MANAGEMENT DISCUSSION AND ANALYSIS REPORT Global Economy The global economy is still struggling to gain momentum as many high-income countries continue to grapple with the legacies of the global financial crisis and emerging economies are less dynamic than in the past. After rising marginally in 2014, to 2.6 percent, world GDP will grow by an estimated 3.0 percent in 2015 and 3.3 percent in 2016, supported by gradual recovery in high-income countries, low oil prices, and receding domestic headwinds in developing countries. Developing economies are expected to see an increase in growth from 4.4 percent in 2014 to 4.8 percent and 5.3 percent in 2015 and 2016, respectively.1 Indian Economy In 2014, the geopolitical events and a slow recovery from the brvious economic slowdown countered some of the optimism that was felt towards the end of 2014. The Central Statistics Office (CSO) has recently undertaken a revision in National Accounts aggregates by shifting to the new base of 2011-12 from earlier base of 200405. According to the data released by the Central Statistics Office (CSO), the Indian economy grew at 7.3 per cent in 2014-15 as compared to 6.9 percent in 2013-14 calculated as per the new series of national accounts with base year of 2011-12, which indicates a marginal growth of 0.4 percent in the Financial Year 2014-15 due to improvement in performance of both manufacturing and service sectors2. The Gross Value Added (GVA), a new concept introduced by CSO to measure the economic activity, rose by 7.2 per cent in 2014-15 compared to 6.6 per cent in the brvious fiscal2. The manufacturing sector GVA rose by 7.1 per cent during the year as against 5.3 per cent in 2013-14. Similarly, the output of electricity, gas, water supply and other utility services rose by 7.9 per cent as against 4.8 per cent a year ago. The construction activity too registered an increase of 4.8 per cent, up from 2.5 per cent a year ago. Financial, real estate and professional services also showed an improvement by registering a growth of 11.5 per cent as against 7.9 per cent in brvious fiscal2. Industry Structure and Development Packaging is among the high growth industries in India and is growing @ 22-25% per annum and becoming a brferred hub for packaging industry. Currently the 5th largest sector of India's economy, the industry has reported steady growth over past several years and shows high potential for expansion, particularly in the export market. The Indian packaging industry has made a mark with its exports that comprise flattened cans, printed sheets and components, crown cork, lug caps, plastic film laminates, craft paper, paper board and packaging machinery, while the imports include tinplate, coating and lining compounds and others. In India, the fastest growing packaging segments are laminates and flexible packaging, especially PET and woven sacks. Over the last few years Packaging Industry is an important sector driving technology and innovation growth in the country and adding value to the various manufacturing sectors including agriculture and FMCG segments. India has the second largest GDP among emerging economies based on purchasing power parity (PPP). The country is the 4th largest economy in terms of purchasing power parity (PPP). The packaging industry in India is one of the fastest growing industries which has its influence on all industries, directly or indirectly. Moreover, the Indian retail market is the 5th largest retail destination, globally and has been ranked the second most attractive emerging market for investment. India's retail growth and increased consumption of consumer products is driving the demand for packaging in the country. The global packaging industry is developing and expanding day by day and Indian packaging industry is also growing rapidly. This growth is primarily driven by factors like growing pharmaceutical, food processing, manufacturing industry, FMCG, healthcare sector and ancillary in the emerging economies like China, India, Brazil, Russia and few other East European countries. With advancement in technology and general awareness, the packaging sector in India is well poised as most of the raw materials for packaging are abundantly available in the country. Various upgraded technologies are being used in industry such as aseptic packaging, retort packaging and biodegradable packaging to enhance the life of food product. Moreover, the plastic packaging market is expanding rapidly, registering a growth of 20-25 per cent per annum and is valued at 6.8 million tonne while the paper packaging industry stands at 7.6 million tonne. The packaging industry is poised to grow rapidly led by the increasing use of innovative packaging equipments and the rising flexible packaging market. Business Overview Rollatainers Limited is one of the largest integrated packaging Company in the country and is catering to a wide spectrum of packaging requirements. It offers innovative and efficient product range that straddle all segments of packaging from printed lined cartons, laminates to machinery. The Company has a longstanding brsence in the consumer packaging industry and in particular, as a supplier to the fast moving consumer goods (FMCG) sector. Rollatainers has a track