MANAGEMENTS’ DISCUSSION & ANALYSIS REPORT We have pleasure in submitting the Managements’ Discussion & Analysis Report ("MDA") on the Company’s businesses. We have attempted to include discussions on all specified matters, to the extent relevant or within boundaries that in our opinion are reasonably imposed by the Company’s strategic and competitive position. India registered robust growth of 7.6% in 2015-16 despite two successive years of truant monsoons and unusual volatility in the global economic environment. Policy measures taken by the government have helped enhance confidence in the economy. Inflation has moderated significantly and interest rates have been cut. The overall outlook for the Indian economy however continues to be challenging with persisting uncertainty as to a timeline for full revival of domestic demand conditions. Weak global economy has hit exports, companies are operating at sub-optimal capacity and investments remain subdued. The rupee has debrciated. Consequences of a slow-down in China and US monetary policy normalization remain uncertain. The recent turnaround in industrial production, particularly in the consumer durables segment, is an encouraging trend. This scenario is reflected in our performance. Total production during the year was higher at 21,645 MT (19,634 MT brvious year) (excluding films produced and sold prior to capitalization of the new production lines) while sales at Rs.307.98 Crores were about 7% higher. Unit sales realization were lower than expected, while production costs were effectively higher due to various factors including lower capacity utilisation, and burden of finance cost on new production capacity investments. Finance costs were higher at Rs.2249.14 lacs against Rs.1308.17 lacs in the brvious year. Operations resulted in a loss of Rs.561.08 lacs against a loss before debrciation of Rs.487.69 lacs in the brvious year. Damage attributable to flash floods, in the month of July, 2015, at the Pithampur Unit of the Company resulted in an extraordinary loss of Rs.161.98 lacs (insurance claims are in process and shall be accounted for upon settlement). Debrciation was higher at Rs.1779.77 (Rs.1404.81 lacs), and accordingly there was a loss before Tax of Rs.2502.83 lacs (Rs.1892.50 lacs brvious year). The import-substitute products of the Company’s highly sophisticated BOPP Dielectric (Capacitor) Film Unit located at Barjora, Distt. Bankura, (West Bengal) have been well received and the unit is expected to show improved financial results brsently with the unit achieving substantial capacity utilization levels in recent months. A new Cast Film Line was commissioned at Coex Division, Ranjangaon end-March this year in keeping with our strategic plans. The Company is the only indigenous producer of speciality Dielectric (Capacitor) films. Despite being set up at substantial investment to manufacture import substitute products, the new and highly sophisticated Dielectric (Capacitor) Film unit additionally suffered due to then brvailing inverted duty structure, which has now been addressed by the government but the full impact of which can be realised only in the current year. The results reflect the interest and debrciation burden during the stabilisation and volume build-up phase on new investments and must be viewed in the backdrop of brvailing economic situation, a slowdown in market growth particularly for consumer durables for much of the year, debrssed margins, supported by efforts on cost control and productivity enhancements. We believe all our businesses are backed by necessary skills and expertise; our core competency can be seen to lie in the extrusion field, particularly co-extrusion. Our market standing is generally rebrsentative of the competitiveness of our core operations and high quality of our products and services. Company and Industry Structure Company operations are focused around our core competencies viz. Polymers Business, structured into 2 operating Divisions. Each operating division is kept self-sufficient managerially to perform its own duties and functions, with support provided at a corporate level as and when required. A summary of performance is given below. MANAGEMENTS’ DISCUSSION & ANALYSIS REPORT We have pleasure in submitting the Managements’ Discussion & Analysis Report ("MDA") on the Company’s businesses. We have attempted to include discussions on all specified matters, to the extent relevant or within boundaries that in our opinion are reasonably imposed by the Company’s strategic and competitive position. India registered robust growth of 7.6% in 2015-16 despite two successive years of truant monsoons and unusual volatility in the global economic environment. Policy measures taken by the government have helped enhance confidence in the economy. Inflation has moderated significantly and interest rates have been cut. The overall outlook for the Indian economy however continues to be challenging with persisting uncertainty as to a timeline for full revival of domestic demand conditions. Weak global economy has hit exports, companies are operating at sub-optimal