MANAGEMENT DISCUSSION AND ANALYSIS INDIAN ECONOMY OVERVIEW The Indian economy stands almost relieved of the vulnerabilities associated with the economic slowdown including persistent inflation, elevated fiscal deficit, slackening domestic demand, external account imbalances and an oscillating rupee that had choked growth during FY2011-12 and FY2012-13. India's GDP is set to grow by 7.4% and cross the $2.1-trillion mark in 2014-15, against the 6.9% growth recorded in 2013-14 (as per a new calculation for computing national accounts, shifting the base year from 2004-05 to 2011-12). India grew by 7.5% during the October-December 2014 quarter, according to the estimates released, overtaking China's 7.3% growth in the same quarter, to emerge as the fastest-growing major economy in the world. This economic pick-up has manifested largely on the back of a robust performance from the manufacturing sector and a palpable surge in public expenditure. The country's overall economic environment has taken a turn for the better and the basic parameters of the Indian economy are moving in the right direction. One of the redeeming features has been the emergence of India as a large economy with a promising outlook, amidst the mood of pessimism and uncertainty that continues to cloud a number of advanced and emerging economies all over the world. Indian furniture industry The Indian furniture industry has witnessed a sharp rise in demand in recent years due to the change in brferences and lifestyles of the middle-class. This versatile industry serves up to 0.5% of the total GDP of the country. India's growing economy has encouraged consumerism, which in turn has driven furniture offtake. Because of this huge demand, the Indian furniture industry (organised and unorganised) is estimated at H480 billion. Besides, an uptick across key metrics such as increasing working population, rising per capita income and the trends of nuclearisation and urbanisation have contributed to this sector's growth. Nearly 85% of the home furnishing industry falls under the unorganized category and is made up of manufactures and importers catering to the various segments of the industry. Over the next five years, the Indian furniture market is expected to witness increasing consolidation due to the growing entry of international companies as a result of the government's 100%-FDI approval in the country's furniture industry. (Source: JSB Market research) Consequently, the value share of small and midsized furniture players constituting the unorganised sector is expected to decline over the coming years. According to a study by the World Bank, India's organised furniture industry is expected to grow by 20% per annum over the next few years and is projected to cross USD 32 billion by 2019. The country's furniture market is expected to grow at a rapid pace due to rising disposable incomes, expanding middle-class and growing number of urban households. Moreover, the anticipated rise in tourism and hospitality sectors is also expected to spur furniture demand in the country till 2019. The increase in demand for residential realty is as huge as 20% and the home furniture market is expected to witness the fastest growth over the next five years, followed by offices and institutional segments. (Source: TechSci Research Report) Industry growth drivers Rising population With over 1.28 billion people, more than a sixth of the world's population, India is projected to be the world's most populous country by 2025, surpassing China. With the population growth rate pegged at 1.58%, India is brdicted to have more than 1.53 billion people by the end of 2030. As the demographics change, the need for housing and subsequently furniture and laminates is bound to increase. Growing workforce The proportion of the economically-active population (15-59 years) or, India's 'demographic dividend', has increased from 57.7% to 63.3% during the 1991 to 2013 period. A substantial increase in the country's workforce will cause a proportionate increase in their aspirations, thereby fuelling demand. (Source: Economic survey) Surging income levels Statistics suggest that more than 400 million middle-class employees rose to the upper middle-class level that indicates the fact that income levels have increased dramatically in India over the past few years. (Source: Squadro) Lowering inflation India's inflation rate was recorded at 5.37% in February, 2015. Inflation rate in the country averaged 8.78% from 2012 until 2015, reaching an all-time high of 11.16% in November, 2013 and a record low of 4.38% in November, 2014. This change will help in increasing the share of disposable incomes of individuals, which can be used to purchase luxury items. Increasing per capita income India's monthly per capita income, a gauge for assessing standards of living, is estimated at Rs.7,378.17 (USD 118.68) for 2014-15, up by 10% from last year. The per capita net national income during 2014-15 is pegged at Rs.88,538, compared with Rs.80,388 during 2013-14 (Source: CSO). Stabilising rupee The rupee-US dollar exchange rate has remained broadly stable during the year, thanks to the huge inflow of FDI and foreign institutional investment (FII) in the equity and bond markets. This will boost the purchasing power, the cost of purchase will get comparatively cheaper and enable companies to bring in advanced technologies and quality raw material to manufacture best-in-class products. Urbanisation Urbanisation is one of the aspects that have enhanced furniture consumption leading to sectoral growth. India's urban population is expected to reach about 81 crore by 2050. (Source: KPMG) Affordability Spurred by high income levels and cheaper financing options, people dream of buying their own homes, leading to a rise in the demand for residential real estate. One visible impact has been the fact that builders are increasingly tying-up with organised furniture players for the interiors of their fully-furnished flats. Quality One of the other factors brightening the prospects of the organised sector is the fact that customers are becoming more quality-conscious. People tend to rely on the organised sector for quality more than the unorganized sector and hence higher growth is expected in the organised sector. Growing tourism The tourism and hospitality sector in India is all set to climb newer heights with a large number of hotel chains going ahead with