record of successfully partnering with its high profile FMCG customers including Amul, Britannia, Conagra Foods, Ferrero India, Lotte, Nestle, Pepsico, Perfetti Van Melle, Sahara Q Shop, Tata Global Beverages and Unilever. Rollatainers has further entered into the food business through its wholly owned subsidiary Carnation Hospitality Pvt Ltd ("Carnation"). Various segments of food businesses entered through Carnation are as follows: • Barista, the coffee chain • Mapple Hospitality, supplies food to Mapple hotels and has substantial banqueting and B2B operations • Kylin chain of oriental cuisine dining Also introduced global restaurant chains such as • Wendy's, the third largest burger chain in the world • Jamie's Italian, by celebrity chef Jamie Oliver The entry into the food business is a natural extension for Rollatainers into the attractive consumer food segment and also leverages its existing experience of working with international brands. During the year under review, the Company's Consolidated Revenue from Operations was Rs.396.99 Crores compared to Rs. 559.76 Crores during the year ended 30th June, 2014. Consolidated EBITDA for the year stood at Rs.17.49 crores as compared to Rs. 14.96 Crore during the year ended 30th June, 2014. Profit for the year ended 30th June, 2015, was Rs.23.68 crores as against Rs. 28.04 crore in the year ended 30th June, 2014. Strengths • Established Track Record: Rollatainers is one of the pioneers of the Indian packaging industry with strong brand equity. With over 40 years of track record of success, the Company is highly regarded amongst both its customers and peers. It is also one of the few publicly listed companies in the packaging industry. • Diversified Products: Rollatainers is one of the very few packaging companies brsent in paper board based packaging, flexible packaging and also packaging machinery. This makes it a one stop shop for the FMCG industry and other users of packaging. This also allows the Company to provide integrated and customized packaging solutions. • Reputed Customer Base: Rollatainers caters to the packaging needs of leading FMCG companies such as Hindustan Unilever, Britannia, Nestle, Tata Global Beverages, Conagra Foods and Amul, amongst others. These customers have shown tremendous confidence in the Company over the years. • Focus on Innovation: Rollatainers has a strong track record of new product development. The ability to integrate materials and machines is a strength which enables the Company to deliver new and innovative products which are customized to users' requirements. Over the years, Rollatainers has won reward and recognition for its focus on innovation. • Experienced Management Team: The core strength of the Company is a strong and experienced senior management team. The management has a successful track record of delivering quality products with focus on innovation. THREATS AND CHALLENGES • Fragmented Structure: One of the key challenges hindering the growth of this industry is its highly fragmented nature. The numerous vendors brsent in the market compete with each other on pricing and sustainability, to increase their market share at the cost of overall industry profitability. • Lack of Negotiating Power: The industry also suffers from a vast buyer and supplier community which substantially weakens the power to negotiate. • Low Entry Barriers: Weak barriers to entry lead to companies with much lower investments and infrastructure quality competing with bigger companies in the industry. This limits the ability to charge a brmium even for higher quality products. • Unorganised Sector: Although efforts are being undertaken by the Indian Government and industry associations to bring the unorganised sector under the purview of industry, the unorganised sector still constitutes a significant portion of the total revenues of the industry. It is expected that growing awareness for hygiene and health consciousness will support the growth of the organised sector. The Company has undertaken various initiatives such as working towards greater efficiency, better quality products and product innovation to mitigate the risks. • Regulatory Changes: The industry is vulnerable to changes in laws relating to environment, waste disposal and food & product safety. These changes can lead to a need for upgradation of technology, increase in product costs, loss of markets and discontinuation of product lines. OPPORTUNITIES • Socio-economic Factors: The demand for packaging is expected to grow primarily on account of rising personal disposable incomes and a changing demographic profile, tastes and brferences of the consumer. The change in brferences and aspirations for better quality products have resulted in emergence of convenience and retail stores. All these factors are expected to result in increased demand for packaging. • Need for Convenient and Eco-friendly Packaging: Amidst growing global environmental concerns and the dire need to arrest the increase in pollution levels, the demand for sustainable and eco-friendly packaging has increased. One of the main beneficiaries of this trend is the 'convenience packaging' industry. Consumers are increasingly looking for products which are easy to open, consume, store, carry, and