MANAGEMENT DISCUSSION AND ANALYSIS REPORT Economic Overview Financial Year 2014-15 witnessed volatile markets as economies around the world found themselves at various points in the economic cycle, with monetary easing being the brdominant theme across many geographies. However, growth remained subdued globally, as adverse factors more than off set oil price decline, the quantitative easing in Europe and the growth in South-East Asia. According to the International Monetary Fund, the global economy is expected to grow at 3.4% in Financial Year 2015-16. This is due to the fact that slowdown in production in China and Russia is expected to be more than off set by recovery of the developed economies and growth in South-East Asia. However, currency movements and interest rates continue to be risks for growth in many regions. Developed economies are expected to grow moderately. Economic growth in South Asia is expected to be driven by strong consumption and increasing investment in the region. India is expected to be a major contributor to this growth as it is set to double its economic size by 2019. China witnessed its slowest growth during 2014 in the last 25 years. The lower growth trend in China has adversely impacted commodity markets. China's waning demand and resultant rise in exports poses a risk to leveraging improving domestic demand in South Asia and Europe. Further, movement of currencies against USD would also have a significant impact on the movement of global prices of commodities. Financial Year 2014-15 saw a growing Indian economy, even as advanced and emerging economies grappled with uncertainty and slower growth. Economic growth in India peaked in the second quarter of the fiscal at 8.2% but remained moderate in the third and fourth quarter at around 7.5%. Cyclical macro parameters like inflation, current account deficit have improved during the year due to domestic as well as external factors. Indian rupee was one of the best performers in the world, registering a 4% decline in value as against the USD compared to the rest of the world grappling with devaluation of their currencies. The Indian economy is in the midst of significant structural change and is expected to embark on a sustained economic growth cycle. According to World Bank, India is set to be the world's fastest growing major economy in the Financial Year 2015-16 at 7.5% and gradually move up to 8% in the next two financial years. However, this economic growth will depend on steady implementation of reforms aimed to improve productivity and competitiveness. Government initiatives like 'Make in India' will stimulate manufacturing growth while its focus on infrastructure should revive the investment cycle. This should help India grow while being fiscally prudent. States are also expected to play a key part in GDP growth due to their increased finances via greater share of government taxes. Industry Structure and Developments Global Aluminum demand growth normalized to around 5% in 2012, after a sharp growth in the brceding two years on the back of global recovery from the 2009 crisis. World's leading manufacturer Alcoa has projected demand growth to be in the region of 7% in 2014-15. In 2014-15, China, North America's and Europe's growth was in the region of 7.5%, 3.5% and 1% respectively. The major commodity demand driver China, (that accounts for over 40% of global demand in Aluminium and Copper) slowed down considerably on fears of hard landing for the economy. India too, suffered on account of monetary tightening and subdued investment and growth climate with industry/GDP growth slowing down considerably. The industry continued to be plagued by high inventories, which has been a huge overhang on the prices. Cost of production for most aluminium players continued to remain high due to challenges pertaining to energy inputs and resources. India with its abundant supply of quality bauxite and low cost labour has established itself as a low cost producer of primary aluminium. However, in India, the production of primary aluminium has stagnated around the 1.6 to 1.7 MT mark for the last three years. Pricing Auminium is traded on the LME. Producers charge a regional brmium in addition to the base price determined on the LME to reflect the cost of obtaining alumina from an alternative source. The principal user segment in India for aluminium continues to be electrical & electronics sector followed by the automotive & transportation, building & construction, packaging, consumer durables, industrial and other applications including defence. Demand Demand for aluminium is estimated to grow at 6%-8% per annum. Also, demand for the metal is expected to pick up as the scenario improves for user industries, like power, infrastructure and transportation. The demand for aluminium has been strong in recent years. However aluminium industry being cyclical in nature, it could see a downturn in demand with the recent slowdown being witnessed in Indian and world economies. Business Your Company manufactures two major products: • Aluminium rolled products in coil and sheet form. • Aluminium Alloy Ingots We have vertically integrated certain parts of our operations across a number of products. This has resulted in reduction in manufacturing costs, greater control on quality and an expansion in the range of products. Overview of Operations The overall market scenario in the Aluminum Industry has not been favorable during the Financial Year 2014-15. The parity between movement in prices of Raw Material and Finished Products has been adverse during the period. Falling aluminum prices on LME coupled with adverse currency fluctuation and overall decline in demand in the economy, have further reduced the bottom line. Voluminous imports of aluminum from China have negatively impacted the domestic Aluminum Industry to large extent. Results During the year under review, the revenue of your Company stood at Rs. 29743.18 lacs, as compared to Rs. 17724.13 lacs during the post-demerger six month