MANAGEMENT DISCUSSION AND ANALYSIS : 1. Industry structure and its developments: Your Company is in the capital goods sector, manufacturing plastic processing machines specifically extrusion and post extrusion machines for producing films, sheets and various thermoformed and vacuum formed products. Your Company strives to provide technologically advanced and affordable solutions to the plastics industry, in the country and worldwide, "Excellence in extrusion", thus pervades each and every facet of your Company's operations and is a distinct exbrssion of the corporate vision and culture. Plastics rebrsents one of the ubiquitous raw materials that finds use in a wide gamut of industries ranging from packaging, construction, automotives, industrial manufacturing equipment, to mechanical engineering.. Plastics have entered each and every walk of life in the modern world and transformed the quality of life. There is no human activity where plastics do not play a key role from clothing to shelter to food, from transportation to communication and from entertainment to health care. Plastics, because of their many attractive properties, such as lightweight, high strength and ease of processing, ease of recycling, meets a large share of the material needs of man, and that too at a comparatively lower cost and causing lower environmental implications. The unique characteristics of plastics like durability, formability, light weight and versatility have enabled their usage in almost everything which helps make life easier and better. 2. Opportunities and Threats: The plastic processing industry, in fact, offers a huge potential for technology up gradation and some of the areas with enormous investment potential for the plastics industry are: (a) World-class higher capacity machines with low energy consumption levels (b) Enhanced design capabilities, moulds, tools and dies and technological know-how (c) Use of intelligent manufacturing to improve productivity and asset utilization. Global manufacturing and management practices with an eye for quality and design. (d) Development of new products and applications. (e) Efficient plastic recycling technologies (f) Technology Consultancy and Technology Transfer. (g) Foreign Direct Investment in the downstream sector specially in Plastics Technology Parks and SEZ with tax benefits The most critical, challenges that Indian plastic industry is facing today is the "image of plastics". Some of the myths perpetuated about plastics are: - Feared as being toxic - Could be health hazards - Maybe harmful to the soil - Could cause acid rain Is not environment friendly - Has high carbon foot print These accusations leveled against plastics in general and against plastic industry in particular have been farfetched and without a ry- sound rational basis. This is a key concern. The industry has to take responsible, technically defensible and rational actions in the overall public interest and environmental welfare. Low technology and low quality machines from China and import of energy guzzling used machines are potential threats but your Company is fully geared to handle this challenge owing to superior technology, locally available efficient after-sales-service and offering value for money solutions. (jj Volatility in polymer prices which are influenced by the crude oil prices also brings in elements of uncertainties and effects the availability of capital. Increasing cost of energy is also a threat and your Company is committed to producing energy efficient machines. Reducing availability of skilled manpower for operating the machines is also an issue of concern and your Company is working towards offering machines with higher level of automation. Designing machines with reduced levels of wastages during the production process is another area being targeted by your Company. 3. Segment-wise performance: Your Company is operating in one segment only i.e. Plastic extrusion machines specifically film and sheet extrusion. As compared to other players in this segment, your Company has emerged the top performer in terms of growth in sales and profits and market share. 4. Outlook: The global plastics industry is witnessing continuous shift of production bases to low-cost Asian countries. This coupled with increasing foreign investments, mergers and acquisitions between key players , and rise in the number of new manufacturing establishments are brsenting Asia-Pacific as a prime driver of growth in the plastics industry. In particular, China and India offer enormous potential due to expanding automobile demand, resurgence in growth fundamentals across all end-use markets, such as rebuilding of consumer/business confidence, increasing income levels, rebound in general production, and rise in capital investments in all end-use sectors. Besides growing demand from the packaging, automobile, mining, chemical, construction and agricultural industries, the Asia-Pacific plastics market is propelled by trends such as globalization, demand for durable products and urbanization. Packaging sector is one of the major consumers of plastics. Apart from being used as a substitute for traditional materials, plastic packaging is being increasingly used in healthcare and personal care products, and packaged foods and beverages markets. Advancements in packaging material science and mounting demand for product protection, long shelf-life and product security, and stability are further driving demand for plastic packaging. Demand for plastics which are biodegradable/oxydegradeable is on the rise and is expected to grow, owing to novel applications in the packaging industry, primarily for food and beverages. Emerging nations with underdeveloped or no recycling facilities are expected to benefit considerably from bioplastics products and packaging. Global production and consumption of plastics increased from less than 5 million tonnes in 1950 to 300 million tonnes in 2013. Indian sub-continent share in global production is only 4.2% Indian polymer demand is growing twice that of GDP. From 8.7 million tons in 200304 , it has increased to 11 million tons by 2012-13. Over a third is used for packaging, while construction products rebrsent almost a quarter. Report of the Sub-group on Petrochemicals for the 12th Five Year plant lists down following Opportunities for the plastics industry: • Large and rapidly growing domestic market for end products. • Large head-room for future growth (Indian per capita at - 7kg, compared to 109 kgs in US, 32 kgs in Brazil and 29 kgs in China),due to favorable demographics, rising disposable income, development of rural marketing, growth of organized retailing, developments in agriculture, automobile, telecommunication, health care, etc. • Rising labour costs in developed markets in plastic converting sector - an opportunity for India to expand capacities and export. • Development of niche products for exports. • Scope for increased value addition. • Favorable trade agreements Further it also states that Virgin polymer consumption during 2010-11 was estimated to be 8.5 MMT, with 68% accounted by Extrusion, 26% by injection Molding Sector and the remaining 6% by Blow Molding & other sectors. Installed Capacity (for production of polymers) has more than doubled in the last five years from 11.7 MMT in 05-06 to 23.7 MMT in 10 -11. 