their expansion plans. The renewed sense of optimism comes on the back of a volatile economic environment for most part of 2014. Besides, the sector hopes that initiatives announced by the new government including those related to e-visas and specific funds for developing tourist circuits, would lead to lucrative business opportunities. India decided to empower tourists with the visa on arrival facility from 43 countries, up from 12 earlier, which is bound to perk up the economy and the sector. Laminates Over the years, the interior decor segment has recorded significant growth with ground-breaking innovation leading to improvements in products as well as concepts. Hence, development of products and building materials have contributed to a large extent in the evolution of the decor segment, spurred by the demand for laminates too. The laminates sub-segment has grown by leaps and bounds and has introduced various trends and concepts to consumers to embrace more aesthetic living spaces. This is on account of the followings: Colour: With a varied vista of colours, laminates have been ruling the roost in the interior decor world for the past few years, allowing homes to look newer and livelier. Texture: Textures and finishes have come to determine the novelty of interiors. This is brcisely what has helped laminates carve a niche in the marketplace. Hygiene: The introduction of anti-bacterial range of laminates has been one of the breakthrough products of the times. These laminates have been introduced keeping in mind the health aspect of consumers and also towards ensuring a more hygienic living experience. Durability: A keen emphasis on durability has led to the introduction of high-brssure laminates that offer surfaces that are resilient against the elements, thereby ensuring lower maintenance costs. Size: During the last couple of years, there has been a noticeable trend of customers wanting to design their own laminates. This need has led to the development of customised laminates, a concept that has received instant acceptance. Thematic: Thematic laminates are perfect for restroom cubicles in malls, kids' salons and playschools and is already witnessing a surge in demand from these end-users. The ongoing trends and the advancements in terms of innovations are indicative of the fact that the laminates industry is bound to grow even further in the years to come. Decorative Veneers Veneer is a thin layer of material -- usually finegrained wood -- overlaid on a surface material. Veneers can be found on everything from furniture to domestic fittings such as doors and flooring, commercial fittings like fire doors, office furniture and panelling. Veneers are growing in popularity as the natural choice for their unique durability and are environment-friendly too. Quality Only the best-quality logs are cut into veneers. Moreover, certain cuts, such as burls, are structurally unsound and these woods can rarely be utilised unless they are sliced into veneers. Design Since veneers are thin and glued to a stable substrate, it allows designs and arrangements of the wood that would not be possible in the case of solid wood. Stability Solid wood, even kiln-dried, expands and contracts as seasons change. Since veneer is glued to a stable substrate, it produces surfaces that are not prone to warp, splitting or seasonal movements. Repairable Wood veneer is repairable; if the surface gets scratched, it can receive a fresh finishing. Engineered wood flooring Engineered wood flooring is gaining prominence owing to its durability, restorability and its environmental profile. Resilience Engineered wood floors are more resilient to varying moisture levels than solid wood flooring, which makes them brferable in damp basements or in regions that are marked by significantly higher or lower humidity levels. Variety Engineered hardwood floor products are available across a wide array of widths and thicknesses. They are manufactured from a variety of domestic and exotic hardwood species and some are even available in the popular hand-scraped style too. Eco-friendly Purchasing engineered wooden flooring helps conserve endangered timbers. For every square foot of 3/4 inch thick solid wood flooring, one can manufacture over four times that amount in the form of engineered wood flooring. Efficient Purchasing br-finished flooring eliminates the time-consuming chores of sanding and refinishing and has the added benefit of a factory-perfect finish. Long-lasting The best engineered wood floors have a lifespan anywhere from 30 to 50 years. Furthermore, engineered wood floors are easier and faster to install as well. Stable Using an engineered wood floor allows one to have a wood floor on any grade level. Engineered wood floors are more dimensionally stable than solid wood Engineered doors and doors frames The Indian market size for doors and door frames is estimated to be around Rs.6,000 crore, with timber-based doors accounting for almost 75% of the market share. With not many organised players in this segment, and urbanization increasing at a fast clip, it is the most appropriate time to cash in on the opportunity available in the wood-working industry. (Source: woodnews) Equally appealing Engineered doors make use of a real layer of wood so they look just as good as a door made entirely of hardwood. Composite strength Engineered doors are typically much stronger too. The natural grains of the internal layers of wood run in different directions and are held in place with powerful, especially-formulated adhesives. Green and affordable An important benefit of engineered or composite doors is that they usually cost less than an equivalent solid hardwood door. While the quality is as good or better, one saves money. Using only the amount of hardwood required to make the door look great is also better for the environment - the wood that would go into one solid door can form the veneer for several engineered doors. Design flexibility The use of composite construction also means that designers can be more flexible with their designs - a door that wouldn't work well or have enough structural integrity if made from solid wood can be achieved using a layered construction technique. Engineered doors are available in all manners of shapes and sizes and with short lead times, compared to perhaps five or six weeks for a craftsman to create a solid wood door. Laminates and allied products