MANAGEMENT DISCUSSION AND ANALYSIS INDUSTRY STRUCTURE AND DEVELOPMENTS With its strong linkages to the housing and infrastructure sectors, the cement industry is an engine of growth. The housing sector is the biggest demand driver accounting for around 60% of the total cement demand followed by infrastructure ~20% and commercial and industrial construction ~20%. The government's promise to expedite clearances for the stalled infrastructure projects and likely reduction in interest rates bode well for the industry's prospects from a medium to long term perspective. The industry had a total installed capacity of about 390 million tonnes as on 31st March 2015. All India monthly cement production figures during the fifteen months period from January 2014 to March 2015 compared with corresponding figures of January 2013 to March 2014 indicate an encouraging trend. However during the latter part of the year sluggish trend was witnessed. The expectations of above normal demand growth from rural and suburban areas were belied due to the bad monsoon and the unexpected rains in the current period. In the last couple of years, new capacity additions have slowed down due to diminishing returns on capital employed. However, the overall position still remains that of surplus capacity. The gross sales for the period ended 31st March 2015 (fifteen months) were MINR 23,713.8 compared to MINR 16102.4 during the brvious year ended 31st December 2013 (twelve months), an increase of 17.8% (on an annualized basis). EBITDA (Earnings before interest, tax and debrciation) grew in fifteen months to MINR 3359.5 from MINR 1,222.1 in the brvious year ended 31st December 2013 (twelve months) resulting in growth of 120% on annualized basis. The Company has reported net profit of MINR 595.3 in fifteen months compared to net loss of MINR (407.3) during the brvious year. Cash profit for 2014-15 was MINR 1,970.7 compared to MINR 563.0 in 2013. Cement sales were 5.28 million tonnes during fifteen months period ended 31st March 2015 against 3.20 million tonnes (excluding cement sales of Raigad unit) during twelve months period ended 31st December 2013. PRODUCT PERFORMANCE AND CUSTOMER RELATIONS Your Company gives top most priority to its customers and closely monitors the production and supply chain to ensure delivery of quality products and services to its customers.The quality and reliability of our products is making an increasing mark in the minds of our customers. Our brand mascot “Chutkoo” is now extensively recognised and identified in the central Indian markets. We continue to extend our support to our customers through a team of competent, technical service personnel who provide guidance for adopting good construction practices. Your Company’s brand “mycem” has won the trust of its customers and is amongst the brmium brands in Central India market. Increased brand visibility, faster delivery practices and a customer-friendly approach has enabled the Company to strengthen its relationship with the customers and the channel partners. OPPORTUNITIES AND THREATS Opportunities External landscape: 1. The construction sector can chalk growth on the expectation of lowering of interest rates. The industry hopes that the government will stimulate the stalled infrastructure projects and certain new projects may also be commenced. 2 The policy reforms of the new government and initiatives like “Make in India” will help in improving the investment climate and boost the economic activity. 3 The government’s long term vision of developing 100 new smart cities with better facilities, connectivity and environment bodes well for the industry. All these factors are a brcursor to better future prospects of the cement industry in the medium to long term. Creating opportunities for cost savings: 1. The Power Generation Plant of approximate 12MW capacity based on Waste Heat Recovery at our clinke unit in Narsingarh, Damoh (M.P.) is at an advanced stage of construction. Once operational, there will be saving in power cost. 2. Fuel Mix for the kiln has been successfully optimized by increasing the usage of petcoke as an economical alternative compared to coal. The Company is also exploring other measures for further reduction in power and fuel consumption. THREATS Sectoral capacity 1 Supply overhang due to large capacity additions in the past few years continues to put brssure on prices. This has led to a drop in capacity utilisation throughout the industry. 2. Unseasonal rains in many parts of the country caused damage to crops adversely affecting the agricultural income. This could have adverse impact on cement demand in rural areas. Cost challenges 1. Over the years, power rates have been increasing steadily. Further increases would pose further challenges. 2. Recently the crude prices have started inching upwards straining the hydrocarbon throughputs such as diesel, coke and PP granules. 3. The recent amendment of the Mines and Minerals (Development and Regulation) Act, 1957 would have an impact on the industry in terms of payments to be made to District Mineral Foundation and National Mineral Exploration Trust. 4. All cost increases will burden the industry as it has not succeeded in passing these to the customers over the past few years. Logistics challenges 1. The cement industry is dependent upon Railways for the movement of inbound and outbound material. Shortage of railway wagons and transit delays affect plant operations including service to customers. We are continuously improving our loading systems to achieve faster turnaround for railway wagons and trucks. OUTLOOK We expect cement demand to grow in the range of 5 – 6% during FY 2015-16 considering the following: 1. Reduction in interest rates is expected to revive the hitherto sluggish demand for home loans giving impetus to housing. 