MANAGEMENT DISCUSSION & ANALYSIS Economic Review Global Economy The global economic growth as per International Monetary Fund's (IMF) World Economic Outlook is estimated at 3.1% in 2015 as against 3.4% in 2014. There has been major fall in global commodity prices such as Crude Oil, Steel, Base Metals, Iron Ore, Coal etc. This has augured well for countries which are net importers of commodities. Economic growth in Advanced Economies (AEs) has been stable, however, major Emerging Markets & Developing Economies (EMDEs) other than India continue to witness slowdown in growth. Going forward the IMF's report has projected that global GDP growth will stabilize around current levels and is projected to be 3.2% in 2016 and 3.5% in 2017. Indian Economy Indian economy during the year 2015-16 has remained resilient in facing global headwinds. The GDP growth stands at 7.6% for 2015-16 (base 2011-12) as per Central Statistical Office's (CSO) estimates as against 7.2% in 2014-15. The year has also witnessed a growth in foreign direct investment which stood at USD 29.4 billion for April-Dec 2015. The fall in the crude oil prices has further helped the economy, leading to a fall in inflation with WPI remaining in the negative territory for the complete year 2015-16. With inflation well in control, during the year (from April 2015 to April 2016) the Reserve Bank of India has reduced Repo Rate by 100bps. This is expected to further provide support to the economic growth. Two consecutive years of deficit rainfall due to El Nino effect had a negative impact on the rural economy. However, the recent forecast of good monsoon by Indian Meteorological Department (IMD) augurs well for the economy. The budget for the year 201617 has increased allocation for rural economy which is expected to contribute towards growth in rural income. The central government has started a number of initiatives such as Make in India, Smart Cities, Enhancing ease of doing business etc. to boost the economic growth in India. Industry Review Housing Segment With increased urbanization in India there is a growing demand for affordable houses. The Urban population in India is estimated to reach a staggering 600 million by 2031 from 377 million in 2011. Along with addressing the issues of infrastructure there is a huge need to address the growing shortfall in the housing segment. The total urban housing shortfall is estimated at 18.78 million units as per the 12th five year plan. The major chunk of the shortfall is amongst the Economically Weaker Section and Low Income Group contributing 96% to the shortfall. The total housing shortage in the rural India is estimated at 43.67 million units. Of this shortfall, more than 90% households are below poverty line (BPL). The Government has launched a scheme "Pradhan Mantri Awas Yojana"for bridging the housing gap in rural India and for the urban poor population. Under the Pradhan Mantri Awas Yojana-Gramin scheme one crore households would be provided assistance for construction of pucca house. The estimated expenditure involved in implementing the project over 2016-2019 is Rs. 81,975 crore. Business Segment Review Building Products Segment Roofing Industry Overview Fibre Cement Roofing Sheets are majorly used in the rural housing segment along with applications in warehousing and logistics. The industry is estimated to grow at 8-10% in the coming years driven by sustainable growth in the domestic economy. Growth Drivers:- Housing for All: The"Housing for All by 2022" initiative was started to reduce the - shortfall in-demand and supply of affordable houses in India. It has set a target of building 20 million houses by 2022. The "Housing for All" scheme covers initially 500 class I cities and will be implemented in three phases. Rural Growth: After two consecutive years of bleak monsoon, the recent brdiction of upbeat monsoon by the IMD for the year 2016 has ignited the spirits across many sectors. The above normal monsoon is likely to push up the consumption in rural India. The good agricultural output will increase the employment and development of new urban centres which will improve the demand for Fibre cement roofing Upgradation to Pakka Roof: There are still a large number of people living under kuccha roof who are gradually migrating towards pakka roof with growing rural income levels. As per 2011 Census, 54% of population is still living under temporary roof made out of clay tile, grass thatch etc. With the improving product reach and upward moving rural income, a faster