REPORT MANAGEMENT DISCUSSION AND ANALYSIS The Core business of the Company is manufacturing and sales of Insoluble Sulphur, a vulcanizing agent used in the rubber industry. The Company also manufactures Sulphuric Acid and Oleum. Your Company is a global supplier of Insoluble Sulphur and about two third of the turnover of your Company is from exports. INDUSTRY STRUCTURE AND DEVELOPMENTS Insoluble Sulphur Global demand of Insoluble Sulphur is estimated to be 2,64,000 Mtpa as per Notch Report. Out of the above, about 77,000 Mtpa demand is in China and 36,000 Mtpa demand is in America. Demand in China did not grow on expected line due to anti-dumping duty imposed by USA on import of tyres from China. Out of the 77,000 Mtpa demand in China, about 50% is for the globally accepted quality of the product which is manufactured by three companies in the world including your Company. Therefore, the demand for quality Insoluble Sulphur may be estimated at about 2,25,000 Mtpa. The current demand of Insoluble Sulphur in India is estimated at 14500 Mtpa. This is expected to continue to grow in double digits on the back of the following factors: Growth rate of radialisation of Commercial Vehicle tyres which is currently at less than one third of the total demand of CV Tyres. India emerging as a hub for exports of tyres. New Capacities being set up in India for Tyre manufacturing by international players such as Bridgestone, Michelin and Yokohama as well as domestic players to cater to international market also. The Insoluble Sulphur industry consists of three players who manufacture internationally acceptable Insoluble Sulphur including Your Company. One of the companies is a global Multinational having multi location plants. This player dominates the international Insoluble Sulphur Market. The other player and your Company are then similarly placed. However, Your Company's Geographical footprint is wide and encompasses all continents. Other than above, there are a few Chinese manufacturers who are also in the business of Insoluble Sulphur, but they are yet to find global acceptance. The gap in quality over the other Chinese suppliers is being maintained by constant endeavor to increase the quality parameters of our product and by introducing customer specific products. During the year, Sales realization from Insoluble Sulphur was adjusted for sustained lower prices of Raw Materials and fuels in the international as well as domestic markets. This resulted in decrease in overall sales realization for the year. The expected growth in sales could not be achieved on account of less than expected demand due to global economic slowdown. However, the PMT contribution remained unaffected and on expected lines. Your Company's focus on China and USA is producing favourable results and during the next year, the Insoluble Sulphur Plants should run at optimum capacity resulting optimization of utility consumption. Other than this, the Company is also working continuously to reduce its carbon footprint by reducing utility consumption through process optimization etc. Your Company is currently in the process of expanding its capacity in two phases, the first phase of which is expected to be commissioned as per schedule, in April 2017. Sulphuric Acid and Oleum Sulphuric Acid sales were satisfactory during the year with expected levels of sales realization and quantity being achieved. Oleum sales remained subdued due to lesser demand. However, there was a good demand of Battery Grade Sulphuric Acid which added to the overall performance of the division. The Industry situation remains the same with one dominant manufacturer, for whom, Sulphuric Acid is a by-product, controlling the market. The demand for Sulphuric Acid remained normal this year. The Demand is expected to be better in the coming year due to expected good monsoon and thereby good production of fertilisers where Sulphuric Acid finds use. OPPORTUNITIES, THREATS, RISKS, CONCERNS AND OUTLOOK Opportunities and Outlook: The outlook for future growth in demand remains at about 3-4% even though growth in China is expected to be significantly lower due to anti-dumping measures imposed by USA and its own internal economic issues. This is due to shifting of production growth to India, South East Asia and also USA to some extent. Your Company's endeavour to establish significant brsence in China and USA are being fruitful and should augur well for the additional production from the new capacities coming up in 2017. Being a domestic company, your Company is having a natural advantage in one of the fastest growing market for Insoluble Sulphur in percentage terms. The demand of Insoluble Sulphur in India is still at a nascent stage (compared to other significant economies) and has significant headroom and opportunity for growth. Your Company should sustain future growth on the back of its status as a globally approved and