Management Discussion and Analysis

Your Company, Kisan Mouldings Limited ("KML") operates in diverse but integrated segments of the Plastic Piping value chain. It has established its position as the manufacturer of multiple applications of pipes for water supply, sanitation, sewerage, construction, cable ducting, drinking water, tube wells, submersible pumps and other polymer products for various uses. The adaptability of plastic pipe systems has made it a brferred choice for a wide range of applications for Water Management, Irrigation, Water Distribution and Sewage Disposal Systems and other industrial applications.

INDUSTRY STRUCTURE AND DEVELOPMENTS:

India's plastics industry is projected to grow dramatically in the coming years. There is a huge potential to grow business not only for catering to domestic demand but also for catering to global demand of plastics products. Translating the expected growth into incremental demand, it is obvious that the country will remain one of the largest sources of additional demand for almost all kinds of plastics and plastics products for major usages i.e. domestic, industrial and agriculture.

Polymer consumption in the country has witnessed a growth in the year under review but there was tremendous volatility in the Polymer prices during the brceding year, owing to the drastic changes in crude prices. Such price fluctuations have affected the growth in the consumption of Plastics in country's economy. It also has put brssure on operating profit margins of your Company, and the industry as a whole.

BUSINESS PERFORMANCE/OPPORTUNITIES AND THREATS:

The Company has experienced a reduction of sales of about 16% in terms of Value. From a segmental point of view, Agricultural PVC Pipes have declined by over 30% in terms of Value, while the construction segments -CPVC, ASTM and SWR Pipes and Fittings had no change from FY13-14. The relatively better performance of the construction segment is in line with the Company policy of focusing on this area of the market. Due to the drop in sales and the relative fixed nature of expenses, the operating margins (EBITDA) of the Company were at 3.7%.

Despite the aforementioned performance, the stakeholders of your Company remain confident in the potential for revival. Therefore we expect double digit growth in line with the industry in FY2015-16.

FUTURE OUTLOOK:

PVC pipes and fittings market in India has grown at a CAGR of 12.5% during the period from FY'2009-FY'2014. In the past few years, government of India has initiated many new projects and investments in the irrigation sector. The focus of the government is on rural water management, which will be fulfilled only when there will be proper infrastructure for the transportation of water to the end-user. This factor will remain as one of the major drivers for the growth of PVC pipe industry in the Country along with the expansion of housing sector and increasing demand for oil and gas transportation.

Your Company is therefore operating with focused efforts on cost control, reduction in cycle times, economies of scale, improvement on operational efficiency and efficient Working Capital Management Program. Timely delivery has reaffirmed the self-dependable image created by the Company in the market.

KML has decided to restructure its manufacturing footprint and is now focusing on reallocating capacities from various units to the core units in Tarapur and Tumkur. This will allow for lower order completion times and better economies of scale.

RISKS AND CONCERNS

The Company is exposed to the financial market risks from changes in rate of interest and inflation. The volatile movements in exchange rates are caused by major geo-political developments besides mere economic and financial issues. These factors are beyond the control of your Company.

Financial charges in the form of interest are a massive matter of concerns for our Company. Company is utilizing numerous bank facilities and consequently our financial cost is on the higher side. Serious efforts are put to bring it down. The prices of raw material and its volatility always have an impact. Inflation element also affects the Company in adverse manner as it is major factor responsible for hike in cost of elements of production viz power & fuel, employees etc.

TRANSPARENCY IN SHARING INFORMATION

Transparency refers to sharing information and acting in an open manner. Processes, instructions and information are directly accessible to those concerned with them, and enough information is provided to understand and monitor them. Your Company believes in total transparency in sharing information about its business operations with all its stakeholders. Your Company strives to provide maximum possible information in the Annual Report and also through other means to keep the stakeholders informed about the business performance.

INTERNAL CONTROL SYSTEMS

The Company has adequate internal control procedure proportionate to the nature of its business and the size of itsoperations for the smooth conduct of its businesses. Internal audit is conducted at regular intervals and covers the key areas of operations. It is an independent, objective and assurance function responsible for evaluating and improving the effectiveness of risk management, control and governance processes. Internal auditors comprising of professional firms of Chartered Accountants have been entrusted the job to conduct regular internal audits at all units/ locations and report to the management the lapses, if any. Both internal auditors and statutory auditors independently evaluate the adequacy of internal control system. Based on the audit observations and suggestions, follow up, remedial measures are being taken including review and increase in the scope of coverage, if necessary. The Audit Committee, in its periodical meetings, inter alia, monitors performance of internal audit on a periodical basis through review of the audit plans, audit findings and promptness of issue resolution through follow-ups.

CAUTIONARY STATEMENT

Some of the statements in this Management Discussion and Analysis Report may be 'forward looking statements' within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those exbrssed or implied. Such statements reflect the Company's current views with respect to the future events and are subject to risk and uncertainties. Important factors that could make a difference to your Company's operations include changes in industry structure, significant changes in political and economic environment in India and overseas, tax laws, litigation and industrial relations. It also includes economic conditions affecting demand / supply, price conditions in the domestic and international markets.