upgradation of this set of population to permanent roofing like Fibre Cement Roofing and Metal Roofing is expected to happen. With Fibre Cement Roofing sheets being the most economical, strong and comfortable alternative to temporary roofing, acceptance of the product amongst this set of new customers would be high. Everest Roofing Solutions Everest has a wide range of roofing products including Everest Fibre Cement Roofing Sheets, Everest Hi-Tech, Everest Durasteel Roofs, Everest Decoroof and Everest Rooflight. The Fibre Cement Roofing Sheets is the most extensively used roofing product throughout the country. Everest Hi-Tech is high impact resistant non-asbestos corrugated fibre cement roofing sheet. During the year, the Company has launched a new marketing campaign for fibre cement sheets "Baahar Mazbooti, Andar Aaraam". The campaign is focused at educating consumers on the advantages of Fibre Cement Roofing Sheets viz. low heat, no noise and no leakage roofing and hence explaining the consumers on how Everest Fibre Cement Roofing Sheets provide comfort to the consumers in addition to providing strength. The year 2015-16 has witnessed below normal monsoon impacting rural demand significantly which had an adverse impact on the roofing product segment. Also, the fall in steel prices has led customers to shift to metal roofing sheets, this has affected the realization for the fibre cement roofing sheets. The overall industry demand has remained slack during the year. Despite this, Everest has been able to maintain steady volumes during the year 2015-16. This is expected to improve with a likelihood of a better monsoon & government's focus towards improving rural economy followed by a major drive by the Company to expand its distribution base. Boards & Panels Industry Overview The Indian Boards & Panels industry is dominated by wood based products like plywood, MDF, particle boards and gypsum boards etc. The industry size for Board & Panels in India is estimated at Rs. 35,000 crore. The industry is witnessing high growth due to the ease and convenience which it offers vis-a-vis the traditional methods of construction. The major contributors to the growth among the non-wood alternatives are Gypsum plaster boards and Fibre cement boards. The Fibre cement boards market in India has almost doubled in the last 2 years owing to increasing demand for the modern quick-to-install building materials. Growth Drivers Fast Paced Execution: The requirement for fast construction would continue to increase the share of Fibre Cement Boards and Dry Wall systems in all infrastructure projects, hospitality and sanitation projects, brfab construction as well as modern realty projects. Affordable Cost: The difference in the cost of construction between on-site and readily installable materials has been becoming narrower and readily installable modern construction technique using Fibre Cement Board products are becoming popular. Labour Efficient Modular Construction: The shortage of available labour has been a growing concern in the construction industry leading more people to adopt to sustainable construction methods which are less labour intensive and are readily available at affordable prices. Smart Cities: The Smart Cities initiative is taken by the government to enhance the life of citizens of India by providing basic infrastructure and amenities for the individuals. The mission lies in creating a better, smarter and greener India. The Boards & Panels segment can add immensely to accomplishing the dream of Smart Cities. The unveiling of the smart cities will improve the infrastructure activity fueling growth for new age ready to install and green building products. Everest Boards and Panels solutions Everest offers a wide range of Fibre Cement Boards and Panels with range of applications such as for Ceilings, Flooring, Cladding and Walls. The Fibre Cement Board is suitable for modern & conventional construction and also helps in garnering LEED points for green eco-friendly construction. Exports contribute to a sizeable amount of the Board's and Panels revenue where Middle East is one of the biggest markets for the Company. The difficult business scenario due to geo-political tension in that region had an adverse impact on this segment during the year. The Oil prices have plummeted affecting local economies there. The Company is working towards increasing the applications and offering complete solutions to boost sales in that region. Building Products Manufacturing Facilities The Company has six