MANAGEMENT DISCUSSION AND ANALYSIS REPORT A. INDUSTRY STRUCTURE AND DEVELOPMENT Global Economy: Global growth in 2014 was lower than initially expected, continuing a pattern of disappointing performance over the past several years. Growth picked up only marginally, to 2.6 percent, from 2.5 percent in 2013. Further, increasingly divergent trends are at work in major economies. Economic activity in the United States and the United Kingdom has gathered momentum as labour markets heal and monetary policy remains accommodative. However, the recovery has been sluggish in the Euro Zone and Japan as legacies of the financial crisis still linger, intertwined with structural bottlenecks. China, meanwhile, is undergoing a carefully managed slowdown. Disappointing growth in other developing countries also reflected weak external demand. Indian Economy: India's economy is slowly recovering with GDP growth of 7.3 percent for FY 2014 -15. At the same time, the external environment has turned in India's favour. In this fiscal year, there has been a substantial reduction in the global prices of India's major commodity imports, petroleum, gold, coal, vegetable oils, fertilisers and C. silver that together constitute 51 percent of total imports and 12 percent of GDP The collateral benefit has been an improvement in the current account, reduced inflation and relief forthe fiscal situation as oil subsidies which accounted for about 1 percent of GDP have also come down. Reduced interest rates, increase in infrastructure spending, new investments through 'Make in India' campaign, and expediting of environmental clearances will further help towards growing the economy. Indian Industry: Market sentiments in India during the current financial year were positively affected due to an array of domestic and global factors such as positive macro economic data coupled with continued foreign portfolio investment (FPI)/foreign institutional investor (FN) inflows. Inability to push through some of the reforms agenda has had an adverse impact on sentiments. For the second consecutive year the capital goods industry faced challenges in new order bookings from core industrial sectors of power, cement, steel, petroleum and refineries. As a result water treatment companies classified under this category faced brssures in managing top and bottom lines. In general, industry faced the problem of over capacity in a stagnant market resulting in poor profitability. The industry continued to see new entrants both in the industrial and municipal sectors.While this has added further capacity to the industry, their entry has also created more awareness about advanced water and waste treatment technologies. This will benefit companies like yours which continues to remain a technology leader in the environment industry. The competitive landscape in chemical business remains largely unchanged with relative complexities in manufacturing technology & application know-how and limited number of players. In the service sector the competition remained fragmented. Companies like yours maintained leadership position, by providing value added services which offer significant benefits to customers to outsource operation and maintenance of their water and waste water treatment plants. Highlights of Performance For the year under review the profit after tax registered a growth of 27% at Rs. 2614 Lacs as compared to Rs. 2052 Lacs in the brvious year. The gross turnover however increased marginally at Rs. 762 Crores compared to Rs. 736 Crores of the brvious year. Segmentwise Operational Performance The business of your company can be segmented into: 1. Engineering 2. Chemicals 3. Consumer Products ENGINEERING In this segment the Company designs, manufactures and sells medium and large size equipment for water and waste water treatment plants. The segment achieved lower turnover of Rs.398 crores, compared to Rs.412 crores for the brvious year, mainly because of the challenges faced by the Indian capital goods industry and the weak recovery in advanced economies. Also, announcements made by Government of major new projects are yet to materialise. All this adversely impacted the growth of your company's business in the engineering segment. The outlook is expected to improve as the Government has taken concrete measures to resolve coal and mining issues. The Government's 'Make in India' programme aimed at facilitating investment, fostering innovation, enhancing skill development and building best in class manufacturing infrastructure is expected to generate new opportunities. Your Company remains optimistic about the future of its business in this segment. CHEMICALS The segment recorded increased sales turnover of Rs. 286 crores compared to Rs. 248 crores of the brvious year. During the year, domestic sales for conventional and speciaity resins increased further. Our efforts to develop new applications in the speciality resin segment were successful and have given us new avenues of business. These new applications are likely to generate continuous business in the coming years. Exports of resin have also shown steady improvement. Development of new products for specific markets was a key factor and is likely to increase exports to Europe and USA. A new product for potable water treatment has good potential in the domestic and international markets. One of the drug actives manufactured in our new pharmaceutical facility in Ankleshwar is now well accepted in the