automate sales and logistics processes and provide key information to the front line sales team so as to ensure customer focus, improved service and productivity.

The Company also worked towards IT system readiness as a part of GST roadmap. Being conscious about the changing IT environment and to safeguard against the vulnerabilities, the Company had developed a roadmap for enhancing IT and towards that end the Company has begun implementation of a range of security solutions

[I] People

At KNPL, people are the core, which makes a difference. The Company believes that Human Resources are a dynamic and evolving resource. It is one of the key resources to enhance organizational effectiveness. In order to leverage on the same, at KNPL the endeavor is to create and maintain a ‘Performance driven, fair and transparent’ culture. Clear Business Plan linked cross functionally aligned Key Result Areas for each position enables every employee to contribute to the organization’s goals.

Opportunities are provided for employees to stretch and realize their potential while contributing in the success of the organization.

In order to enable performance, a good and fair working environment is important. KNPL has undertaken a series of initiatives backed by management commitment to create a transparent work culture using IT, along with demonstrated commitment to quick problem solving, guidance and regular development inputs to its employees. Emphasis on balanced working with due importance to employee health and safety are key practices followed.

KNPL continued the focus on the Human Resources through various initiatives this year. Employee development is one of the key focus areas in KNPL. We continued to build on the identified developmental pillars – Induction, Competency based Trainings, Skills Development Pillars, Functional Trainings & Advance Sales Training [AST]. Trainings were also provided using the robust IT infrastructure, with the Company employing audio and video capabilities to provide training across multiple geographies simultaneously.

Online performance management system based on dashboards and metrics are being implemented across the organization. These tools enable the employees and management to track and review performance at regular frequency and increase transparency during appraisal. The Company is also leveraging its IT capabilities for learning initiatives. The in-house knowledge management portal is leveraged to foster a learning work culture.

Through this the employees can learn from each other and keep up the momentum of a learning organization. KNPL continues with its good practices of Corporate Governance through the Whistle Blower Policy, encouraging growth of individuals irrespective of gender, religion, caste or community & policy on “Appropriate Social Conduct at Workplace”. All these policies add up to a congenial work environment to drive performance that is free from threat or fear.

The overall Industrial Relations situation was cordial. All the above-mentioned initiatives have helped us retain key talent. Employee strength is 2,566 as on 31st March, 2016.

[J] Awards and Recognition

By External Agencies:

• Product of the Year Award for ‘Nerolac Imbrssions HD – Most Innovative Product of The Year’ by Consumer Survey of Product Innovation, conducted by Nielsen. Won the award 4th time.

• Bawal Plant bagged Green Tech 2015 Gold Award for Safety, the Award Ceremony held at Goa.

• Nerolac execution of ‘Kites at Nerolac Stores’, titled ‘Rang De Patang’ awarded the Kyoorius Design award ’15 for ambient media category.

• Lote plant was awarded with ‘Certificate of Merit’ from National Safety Council (NSC) – Maharashtra chapter for achieving Zero Accident Frequency Rate in the year 2014.

By Customers:

• Bawal plant awarded with “Best Vendor in Safety” award by MSIL (Maruti Suzuki India Ltd).

• Toyota Kirloskar Motors Ltd. awarded KNPL ‘Best Eco Kaizen’ for brserving the environment at Hosur plant, at their 17th supplier meet on 20th & 21st April 2015 in Bangalore.

• KNPL has been honored with Best Vendor Award in paints category by Honda Motorcycles and Scooters India Ltd.

[K] Community Development

A significant part of India’s population hails from rural areas; many of which are economically backward. Hence, Community Development has assumed high priority for KNPL. Community Development is a way of strengthening civil society by bringing together members of a community, to take collective action and generate solutions to common challenges.

• To fulfil its role as responsible corporate citizens, KNPL assists and empowers the local communities it operates in, to improve their basic facilities and living conditions.

• KNPL believes that supporting the activities that focus on development of society as a whole is essential towards building a strong and sound nation. Company’s commitment towards sustainable development of communities is reflected through the CSR initiatives that the Company undertakes. KNPL consciously focus on lending a helping hand by conducting various CSR Programs for Community Development, specially aimed at upliftment of the needy people in particular and society in general. 