capacity and investments remain subdued. The rupee has debrciated. Consequences of a slow-down in China and US monetary policy normalization remain uncertain. The recent turnaround in industrial production, particularly in the consumer durables segment, is an encouraging trend. This scenario is reflected in our performance. Total production during the year was higher at 21,645 MT (19,634 MT brvious year) (excluding films produced and sold prior to capitalization of the new production lines) while sales at Rs.307.98 Crores were about 7% higher. Unit sales realization were lower than expected, while production costs were effectively higher due to various factors including lower capacity utilisation, and burden of finance cost on new production capacity investments. Finance costs were higher at Rs.2249.14 lacs against Rs.1308.17 lacs in the brvious year. Operations resulted in a loss of Rs.561.08 lacs against a loss before debrciation of Rs.487.69 lacs in the brvious year. Damage attributable to flash floods, in the month of July, 2015, at the Pithampur Unit of the Company resulted in an extraordinary loss of Rs.161.98 lacs (insurance claims are in process and shall be accounted for upon settlement). Debrciation was higher at Rs.1779.77 (Rs.1404.81 lacs), and accordingly there was a loss before Tax of Rs.2502.83 lacs (Rs.1892.50 lacs brvious year). The import-substitute products of the Company’s highly sophisticated BOPP Dielectric (Capacitor) Film Unit located at Barjora, Distt. Bankura, (West Bengal) have been well received and the unit is expected to show improved financial results brsently with the unit achieving substantial capacity utilization levels in recent months. A new Cast Film Line was commissioned at Coex Division, Ranjangaon end-March this year in keeping with our strategic plans. The Company is the only indigenous producer of speciality Dielectric (Capacitor) films. Despite being set up at substantial investment to manufacture import substitute products, the new and highly sophisticated Dielectric (Capacitor) Film unit additionally suffered due to then brvailing inverted duty structure, which has now been addressed by the government but the full impact of which can be realised only in the current year. The results reflect the interest and debrciation burden during the stabilisation and volume build-up phase on new investments and must be viewed in the backdrop of brvailing economic situation, a slowdown in market growth particularly for consumer durables for much of the year, debrssed margins, supported by efforts on cost control and productivity enhancements. We believe all our businesses are backed by necessary skills and expertise; our core competency can be seen to lie in the extrusion field, particularly co-extrusion. Our market standing is generally rebrsentative of the competitiveness of our core operations and high quality of our products and services. Company and Industry Structure Company operations are focused around our core competencies viz. Polymers Business, structured into 2 operating Divisions. Each operating division is kept self-sufficient managerially to perform its own duties and functions, with support provided at a corporate level as and when required. A summary of performance is given below. The industry structure in the field of polymers processing is sbrad wide, from miniscule to fairly large capacities. There is usually no direct thumb-rule in terms of "size vs. profitability"; it is possible for players to work out their own viable economics depending upon various factors, mainly a combination of product mix and market segment or niche. Supply chain linkages to clients play an additional role for some. Since polymers are freely available at prices synchronized to global prices, market focus besides technical and service competence has been the key to success. It is fair to say that the Company is a mid-sized player with significant strengths in its market segments, but remains subject to usual market brssures. In the overall, the Company’s operations are relatively capital intensive; raw material and power constitute the largest proportions of direct costs. We believe that opportunities are substantial both in terms of market growth and product diversity and that threats from replacement products are not significant. The main raw materials used by the Company are Thermoplastic Resins (such as Polypropylene, including special grades for capacitor and dielectric film applications, Styrenic Polymers and LD/LLD Polyethylene, etc.). We firmly recognize that total customer satisfaction is the key to our success. Our aim is to build sound customer relationships through creation of value for them, and in the process earn an equitable return for ourselves. Quality is built into products through appropriate manufacturing technology and work methods. Manufacturing at all units is carried out by suitably qualified personnel under strict quality standards. Continuous product development for specific applications and equipment up-gradation has helped us in proactively developing technically sustainable solutions with