MANAGEMENT DISCUSSION AND ANALYSIS (MDA) • Global Economy The recovery in the United States was stronger than expected, while economic performance in all other major economies most notably Japan fell short of expectations.The UK is well on its way to recovery. Investment growth in China declined in the third quarter of 2014, and leading indicators point to a further slowdown. Emerging economies continued to contribute about two-thirds of global growth; however these economies disappointed as a result of a less favourable investment climate and weak external demand. According to the World Bank, global GDP actually grew at 2.6 per cent in 2014 after growing at 2.5 per cent in 2013. While the World Bank's earlier projection for 2014was 3.2 per cent, the growth momentum failed to pick up in several developed and developing nations during the second half of 2014. The World Bank expects the global growth rate for 2015 to be 3.0 percent. The estimates by International Monetary Fund (IMF) are slightly more optimistic than that of World Bank. IMF expects global economy to grow by 3.5 per cent in 2015 and by 3.8 per cent in 2016. A number of country specific challenges like infrastructure bottlenecks, increased financial risks and political tensions continued to loom over these economies. However, there is a view that many of these emerging o economies including India have put the worst behind them. Indian Economy In 2014-15, Indian economy grew at 7.3% (GDP at market prices). The falling oil prices has aided in lower current account deficit and inflation. With fiscal deficit at below 4%, and current account deficit at 1.6% of o GDP, India's macroeconomic fundamentals are healthy. Indian economy has gained momentum following pro-economic reforms, initiated by the new government. The Government envisages GDP growth upto 8% in FY16 driven by strengthening macroeconomic fundamentals and implementation of policy reforms recently announced will be requisite growth enablers to de-bottleneck stalled projects, improve the investment outlook and the ease of doing business in the country, The reforms include deregulation of diesel prices, direct transfer of cooking gas subsidy, hiking FDI cap in defence and insurance, ordinance on coal and telecom spectrum allocation. Reforms currently underway such as GST implementation, Amendment on Land Acquisition Bill, Labour Reforms, etc. are expected to provide the requisite thrust for growth in the medium-term. India is set to become the world's fastest-growing major economy by 2016 ahead of China, the International Monetary Fund (IMF) said in its recent latest forecast. India is expected to grow at 6.3 percent in 2015, and 6.5 per cent in 2016 by when it is likely to cross China's projected growth rate. India's macro-economic prospects have strengthened and the country is best positioned among emerging market economies, gaining n global investor's attention. In FY16, the growth rate is likely to go up further to anything between 8.1 - 8.5 per cent making India world's fastest growing large economy. IMF also expects India to overtake China in terms of growth rate in 2016. The Government of India has been successful in containing inflation and the low oil prices are unlikely to put any upward brssure on inflation. Global Textile Industry In this economic backdrop, there were mixed signals from the global textile industry during 2013 and 2014. While the overall steady growth trend is apparent, there are also several structural changes taking place. The Global textile and clothing industry is estimated to register a growth of 4-5% in 2014-15. The growth could have been stronger, but subdued Q4 led to lower estimated growth. India is expected to achieve around USD 39 billion. The slowdown in exports to China and following commodity prices impacted the world exports. The global apparel market, which is the primary end-user segment for the entire textiles value chain, was o around US$ 1,146 Bn in 2013 and is estimated around US$ 1,200 Bn in 2014. This overall market is growing at 5% CAGR and is estimated to reach US$ 2,110 by 2025. This growth in market size in value terms can be attributed to growing population, increasing per capita consumption globally. The production of cotton fibre is down by 2% to 6.63 million tonnes. The polyester fibre production is up by 7.0% from 3.60 million tonnes in 2013-14 to 3.85 million in 2014-15. The production of viscose and acrylic fibre is like to remain flat. Indian Textile Industry The opening up of economy gave the much needed thrust to the Indian textile industry , which has now successfully become one of the largest in the world. It also plays a major role in the economy of the country. This sector contributed 14% to industrial production, 4% to the gross domestic product and 17% to the country's export earnings. It provided direct employment to 35 million people. India has the potential to increase its textile and apparel share in the world trade from the current level of 4.5 % to 8% and reach to US$ 80 billion by 2020. Indian Polyester Industry India's yarn production registered a positive growth of 3.3%. Man made fibre accounts for 71% of the total global fibre production as per estimate of The Fibre Year, ICAC. India's fibre production for the year 2014-15 is estimated at 11.00 million tonnes. Domestic growth of polyester fibre is up by 12.5% on Y-o-Y basis. Total domestic demand is estimated at 