period ended on March 31, 2014. However, due to reasons stated above and below, the Company suffered a loss of Rs. 624.11 lacs during the year as compared to a profit of Rs. 250.55 lacs during the post-demerger six month period ended on March 31, 2014. The Company has suffered losses also due to shut down of its major manufacturing Plant between November 2014 and January 2015 following violent labour unrest. Upon opening of the plant, revamping, overhauling and re-stabilizing the equipments took around one month. This resulted in an overall negative impact on our operations for about four months. The company has incurred a sum of Rs 795.74 lacs during this idle period which has also affected its performance adversely. Due to this shut down, imported raw materials booked at higher prices on LME were ultimately sold after conversion at lower prices on LME. The company incurred additional demurrage and detention and freight charges on these materials leading to increase in metal cost. Risks and Concerns Your Company is actively looking for, albeit cautiously, growth opportunities and new markets for its products. The Company is exposed to a number of market risks arising from its normal business activities. These risks include changes in raw material prices, foreign currency exchange rate, interest rate which may adversely impact the Company's financial assets, liabilities and/or future cash flows. The Company continues to mitigate these risks by careful planning of optimum sales mix, active treasury management, product diversification, innovation and penetration in different markets, both domestic and international. Further cost saving measures across all segments of the Company, would help in improving the margins in an otherwise difficult market. Opportunities and Threats A considerably wide geographical brsence and reach, both domestic and international, have helped the Company to attempt de-risking its business and meet the risks with suitable brcaution. The Company is focused on enhancing value added products. Improvement in safety performance is of utmost priority, for which the Company has constantly been initiating measures to avert accidents. The Company has sales and technical servicing offices at Mumbai, Delhi, Bangalore, Hyderabad, Guwahati and Bhopal. Projection for the Financial Year 2015-2016 The company has taken various steps for improving the profitability in Financial Year 2015-16. These steps are: • Increasing its marketing base and exposure to markets in various countries like USA, UAE and Saudi Arabia. Appointing marketing agents in Ethiopia, USA, Peru, UAE and in the domestic market. This will help in increasing off take and yield better margins. • Undertaking major overhauling and revamping of Plant & Machineries to reduce cost of conversion. • Initiating steps for cost reduction by curtailing certain costs like power & fuel, manpower, administration and scheduled repair & maintenance. Rationalizing contractual and also own employees to reduce manpower cost. Shifting from Coal Gasifier to Furnace Oil fuel to encash upon the benefit of reducing fuel prices compared to coal. Renegotiating on the major cost elements for reducing administration cost. • Initiated steps for improving quality of Finished Products, to help in increasing the top line and customer satisfaction, leading to improved margins. • Presently focusing on value added products by marketing color coated Aluminium Sheets /Coils. Already established a market for 200 MT per month and targeting to achieve sales of 400 MT per month, within the year. • Trying to develop new suppliers in USA, Australia, UK, Spain and other European countries for taking advantage of competitive rates and improved raw material quality. Internal Control System The Company has an effective system of internal controls which helps it to maintain both internal controls and procedures to ensure all transactions are authorized, recorded and reported correctly and also ensure disclosure and protection of physical and intellectual property. The Company has appointed a firm of Chartered Accountants as Internal Auditors who independently evaluate the adequacy of the internal controls from time to time. For transparency and effectiveness, the management duly considers and takes appropriate action on the recommendations made by Statutory Auditors, Internal Auditors and by Management Committee / Audit Committee of the Board of Directors. The company is running on SAP Platform inorder to have proper internal control procedure with the required authorization and "maker and checker" concept. This helps in correct recording of transactions and timely elimination and rectification of errors.The Company has appointed consultants/ professionals to conduct Cost Audit and Secretarial Audit and observations made, if any, are reviewed by the Management periodically and corrective actions taken. Human Resources Operations were suspended at the Haldia unit of the company between November and January 2015 following violent labour unrest. Apart above, employee relations continued to be cordial throughout the year and recruitments were made commensurate with the needs of business. The Company employs about 260 people in all its facilities. Finance Cost Finance Cost, during the year under review stood at Rs 635.90 lacs, as compared to Rs. 380.68 lacs during the post-demerger six month period ended on March 31, 2014. Cautionary Statement Statements in the Management Discussion and Analysis, describing the company's objectives, outlook and expectation, may constitute "Forward Looking Statements" within the meaning of applicable laws and regulations. Actual results may differ from those exbrssed or implied expectations, projections etc. Several factors make a significant difference to the company's operations, including climatic conditions, economic scenario affecting demand and supply, Government regulations, taxation, natural calamity and other such factors over which the company does not have any direct control. |