MANAGEMENT DISCUSSION AND ANALYSIS INDIAN ECONOMY The Indian GDP registered a growth rate of 7.4% in 2014-15. The growth of Gross Value Added (GVA) at basic prices for agriculture and allied sectors, industry sector and services sector are estimated to be at 1.1%, 5.9% and 10.6% respectively in 2014-15. Overall growth in the Index of Industrial Production (IIP) was 2.1% during March 2015 as compared to a contraction of 0.5% in March 2014. The Indian economy is likely to grow at over 8% in 2015-16, driven by strong consumer spending amid low inflation, infrastructure projects and the government's reform measures. The economy will see acceleration of infrastructure projects, growing consumer expenditure due to lower inflation and monetary easing and gradual changes in market sentiments. CEMENT INDUSTRY IN INDIA The Indian cement industry is the second largest in the world and forms a vital part of the Indian economy. During the year 2014-15, the Indian cement manufacturing industry pegged at 267.5 million tonnes (MT) and grew at a rate of 7.1% from brvious year. This is a considerable increment as compared to the production growth of 3.8% reported in the brceding year. The momentum in production growth is expected to continue even in 2015-16 backed by a sustained, healthy rise in demand. The cement output is likely to increase by 8.2% to 289.4 MT during the current fiscal. Your Company's gross turnover crossed Rs. 1,000 crores mark this year registering a growth of 32.20% in revenue from operations over the brvious year, inspite of debrssed market conditions and weak prices. The Indian cement industry is marked with a trend of capacity underutilisation, having 23% of installed capacity stay idle during 2014-15. DEMAND DRIVERS Rising demand from the real estate sector In India, the housing sector is the biggest demand driver of cement, accounting for about 67% of the total consumption. The sector is poised to witness a robust growth in investment during 2015-17. In 2014-15, project commissioning is expected to be at Rs. 557.4 billion, which is over five times as compared to the brceding year. In the subsequent year, it is likely to increase to Rs. 726.4 billion. Besides, rising demand from the unorganised real estate segment (especially in rural housing and Tier I and II cities) is also likely to boost the demand prospects for cement. The hotel industry too is expected to see a strong growth in capacity addition in the near future. Housing shortage in the country India has an estimated urban housing shortage of 18.8 million dwelling units. The housing shortage in rural India is estimated to be at 47.4 million units, in 2012. With rapid urbanisation and migration of the rural population to urban and semi-urban cities and towns, there is a huge necessity for residential constructions which implies a boost for the cement industry. Boost from the infrastructure industry Among the infrastructure segments, roads account for the highest cement consumption. An estimated 7,037 kilometres of road during the year is slated to be constructed by the infrastructure industry during 2015-16. Project completion in the railways, shipping and airport segments is likely to accelerate during 2015-17. All these factors are expected to lead to a healthy rise in demand for cement which currently accounts for 13% of the country's demands. Impetus on capacity addition and utilisation To meet the rise in demand, cement companies are expected to add 56 MT capacity over the next three years. The cement capacity in India may register a growth of 8% by next year end to 395 MT from the current level of 366 MT. It may increase further to 421 MT by the end of 2017. The country's per capita consumption stands at around 190 kg. The top 20 cement companies account for almost 70% of the total cement production of the country. Assuming a demand growth of eight per cent over the next two years, the all-India cement capacity utilisation is likely to improve from 71% in 2014-15 to 72% in 2015-16 to 77% in 2016-17. Government Initiatives ® Swachh Bharat Abhiyan The programme launched by the Prime Minister of India aims at achieving measures of cleanliness across the country. The programme entails an investment of nearly Rs. 2 lac crores over the next five years to construct 12 crores toilets in India. The programme will draw in cement demand as it is the basic construction ingredient. ® Smart Cities The Government announced 100 smart cities to be built with the investment of Rs. 48,000 crores over the period of the next five year. The initiative is bound to keep cement demands afloat throughout the project implementation duration. ® Housing for all by 2022 The Government of India announced facilities of affordable housing for the urban poor that includes a total of 60 million housing units -- 20 million of which are in urban India and 40 million in rural India. These will be developed and provided at subsidised rates of borrowing interest to the lower income group. ® Other provisions © Budgetary allocation of Rs. 70,000 crores to infrastructure sector © PPP model for infrastructure development © Proposal for five ultra-mega power projects, each of 4000 MW © The CAPEX of the public sector units is expected to be Rs. 3, 17,889 crores, a 74% hike OVERALL PERFORMANCE REVIEW Your Company's gross turnover crossed Rs. 1,000 crores mark this year registering a growth of 32.20% in revenue from operations over the brvious year, inspite of debrssed market conditions and weak prices. During the year, our cement and clinker production stood at 21.40 lacs tonnes and 19.66 lacs tonnes respectively, which is our highest ever production. With the benefits of capex incurred for upgradation and operational initiatives undertaken to improve efficiency of various equipment, your Company could achieve savings in power consumption of 3 kwh/t of cement production as well as substantial savings in specific fuel consumption. In line with our plans, production of blended Pozzolana cement is likely to increase further which will also reduce the carbon footprint per ton of cement. The EBIDTA for the financial year ended 31st March, 2015 increased by 56.31% over the brvious year. However, finance cost and debrciation & amortisation expenses have also increased substantially due to completion of 1.25 MTPA cement grinding capacity expansion and 0.5 MTPA additional clinker manufacturing capacity in brvious year resulting in lower Net Profit. The capacity utilisation for the year 2014-15 was 67% as the new grinding unit was commissioned during the year. It is expected