3.6 million tones in 2014-15, as compared to 3.2 million tonnes in 2013-14. The robust demand led by FDY, followed by POY and PSF. Polyester fibre capacity increased by 9% owing to increased PFY capacity. Polyester fibre is estimated to grow at 7-8% for the period 2016-2018 owing to price stability, competitiveness of polyester fibre price over cotton, growing applications in technical textiles and due to revival of global textile and clothing trade. Polyester Filament Yarn (PFY) Domestic capacity up by 12% and Domestic demand up from 2.42 million tonnes to estimated 2.79 million tonnes in 2014-15, growth of 15%. Another factor that is hurting the Indian synthetic sector is the high import duties and domestic taxes on man made fibres. The synthetic textiles industry last month sought an overhaul in the excise and customs regime to enable it to compete with countries such as Bangladesh, China and Vietnam. Further, the benefits for promoting exports to major emerging markets for MMF textiles such as Latin America, Far East and African countries have been completely stopped in the new FTP without giving the sector's exporters any scope for adjustment. After tough competition from cotton last year, the manmade yarn and fabric industry is expected to grow at a higher rate of five to seven per cent in 2015-16, on the back of stable crude oil prices. However, it is the domestic market that will see the larger growth, as Indian synthetic yarn and fabric performance has not been one of the best internationally. Raw Material Scenario For Polyester Industry, the main raw materials are Purified Terephthalic Acid (PTA) and Mono Ethylene Glycol (MEG), these are derivatives of petrochemical industry. Any change in crude oil prices affects the prices of PTA and MEG. Purified Terephthalic Acid (PTA) The scenario for PTA also changed significantly due to substantial addition of capacity for PTA in China. PTA reached a peak of about USD 1,000 in August 2014, and started declining thereafter, hitting a bottom of about USD 580 in January 2015, and then recovered slightly. From July 2014, imposition of Anti Dumping Duty on imports of PTA from countries like China, Korea, Thailand and European Union contributed to the changing scenario. In India, due to frequent shut downs, low capacity utilisation at the plants of Indian Oil Corporation Limited (IOCL) and MCC PTA India Corporation Private Limited (MCPI), and delay in commissioning of the new plant of Reliance Industries Limited (RIL), the PTA shortage continued, and significant imports took place during the year. RIL's new plant has now been commissioned, and the situation has eased. Mono Ethylene Glycol (MEG) MEG reached a peak of about USD 990 in July 2014, and started declining thereafter, hitting a bottom of USD 725 in January 2015, before recovering slightly. MEG is expected to remain tight globally as no new capacities are coming up in the near future, other than debottlenecking for some of the existing plants. Business Overview: The year under review remained as a year of modification in engineering & process to focus on manufacturing value added yarns with diversified applications. In the Current financial year, the company has modified 4 (four) position of its existing FDY Line for Manufacturing Colour FDY Yarns. Colour FDY Yarns will be further processed on 30 Nos. of TFO Machineries which is going to be installed for plying and twisting the yarns. Twisted & Heat set Yarns will finally be used in manufacturing carpets. The company is also exploring enhancing the capacity of manufacturing recycled chips from Waste Recycling Plant by importing some more machinery of new technologies. The company's manufacturing unit have a locational advantages being situated in the Surat area. Its location gives its proximity to both raw material suppliers as well as end users. The production capacity of the plant is as under: Over the years , we have developed capabilities to customize and improve our product designs by absorbing , adapting and improving the acquired technology from both national and international suppliers. We are continuing to enhance the operational efficiency of our plants leading to higher value creation. RESULTS REVIEW Turnover : Sumeet Industries Limited has achieved a turnover ( Standalone ) of Rs. 93117.27 Lacs in the year 2014-15 as against Rs. 110799.62 Lacs during the brvious year. Fall in sales was noted being fall in prices of finished products corresponding to last year. Due to fall in prices of our basic raw material PTA and MEG, our final products cost were also declined resulting lower value of turnover. Other Operating Income : Other operating income consists of Export Incentives, Vat refund etc. Other Income for the year 2014-15 amounted to Rs. 266.77 Lacs as against Rs. 301.88 Lacs during the brvious year. Export Incentives received during the year declined due to less export in the year under review in comparison to brvious year. Other Income : Other income consisting receipt of Dividend, Discounts and Interest on Fixed Deposit and Profit/(Loss) from Forex Transactions. Other income for the year 2013-14 is amounting of Rs. 94.38 Lacs against Rs. (1607.12) in the brvious year. Other income were substantially increased due to losses from foreign transactions were minimized. Consumption of Raw Material: Consumption of raw material increased from Rs. 55567.31 Lacs to Rs. 60051.64 Lacs due to decrease in closing stock. Employee Cost : Employees cost were increased from Rs. 1154.78 Lacs to Rs. 1238.51 Lacs. This increase is mainly due to higher increments given to employees and further recruitment of employees in POY and FDY spinning division. Interest Cost : Interest cost were increased from Rs. 3050.90 Lacs to Rs. 3535.99 Lacs due to increase in working capital. Debt Service Coverage ratio is 0.92. Despite the challenges, FY 2014-15 has been a year in which your Company made good progress in strengthening the established business segments through high value products and also reported positive contribution in the overall segment. Despite the volatility in the second half of the year, your Company was able to deliver continued growth in profitability. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY : The company's well defined organizational structure, documented policy guidelines, defined authority matrix and internal controls ensure efficiency of operations, compliance with internal policies & applicable laws and regulations and optimal use of company's resources, safeguard of all assets, proper authorization and recording of transactions and compliances with applicable laws. The Company uses Enterprise Resource Planning (ERP) supported by in-built controls that ensures reliable and timely financial reporting. Well-established & robust internal audit processes, both at the Corporate and the Business levels, continuously monitor the adequacy and effectiveness of the Internal Controls and status of compliance with operating systems, internal policies and regulatory requirements. All Internal Audit findings and financial and audit control systems are periodically reviewed by the Audit Committee of the Board of Directors which provides strategic guidance on Internal Controls. The review of reports, statements, reconciliation and other information required by the management are well documented in application system to provide reasonable assurance regarding effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations. Additional modules in ERP like Production planning, Costing, Quality management has added additional advantages in improving product costing. The Company also has a robust & combrhensive framework of Control Self-Assessment which continuously verifies compliance with laid down policies & procedures and help in pluging control gaps. ENERGY CONSERVATION The Conservation of energy in all the possible areas is undertaken as an important means of achieving cost reduction. Saving in electricity, fuel and power consumption receive due attention of the management on a continuous basis. Various measures have been taken to reduce fuel consumption, reducing leakages,improving power factor optimizing process controls etc. resulting in energy savings. HIGH ENERGY COST Open access power purchase which was hitherto available to the Company was denied from March, 2014 by power transmission company due to system constraint in transmission network. This resulted into substantial increase in power cost. To reduce the impact of this risk, the Company is constantly working on possibility to generate power from Wind Power / Coal based captive power Plant and is taking appropriate action. OPPORTUNITIES AND STRENGTH We believe polyester is the fiber of the future, finding varied applications across home furnishing, apparel industry, automotive industry, sportswear market, technical textiles etc. Global economic recovery is also accelerating coupled with rising per capita income, expanding middle class, continuing urbanization witnessing high growth opportunities. Rural market is also playing important role in the economy which offers a major opportunity growth in the Polyester Industries. Our product mix sbrad over five important Polyester products : Pet chips, POY, FDY, Texturised yarn & Carpet Yarn. We will keep opportunity of further backward and forward integration cum expansion program to lead to the company to a new high. Sumeet Industry's Edge • Over two decades of prominence in the polyester field. • One of cost - efficient polyester manufacturers •Wider value added range of products • Increasing global footprints across major markets • Locational advantages being situated at Surat. Professionally managed company. THREAT, RISKS AND CONCERNS The objective of risk management frame work is to identify events that may affect the company, and manage risk in order to provide reasonable assurance regarding achieving the company's objective. The company is operating in an environment that is becoming more and more competitive. The company seeks to ensure that the risks if undertakes are commensurate with returns. Successful risk management implies not avoidance of risk, but anticipation of the same, and formulation and implementation of relevant mitigation strategies. a) RISK AGAINSTFIRE,FLOOD AND ACCIDENTS Risk against fire, flood, accident, health related problems and accidents of workforce are common risks attached to the working of any plant/company. Management has taken reasonable steps to counter the risk. The company has taken Combrhensive All Risk Insurance Policy, which covers company's assets against all risks. Accidents due to human failure are being tackled through the continuous training to our technical and other staffs and through regular monitoring and supervision. All the employees of the company are also insured under Group Insurance Policy of