clear customer benefits. Quality Systems at all manufacturing units are certified under relevant ISO 9001:2008 standards. The Environmental Management Systems at Coex Division’s Ranjangaon and Greater Noida Units and Biax Division’s Barjora Units (1 & 2) are duly certified under ISO 14001:2004 standards. Manufacturing units also adopt and conform to specialised quality systems and methods as may be required by major customers. Biax Division Biax Division manufactures a range of coextruded Biaxially Oriented Polypropylene ("BOPP") Films and Dielectric Films on sophisticated, automated production lines, having multipurpose use in applications ranging from food packaging to specialized films for use in electronics, besides being used for print lamination, cigarette overwraps, adhesive tape etc. Flexible packaging in India continued to exhibit healthy growth rates (nearly 14% against 7-8% globally) during the year, driven by increasing per capita consumption of flexible packaging in India in line with changing consumption patterns for packaged food & other convenience products and trends in retail. Polyolefin films consumption is expected to grow at almost 10% from 2.74 million MT at brsent to 4.2 million MT by 2020. BOPP films constitute a significant and growing input into this space with high volumes used cost effectively for primary packaging, particularly food. With added development of new applications, the market in India has exhibited rapid growth, significantly higher than the global growth rate. In this backdrop of strong past and anticipated growth, Indian BOPP industry continues to grow encouraging sizable investment by existing players and new entrants, notwithstanding periodic cyclicity and downturn. With volatile export markets, and creation of substantial capacity (brsently under-utilized across industry) for packaging films, domestic markets for these remained competitive but saw an improvement in margins. Our focus however remains dedicated within our core strengths to special products and niche markets, largely thin films for specialized electrical applications, which together with consistent high quality and service standards enabled us to maintain reasonable capacity utilization. Several customers in sophisticated segments have upgraded their processes and equipment thus requiring upgraded film products. Our strategic intent for BOPP films remains directed towards thin and dielectric films. Total production during the year was substantially higher at 5,172 MT (against 3,269 MT last year). The new and highly sophisticated Bruckner Dielectric film line is manufacturing the intended types of dielectric film which have been well accepted and conform to international standards. An import substitute, the products have brought substantial benefits to the Indian capacitor manufacturing units. The new unit is expected to contribute substantially to the overall performance of the Company in the coming years. Production at the Pithampur Unit has been temporarily suspended since July 2015 following inundation and consequent damage due to heavy rainfall and flash floods. Insurance claims are in process. Overhauling and upgradation of the plant, besides other options, are being examined. The Company has adequate capacity for production of Di-electric Films at other Units of the Company to meet current market requirements. Coex Division Coex Division manufactures coextruded sheets, thermoformed refrigerator liners and coextruded cast films. Our products are usually custom-made to customer needs and based on various polymers including ABS, Polystyrene, PP The industry structure in the field of polymers processing is sbrad wide, from miniscule to fairly large capacities. There is usually no direct thumb-rule in terms of "size vs. profitability"; it is possible for players to work out their own viable economics depending upon various factors, mainly a combination of product mix and market segment or niche. Supply chain linkages to clients play an additional role for some. Since polymers are freely available at prices synchronized to global prices, market focus besides technical and service competence has been the key to success. It is fair to say that the Company is a mid-sized player with significant strengths in its market segments, but remains subject to usual market brssures. In the overall, the Company’s operations are relatively capital intensive; raw material and power constitute the largest proportions of direct costs. We believe that opportunities are substantial both in terms of market growth and product diversity and that threats from replacement products are not significant. The main raw materials used by the Company are Thermoplastic Resins (such as Polypropylene, including special grades for capacitor and dielectric film applications, Styrenic Polymers and LD/LLD Polyethylene, etc.). We firmly recognize that total customer satisfaction is the key to our success. Our aim is to build sound customer relationships through creation of value for them, and in the process earn an equitable return for ourselves. Quality is built into products