dispose of, which has led to an increase in the demand for flexible packaging as it is convenient to use. • The Boom in E-commerce Industry: Over the last couple of years, the online shopping industry has witnessed significant growth. Consumers, lured by discounts and the convenience of shopping from home, have started to order not just white goods but also everyday items online. This has led to an increase in demand for packaging, especially lined cartons which the Company manufactures in large numbers. The Company also has substantial capacity to manufacture lined cartons. • FMCG Sector: India ranks among one of the top producers of food, vegetables and fruits. The introduction of FDI in the retail sector is expected to continue to provide significant growth opportunity to the Indian retail market. Growth in consumer spend, growing rural demand, changing demographics, emergence of a fast growing market for convenience goods, retail trade and quest for quality products is expected to result in increase in demand for packaging in the medium to long term. • Low Rural Penetration: The current demand for packaged products is still primarily driven by the urban population. The rural population is gradually realizing the importance of packaged products in terms of hygiene and quality (particularly food items) due to increased social awareness in these areas. As a result, the FMCG companies have started to launch smaller and lower sized versions of their products for the rural areas. This has offered a new avenue of growth for the packaging industry. • The 'Make in India' Campaign: The 'Make in India' campaign launched by the new government is expected to give a major impetus to the manufacturing industry which is likely to boost the demand for packaging in India. Rollatainers is well placed to capitalize on the opportunities arising from these trends. The Company has invested in significant capacity expansions, especially in the flexible packaging segment to be able to take advantage of the growth in the FMCG industry and increasing rural penetration. The Company has certifications such as FSC COC which is testament to our focus on sustainability and environment protection. The SEDEX certification is a symbol of our reliance on ethics in business. We are also undergoing the BRC IOP certification which relates to food safety for global markets including Europe. These certifications not only help us bid for orders from large multinational firms but also reinforce our commitment to excellence. RISK & CONCERNS The Company has framed a Risk Management Policy in accordance with Companies Act, 2013 read with Listing Agreement. Accordingly, the Company has constituted a Risk Management Committee which reviews the key risks, concerns and mitigation plans at regular intervals. Risk assessment, Risk Management, Risk Monitoring and Risk Mitigation measures are adopted by the Company for timely action. By identifying and proactively addressing risks and opportunities, the objective is to build and maintain sustainable, robust business models and to protect and create value for all the stakeholders, including shareholders, employees, customers, regulators, and the community. Risks related to Rollatainers and our responses to mitigate them are discussed below. Strategic Risks Strategic risks refer to long-term strategy and plans of the Company, including risks associated with macro environment in which the Company operates. Low demand, economic slowdown, political instability, higher inflation, natural calamities may affect the business. However, the Company employed a focused approach and adopted various means to mitigate the risk. Expansion to the food business will help the Company better align itself towards its long term growth objectives. Operational Risks Operational risks refer to risks impacting operations of the Company. It includes inter alia supply chain, employee productivity, health and safety of employees and environmental impact and risks to business reputation. The Company is exposed to various risks which impact Company's reputation such as labour relations, product mix, innovations and effective deployment of technology. Some of the products are commodity grade and are to a large extent fungible with our competitors' products. Demand for the products of the Company is sensitive to changes in industry capacity and output levels, cyclical changes in regional and global economic conditions and changes in consumer demand. The Company has in place a crisis management plan and is committed to servicing customers and stakeholders effectively. Financial Risks Financial risks refer to ability of the Company to meet financial obligations and lessen the impact of various factors like interest rates, foreign currency exchange rates etc. The Company has significant level of indebtedness and in an adverse environment, cash may be diverted from operations to pay debts and thus, reduce the availability of cash for capital expenditure, acquisitions etc. In addition it could impact the ability to increase funds for working capital, to raise new debt or to refinance existing debt on favourable terms. Legal and Compliance Risks Legal and compliance risks refer to risks arising from outcome of legal