Life Insurance Corp. of India. b) ECONOMIC RISK Domestic sales contribute to a major part of the revenue of the company so, the factors that may adversely affect the Indian economy and in turn company's business includes rising in interest rate, debrcation of rupees, inflation, change in tax structure, fiscal and monetary policies, scarcity of credits, global trade slowdown etc. Over capacity in the POY and Chips industry can also affect margins. Polyester has emerged as a fibre of the nation and is being extensively used in apparel, automotive, home furnishing, industrial textile and sportswear sectors. Burgeoning population, rapid urbanization, rising disposable income and growing middle-class population will drive the polyester demand in future. Moreover, Indian economy grew at 7.3% (GDP at market prices) in 2014-15. India is witnessing improving macro economic fundamentals-moderating inflation, stabilising currency and improving consumer demand. c) COMPETITION RISK We face competition from existing players and potential entrants in the Indian textile industry. The Indian o textile industry is highly competitive both in the Pet Chips segment and in the POY/FDY segment. Our company is in medium size as compared to the market leaders like Reliance Industries Limited. Domestic it production is dominated by few organized players who have integrated facilities and large economies of scale and the unorganized sector is virtually absent. The company has a well defined TQM system of control points, combrhensive budgetary controls and review system to monitor its operations to remain cost competitive its peer group. The company also widened the value added product portfolio to address a broader client base. We strengthened our customer base in existing and new export geographies through competitive pricing and quality offerings. We have enhanced focus on customer service to ensure repeat business and long standing relationship. d) STRATEGIC RISK Strategic plans for the company's business take in to account likely risks in the industrial environment from competition, changing customer needs, obsolescence and technological changes. Obsolescence of technology may affect the production process. The annual plans that are drawn up consider the risks that are likely to impact the Company's objectives in that year and the counter-measures put in place. Project execution is largely dependent upon timely delivery by the equipment suppliers, project management skills, civil works etc. Any delay in project implementation will impact revenue and profit for that period. The company strives to adopt a 'de-risking' strategy in its operation while making growth investments. Appropriate structures have been put in place to proactively monitor and manage risk. e) PRICE RISK Crude oil and Petroleum products are globally traded commodities and therefore, the prices are influenced by the international market forces of demand-supply and other geo political uncertainties etc. The price of raw material and finished goods move in tandem with international prices, which in turn, have correlation with the prices of petrochemical products. The company follows conservative foreign exchange risk management policy to minimize or eliminate the risks associated with operating activities hence, does not carry significant forex risk. f) LIQUIDITY RISK Liquidity risk (i.e., the risk of not being able to fulfil current or future payment obligations because of it unavailability of adequate cash) is efficiently managed by the company. The company is exposed to varies financial risk emanated from foreign currency exchange risk from export of products, import of raw materials and capital goods and servicing of foreign currency debt. We follow a conservative foreign exchange risk management policy to minimise or eliminate the risks o associated with operating activities. Sufficient current assets are held to meet all ofthe Company's short-term payment obligations as and when they fall due, thereby ensuring solvency at all times. Payment obligations result both from operating cash flows and from changes in current financial liabilities which are included in liquidity planning. g) MARKET RISK Market risks relate to the possibility that the fair value or future cash flows of a financial instrument could fluctuate due to variations in market prices. Market risks include currency risk and interest-rate risk. The company also converting its working capital in to fund/non-fund based facilities, borrowing under ECB/FCCB schemes and appropriate hedging strategies has undertaken to minimize interest and interest rate risk and currency risk for debrcation of rupees against dollor. The volatility witnessed in the global markets has reiterated the need for robust forex management systems and prudent investment practices. All forex exposures are hedged immediately upon the occurrence of an o exposure. The company uses forward contracts to hedge both its imports and exports and continues to o maintain the philosophy of protecting cash flows. Exports of the company also acts as a natural hedge against adverse foreign currency fluctuation. WASTE MANAGEMENT We have adopted various methods and practices for solid and hazardous waste management. Solid waste like polymer are sold to authorized parties for re-use. Fibre waste are used as captive material through recently set up waste re-cycling plant. The company has setup state