to increase during coming years. Despite increases in railway freight and diesel prices during the year, the overall freight and distribution costs as a percentage of sales have reduced due to various initiatives undertaken for improvement of the supply chain's efficiency and continuous focus on optimisation of logistics. With the completion of upgradation and expansions during the year, your Company's overall cement manufacturing capacity has increased to 3.25 MTPA. The Board has also approved the setting up of a new cement grinding unit of 0.5 MTPA at Aligarh, Uttar Pradesh. The required land is already in possession of the Company and the main statutory approvals for setting up of the plant have been received. The commencement of construction is expected during 1st Quarter of the Financial Year 2015-16. RISK MANAGEMENT Risk is an exbrssion of uncertainty about events and their possible outcomes that could have a material impact on the Company's performance and prospects. Mangalam Cement is committed to ensure a secured business environment with proactive awareness, appraisal and mitigation measures. The Company has proper enterprise risk management (ERM) policies in place to identify, manage and mitigate risks and emerge as a risk-focused organisation. Economic volatility risk: Macro-economic factors have always formed the fundamental baseline on which the economy's industrial performance and slowdown may impact the Company's performance. India's new government is implementing favourable policies and regulations that have strengthened business sentiments. India's GDP grew at 7.4%, compared to 6.9% in the brvious year. With increased population, surged need for housing, moderating inflation, stabilising currency and improved disposable income, the Company expects the demand for cement to grow sustainably. Key input risk: Procurement of key raw materials at the right time and right price is an essential requirement for maintaining the overall cost of production. Any unforeseen increase may impact the Company's profitability. The Company has strategically averted this risk by maintaining sufficient limestone reserves to meet their captive requirements. It has also formed and maintained long-term relationships with the suppliers to ensure consistent supply. Besides, the Company has undertaken various technological initiatives to optimise raw materials usage and enhance productivity. Competition risk: Increasing cement players within the industry may impact realisation on account of stiff completion. To mitigate this risk, the Company has marked its product quality as its primary strength. Very efficiently, the Company has witnessed higher realisations per ton of cement on account of this uniqueness. It maintains a judicious mix of retail and institutional sales as well, which further strengthens its dealer base and retailer network. The Company also reinforced its marketing and sales team, enabling increased market penetration, retaining existing clients and acquiring potential customers, simultaneously. Human asset risk: Human resource is one of the most important assets of any company. The lack of a judicious employee mix (experienced and new) may hinder the Company's overall growth. Therefore, to maintain a steady balance, utmost emphasis has been laid down on retaining experienced personnel and recruiting management trainees to create a robust team. The Company provides specialised training to its employees and is consistently building a leadership pipeline. It maintains an attrition level that is much below industry standards. Customer reach risk: Inability to reach out to the demand pockets in key regions across India may affect business growth. The Company has developed extensive network strength, ensuring its business growth. Logistics and transportation facilities have been strengthened for efficient dispatch. The Company's marketing department closely works with dealers and institutional clients to cater to their demand requirements. Strategic positioning and strong brand recall have ranked the Company among the top five cement manufacturers in its operating region.. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY The Company has adequate internal controls across multiple areas of its operations. The systems are operating properly by utilising the services of internal and external auditors periodically, and also its own competent and qualified personnel. The Audit Committee ensures proper compliance with the provisions of the Listing Agreement with the stock exchanges and relevant provision of the Companies Act. HUMAN RESOURCE DEVELOPMENT AND INDUSTRIAL RELATIONS The Company has integrated the belief of Human Resources Development in all its policies and strategies. The Company's human resource management function is aimed at sole objective of achieving high engagement level of its people which in turn ensures both higher productivity and happy people and thereby improve the bottom line. At Mangalam, measures for employee safety, training, welfare and development continue to get top priority at all levels and results are reflected in the improved quality and efficiency. The Company's training programmes and value-based teaching enhance motivational levels among its people. The Company's industrial relations as well as public relations with all external agencies have been cordial. The Company had 1079 employees, as on 31st March, 2015. CAUTIONARY STATEMENT The statement in this report on Management Discussion and Analysis describing the Company's objectives, projections, estimates, expectations or brdictions may be forward looking, within the meaning of applicable security law or regulations. These statements are based on certain assumptions and expectations of future events. Actual results could however differ materially from those exbrssed or implied. Important factors that could make a difference to the Company's operations include global and domestic demand-supply conditions, finished goods prices, raw materials' cost and availability, changes in Government regulations and tax structure, economic developments and other factors such as litigation and industrial relations. The Company assumes no responsibility in respect of forward looking statements herein which may undergo changes in future on the basis of subsequent developments, information, or events. Yours faithfully, Amal Ganguli, Director Aruna Makhan, Director N.G. Khaitan, Director Gaurav Goel, Director K.C. Jain, Director Vidula Jalan, Executive Director A.V. Jalan, Executive Director New Delhi May 04, 2015 |