MANAGEMENT DISCUSSION & ANALYSIS Economy Overview In 2015, global economic activity remained subdued. Growth in emerging market and developing economies while still accounting for over 70 percent of global growth declined for the fifth consecutive year, while a modest recovery continued in advanced economies. Three key transitions continued to influence the global outlook: 1. The gradual slowdown and rebalancing of economic activity in China from investment and manufacturing towards consumption and services, 2. Lower prices for energy and other commodities, and 3. A gradual tightening in monetary policy in the United States in the context of a resilient U.S. recovery as several other major advanced economy central banks continue to ease monetary policy. Overall growth in China is evolving broadly as envisaged, but with a faster-than-expected slowdown in imports and exports, in part reflecting weaker investment and manufacturing activity. These developments, together with market concerns about the future performance of the Chinese economy, are having spillovers to other economies through trade channels and weaker commodity prices, as well as through diminishing confidence and increasing volatility in financial markets. Manufacturing activity and trade remain weak globally, reflecting not only developments in China, but also subdued global demand and investment more broadly-notably a decline in investment in extractive industries. In addition, the dramatic decline in imports in a number of emerging market and developing economies in economic distress is also weighing heavily on global trade. The world economy will grow at 3.5% in 2017, IMF said, lowering its earlier projection by 0.1 percentage points. In advanced economies, a modest and uneven recovery is expected to continue, with a gradual further narrowing of output gaps. The picture for emerging market and developing economies is diverse but in many cases challenging. The slowdown and rebalancing of the Chinese economy, lower commodity prices and strains in some large emerging market economies will continue to weigh on growth prospects in 2016-17. The projected pickup in growth in the next two years despite the ongoing slowdown in China primarily reflects forecasts of a gradual improvement of growth rates in countries currently in economic distress, notably Brazil, Russia, and some countries in the Middle East, though even this projected partial recovery could be frustrated by new economic or political shocks. Indian Economy Overview India has emerged as the fastest growing major economy in the world as per the Central Statistics Organization (CSO) and International Monetary Fund (IMF). According to the Economic Survey 2015-16, the Indian economy will continue to grow more than 7 per cent in 2016-17. Currently, the manufacturing sector in India contributes over 15 per cent of the GDP. The Government of India, under the "Make in India" initiative, is trying to give boost to the contribution made by the manufacturing sector and aims to take it up to 25 per cent of the GDP Current account deficit is estimated to be around 1.5 per cent of the GDP in the current fiscal, helped by sharp fall in oil prices even as gold imports rose in the past few months. Gold imports spiked in the month of March and remained elevated in April owing to regulatory relaxations and festival demand. Industry Overview Global Lead Industry There's no denying that F.Y. 2015-16 has been a tough year for base and brcious metals alike. And as with most other commodities, Lead prices have seen quite a drop this year, falling 17 percent, to $0.76 per pound. China is a crucial dynamic in most commodity markets, and Lead is no exception. The demand side of things isn't looking much better going into 2016. The largest end-use sector for Lead, the E-bike market, is close to saturated, and the market hasn't found a fresh area of demand to support consumption growth. Both its domestic market and its trade with the rest of the world will continue to have a profound impact on the world of Lead. But we should not become too 'China-centric' - the 'rest of the world' still has an important role to play in shaping Lead's future The global Lead market is estimated to reach 12.5 million Metric tons by 2017 and 14 million Metric tons by 2020. The growth rate is estimated at a CAGR of 2-3% during next three years. The growth of developed markets will be driven by the US, Japan and few European markets like Germany, France and the UK. China being largest market of Lead is showing either neutral trend or slight growth. Modest projected growth in consumption and slower replacement market brings new challenges for the industry. The key growth drivers for the global Lead industry are the following: 1. Rising share of emerging economies in global GDP 2. Vehicle population and rising vehicle scrappage rate. 3. Urbanization trend in emerging markets like India, China and other BRIC nations. Global Lead Acid Battery (LAB) Lead Acid Batteries are the largest driver of growth globally and take a much bigger market share. Lead Acid Battery will account for over 5% of the incremental growth between 2016 and 2020. Key drivers for demand include: 1. Increase in scrap rate of vehicles. 2. Usage of Lead Acid Battery in other than automobile segment like energy storage devices for telecommunication segment and non-conventional energy segment. 3. Increasing disposable income in emerging markets leads to increase in vehicle populations. Indian Lead Industry India's Lead market accounts for about 10% of the global Lead industry in volume terms. It is the fourth largest market among Lead markets after China, USA and South Korea. The market is estimated to grow at 8-12% CAGR during 2016 - 2020. The key drivers of growth include: 1. Rising vehicle population. 2. Rising Urbanization trend and disposable income. 3. Increasing usage of energy storage applications. Industry Challenges The key challenges for the Indian Lead industry include the following: 1. Lack of exclusive policy for recycling industry which includes proper scrap collection centers, formal organized industry structure and proper implementation of environmental compliances. 2. Competition with unorganized sector. 