• CSR activities are grouped broadly under the following five umbrellas, namely: Livelihood and Skill enhancement Projects (with external partners such as SBI); Rural/Community Development; Preventive Health care and Sanitation; Promoting Education and Ensuring Environmental Sustainability. KNPL proactively convenes training and capacity building initiatives to help unemployed youth generate livelihood i.e. self-employment through workshops. These sessions also help professionals enhance their skill level thus contributing towards ensuring that ample skilled workforce is available in the future for national development.

• Apart from these initiatives that relate to livelihood and skill enhancement, KNPL also carries out other community enrichment programmes. From routine Health camps in rural areas, construction of toilets, bus shelters and bore wells, to assisting Educational Institutes with financial aid, and other basic amenities, KNPL is committed to contributing in as many big-small ways as possible and will continue to contribute towards India’s Economic, Social, Environmental and Cultural prosperity right from the grass root level.

[L] Environment, Health & Safety (EHS)

Environment, Health & Safety (EHS) at KNPL is an important business function, employed to address business continuity risk at manufacturing sites due to fire, environmental mishap, and to drive environmental friendly initiatives that reduce wastage in terms of water, waste and energy. The Company’s manufacturing facilities are ISO 14001:2004 and OHSAS 18001:2007 certified.

KNPL has been proactively pursuing its fire brvention strategy and embracing smart solutions to eliminate or control fire hazards on shop floor. Last year, Company implemented static electricity interlock (Pokayoke) at solvent and resin filling stations to eliminate major fire hazards. EHS Training was strengthened through introduction of Danger Experience Program and practical demonstration on past accident/incident at each plant.

Hazard identification and mitigation was pursued proactively through frequent KYT (KikenYochi Training) exercise on shop floor. KYT is a Japanese philosophy for hazard brvention to create a zero accident workplace. It helped increase safety awareness amongst line management and improve safety of employees and plants. As a result, Safety culture survey witnessed score improvement to 89 from 83 of brvious survey (2013). In coming year, Company will be focussing its efforts to strengthen EHS training further through coverage of all employees in Danger Experience Program and practical demonstration at Safety Laboratory.

Guidance from Kansai Paints, Japan (KPJ) expert team enabled the Company to advance a step further in mitigation of fire hazards. KNPL has invested ample resources for horizontal deployment of Safety Best Practices as implemented in KPJ plants Occupational health is another component of Safety systems at manufacturing sites. All KNPL manufacturing sites are equipped with dedicated Occupational Health Centre (OHC) and Ambulance to cater to emergency situation. Periodic medical check-up is conducted for employees through OHC in collaboration with external agency.

KNPL has been putting incessant efforts on waste Reduce, Reuse and Recycle initiatives. Company has launched focussed projects to recover and reuse residual material in packing materials and containers. In coming year, it will benefit Company on reducing material losses. Zero effluent discharge facilities at major manufacturing sites enabled Company to reuse water used in processes and save water. Water conservation objectives will be pursued further through optimization of water usage at source.

On energy front, focus on adoption of renewable energy and improvement in energy efficiency was continued. Increasingly, biomass based energy has replaced fossil fuel based energy at all KNPL manufacturing sites for steam production. Wind wheeling agreement, Third party renewable power purchase and solar power purchase are key initiatives to adopt renewable energy through collaboration with external party.

KNPL continues to reduce its carbon and water footprint by actively monitoring the same. The Company has been publishing a Sustainability report on its website to update stakeholders on its progress in addressing sustainability challenges

[M] Supply chain

In the endeavor to achieve excellence in customer service and order fulfillment, KNPL maintains highest standards of supply chain efficiency to meet the paint and coating requirements of its customer base. The Company caters to its customers through strategically located manufacturing facilities and a network of around hundred depots sbrad across the country.

KNPL leverages its strong IT capabilities to manage its supply network end-to-end, right from raw material procurement to manufacturing and last mile delivery. The Company makes extensive use of the Supply Chain package of SAP for planning its raw material replenishment cycles, scheduling manufacturing activity at its plants, and final delivery to respective depots.

The Company has invested significantly over the years to ensure that it meets the Just-in-time delivery requirements of its large automotive customers. Significant enhancements in supply chain capabilities year on year have ensured that the Company is able to build a responsive supply chain especially for its Decorative business. year a slew of initiatives were taken up in manufacturing under various themes like internal capacity creation, batch cycle time optimization, and waste reduction, thereby allowing the Company to meet changing consumer demands and expectations timely.

