MANAGEMENT DISCUSSION & ANALYSIS The economy did not pick up as expected during 2014-15. The macroeconomic situation, however, remained positive with higher economic growth and inflation remaining under control. Expectations are high that government policies and announcements would translate to on ground activities which could provide a deep impetus to industrial revival and economic growth. The Company's ingrained vigil on costs, coupled with its good governance, ethical business practices and sustainable policies provided it the strength to meet the challenges and complete a profitable year of business. In February 2015, KCI received the ET Bengal Corporate Award for being the fastest growing company in its turnover category during the year. The diversification initiatives of the Company are described in the subsequent section titled 'New Frontiers'. FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE During the year under review, the Revenue from Operations was at Rs. 3,107 million as compared to Rs. 3,398 million in the brvious year. The Profit before exceptional and extraordinary items and Tax was at Rs. 169 million as against Rs. 346 million in the brvious year. The Net Profit for the year was Rs. 153 million as against Rs. 273 million in the brvious year. The Shareholder's funds increased to Rs. 4,897 million as against Rs. 4,823 in the brvious year and the Long Term Borrowings decreased from Rs. 504 million in the brvious year to Rs. 288 million during the year under review. On a consolidated basis, the Revenue from Operations was at Rs. 5,309 million as compared to Rs. 5,414 million in the brvious year and the Net Profit for the year was Rs. 123 million as against Rs. 337 million in the brvious year. ALCO CHEMICALS SEGMENT Industry structure and development The Alco Chemicals Division comprises two manufacturing facilities - one at Ankleshwar in the state of Gujarat, and the other in Visakhapatnam in the state of Andhra Pradesh. The Ankleshwar facility manufactures Formaldehyde and other value added products, including Pentaerythritol, Sodium Formate, Acetaldehyde and Hexamine. The Vizag facility manufactures Formaldehyde, Hexamine and Phenolic Resins. Opportunities • Growth in value added products, such as straight and modified Phenolic resins. • Shift from natural gas to solid fuel for steam generation, thereby reducing production costs. • Upgrade technology to increase production and reduce costs. • Offer value added services such as contract research and manufacturing. Threats • Slow growth of the manufacturing and construction sectors (the main consumers) could affect demand. • Cheaper imports and dumping of Pentaerythritol and Hexamine could squeeze margins. Performance The operations of the Alco Chemicals Division remained stable during the year. There was an increase in sale of Pentaerythritol. The capacity utilization of the Vizag plant continued to grow year-on-year. Outlook • Growth impetus in the manufacturing sector expected to improve demand for Alco Chemicals in the country. • Continuous improvement in technology should result in stable operations. • Stability of rupee and pricing of Methanol will brvent volatility. • No significant improvement in margins. SOLAR POWER SEGMENT Industry structure and development The Solar Power Division is located near Village Bap in the Jodhpur district, in the state of Rajasthan, and is engaged in the generation of solar power using Solar Photovoltaic technology. Opportunities • Higher sale of power due to increased demand, if the Government better enforces the Renewable Purchase Obligation (RPO) of power consumers across the country. Threats • Lack of enforcement of the Renewable Purchase Obligation. • Procedural hurdles brventing larger investment. Performance The operations of the Solar Power Division improved over the brvious year. Choice of technology for the project resulted in the Division having one of the highest performance ratios in the country. Revenue from the sale of electricity during 2014-15 was Rs. 34 million compared to Rs. 26 million in the brvious year. Outlook • The Division expects stable operations to continue • The Government has already taken several positive steps towards enforcing the RPO, and is continuing to do so: Open Access consumers and Captive Power Producers in various states have been brought under the RPO umbrella, thus increasing the demand for solar power; and the amendment to the Electricity Act introduces a much stiffer penalty for RPO non-fulfillment, which should also significantly boost demand. • The policy framework of the Government and associated procedural requirements are expected to be streamlined, thus providing a better commercial environment for solar power projects. QUALITY ACCREDITATION AND OHSAS During the year, both manufacturing units of the Company at Ankleshwar and Visakhapatnam renewed the ISO 9001 certification for quality management systems, the ISO 14001 certification for environment management systems and practices, and OHSAS 18001 certification for organizational health and safety systems. SAFETY AND ENVIRONMENT During 2014-15, the Company maintained its safety record and it remained an accident free year at all units. Proactive practices in managing and protecting the environment ensured control on wastage and recycling resources. RISKS AND CONCERNS Currently, the Company perceives the following main business risks: • Threat from cheap imports and dumping by other countries negatively impacts domestic prices. • Extreme volatility in prices of raw materials and other inputs could impact margins. • Slow enforcement by the government of the Renewable Purchase Obligation. INTERNAL CONTROL SYSTEMS AND ADEQUACY An adequate system of internal control is in place. The assets, buildings, plant and machinery, vehicles and stocks of the Company are insured, including for loss of profits. The key elements of the control system are: • Clear and well defined organisation structure and limits of financial authority. • Corporate policies for financial reporting, accounting, information security, investment appraisal and corporate governance. • Annual budgets and business plan, identifying key risks and opportunities. • Internal audit for reviewing all aspects of laid down systems and procedures as well as risks and control. • Risk Management Committee that monitors and reviews all risk and control issues. HUMAN RESOURCE AND INDUSTRIAL RELATIONS The Company adopts good human resource policies and practices to impart excellence, fairness and transparency in all its operations. Each employee is guided by a Code of Conduct that helps the organisation to achieve its goals in an ethical manner. KCI regularly conducts training programmes for different levels of employees. During the year, KCI conducted training programmes and workshops including behavioural and skill development initiatives. The industrial relations at the Company continue to remain cordial and harmonious with a focus on improving productivity, quality and safety. The number of persons permanently employed by the Company during the year was approximately 333. Cautionary Statement Statement in this'Management Discussion and Analysis' describing the Company's objectives, projections, estimates, expectations or brdictions may be'forward looking statements' within the meaning of applicable securities laws and regulations. Actual results could differ materially from those exbrssed or implied. Important factors that could make a difference to the Company's operations include global and Indian demand supply conditions, finished goods prices, feed stock availability and prices, cyclical demand and pricing in the Company's principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries within which the Company conducts business and other factors such as litigation and labour negotiations. |