through appropriate manufacturing technology and work methods. Manufacturing at all units is carried out by suitably qualified personnel under strict quality standards. Continuous product development for specific applications and equipment up-gradation has helped us in proactively developing technically sustainable solutions with clear customer benefits. Quality Systems at all manufacturing units are certified under relevant ISO 9001:2008 standards. The Environmental Management Systems at Coex Division’s Ranjangaon and Greater Noida Units and Biax Division’s Barjora Units (1 & 2) are duly certified under ISO 14001:2004 standards. Manufacturing units also adopt and conform to specialised quality systems and methods as may be required by major customers. Biax Division Biax Division manufactures a range of coextruded Biaxially Oriented Polypropylene ("BOPP") Films and Dielectric Films on sophisticated, automated production lines, having multipurpose use in applications ranging from food packaging to specialized films for use in electronics, besides being used for print lamination, cigarette overwraps, adhesive tape etc. Flexible packaging in India continued to exhibit healthy growth rates (nearly 14% against 7-8% globally) during the year, driven by increasing per capita consumption of flexible packaging in India in line with changing consumption patterns for packaged food & other convenience products and trends in retail. Polyolefin films consumption is expected to grow at almost 10% from 2.74 million MT at brsent to 4.2 million MT by 2020. BOPP films constitute a significant and growing input into this space with high volumes used cost effectively for primary packaging, particularly food. With added development of new applications, the market in India has exhibited rapid growth, significantly higher than the global growth rate. In this backdrop of strong past and anticipated growth, Indian BOPP industry continues to grow encouraging sizable investment by existing players and new entrants, notwithstanding periodic cyclicity and downturn. With volatile export markets, and creation of substantial capacity (brsently under-utilized across industry) for packaging films, domestic markets for these remained competitive but saw an improvement in margins. Our focus however remains dedicated within our core strengths to special products and niche markets, largely thin films for specialized electrical applications, which together with consistent high quality and service standards enabled us to maintain reasonable capacity utilization. Several customers in sophisticated segments have upgraded their processes and equipment thus requiring upgraded film products. Our strategic intent for BOPP films remains directed towards thin and dielectric films. Total production during the year was substantially higher at 5,172 MT (against 3,269 MT last year). The new and highly sophisticated Bruckner Dielectric film line is manufacturing the intended types of dielectric film which have been well accepted and conform to international standards. An import substitute, the products have brought substantial benefits to the Indian capacitor manufacturing units. The new unit is expected to contribute substantially to the overall performance of the Company in the coming years. Production at the Pithampur Unit has been temporarily suspended since July 2015 following inundation and consequent damage due to heavy rainfall and flash floods. Insurance claims are in process. Overhauling and up gradation of the plant, besides other options, are being examined. The Company has adequate capacity for production of Di-electric Films at other Units of the Company to meet current market requirements. Coex Division Coex Division manufactures coextruded sheets, thermoformed refrigerator liners and coextruded cast films. Our products are usually custom-made to customer needs and based on various polymers including ABS, Polystyrene, PP and PE. Applications for our product range are wide, including sheets for refrigerator liners, disposable containers, automotive parts, etc. Cast films are high clarity films including stretch wrap and cling, specially formulated films for medical disposables, hygiene films, and others for packaging. The consumer durables segment remained debrssed through the first half of the year, and then returned to slow growth after a gap of nearly two years, initially in the consumer electronics segment but followed thereafter by the white goods segment as well. Relief in some macro-economic challenges, (inflation and oil prices in particular), and interest rate cuts helped revive consumer sentiment despite challenges of a below-normal monsoon and the consequent dip in rural markets. The growth seen in the last quarter has given rise to expectations of a return to market stability. The long-term growth remains promising with the low penetration of refrigerators continuing to attract more global players to the country offering us new potential markets. We continue to be the leading supplier of sheets and liners to the white goods industry through consistent focus on product