MANAGEMENT DISCUSSION AND ANALYSIS

Review of the global economy

Global growth in 2014 stood at a modest 3.4% staying at the same level as it did in 2013, reflecting a pick-up in growth in advanced economies relative to the brvious year offset by a slowdown in emerging markets and developing economies. Despite the slowdown in emerging markets and developing economies, they still accounted for three-fourths of global growth in 2014. Growth in the United States was better whereas the situation in Japan and eurozone was slower.

The major price decline in commodities occurred in the crude oil segment. Brent crude oil prices declined from $108 per barrel on January 2, 2014 to $57 per barrel on December 31, 2014 following weaker demand, increased U.S. production, lower supply disruptions and maintained output by OPEC.

Global economic growth is expected to improve moderately from 2015 onwards, primarily driven by the advanced economies (led by the US) and some eurozone countries performing better. Growth in emerging economies is expected to remain under brssure as China and Russia continue to report slow growth.

Review of the Indian economy

India is the seventh largest global economy in terms of nominal GDP and the third-largest in terms of purchasing power parity. Despite a weak global sentiment, the Indian economy reported a GDP growth of 7.3%, compared with 6.9% in 2013-14 and moderately lower than the initial estimate of 7.4%.

India registered a 2.8% growth in industrial production during 2014­15. Production in mining, manufacturing and the power sectors increased by 1.4%, 2.3% and 8.4%, respectively during 2014-15.

India reported a fiscal deficit of 4%, an improvement over the initial estimates of 4.1% and 4.7% reported in 2013-14. The economy is returning gradually to the growth trajectory with the country's apex bank easing interest costs through a series of rate cuts during the year under review.

Global PET industry

PET's popularity is growing on account of its outstanding barrier characteristics, lower breakability, lower energy-intensity compared to glass and aluminium and easy transportability.

The global PET resin market reported significant growth in the past few years, a trend that is expected to sustain following a replacement of traditional packaging applications and an emphasis being laid on lowering GHG emissions.

As a result, the global PBT (polybutylene terephthalate) and PET resin markets are estimated at US$47.4 billion by 2019, a robust growth of about 7.3% per annum 2014 onwards.

Indian PET industry

The demand for PET is expected to rise following an increase in demand from rapidly expanding consumer goods packaging and bottling industry. The PET resin market in India is pegged at around US$1 billion and expected to grow at a CAGR of 8.6% between 2014 and 2019.

Global fibre market

The global fibre market (89.4 million tonnes) is dominated by oil-based synthetic fibres (62.6% share). Cellulosic fibres, comprising cotton among others account for approximately a 29.4% of the volume while man-made cellulosic fibres (approximately 6.7% of the volume) are coveted niche products exhibiting better properties than cotton.

Indian fibre market

India is the world's second largest producer of textiles and garments. The Indian textile and apparel industry can be divided into two segments - yarn & fibre and processed fabrics & apparel. India has the highest loom capacity (including hand looms) accounting for 63% of the world's market share. [Source: IBEF] India accounts for about 14% of the world's production of textile fibres & yarns (largest producer of jute, second largest producer of silk and cotton; third largest in cellulosic fibre).

The domestic textile and apparel industry in India is estimated at US$ 100 billion by 2017 and US$ 141 billion by 2021 from US$ 67 billion in 2014. The size of India's textile market in 2014 was US$ 99 billion; the market is expected to expand at a CAGR of 9.6% over 2014-23 to reach US$ 226 billion, as per estimates.

The per capita consumption of man-made filaments and fibres in India lags behind the global per capita consumption. This is expected to change with the production of PFY is expected to grow by 5.3% and PSF by 4.1% in 2015-16.

Growth drivers

Low consumption: Globally, man-made fibre accounts for 70% of all fibre consumption; in India, the corresponding share is less than 30% with the per capita consumption of man-made fibres is at 3 kilograms as against the world per capita consumption of 8 kilograms, providing sufficient headroom for growth.