building products manufacturing facilities of which two facilities also manufacture Boards and Panels. The total capacity as of 31st March, 2016 stood at 810,000 MTPA. The manufacturing facilities are located at Kymore (Madhya Pradesh), Podanur (Tamil Nadu), Kolkata (West Bengal), Bhagwanpur (Uttarakhand), Lakhmapur (Maharashtra) and Balasore (Odisha). Of the six, Bhagwanpur (Uttarakhand) and Lakhmapur (Maharashtra) also manufacture Boards and Panels. Financial Highlights for Building Products During the year 2015-16, Revenue decreased by 4.3% to Rs. 83,004 lacs as compared to Rs. 86,718 lacs in the brvious year. Outlook The government has significantly increased its focus towards enhancing the economic growth in the rural sector in India. The number of government schemes such as MNREGA, Pradhan Mantri Gram Sadak Yojana, Rural electrification, Pradhan Mantri Krishi Sinchai Yojana etc is likely to generate employment and lead to increase in income levels. The IMD's projection of an above normal monsoon for 2016 should give a fillip to the rural economy. This augurs well for the building products segment of the Company. The Company with its large distribution network is well placed to leverage this growing opportunity. Steel Building Segment Industry Overview With the new policy initiatives by the central government the industrial segment has witnessed early signs of revival. The central government has significantly increased its impetus on removing bottlenecks in industrial infrastructure development and also wants the industry to implement new means to reduce time & cost of project completion. Pre-Engineered Buildings (PEBs) is one such means of construction which has brought significant cost effectiveness and speed to construction. This mode of construction is now well accepted across various industries like Logistics, FMCG, Automobiles, Pharma, Capital Goods, Power, Manufacturing etc. Also there is increasing demand from Airports, Metro Stations, multi-storey buildings, stadiums, etc. The PEBs sector, although is still in its infancy stage, has become an integral part of the construction industry in India. The industry over the last few years has been witnessing a double digit growth and the total estimated size is close to Rs. 5,000 crore. Growth Drivers Make in India The "Make in India" initiative by the government with thrust on making India a global manufacturing hub has led to adoption of alternative and innovative technologies. The initiative seems to be gaining momentum with many foreign companies announcing to set-up or increase their manufacturing capacities in India. The initiative has also led to growth in the FDI inflow in India. The "Make in India" initiative will potentially pave way for infrastructure and industrial boom which will create robust demand for the PEBs E-Commerce Boom With rapid digitalization and availability of affordable smartphones and internet services, E-Commerce in India is witnessing a robust growth. As per Knight Frank, the share of e-commerce in the total retail segment is expected to grow from 2% to 11% by 2019. This will lead to a significant growth in other related services including warehousing and logistics. As per CBRE, The retail distribution hub will be largely concentrated around major metro cities like Delhi NCR, Mumbai and Bangalore; while Pune and Chennai are likely to see healthy demand for industrial warehousing. Cost and Time Effective PEBs are most cost effective as they reduce the total cost incurred in establishing vis a vis the traditional construction methods. It also saves lot of time required to complete the project avoiding the risks involved such as projects overruns etc. Everest Steel Building Solutions The growing prominence of the Pre-Engineered buildings as an innovative and cost effective method has found acceptance within the construction industry. Everest has been consistent with its quality and ability to deliver complex structures on time and has been a leading operator in this segment. The softening of steel prices augurs well for the Company. The Company has consistently delivered projects across various industries without any time and cost overruns. During the year, the Company has witnessed robust growth in the segment and developed some of the prominent steel structures. Some key projects executed during the year - 4.5 Lac Sq.ft Exhibition Centre to host Auto Expo 2016 -constructed in record 180 days - Largest rooftop extension project in India, at Mumbai. Total area 2,200 Sq. mtr. - One of the