2 Pick-up in industrial production and economic activities including infrastructure development initiatives being undertaken by the government. 3 Boost to affordable housing segment. In view of the dwindling profitability and longer gestation period for new projects, we believe that the new capacity additions could slow down leading to improvement in capacity utilisation. RISKS AND CONCERNS Risk management is an integral part of the Company's activity. The Company has a structured Risk Management Policy. The top and senior management of the Company continuously monitor and review the business risks in the verticals of Operations, Sales & Marketing, Procurement, Regulatory Affairs, Finance, Information Technology and Human Resources and take timely measures to minimise the impact. The key risks identified by the Company are increase in power, fuel and freight costs; capacity / demand mismatch in the industry; shortages of railway wagons; volatility in forex and high interest rates. Whereas a systematic risk identification and mitigation framework is in place and suitable action plan is drawn up to mitigate the same, the Company has virtually no control over external risks such as a general down turn in the economy, new regulations, government policies and interest rates. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY The internal control systems of the Company are well-structured and adequate for the business. The objective of the internal control system is to ensure efficient use and protection of the Company's resources, accuracy in financial reporting and due compliance with statutes. The internal auditors of the Company assess the adequacy and effectiveness of the internal control systems. The Internal Audit team of HeidelbergCement Group also reviews the internal control systems and the Management takes action on their recommendations. The Company has implemented SAP Enterprise Resource Planning (ERP) system. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES Your Company believes that people are the real assets of an organization. Therefore employees' development is a must for the growth of the organization. To achieve this, a combrhensive training calendar is made which focuses on technical and functional trainings, interspersed with sales and behavioural trainings. Compliance trainings are key to the organization and the same were done across the Company through internal and external trainers as well as through e-learning courses. Training was also provided to the sales team on various facets of competition law through an external agency. Along with professional development, the Company also ensures personal development of its people. The industrial environment was cordial all throughout the year. The Company had 1493 officers and workmen on its rolls as on 31st March 2015. Your Company has laid equal impetus on creating a highly competitive, transparent and performance oriented management system. As the young workforce keeps joining the company, the management gears up to provide them opportunities which are meaningful to them. Your company has been continuously orienting itself to meet the challenges posed by changing demographics. From time to time the Organization has reviewed its performance management systems and policies to align with the changing needs of business and aspirations of its employees. The Company is in compliance with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The said Act provides for protection of women at workplace against any form of sexual harassment and prompt redressal of any complaint. During the fifteen months period ended 31st March 2015 the Company received a complaint alleging sexual harassment against an employee of the Company, which was dealt with in accordance with the provisions of the said Act. Communication continues to be the bridge between the management and employees. The CEO&MD of your Company addresses all employees through a telecast communicating the progress in the quarter as well as sharing future plans and challenges. It is a two-way communication with the employees ending with a Q&A session. Periodic open houses are also conducted at all locations to gather the pulse on the ground and use the feedback constructively for improvements. CAUTIONARY STATEMENT Statements in the Management Discussion and Analysis Report which describe the Company's objectives, projections, estimates, expectations or brdictions may be considered to be "forward-looking statements" within the meaning of applicable Securities Laws and Regulations. These statements are based on certain assumptions and expectations of future events. Actual results could however materially differ from those exbrssed or implied. Important factors that could make a difference to the Company's operations include global and Indian political, economic and demand-supply conditions, finished goods prices, raw materials cost and availability, cyclical demand and pricing in the Company's principal markets, changes in Government regulations, Policies, tax regimes, economic developments within India besides other factors such as litigation and industrial relations as well as the ability to implement strategies. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent development, information or events or otherwise. |