quality, development and superior service, which have also been recognized by major customers. In the cast films segment, our focus has been on special films and continuous innovation. Within our major market segments for cast films, the tyre industry witnessed muted growth on the back of improving automobile industry sales and growth in replacement demand, offset by increasing tyre imports and decreased exports. With the vehicle product mix skewed towards the two-wheeler segment, demand for films from this segment was only marginally higher. The hygiene segment continues to exhibit consistent growth in excess of 20% per annum. Reflecting overall market circumstances, the total production of sheets, including as liners, (adjusted for inter-unit transfers) and cast films at this division at 16,473 MT during the year was only marginally higher than during the brvious year (16,365 MT). In keeping with strategic direction to arrest the decline of viability at Faridabad, focus at this location was on production of only cast films pending other long term steps. New Cast Film capacity at Ranjangaon, to meet growing requirements, particularly of hygiene films, and towards our long term strategic goals, commenced commercial production end-March 2016. OTHER MATTERS Environment and Safety We firmly believe that safe and healthy working conditions in factories and other brmises are as necessary and important as production, productivity and quality. Our policy requires conduct of activities to take foremost account of health and safety of all concerned, besides conservation of natural resources and protection of the environment to the extent possible. Human Resources Employees rebrsent our greatest asset and potential. It is only through motivated, creative and business-minded employees that we can achieve our aims. Involvement, commitment, teamwork and updating of skills and knowledge are integral to our objectives of advancing a professional, productive culture. Permanent employment is 373, of which officers and staff account for 229 and workmen for the balance (last year 380 and 235 respectively). Others There are no further or typical areas of risks or concerns outside the usual course of business, or the state of the economy in general, foreseeable at this time. Our primary manufacturing processes (including extrusion) are well established and our focus remains on process and efficiency improvements, and product & application development to provide a competitive edge. Internal control systems have been found to be adequate and are continuously reviewed for improvements. Our team is committed to the Board’s dictates on standards of conduct as well as good governance and exercise of due diligence. We have taken all care to comply with applicable laws and regulations. Overall financial performance due to the various circumstances described could not fully reflect the acceptable operational performance. The Company continues its initiatives towards operational improvements with a special emphasis on quality, control of overheads and broad-basing of markets, while focusing on managing uncertainties in a proactive manner. Positive policy actions towards growth, control on inflation and ease in doing business together with the decline in oil prices have helped make India one of the fastest growing economies in the world which is expected to translate into improved market sentiment boosting domestic consumption while improving export competitiveness. However, the external environment, including weak global growth (and resulting brssures generated by imports competing with our products), potential financial market volatility and slow investment recovery, for the time being continues to remain challenging. In the overall our outlook continues to remain one of cautious optimism. Our sincere thanks are due to all employees and teammates whose dedicated and hard work allowed results to be achieved. We are grateful to all our Bankers and all concerned Authorities for their continued support, and to all our customers for their faith and confidence. We remain committed to fullest customer satisfaction. CAUTIONARY STATEMENT Statements in this Report which seek to describe the Company’s objectives, projections, estimates, expectations or brdictions may be considered to be "forward-looking statements" within the meaning of applicable securities laws or regulations. Actual future results could differ materially from any exbrssed or implied. Important factors that could make a difference to the Company’s operations include global and Indian demand-supply conditions, finished goods prices, feedstock availability and prices, power tariffs, cyclical demand and pricing in the Company’s markets, changes in Government regulations, tax and tariff regimes, economic policies and developments within India and countries with which the Company conducts business besides other factors including but not limited to natural events, litigation and labour negotiations For and on behalf of the Management Team C. Bhaskar Managing Director & Chief Executive Officer Place : New Delhi Date : May 5, 2016 |