Highlights, 2014-15 Production stood at 11.42 million sheets Average realisations (excluding export incentive) stood at Rs.601 per sheet. Capacity utilisation was reported at 114% Exports grew to Rs.349.77 crore. Launched new laminate products like HD Gloss and Clad (Interiors), among others. catering to the brmium and mid-level segments. Commenced production of exterior claddings, the first in India to launch exterior grade laminate. Expansion of the Nalagarh unit is in progress, which will add 2.00 million sheets to the total annual capacity. Decorative veneers and allied products Decorative veneers Highlights, 2014-15 Production stood at 1.06 million square metres. Average realisations stood at H868 per square metre. Capacity utilisation was reported at 25.24% Launched new products in the HD series using new-gen technology for designing the veneers. Focused on customised production based on the emerging demands of dealers and distributors. Engineered wood flooring Highlights, 2014-15 Started commercial production and produced 26,622 square metres during 7 months of operations Installed capacity for the production of 1.00 million square metres per year Average realisations stood at Rs.2,789 per square metre Human resource management WITH OVER 1600 EMPLOYEES ON ITS PAYROLLS, THE PRIME OBJECTIVE OF THE HR FUNCTION AT GREENLAM INDUSTRIES IS THE DEVELOPMENT OF EMPLOYEE COMPETENCY. TO ACHIEVE SUCCESS AND PROFITABILITY, THE COMPANY RELIES ON ITS GREATEST ASSETS - ITS INTELLECTUAL CAPITAL. THE COMPANY BELIEVES IN HIRING QUALITY MANPOWER FOR THE ACCOMPLISHMENT OF ITS GROWTH OBJECTIVES WITH A STRONG FOCUS ON THEIR CAREER PROGRESSION. HR functions The Company's HR team attracts talent which ensures that recruits fit their respective roles. This is followed by talent development that works in tandem with talent retention in arriving at a work-life balance. Recruitment: The Company has selected to recruit fresh and lateral hires (portals, consultants, referrals and campuses). The Company added 159 members to its team during the year under review. Recruitment of freshers: During the year, the Company recruited 75 freshers, which accounted for 47% of the total recruitment in 2014-15. The freshers were mainly recruited from reputed business schools as management trainees. Recruitment of laterals: The Company's business requires experienced professionals, making lateral recruitment necessary. When hiring, the Company examines technical, analytical and experience competencies. The Company as a strategy decided to recruit people from similar but not the same trade in order to energise the team. Training: A 12-week induction training programme has been implemented for the benefit of new recruits. This programme will provide them with adequate exposure across departments and segments. The Company also conducts training programmes mediated towards improving communication and soft skills. The Company is also in the process of creating an e-learning portal. Initiatives, 2014-15 During the year, the HR initiatives were focused on enhancing productivity and efficiency. In order to make the organisation robust, progressive and dynamic, Greenlam focused on organisational development, employee engagement and talent management through the following interventions: Decided to do away with its centralised human resource team and instead chose to have a zonal emphasis. Reformulated its own vision and values, thereby distinguishing itself from peers. It also came up with a policy manual, implemented the same across the organisation and clarified its policies on designation, reimbursements, rewards and recognition. Started the process of outsourcing its payroll processing to an external specialised agency, thereby allowing the HR team to focus on issues demanding immediate attention. Standardised and systematised processes and consequently, made them less people-dependent. Enhanced touch points for new recruits through a formalised approach, under which within 30 days of joining, a feedback and query-resolution session is conducted to help the new employees feel comfortable within the organisation. Conducted exit interviews in a structured manner to gain valuable organisational feedback and ensure that they part on an amicable note. Focused on improving the core competencies of the HR team. Productivity was measured by capturing the turnaround time for each SOP and steps were taken for removing procedural bottlenecks. Created an IT portal called Mitra where employees can put forward their grievances and the complaint is closed by the employee only when he or she is completely satisfied with the resolution. Started celebrating employee birthdays and anniversaries across all levels of the organisation (last day of every month). A yearly budget is assigned to the leadership team for team building which has to be spent on recreational activities. Extended medical policies which was earlier confined only to the spouse and children and now include parents and in-laws as well. Calculated and compared productivity of the branches (revenue generated by the branch divided by the cost of the team/number of team members). Roped in consultants and leveraged their expertise for formulating the KRA of the leadership team. Launched an internal newsletter, Greenlam Lifetimes, which includes a message from the managing director, industry news and other relevant information. Started to increase the proportion of women in the organisation, across functions and zones and also started celebrating Women's Day across the Company. Outlook Going ahead, the Company will enhance its focus on employees and will continue to invest in them to retain its competitive edge and make Greenlam Industries a great place to work. Internal control systems and their adequacy The Company has in place robust internal control procedures commensurate with its size and operations. The Board of Directors, responsible for the internal control system, sets the guidelines, verifying its adequacy, effectiveness and application. The Company's internal control system is designed to ensure management efficiency, measurability and verifiability, reliability of accounting and management information, compliance with all applicable laws and regulations, and the protection of the Company's assets so that the main company risks (operational, compliance-related, economic and financial) are properly identified and managed over time. |