All these initiatives have enabled the organization to improve key metrics in the areas of delivery performance, loss of sale and customer service.

For servicing unique and diverse requirements of a nationwide customer base, KNPL has developed efficient inventory and logistics management competencies.

This has enabled the Company to complete orders on schedule, maintain product and service quality, and achieve faster turnaround time, ultimately leading to ahigh customer retention rate. This year there was an increased focus on innovative people engagement practices (Kaizen) along with strategic cost reduction initiatives, which led to productivity improvement and operating cost reduction. Also, by using efficient material processing systems comprising of latest technologies and better controls, material yield losses were also reduced.

[N] Internal Control System and their adequacy

With an aim to monitor and control day-to-day operations at KNPL, the Company has set up internal control systems for regular tracking and reporting. These systems also monitor compliance to various rules and regulations, and adherence to policy requirements.

In order to strengthen the system of Internal Control and provide board of directors with an added ability to oversee internal controls, Internal Financial Control (IFC) system was put in place in accordance with the requirements of Section 134(5) (e) of Companies Act 2013. Systems of Internal Control were implemented, considering the framework suggested in Guidance Note on Audit of Internal Financial Controls over the Financial Reporting issued by The Institute of Chartered Accountants of India, to address its operational and financial risk.

Ministry of Corporate Affairs has brscribed the roadmap for the implementation of IFRS in India. Being a listed entity, KNPL is covered under Phase 1 which means the Company would have to brpare its Financial Statements in accordance with IFRS (known as Ind AS) for the financial year beginning with 1st April, 2016. The Company has completed GAAP analysis, updated its IT system accordingly and stands ready for IFRS reporting.

The Company’s Control Efficiency Index (CEI) was improved substantially this year by horizontal deployment of industry best practices. The Company put in place control measures that are bench marked against global standards of efficient control mechanisms.

In order to perform online tracking of the Company’s regulatory compliances, Legatrix and Roznama Compliance systems were implemented. These systems allow the Company to track its compliance requirements online, thereby enabling stricter adherence to regulations.

[O] Affirmative Action

The Company has adopted a Code of Conduct for affirmative action for the purpose of providing employment opportunities for the socially disadvantaged.

[P] Financials

Sales and Operating revenue for the year aggregated to Rs. 4604.36 Crores reflecting a growth of 9.3% over the brvious year.

The Company continued with its initiatives to reduce procurement cost. Various operational cost reduction initiatives were also undertaken. These measures helped to improve the bottom line.

Debrciation for the year is Rs. 67.79 Crores as against Rs. 67.69 Crores in the brvious year. Interest cost was nil.

Normal Other Income was higher at Rs. 24.84 Crores as compared to Rs. 21.79 crores of the brvious year mainly on account of increase in dividend on current investments.

Profit Before Debrciation, Interest and Tax (PBDIT), excluding Normal Other Income, for the year is higher at Rs. 572.32 Crores compared to Rs. 444.82 Crores reflecting a growth of 28.7%. Profit Before Tax (PBT) (Normal) for the year is Rs. 529.37 crores as compared to Rs. 398.90 Crores of the brvious year which is a growth of 32.7% over brvious year.

During the year, the Company sold its land at Perungudi, Chennai resulting in gain of Rs. 535.34 Crores. PBT growth including this gain is at 266.9%.

The Company spent Rs. 5.29 Crores towards Corporate Social Responsibility compared to Rs. 4.51 Crores in the brvious year. The expenditure was reduced from the profit for the year, consequent to the issuance of 'Guidance Note on accounting for expenditure on Corporate Social Responsibility Activities', issued by the Institute of Chartered Accountants of India on 15th May, 2015.

The Company has not accepted any deposits covered under Chapter V of the Companies Act, 2013, during the year.

There are no significant or material orders passed by any Regulators, Courts or Tribunals against the Company which could impact the going concern status and Company’s operations in future.

There has been no change in the nature of business during the year.

There have been no material changes and commitments affecting the financial position of the Company which have occurred between the end of the financial year of the Company to which the financial statements relate and the date of this Report.

Cautionary Statement

Statements in this Management Discussions and Analysis Report describing the Company’s objectives, estimates and expectations may be “forward looking statements” within the meaning of applicable laws and regulations. Actual results might differ materially from those either exbrssed or implied.