MANAGEMENTS DISCUSSION AND ANALYSIS Overview Shaily Engineering Plastics Limited (SEPL) is involved in the manufacture of high brcision injection moulded plastic components, assemblies, moulds and dies for OEM (Original Equipment Manufacturer) requirements. The company has during the year added injection blow moulding facilities for manufacture of bottles for pharmaceutical industry. Industry structure and developments India's plastic consumption is expected to grow at a healthy rate on the back of growing substitution, expanding middle income groups and new applications. Plastic products are increasingly finding application in all sectors of the economy, replacing other competing products such as steel and aluminium. The plastic processing industry is highly fragmented. Presently, 75% are in the small-scale sector but accounts for only about 25% of polymer consumption. The top 100 players account for just 20% of the industry turnover. The industry also consumes recycled plastic, constituting about 30% of total consumption. Despite being an industry dominated by unorganised players (70% of the industry size), the organised players over the last few years outpaced them in terms of growth through constant innovation and regular introduction of niche products and thereby gradually eating into their share. According to the All India Plastics Manufacturers' Association (AIPMA), the Indian plastic industry should grow 2.5 times in the coming eight years so that the five year plan target of 20 kg per head by 2020 can be attained. Presently, India is processing 8 kg plastic/head/year, while the global average stands at 28 kg per head per year. Moreover, China processes 56 million tonnes of plastic while India at 8 million tonnes. The industry body feels that India needs to work in the direction of attaining China's growth level as its one-year growth is nearly India's overall capacity. Chinese imports have captured 25% finished goods market and is growing fast. Consumption is growing faster than industry and is being captured by Chinese imports. The Government should promote foreign direct investment (FDI) in the plastic industry as China has been able to strengthen its position in the global market through this concept. Rituraj Gupta, President, AIPMA, says, "Most of the government initiatives such as 'Swachcha Bharat', 'More Crop per Drop of Water', 'Housing for All', developing 'Smart Cities', would not be possible to implement without using plastics. AIPMA is focusing not only on generating employment but also on entrebrneurship and skill development. Plastic is one of the best alternate materials available, and at times is termed as magic material for it requires minimum energy to be transformed in whichever way one wants it." Your company has immense capability to keep pace with the growing and diverse requirement of customers as well it has the possibilities for other business besides the current activities of the Company. The possible threats to the company can be: • Sluggish market conditions • Rupee - Dollar devaluation • Uncertain Government policies • Inflation • Change in demands of customers etc. Your company is positively working towards (i) Expanding its operation to other customers and (ii) Maintaining quality of manufacturing products during 2016-17. Company started a new project, last year named CRC Project for development of business. The major products are CRC Cap, 120 ml Bottle, 100 ml Bottle, 60 ml Bottle, 40 ml Bottle etc., and is working with various Pharma Companies for sales of the same. Overall Performance of the company • The Company's Total Sales have increased by 25.5 % as compared to brvious year. • EBITDA for the year has been Rs. 41.8 crores as compared to Rs. 28.03 crores in brvious year, an increase of 49% over last year. EBITDA margins during the year increased from 15.46% in FY 15 to 18.30% in the current year, an increase of 284 bps. • The Profit Before Tax (PBT) is Rs. 2141.5 lacs, which has increased by 43.76% compared to P.Y. which was Rs. 1489.67 lacs. • The Net Profit for the year is Rs. 1549.20 lacs, as compared to Rs. 1300.88 lacs in FY 15. This rebrsents an increase of 19% over last year. Segment-wise /Product-wise Performance The company is exclusively into manufacturing injection moulded plastic components, assemblies, moulds, dies, etc. SEPL Strengths SEPL focuses on maintaining and establishing long-term relationships with the customers and believes that we have the ability to address the varied and expanding requirements of our customers. SEPL has obtained a Quality Certification ISO 15378:2011 for Manufacturing and supply of Plastic Moulded Components and/or assemblies used as Primary Packaging Material for medicinal products, this year. Now, SEPL houses the following Quality Certifications : • ISO 9001:2008 • TS 16949:2009 • ISO 13485:2012 • ISO 15378:2011 Our sourcing ability Our size of operation and experience in polymer business enables us in sourcing our inputs at appropriate times and at competitive prices. Positioned as Total Solution Provider SEPL has positioned itself as an independent and "Total Solution Provider" to its clients, which help in lowering response time. This helps in eliminating competition, which does not have the integrated capabilities possessed by SEPL. Focus of SEPL A. SEPL focuses on - • Sophisticated and world-class higher capacity machines; • Enhanced design capabilities, moulds, tools and dies and technological know-how; • Increasing use of intelligent manufacturing to improve productivity and asset utilization; • Global practices in manufacturing excellence, quality