tallest PEB structure in India with a height of 49 meters for Goa Shipyard Manufacturing Capacities The Company has three Pre-Engineered building manufacturing facilities; one each at Dahej (Gujarat), Bhagwanpur (Uttarakhand) and Ranchi (Jharkhand). The Company's total installed capacity for Steel Buildings as of 31st March, 2016 stood at 72,000 MTPA. Financial Highlights During the year 2015-16, Revenue increased by 33.03% to Rs. 48,332 lacs as compared to Rs. 36,332 lacs in the brvious year. Outlook The government is working towards increasing the ease of doing business in India and also towards making India an export hub through its "Make in India" program. The e-commerce boom in India has increased the demand for well maintained warehouses. Hence, the demand for Pre-Engineered building segment remains robust in India. The Company has built a strong brand in this segment by delivering large as well as some of the complex projects without any time or cost overrun. Hence, the Company is very well placed to make the most of the growing demand. FINANCIAL STATEMENT SOURCE OF FUNDS a. Share Capital The share capital comprises of only one class of shares -equity shares of face value of Rs. 10 each. The authorized share capital is Rs. 1,700 lacs, divided into 170 lacs equity shares of Rs. 10 each. The issued, subscribed and fully paid up share capital increased to Rs. 1,538.89 lacs as at 31 March, 2016 from Rs. 1,529.11 lacs in the brvious year on account of shares issued to the employees of the Company pursuant to the Employees Stock Option Schemes. b. Reserves and Surplus Capital Reserve Capital Reserve remained unchanged during the year at Rs. 30.00 lacs. Securities Premium An amount of Rs. 164.45 lacs was added to the securities brmium account. This was on account of brmium received on issuance of97,755 shares to the employees of the Company pursuant to the Employees Stock Option Schemes, taking the closing balance to Rs. 631.84 lacs as at 31 March, 2016. General Reserve An amount of Rs. 360.00 lacs was transferred to the general reserve. Profit and Loss Account The balance retained in the profit and loss account as at 31 March, 2016 was X 22,694.79 lacs, after providing for dividends, dividend distribution tax and transfer to general reserve. The total amount of profits appropriated to dividend including dividend distribution tax was X 931.54 lacs compared to Rs. 917.42 lacs in the brvious year. c. Shareholders' Fund The total shareholders' fund increased to Rs. 34,744.43 lacs as at 31 March, 2016 compared to Rs. 31,971.10 lacs as at 31 March, 2015, primarily on account of the profits of the Company for the year net of taxes and proposed dividends and the proceeds of the shares issued to the employees of the Company pursuant to the Employees Stock Option Schemes. d. Loan Funds Company's borrowings decreased from Rs. 28,048.75 lacs as at 31 March, 2015 to Rs. 23,073.70 lacs in 31 March, 2016. The decrease was mainly on account of lower utilization of cash credit facilities of the Company to the extent of Rs. 5,489.67 lacs. Other short term borrowings decreased by Rs. 1,830.74 lacs, where as the long term loans recorded a net increase of Rs. 2,345.36 lacs. e. Long-term Provisions Long-term provisions stood at Rs. 452.89 lacs as at 31 March, 2016 compared to Rs. 598.83 lacs in the last year. For the current year, this comprise of the provision for compensated absences. f. Deferred Tax Assets/ Liabilities Deferred tax liability increased from Rs. 2,951.13 lacs as at the beginning of the year to Rs. 3,226.35 lacs as at the end of the year. The increase was primarily on account of tax on the difference of debrciation allowable as per taxation laws and the debrciation charged in the books of account amounting to Rs. 222.29 Lacs. Balance being a decrease in the deferred tax liability is on account of timing difference on taxability of other routine items. g. Current Liabilities (other than short-term borrowings) Current liabilities increased to Rs. 31,924.87 lacs as at 31 March, 2016 against Rs. 31,433.35 lacs as at 31 March, 2015. a. Fixed Assets The gross block (including tangible and intangible assets) increased to Rs. 59,766.50 lacs as at 31 March, 2016 against Rs. 54,568.48 lacs in the last year. b. Non-current Investments During the year, the Company invested Rs. 2,008.40 lacs equivalent to $ 3.00 million to acquire 30,00,000 equity shares of the face value of $ 1 each in its wholly owned subsidiary M/s Everest Building Products, Mauritius to take its total holding to 