proceedings, government action and/or regulatory action, which could result in additional costs. The Company is subject to various laws, regulations and contractual commitments. The risk of substantial costs, liabilities and damage to reputation related to non-compliance of these laws and regulations are inherent to the Company's business. The Company has policies, systems and procedures in place aimed at ensuring substantial compliance and there is a strong commitment from the management to enforce compliance. Outlook According to the Packaging Industry Association of India (PIAI), packaging in India is one of the fastest growing sectors, partly because it spans almost every industry segment. Right from packaging of food and beverages, drugs and medicines, to highly dangerous products, packaging has led to greater specialization and sophistication over a period of years. Packaging has an annual global turnover of about $550 billion, and India's share is about $16.5 billion per annum. According to the Mckinsey report, there will be a ten-fold increase in India's middle class population by 2025, which will further trigger the consumption of packaging materials and will bring another growth spurt to packaging. (packworld.com) Further, Smithers Pira forecasts annual growth of 4% per year to 2018 in the world packaging market, with sales to reach over 1 trillion US dollars by 2018. According to the World packaging Organization, the packaging industry is now required to review the social significance of packaging for development and improvement in harmony with society.(world packaging organistion) Sustainability programmes are increasingly being seen as a source of innovation that can help in differentiating a company by appealing to the consciences of consumers. These programmes also serve as a platform for new product and market development. Consumer demand and government legislation around the world are the leading drivers for the sustainable packaging agenda. Environmental awareness among a growing population of consumers is fuelling demand for sustainability and the reduction of the impact of packaging on the environment. (Smithers pira.com) INTERNAL CONTROL SYSTEM AND OTHER ADEQUACY The Company's internal control systems are commensurate with its size and the nature of its operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use, executing transactions with proper authorization and ensuring compliance of corporate policies. The Company maintains a system of well-established policies and procedures for internal control of operations and activities, and these are continually reviewed for effectiveness. Your Company's Internal Control System has been designed to provide for: • Accurate recording of transactions with internal checks and prompt reporting. • Adherence to applicable Accounting Standards and Policies. • Compliance with applicable statutes, policies and management policies and procedures. • Effective use of resources and safeguarding of assets. We believe that the Company's overall system of internal control is adequate, given the size and nature of operations and effective implementation of internal control self-assessment procedures and ensure compliance to policies, plans and statutory requirements. Human Resources And Industrial Relations The Company's Human Resources philosophy is to establish and build a strong performance and Competency driven culture with greater sense of accountability and responsibility. The Company has taken pragmatic steps for strengthening organizational competency through involvement and development of employees as well as installing effective systems for improving the productivity, quality and accountability at functional levels. With the changing and turbulent business scenario, our basic focus is to upgrade the skill and knowledge level of the existing human assets to the required level by providing appropriate leadership at all levels, motivating them to face the hard facts of business, inculcating the attitude for speed of action and taking responsibilities. Proper exchange of ideas and thoughts promotes human development and harmony. There are formal channels for internal communications for employees to share their views and opinions with the management. The Company reflects on this feedback and incorporates relevant changes into the existing policies, systems and processes. The Directors would like to acknowledge and apbrciate the contribution of all employees towards the performance of the Company. CAUTION STATEMENT Statementsin theManagementdiscussion and Analysis describing the Company's objectives, projections, expectations and estimates regarding future performance may be "forward-looking statements" within the meaning of applicable securities laws and regulations and are based on currently available information. The management believes these to be true to the best of its knowledge at the time of brparation of this report. However, these statements are subject to future events and uncertainties, which could cause actual results to differ materially from what may be indicated by such statements. By Order of the Board For ROLLATAINERS LIMITED Sd/- (Aarti Jain) DIN: 00143244 Chairperson Place: Dharuhera, Haryana Date : 27th August, 2015 |