Far East Asian market. During the year domestic sales of water treatment chemicals in the refinery, steel and metal sectors showed improvement. Sales of polymers, RO chemicals, ceramic & textile process chemicals, and fireside chemicals grew significantly. Our initiatives for in house production of a few intermediates resulted in improved profitability. Additional reactors were installed to enhance production capacity commensurate with the increase in sales. Further expansion of the chemical manufacturing facility is planned to meet the growing demand in India and abroad. Investment in R&D coupled with reduced material cost will further enhance your Company's competitiveness and market share. With a strong portfolio of ion exchange reins, speciality water treatment chemicals for utilities and process chemicals, our chemical business is expected to grow at an average rate of around 15 percent with a healthy bottom line. The outlook for this segment is positive. CONSUMER PRODUCTS The segment achieved a turnover of Rs. 83 crores during the year. Home Water Solutions division launched two new products. The Company launched Zero B UV Grande 2L and 4L water purification systems specially designed for water coolers. The ESS feature utilizes silver ions as an effective method to brvent slime build up in the storage tank after chlorine has been reduced through carbon filtration. The use of silver ions is an effective method to brvent the sbrad of harmful germs and D. bacteria in the storage tank. D. The Zero B eco Chill RO water purifier cum storage cooler comes with revolutionary HRR (High Rate Recovery) technology that saves substantial amounts of water as compared to other commercial RO products. The unique 'Water Saver Cartridge' and the complementing processes promote high recovery of water from the RO process. The eco Chill is a robust reverse osmosis unit for commercial establishments where consumption of water is quite high such as malls, restaurants, offices and institutions. The eco Chill also comes with a unique customized Dynamic Monitor and Controller (DMC) system which informs the user about the quality of water, the flow rate and total water consumed. It gives a warning with regard to the remaining life of the filter elements for planned cartridge replacement. The institution division concentrates on construction, hospitality & healthcare, educational institutes, corporate offices and PSU segments. The division was under brssure primarily due to the slowdown in the construction segment and changes in the buying pattern of the hotel and hospital segment. However, new initiatives taken by the government to improve infrastructure for Indian railways and special focus on defence have opened up new avenues for business. Our efforts to design and develop new products suitable for these segments have already started showing positive results. Your company is always looking at providing solutions which are best suited for the rural market. A new nitrate removal hand pump attachment system was launched in collaboration with Zilla Parishads. We also introduced a solar powered fluoride removal plant for Public Health Engineering Departments(PHEDs). In the current year the Company is planning to introduce surface water treatment solutions by closely working with PHEDs & Rural Water Supply Departments of various states. We will continue to expand our portfolio of ground water treatment solutions by tailoring products to meetthe requirements of specific markets. EXPORTS During the year your Company has registered a growth of 37% in export turnover over the brvious year, at Rs.179 Crores. The main growth has come from the Middle East South East Asia regions. Despite aggressive competition, we successfully concluded contracts for water and waste treatment projects. We continued to register growth in the ion exchange resin and water treatment chemical business in established geographies. The Company plans to further consolidate its position in markets in which it operates. Risks, Threats, Concerns and Risk Mitigation Risk mitigation has been a priority of the management's agenda. A structured method of evaluating risk, its impact, evolving a mitigation plan and continuous monitoring of performance against the plan is operational. In 2014-15, the Indian economy slowly started recovering. Controlled inflation, rise in domestic demand, increase in investments, drop in oil prices, etc. signified improved economic outlook. The Government launched the 'Make in India' initiative which has boosted the investment and employment opportunities in the country. However, the power sector which is a major revenue provider for projects business of the company suffered a setback due to coal block deallocation by the Subrme Court of India, only to be revived by March 2015 on its reallocation. Further to this, the banking sector's credit degrowth and non-softening of the monetary policy till the last quarter of 2014-15 continued to put brssure on the interest cost. Your management has been closely monitoring the situation and has been exercising caution in selection of business opportunities as well as in giving any future commitments. Due to the subdued global economy and also debrciation of the rupee against the dollar, your company, as a norm, has maintained conservative Forex management policy and doesn't speculate in the Forex Market. Apart from risk originating from the macro-economic scenario, continuous changes in