42,25,000 shares or $ 4.225 millions. The Company further acquired 40,500 equity shares of Rs. 10 each of M/s Everest Building Solutions Ltd for a sum of Rs.4.05 lacs to take its holding to 50,000 equity shares of Rs. 10 each and thereby making the investee company a wholly owned subsidiary of the Company. c. Long-term Loans and Advances The amount of long-term loans and advances as at 31 March, 2016 stood at Rs. 6,098.11 lacs against Rs. 8,710.05 lacs in brvious year. This decrease is mainly on account of reduction in (i) advance tax by Rs. 1,997.90 lacs, (ii) Capital advances by Rs. 392.15 lacs, (iii) security deposits by Rs. 114.99 lacs & (iv) minimum alternative tax credit entitlement by Rs. 106.90 lacs. d. Current Assets Trade Receivables Trade receivables amounted to Rs. 11,311.05 lacs as at 31 March, 2016 compared to Rs.10,431.41 lacs as at the end of the brvious year. The average collection period stood at 29.9 days as compared to 29.7 days in the brvious year. e. Cash and Cash Equivalents Cash and cash equivalents stood at Rs. 5,211.18 lacs as at 31 March, 2016 compared to Rs. 6,363.21 lacs as at the end of the brvious year. The decrease is mainly on account of reduction in the money held in fixed deposits. f. Short-term Loans and Advances The amount of short-term loans and advances increased to Rs. 7,199.69 lacs as at 31 March, 2016 compared to Rs. 5,980.55 lacs as at the end of the brvious year mainly on account of higher advances to suppliers by Rs. 1,006.28 Lacs. g. Other Current Assets Other current assets decreased to Rs. 86.61 lacs as at 31 March, 2016 as compared to Rs. 102.66 lacs in the brvious year. INCOME STATEMENT a. Revenues Total revenue of the Company increased to Rs. 1,31,336 lacs in 2015-16 compared to Rs. 1,23,050 lacs in 2014-15, an increase of 6.7%. The Building products segment contributed Rs. 83,004 lacs in 2015-16 compared to Rs. 86,718 lacs in the brvious year. The steel buildings contributed Rs. 48,332 lacs in 2015-16 compared to Rs. 36,332 lac in the brvious year. b. Operating Expenditure Operating expenditure comprising of cost of raw material consumed, changes in inventories of finished goods, work in progress, purchases of stock in trade, employee benefit expenses and other expenses increased from Rs. 1,14,856 lacs in 2014-15 to Rs. 1,23,018 lacs in 2015-16. c. Operating Profit The operating profit increased from Rs. 8,193 lacs in 2014-15 to Rs. 8,317 lacs in 2015-16 a growth of 1.5%. The operating profit margin decreased from 6.7% in 2014-15 to 6.3% in 2015-16. d. Finance Cost The total interest cost from all the loans was Rs. 1,910 lacs in 2015-16 compared to Rs. 1,869 lacs in 2014-15. e. Debrciation and Amortization Expense The Debrciation & Amortization Expense stood at Rs. 2,563 lacs in 2015-16 compared to Rs.2,542 lacs in 2014-15. f. Tax Expenses The Company's tax expense for the year 2015-16 was Rs. 1,604 lacs compared to Rs. 1,407 lacs in 2014-15. g. Net Profit After Tax The net profit was Rs. 3,531 lacs in 2015-16 compared to Rs. 3,421 lacs in 2014-15. There was YoY growth rate of 3.2%. The net profit margin was 2.7% compared to 2.8% in the brvious year. h. Earnings Per Share The earnings per share stood at Rs. 23.00 in 2015-16 compared to X 22.45 in 2014-15. Risk Management The business is prone to many challenges both external and internal which can have negative impact. Hence, it becomes imperative to have a sound risk management strategy. Cognizant of this fact, the Company has a robust risk management framework in place. Some of the key strategies to mitigate risk are explained below: Raw Material Majorly used raw materials are steel, cement and chrysotilefibre. The volatility in the prices and the availability can affect the production. - The Company has in place inventory management system which helps in maintaining adequate level of inventory to mitigate delays due to transportation and shipments - The Company has agreement with material suppliers both at domestic and global level to ensure timely supply of raw materials - The sizeable growth in volumes over last five years has also increased the leveraging capabilities of the Company Volatility in Foreign Exchange The highly volatile currencies can put the Company's profitability at risk as the Company imports fibre and pulp. The fluctuating currencies also impact the Company as it has External Commercial Borrowings. - The Company monitors regularly the foreign exchange rates and has a robust hedging policy to remove any significant negative impact Quality Everest being