High recycled PET fibre demand: Hundreds of millions of plastic bottles which are non-bio degradable are thrown away each year post use without any attempt at recycling. In view of this, the manufacture of recycled yarns out of PET bottles has emerged as a game changer. The demand for high quality, 100%-recycled yarns made from 100%-post-consumer PET waste is high and is expected to grow.

Growing per capita income:

The per capita net national income of India at current prices was estimated at H87,748 in 2014-15 compared to H80,388 in 2013-14, a rise of 9.2%. India's per capita income in real terms (2011 -12 prices) in 2014-15 was estimated to have been H74,104, a rise of 5.9% compared to H69,959 in 2013-14. The country's income growth is expected to drive consumption.

Recycled apparel demand: A number of international brands are increasing use of recycled PSF in apparel manufacture thereby generating a growing demand.

Human resource development & industrial relations

The human resource philosophy and strategy of the Company has been designed to attract and retain the best talent. Employees are the Company's most valuable assets and the Company's processes are designed to empower employees and support creative approaches in order to create enduring value.

The Company's human resource management systems and processes aim to enhance organisational performances. The Company focuses on quick grievance resolution mechanisms and maintains absolute harmony with its work force and as such it has not faced any labour trouble since inception. As on 31st March 2015, the total direct employee strength of the Company stood at 1,720.

Internal control

The Company has built a robust internal control system based on the stringent reporting of all transactions, demonstrated efficiencies in operations and rigorous compliance, with of relevant laws and statutory regulations. The Company undertakes internal audits at regular intervals to ensure that all procedures conform with all relevant regulations. The internal audit report is discussed by the senior management and the Audit Committee of the Board. The Audit Committee regularly reviews the adequacy and efficacy of the internal control systems and procedures

01RAW MATERIALMANAGEMENT

The efficient mobilisation of waste material rebrsents the Company's core competitive advantage.

This advantage is reinforced through efficient mobilisation, and consistent engagement with relevant agencies, translating into consistent cost-effective supply of raw material.

GESL enjoys a competitive raw material (post-consumer PET bottle waste) sourcing capability through a pan-Indian network of 20+ collection centres. These franchisee-driven collection centres provide about 40% of the Company's raw material requirements, the rest is mobilised through scrap dealers. Besides, the Company has tied up with other institutions (malls, airports, hotels, colleges and other high-PET waste generation areas) to source raw material.

The Company's collection network helps mobilise nearly 225 tonnes of PET waste a day, translating into adequate raw material availability to feed the production lines.

Outlook

The Company is increasing the proportion of institutional procurement, ensuring a large material inflow accompanied by lower procurement costs. This arrangement is expected to widen operating margins, strengthening the Company's competitive advantage.

02MANUFACTURING

GESL is engaged in the manufacture of recycled polyester staple fibre (RPSF) and spun yarn from PET waste.

The Company has three staple fibre manufacturing units at Rudrapur (RPSF manufacturing capacity of 39,600 tonnes).

Kanpur (RPSF capacity of 27,000 tonnes and Bilaspur (RPSF capacity of 21,000 tonnes). Dyed texturised/ twisted filament yarn capacity of 3,000 tonnes and spun yarn manufacturing facility at Bilaspur (capacity of 7,200 tonnes).

The Company produces more than 100 RPSF varieties customised around customer needs. The in-house R&D team manages quality and product customisation. Besides, the R&D team played a pivotal role in the manufacture of dope-dyed polyester fibres across a range of colours, generating a brmium over regular variants.

The Company's manufacturing units are ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007-certified. It received the Hohenstein Institute's (Germany) authorisation to use the Oeko-Tex mark, validating the highest ecological standards.

The Company installed high-end drawing and crimping machines ensuring the production of top-quality fibres and yarns which can be dyed in a wide range of colours.

Outlook

Going forward, the Company will be stabilising its expanded capacity at Kanpur and Bilaspur to generate attractive economies-of-scale.