management and design; • Development of new products and applications. B. The Company has two important segments in its custom moulding division - 1. Products which are customised to customer requirements and 2. Products which are customised to certain applications, which is being developed now with focus on medical disposables/assemblies /devices. For products which are created for specific applications, the team markets the products for that particular application. This is a new area of focus and the company expects to grow this business in the future. For the first segment, the team markets its internal capability to match stringent customer requirements. The product development cycle is long for this product class (especially for customer-specific products); once approved, it provides long-term revenue visibility with superior profitability. Overall, we at SEPL look forward for a substantial growth of the Company every year. Corporate Goal Shaily's corporate goal is to provide total plastics solutions incorporating principles of - - Product Design - Mould Design - Optimum Material Selection - Mould Procurement - Product Testing. Outlook on Opportunities SEPL's domestic as well as overseas business is developing very fast and we are getting more and more enquiries for our capability to manufacture parts for them due to its commitment of standard quality of goods to its brsent customers and therefore sustaining operations and growing in even tough time. If production capacities are added now, companies will be ready when the good times roll in, which they are bound to. Continuous improvement in productivity should become a standard practice and these tough times should make companies learn to do this on a regular basis. This will have regular monetary benefits on a continuous basis, rather than thinking short or long term. The Electronics, Automobile, Packaging, Healthcare, Consumer Durables and Telecommunication are fast growing sectors of Indian economy offering growth for plastic utilization; SEPL also provides services for these sectors. There is enormous scope for expansion and development in the Indian Plastics Industry. The processing industry in fact offers a huge potential for up gradation in terms of innovative technological advances. Outlook on Threats, Risk and Concerns The Company's business depends on customer requirements as the Company is an OEM supplier and any fluctuation in the customers demand can affect the Company's performance. The Company is also exposed to project risks due to delays in project implementation/cost escalation, risks on account of fluctuation and in FX rates and fluctuation in raw material prices on account of fluctuation in oil prices. The Company has adopted sufficient Risk Management mechanism in consideration of the nature of business of the Company. The details of Risk Management are periodically reviewed by the Board and optimum steps have been taken to mitigate the Risk factors. Internal control System & its adequacy The Company has instituted adequate internal control procedure commensurate with the nature of its business and the size of its operations for the smooth conduct of its business. There are stringent internal control systems and procedures to facilitate optimal resource utilisation by keeping a check on unauthorised use of products. The Company's regular checks at every stage of its production and dispatch cycle ensured strict operational and quality compliance. Internal audit is conducted at regular intervals at all the plants and covers the key areas of operations. It is an independent, objective and assurance function responsible for evaluating and improving the effectiveness of the risk management, control and governance process. An Audit Committee consisting of three independent and one non-executive director is in place. Human Resource and Industrial Relations Your Company's industrial relations continued to be harmonious during the year under review. Your Company conducts regular in-house training programs for employees at all level, which continuously improves peoples, machines and systems. SEPL's culture fosters continuous learning, with result-oriented meritocracy. The employee strength of your Company is currently 980, which includes staff, permanent workers and contract labour. The company organized various employee welfare and get together programmes during the year to foster a culture of engagement amongst employees. The company also organized sports events to recognize and build up the team spirit among the employees. Corporate Social Responsibility To meet with its Corporate Social Responsibilities your Company has organized various events in the nearby rural areas and educational institutes, such as - • Free Medical Check up Camp • Computer Education Programme • Education Awareness Programme • Training on Management Skills • Corporate Culture's Presentation • Self-Awareness Programme In the area of community development, the company provides employment to the women staying in the nearby villages thereby helping them acquire basic skills and earn a living for themselves. Cautionary Statement The statements made above are the best of estimates by Management, but the ultimate results may differ from the estimates due to the factors like changes in government policies, economic conditions of the country, changes in demand and supply pattern, changes in the management policies etc. thus it is cautionary that the ultimate results may differ from brdictions made in this statement. For and on behalf of the Board Mahendra Sanghvi Executive Chairman DIN: 00084162 Vadodara : May 18, 2016 |