of art an ETP plant for treating polluted water of the plant. Hazardous wastes are handled through registered recyclers, who are authorized by the concerned Pollution Control Boards. it- SAFETY, HEALTH AND ENVIRONMENT CONTROLS (EHS) it In keeping with the environment-conscious tenor of the times, your company has taken effective steps in o creating an aesthetic, environment-friendly industrial habitat in its factory units, mobilizing support and generating interest among staffs and labours for maintaining hygienic and green surroundings. Being providing continual efforts and stress on fire and safety, no major incident was noted in the year 2014-15. The Company is aware of its responsibilities as a good corporate citizen, in health, safety and environmental o it management. To achieve the environment, health & safety visions, various objectives have been set forth, These are as follows :- -Compliance with environment, health & safety laws and regular assessment of the compliance of operations against the requirement. -Ensuring safety related practices to enable employees and others to eliminate work related injury and illness. -State-of-the-art fire and safety installations to meet emergencies with in the company, as well as near by areas. -Training and counseling of employees, contractors, sub-contractors and transporters to ensure effects of environment health and safety. - Training and motivating employees to understand their EHS responsibilities and to participate actively in EHS program. -Imparting fire fighting training to personnel and mock drills to ensure safety brparedness. - Toilets and drinking water facility provided and they are being regularly inspected for cleanness. - Proactive measures to increase usage of recycled water. - To abide by all statutory compliance as per Factories Act, 1948. HUMAN RESOURCES The company firmly believes that success of any organization largely depends upon availability of human assets within the organization as it is one of the most valuable assets because revenue and profit growth cannot take place without the right equality of people. To that effect, company has taken a series of measures o that ensures that the most appropriate people are recruited in to the organization. a) RECRUITMENT POLICY The Company has been able to attract a team of dedicated professionals with appropriate expertise and experience, leaders who are passionate, eager to learn and succeed. Recruitment based on merit by following well defined and systematic selection procedures eliminating discrimination, sustain motivated and quality workforce through appropriate and fair performance evaluation to retain the best talent. Various training programs, with internal and external experts are organized regularly for skill upgradation. The sincere efforts of the employees have resulted in major administrative expense savings. b) PERFORMANCE APPRAISAL SYSTEM A competency based performance appraisal system has been devised and implemented the same across the organization. The best performers get recognized and rewarded by the management with the objective of o motivating them for further improved performance. Employees are promoted to higher positions on the basis of their performance, attitude and potential to motivate them for further improvement in their work. c) PERSONNEL TRAINING The company from time to time fosters a culture of training, people development and meritocracy to ensure that the maximum efficiencies are derived from its human capital. The newly recruited employees under go an combrhensive induction program. The employees underwent both functional / technical and behavioral n training that would eventually result in improved productivity. Safety training is given on regular basis to all employees including temporary employees. d) LABOUR RELATIONS On the labour front, during the year, there were no incidents of labour unrest or stoppage of work on account of labour issues and relationship with them continues to be cordial. To increase team spirit inter department o tournaments are organized and various festivals are celebrated in the company. STATUTORY COMPLIANCE The Whole-time Directors and CFO makes a declaration at each Board Meeting regarding the compliance with the provisions of various statutes, after obtaining confirmation from all the units of the Company. The Company Secretary ensures compliance accordance to SEBI regulations and provisions of the Listing Agreement. CORPORATE SOCIAL SERVICE The company is committed to its corporate social responsibility and undertakes programs that are sustainable and relevant to local needs. The company has under taken a range of activities in respect of health care and education to improve living conditions of the villagers in the neighborhood of its factories under its CSR program. CAUTIONARY STATEMENT Statement in the Management Discussion and Analysis (MDA) describing the company's objectives, projections, estimates, expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those exbrssed or implied. Several factors could make significant impact on the company's operation. These include geo political uncertainties affecting demand and supply and Government regulations, tax laws and other factors such as litigations and industrial relations. Identified as having been approved by the Board of Directors of Sumeet Industries Limited. Anil Kumar Jain Company Secretary Surat 13th August,2015 |