3. Technological upgradation and skilled manpower. Aluminium: The last quarter of F.Y 15-16, heightened risk awareness which led to dumping of commodities across the world. The resultant rise in US$, coupled with surging Chinese exports following slowing demand growth in China resulted in a sharp decline in LME, which dropped sharply by almost 10%. Aluminium prices on LME have declined quite sharply over the last few months due to confluence of many factors such as heightened risk averseness, European region uncertainty related to Greece, slowing demand growth from China and rising exports from it. Global demand for Aluminium has historically tended to outperform that for other metals. The weak price performance in some of the recent years has been more due to supply side developments than any issues with demand. In 2014, global Aluminium consumption rose 5.5% YoY, the fastest pace in three years, despite the slowdown in Chinese consumption growth to around 8%. China accounted for 44% of global primary Aluminium consumption in 2014, up from 23% in 2005. As the country continues to develop towards a more consumer-focused economy, Aluminium consumption is expected to become more consumer-driven. Aluminium consumption in the USA has recovered well since the financial crisis, rising by over a third in the five years to 2014. However consumption still remains 20% below br-crisis peak levels. European demand has struggled to grow in recent years, as it has been affected by the ongoing economic slowdown. Indian Aluminium demand rose by 38% in the five years to 2014. India is currently the world's fifth-largest consumer of Aluminium, behind China, the USA, Japan and Germany, and it is expected that the strong demand fundamentals have potential to elevate the country to the No. 3 position by 2017. Aluminum Scrap and Recycling: The energy consumed in recycling of Aluminum scrap is much lower than primary Aluminum production. The recycling efforts also helps in brserving vital natural resource i.e. bauxite for future generation, reduces fluoride emissions, brvents solid waste, brings efficiency in scrap handling, in eliminating fire hazards. While secondary Aluminium industry constitutes 40% of the total consumption of the metal in developed industry, in India there is huge gap in terms efforts, technological inputs, stakeholders contribution to achieve global benchmarks and the percentage achieved in recycling metal in nearly 20% of total consumption. Countries like Japan have in reality stopped importing the Aluminium metal as a primary source and it must inspire other countries as well for emulating. The Aluminium industry in India is making great strides to compete globally in terms of recycling. The case study attempts to identify the efforts for organized scrap processing, improved understanding between recycler & consumer, gearing to meet the projected growth of 20% in automobile industry , adoption of newer technologies, improved quality and Increase awareness of safety & environmental sustainability. The challenge of economic, ecological and social sustainability is there for all countries and industries. The Aluminium industry must fulfill the commitment of ensuring competitive advantage and concurrently more sustainable global economy of the future. Lead Prices- An Insight ILZSG anticipates that global demand for refined Lead metal will rise by 2% to 10.83 million tonnes in 2016. In China, increased usage in the automotive and telecommunications sectors will be partially balanced by a reduction in demand in the e-bike market resulting from slower sales growth and increased competition from lithium-ion batteries. European demand is forecast to grow by 3.5% mainly due to anticipated rises in the Czech Republic, Italy, Spain and the United Kingdom. After falling by 5.2% in 2015, a partial 1% recovery is anticipated in the United States. Growth is also forecast in India, Indonesia, Japan, Thailand and Turkey. Aluminium Prices-An Insight The US demand is expected to remain strong growing at a CAGR of 4-5% over next few years. Western Europe is expected to grow moderately amidst economic uncertainty. The Aluminium demand is expected to grow at around 2.5% Chinese supply is expected to continue to impact Rest of the World demand-supply dynamics adversely, though China has announced production cuts but as market improves the smelters will restart. However in long term, overall the demand supply scenario for primary Aluminium globally looks encouraging as demand continues to be robust with expectations of around 6% growth. The global Aluminium demand will continue its growth at a healthy 5.7% during 2016 to 59.6 million tonnes or by another 3 million tones as a result of a strong demand growth in North America, Europe and Asia. Chinese growth is expected to continue to be strong at 7% YoY in 2016 to 31 million tonnes. Company Overview Gravita India Limited Gravita India Ltd. is a leading global secondary metal and India's largest secondary metal producing company. A vertically integrated business, economies of scale and a diversified team of professionals enable it to deliver quality products globally. It provides diversified product range for variety of application and trusted by customers in over 50 countries, globally. Above 50% revenue flows from overseas market. Long -Term Growth Stratégies Gravita India Ltd. focuses on building a sustainable business model for driving the long-term growth of the organization. The model encompasses four most-critical business aspects, which can be continuously streamlined to achieve higher efficiencies: Creating sustainable revenue streams • Enhancing share of speciality business globally • Achieving differentiation by focusing on customized products • Focusing on key markets • Improvising speed to market • Ensuring sustained compliance with global regulatory standards Business development • Using business diversification to bridge critical capability gaps • Focusing on specialized products, technology and market brsence • Focusing on payback timelines Cost leadership • Vertically integrated operations • Optimized operational costs Balance profitability and investments for future • Increasing contribution of diversified business • Future investments directed towards "Niche" markets Brief analysis of Financial Statements of 2015-16 • Gross revenue stood at Rs. 431.20 Crores against Rs. 501.29 Crores • EBIDTA plunged by 15% from Rs. 18.83 Crores to Rs. 16.03 Crores • Net profit declined by 34% from Rs. 6.62 Crores to Rs. 4.37 Crores HNUMAN RESOURCE We recognize that our human capital drives the Company's customer-driven business model. Therefore, we continuously strive to attract and retain the best talent from the local markets. Apart from having a robust performance management system, we strive to create an inspiring and rewarding work environment. Our employees' skills are constantly upgraded through a variety of training programmes and internal opportunities which increase work based knowledge and efficiencies. As on 31st March, 2016 company has strength of511 (Five Hundred Eleven only) permanent employees. Internal Control Systems We have established a proper system of internal controls and procedures that are compatible with the size of our operations and business. A firm of Chartered Accountants regularly conducts internal audits of our operations, establishments, and stockyards on a quarterly basis, with a view to ensure that these systems are properly adhered to. The Audit Committee reviews the reports of the Internal Auditors and monitors the effectiveness and operational efficiency of these internal control systems. The Audit Committee gives valuable suggestions from time to time for improvement of the Company's business processes, systems and internal controls. The annual internal audit plans are brpared by Internal Auditors in consultation with the Audit Committee and the audit is conducted in accordance with this plan |