a niche player has built a strong reputation for the quality of its products. Any deviation from the promised quality would have a negative impact on the reputation and credibility. - The manufacturing facilities at Nashik, Coimbatore, Kolkata, Kymore and steel building production facility at Bhagwanpur are ISO-9001 and ISO-14001 certified providing assurance that the Company adheres to high standards and quality - The R&D at Nashik for building products develops innovative and high quality products consistently - The Company manufactures products, provide services and solutions to reputed institutions and corporations. The contracts are renewed and the clients give repeat order reflecting acceptance of the Company's high quality and technical capabilities - The Company has in place qualified quality personnel in each facility to inspect the raw material and continuously monitors the quality till finished goods - Measures for speedy resolutions of customer complaints have been put in place Price The rising input costs and highly competitive prices among the peers are a concern. The price increase cannot always be passed to the customers because of competitive environment. - The loyalty of customers build over years backed by high quality of product has allowed Everest the price brmium in the markets it serves. Better quality and service has allowed the Company to hold onto its prices even under volatile market conditions - Promotion of the products through right channel and local advertising helps in explaining the price rise to the customer Credit Tight market conditions and illiquidity delays the receivables impacting the cash flows. - Everest is not liberal with credit facility. Credit facilities for distributors are backed by security deposits. The Company minimizes the time lag boosting the cash conversion cycle - The Company keeps track of the credit worthiness of its customers and distributors through ERP Health & Safety At Everest, health and safety is paramount to all our business operations. We take special care of health and safety of all employees, associates and customers of the Company. We take adequate safety measures at Pre-Engineering Building sites during installation. Further, safe work place practices are followed strictly at all our plant locations and erection sites. There are many misconceptions about one of our raw materials, asbestos. We use white asbestos (Chrysotile) fibre bound in a cement matrix while manufacturing AC Roofing. Chrysotile is naturally occurring mineral, mined and imported in pallets. Since it is not sprayed, fibre emission is fully controlled. Fibre concentration at our production facilities is better than international norms and we ensure zero discharge of industrial effluent. Regular health check-ups for all of our employees confirm the absence of any asbestos-related disease over decades of service. We ensure the highest level of safety for our employees and the community. Living and working under an Everest Roof is safe. Human Resources The people at Everest are its greatest assets. Motivating employees through regular upskilling and providing collaborative work environment that fosters ethical behaviour, mutual respect and responsibility is integral to the Company's HR policy. Some of the key human resource development initiatives are : Middle Management Development Program: In order to identify and develop junior management resources in their career progression a Middle Management Program titled "Everest Pratibha" was started during the year 2015-16 in association with IIT - Delhi. 19 highly talented employees qualified for the program. Performance and Goal Management System: Human resources development at Everest is driven towards enhancing performance and individual development. A new performance management and goal management system on SAP-Succesfactor platform has been introduced at Everest. Employee Engagement: Participation in various competitions within and outside the Company such as 5-S activities, Kaizen improvements and Quality Circle activities are encouraged. Team members are involved in a number of work related projects, learning clubs, inter-corporate and inter-zone cricket matches and recreation activity which helps them engage with other employees and build trust. Rewards: The Employee Stock option Scheme for senior management grants them the option to acquire shares of the Company. The employees are also rewarded for achieving targets under Everest's Excellence Bonus Scheme and Everest Champions Scheme. |