32,000 machines were added at an investment cost of Rs 11,000 crores in the last 5 years out of which 21,300 injection molding machines accounting for around 67%, while extrusion machines accounted for 27% and the rest 7% blow molding machines. Indian plastic processing industry invested around Rs 3000 crores in machinery during 2010-11.This is almost 3 times that of investments in 200506 which was Rs.1100cr and Rs 800cr in 2000-01. In the last decade, there has been close to a four fold increase in installed capacity per annum in all the three major sectors, viz., Extrusion, injection & blow molding. The Indian Plastic processing industry has seen a shift from low output/low technology machines to high output, high technology Machines. Over the next 5 years, the sub-group projects as follows: Consumption of plastics in high growth sectors like Infrastructure, Agriculture, Material Handling & Packaging, Automobiles, White & Brown goods etc is growing at more than 13 % p.a. leading to tremendous opportunities for plastic machinery manufacturers. By the end of the 12th Five year Plan, the demand for plastic processing machinery is projected to increase annually by 10.5% to 10800 machine/ year with installed capacity of 50 MMTA. This demand will also be due to factors such as advances in new technology, high output machines, energy efficiency, replacement of old machines and investment by new entrebrneurs. As a result of the technical collaboration with Hosokawa Alpine of Germany for blown film systems, your Company is now capable of providing world class technology to the industry. Your company has introduced the concept of hybrid blown film lines wherein the critical hot parts are supplied by Hosokawa Alpine, the automation systems are also sourced from Europe and rest is supplied by your Company. Your company has successfully integrated these technologies and has supplied its first such hybrid line. Your company has also entered in a Joint Venture with Bausano of Italy to manufacture and supply pipe and profile extrusion machines. This project has already been implemented in a separate Company - Rajoo Bausano Extrusion Pvt. Ltd. Your Company will be manufacturing and supplying many high technology parts to this Joint Venture. Your Company thus continues its leadership position in the world market by offering world class technology at affordable price levels. With its strong engineering skills and language advantage, similar to the IT and automobile industry, India is poised to become an outsourcing hub for supply of parts and assemblies to the developed economies. Your Company has already embarked upon a program to take advantage of this opportunity for supplying to manufacturers in Europe, Russia, USA and Francofone countries. Your Company has a positive outlook for F.Y. 2015-16. The Company will leave no efforts to grab each and every opportunity for growth -both organic and inorganic. The Company also expects to derive a greater operating leverage out of its investments, maximizing shareholders' wealth. 5. Risks and concerns: Annual global GDP growth has been erratic, from 3.9% in 2007 to 1.3% in 2008 and then to a never before negative of -2.2% in 2009. It increased to 4.3% in 2010 and then again down to 2.7% in 2011. Developing countries face a series of tough challenges in 2015 including the looming prospect of higher borrowing costs in a new era of low prices for oil and other commodities. This will result in a fourth consecutive year of disappointing growth in 2015. Developing countries are now projected to grow by 4.4 percent this year with a likely rise to 5.3 percent in 2016 and 5.4 percent in 2017 ( Global Economic Prospects report of World Bank Group). With the new Government is place with innovative and progressive policies and their effective implementation, the situation and sentiment has changed overall outlook seems to be bullish. While FDI in single brand retail has already been permitted, the long pending financial reform of FDI in multi-brand retail is under implementation which will give a major fillip to the packaging industry and plastics in particular. 6. Internal Control Systems and their adequacy: The Company has implemented proper and adequate systems of internal control to ensure that all assets are safeguarded and protected against loss from any unauthorized use or disposition and all transactions are authorized, recorded and reported correctly. The Company has also implemented effective systems for achieving highest level of efficiency in operations, to achieve optimum and effective utilization of resources, monitoring thereof and the compliance with provisions all laws including the Companies Act, 2013, Listing Agreement, directions issued by the Securities and Exchange Board of India, labour laws, tax laws etc. It also aimed at improvement in financial management, and investment policy. The System ensures appropriate information flow to facilitate effective monitoring. The internal audit system also ensures formation and implementation of corporate policies for financial reporting, accounting, information security, project appraisal, and corporate governance. A qualified and independent Audit Committee of the Board of Directors also reviews the internal control system and its impacts on improvement of overall performance of the Company. 7. Material development and human resources / Industrial relation front: Talent and knowledge base have remained keys to your company's competitive advantage. Your company believes that acquiring, nurturing, engaging and retaining talent are base to achieve objectives of the Company. Your Company believes that continuous training & development of inherent skills within employees will help the Company to optimize the productivity and profitability. At the same time, Your company leaves no avenue unexplored to build the cordial and fruitful relations with all employees by understanding their needs, problems and implementing steps to overcome all problems /difficulties faced by 'human assets' of the Company. Your Board sincerely thanks all the employees who have put in their hard work and helped the company to grow year on year. 8. Cautionary Statement: All statements made in Management and Discussion Analysis has been made in good faith. Many unforeseen factors may come into play and affect the actual results, which could be different from what the Management envisages in terms of performance and outlook. Market data, industry information etc. contained in this Report have been based on information gathered from various published and unpublished reports and their accuracy, reliability, and completeness cannot be assured. Factors such as economic conditions affecting demand/supply and priced conditions in domestic & international markets in which the Company operates, and changes in Government regulations, tax laws, other statues and other incidental factors, may affect the final results and performance of the Company and therefore actual performance may differ from projections made by the Company. For and on behalf of the Board of Directors Rajoo Engineers Limited (R. N. DOSHI) Chairman & Managing Director Date: 07/05/2015 Place: Veraval (Shapar), Rajkot |