brferred supplier to tyre majors and increase in Customer base. Threats, Risks, Concerns: The threats and risks to the business of the Company may be in the following areas: Demand and Sales Realisation: Demand of Insoluble Sulphur is expected to grow with ratio of Radial Tyres and high performance and safety tyres to total production growing. Therefore, demand threat shall be significant only if global tyre demand falls significantly. Further, redundancy of the product is not expected as long as tyre is made from rubber. The Risk of competition from new manufacturers, mainly from China, is met through continuous product and process improvement to maintain quality and cost advantage over them and through collaborative efforts with tyre companies to see that their requirements are met. Further, high technology barrier coupled with exhaustive approval processes of tyre manufacturers acts as a deterrent for entry of new manufacturers. The Company is always in the process of broad basing its supplies in terms of customers as well as geographies. Sales realization may also be affected through exchange rate fluctuation or overall reduction in raw material and commodity prices. The Company safeguards itself through hedging its Foreign exchange exposure as per its policy in this regard from fluctuations and in the latter case, even though realisations may come down, there should be no impact on contributions and margins. Production and Input Material Related Risks: Raw material supplies are ensured through maintaining multiple vendors and adequate stocks. Sufficient back up of utilities are maintained to ensure continuous supply. Due emphasis is laid on safety and brventive maintenance to avoid unnecessary interruptions. Other than the above, the Company also engages with its customers closely to understand its requirements, any change therein, or issues, if any, with the product. Your Company has a motivated and dedicated team of employees and also has in place safety and environmental systems and rigorous brventive and brdictive maintenance system. This helps in mitigating production related risks. Competition: Competion is a risk as well as opportunity. The Company endeavors to be at the forefront of quality and innovation through it's laboratory base, process and collaborative research efforts which also focuses on streamlining and optimizing production process and input costs. PERFORMANCE OF THE COMPANY During the year, your Company achieved a Profit Before Tax of Rs.64,76.32 lakhs and Earning Before Interest Debrciation and Tax of Rs.86,76.12 lakhs. Net Profit increased form Rs 51,31.60 Lakhs to Rs.52,98.73 Lakhs. HUMAN RESOURCES The Company has, under its employment, 395 officers and workmen as on 31st March, 2016. Increase in value of Human Capital through development of individual and collective skills and knowledge is essential to any company for its continuous growth. This is more so in an industry like Insoluble Sulphur where continuous research and development is required in order to stay abreast of market expectations. Your Company implements in house programs for skill development and updation of competency of its employees on a continuous basis. Programmes for sharing and internalisation of knowledge within the Company are also carried out. Employees are also sent to suitable outside programs to keep them abreast of the latest developments in the industry and economy. Your Company lays great emphasis on building a motivated work force, which can participate constructively in the growth of the Company. Innovative ideas are regularly received from the officers and staff of the Company, many of which were implemented for improvement in areas of quality, cost savings and increased productivity. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE Financial Information i. Fixed Assets: The Gross Capital Assets stood at Rs 3,24,98 lakhs as at 31st March 2016 against Rs. 2,79,90 lakhs as at 31st March 2015. (including project under implimentation) ii. Inventory: The inventory at the end of the current year stood at Rs.38,67 lakhs against Rs 37,26 lakhs at the end of brvious year. iii. Sundry Debtors: Sundry debtors at the end of the year stood at Rs.48,05 lakhs against Rs.51,49 lakhs at the end of brvious year. CAUTIONARY STATEMENT Statements in the Management Discussion and Analysis describing the Company's objectives, expectations or brdictions may be forward looking within the meaning of applicable securities laws and regulations. Actual results may differ materially from those exbrssed in the statement. Important factors that could influence the Company's operations include global and domestic supply and demand conditions affecting selling prices of finished goods, input availability and prices, changes in government regulations, tax laws, economic developments within the country and other factors such as litigation and industrial relations |