water treatment industry requires the management to continuously F. reassess risks and opportunities. Your company remains vigilant of its market share and constantly focuses on reinforcing its credibility, quality, services and technology vis-a-vis major Indian and global players. Regular efforts are made to shore up competitiveness through cost reduction, value engineering and tie ups with vendors for quality products at competitive prices. Your company continues to invest in research and development and is also always on the lookout for technology assimilation through partnership with respected and reliable international parties. Regulatory policies and the changes in the law of the land, though completely beyond the control of the company, affect business operations. One of the statutes to undergo a major change was the Companies Act, where your Company was already having internal controls and procedures in place. Wherever required, the company has augmented its practices and systems G. to ensure complete regulatory compliance. Human Resources & Training Employees are a company's greatest asset and we believe that the future progress of your Company depends upon the excellence of the people who work for it. It is our endeavour to give employees an excellent, professionally rewarding and enriching work environment. The thrust of Human Resources is to partner strategic objectives of the company by managing performance, creating team competencies and enhancing career development. Thus, the agenda for the year focused on strengthening three key areas: enhancing individual and organizational capabilities, building a robust leadership and talent pipeline and driving greater employee engagement. Special emphasis was given to ensuring accountability and commitment. Performance-based compensation, among other employee benefit initiatives under the Employee Value Proposition scheme has been implemented. To ensure retention of talent, key employees have been identified and groomed to take up challenging responsibilities. To ensure uninterrupted excellence of delivery, your Company also has a well-designed succession plan in place. Specific training has been given to improve and hone skills towards opening up opportunities for growth. This initiative demonstrates that your Company recognises talent and growth "from within the organisation". Emphasis on team work has resulted in synergy and better understanding of both internal and external customer satisfaction. Internal controls Control framework within the company is adequate. The existing review mechanism coupled with policy framework implemented by your Company provides reasonable assurance of the efficacy of the internal control operating within the company. The Company has an in-house internal audit department staffed with qualified and experienced professionals. The annual audit plan takes into account the risk priorities assigned by the management and is approved by the audit committee. Major audit observations and progress of implementation of directives by the audit committee are reviewed by the committee that meets at regular intervals. The statutory auditors too review the audit observations and make suitable recommendations. In line with the recent amendment to the Companies Act, your Company has initiated the process of reviewing the existing internal control framework. Social responsibility initiatives Corporate social and environmental responsibility is an integral part of your Company's value systems. Ion Foundation upholds these values by empowering the economically disadvantaged towards social equality through education, health, hygiene and environmental initiatives. Education is the best enabler. Through education, talent is created and harnessed, which further strengthens society. To bridge the gap in education, we have partnered with NGOs who are dedicated to the cause of promoting education We continue our support in the areas of health and hygiene by providing drinking water treatment systems, renovation/construction of sanitation facilities. Wherever we provide water purification plants, we also ensure that they are well maintained through end user training. With a focus on refreshing our environment, we engage in tree plantation drives, rain water harvesting projects and awareness programmes. We believe that any business enterprise has an inherent obligation and responsibility towards society of which it forms a part. It is therefore important that we do the best we can to extend our vision to the communities around which we work and live in, enabling the disadvantaged to realize their potential and move towards a brighter future. It gives us great satisfaction to state that within a short span of five years, we have made a difference to the lives of around 40,000 children. We have a long way to go and we believe that "we will" make a difference, for the betterment of our community and our country, at large. Cautionary Statement The statements or explanations given in this report may contain some forward looking statements based on assumptions having regard to the government policies, economic conditions etc. The management cannot guarantee the accuracy of the assumptions and expected performance of the Company in future. Hence, the actual results may substantially differ from those exbrssed or implied herein. On behalf of the Board of Directors Rajesh Sharma Chairman and Managing Director Place : Mumbai Date : 25th May 2015 |