Rubfila International Ltd Management Discussions

The global economy was on its path to recovery in 2021-22 after the first two waves of Covid though it was accompanied by strong inflationary trends across the board. Governments resorted to financial as well other means of support to pop up the economy and this along with making vaccines available to a large section of adult population made the recovery better than expected. In the grim pandemic scenario, during and after the lockdown, Rubfila responded with agility to face and overcome the headwinds, which was reflected in the company achieving the highest sales turnover and profits in its history. It also added two new lines of production during the year with the total installed capacity reaching 25000 MT per year. The company envisions to be a leading player in the world in the rubber thread industry which it is confident of achieving.

In the year under review, Rubfila posted a sales of Rs. 41665.32 lakhs with a net profit of Rs. 4304.15 lakhs. The consolidated sales combining the figures of Premier Tissues was Rs. 47,674.57 lakhs and a net profit of Rs. 4,464.35 lakhs.

A) INDUSTRY STRUCTURE AND DEVELOPMENT:

Market Scenario :

The year under review started with grim prospects with India as well as many countries facing an onslaught of the third wave of Covid 19. Though the governments at the centre and in the states came out with steps to support the industries, many companies struggled to survive and Rubfila was not an exception with disruption in operations in the first quarter. Supply chains were disrupted very badly across all the industries with price inflations happening in raw materials. But even in such a scenario, Rubfila managed to overcome the hurdles and then went on to perform better in the subsequent quarters of the year.

After the initial hiccup, demand for the product picked up in the domestic and international markets. The growth in the domestic market also helped and sales grew up by 46.91%. The seeding done in the past one year in various international markets also fructified with the exports sales growing up by 88.83% and many new customers were added to the roster of the company. Exports sales touched Rs. 8,554.85 Lakhs in 2021-22 as against Rs. 4,530.55 Lakhs in previous year despite the headwinds in the business environment.

Another aftermath of the Covid was the widespread shortage of containers for shipping and the subsequent increase in the freight charges. Freight to all the countries more than doubled and availability also became a major constraint in meeting despatch schedules. Rubfila also faced constraints in these fronts and had to compromise on margins due to this, but managed the crisis by leveraging the knowledge and expertise in handling logistics for the past many years.

OPPORTUNITIES AND THREATS:

Opportunities for the Company are:

1. There are many countries where Rubfila is not present now and this offers opportunity to grow.

2. Reputed Brand image and position built in the international market.

3. Increased capacity and capability to execute order with shorter lead time

Threats:

1. Cheaper imports with lower customs duty tariff.

2. Consumption decline in China due to Pandemic issues, forcing South East Asian manufacturers to dump products at low prices.

3. Volatile climate situation leading to concerns in availability and pricing of Latex

4. Prospective new players in the market can lead to price war and decline in margins.

Premier Tissues India Ltd (Wholly-owned Subsidiary):

As Covid spread across the world, schools were closed and offices moved to the work-from- home mode and this led to a decline in the consumption of paper. Over a period of time, this had a major impact in the availability of waste paper, a raw material for the paper industry. The result was an unprecedented hike in the prices of waste paper and subsequently that of paper. India used to be a major destination for waste paper from around the world, but with shortage looming around, Europe banned the export of waste paper further limiting the strained supply chain. All these led to paper prices more than doubling over the year and availability of waste paper became a major concern for the paper industry.

Tissue market in India consists of a large number of unorganised players compared to only a few organised players having presence across the country. These smaller players operate with low overheads helping them to sell at very low prices. This acts as a major constraint for the organised players to pass on the increase in costs to the trade or consumer. Premier suffered badly on account of this and ended the year with a lower profit compared to the previous year. At the same time, companys efforts in widening the sales network has started yielding results with increase in the sales at Rs.6010.25 lakhs. Profits were lower at Rs. 161.19 lakhs compared to Rs. 317.72 lakhs in the previous year.

OUTLOOK:

Rubfila International Ltd

Rubfila had grown steadily over the past decade after coming out of a series of crises to reach its current position of stability and strength. Though the past two years had been challenging due to the pandemic, the company demonstrated its capabilities by achieving the highest sales turnover and profits in the history. It aims to keep the going steady and strengthen its position in the Indian and international markets in the coming years.

The company has been clocking higher sales year after year and targets further growth in the current year, irrespective of some adverse market situations. During the year 2021-22, two new production lines were commissioned adding up the total installed capacity of the company to 25000 MT per annum. This is the largest capacity in India and gives Rubfila a formidable position in the international market too.

Marketing efforts to woo new customers in different countries are showing results and the company is expected to garner a higher share of the international market soon by utilising the higher capacity of production. The depreciation of the Indian Rupee against US dollar could be of help to be more competitive, though on the other side, this can cause inflationary trends across the board leading to price increases in all major raw materials like chemicals, packaging materials etc.

The pricing of latex is a perpetual issue faced by the industry with the international prices ruling at lower levels than the Indian prices for most part of a year. Customs duty on natural latex is very high at 70% making it impossible for the industry to take advantage of the low international prices. In addition, the industry is further injured with rubber threads being allowed to be imported at a low customs duty tariff of 5% under the Free Trade Agreements with Malaysia and Thailand. The growth of spandex as an alternate material is another threat the industry faces and some growth in the elastic tape market is garnered by spandex. These factors perennially pressure the Indian rubber thread prices and margins.

The current financial year has started on a crisis with the cotton prices shooting up disproportionately straining the customer industry. Availability of cotton has come down and many customers were forced to either shut or scale down operations leading to lower intake of rubber threads in the market. The international market is also facing headwinds due to cotton prices and availability and the first three quarters of the year could witness a slowdown in consumption. This is expected to have an adverse effect in the performance of the industry this year.

Premier Tissues India Ltd

For the tissue paper industry, one outcome from the pandemic was that the awareness of hygiene has gone up and the prospects of the consumption growing looks certain. Premier plans to tap into this growth helping the company to register higher sales.

Premier has a strong presence in the southern market whereas it is moderate in presence in the western market and weak in the north and east markets. Efforts in filling these gaps in the markets is gaining momentum with the appointment of more sales personnel and distributors. The strong equity of the brand coupled with the widened sales network is expected to bring in better sales in the coming years.

The industry continues to have a large number of unorganised players who are flexible with the quality and price of the product indirectly affecting the pricing power of the organised companies in the market.

Prices of paper, waste paper and packaging materials are expected to soften from the second half of the year and this should help the company to have a better control on its costs. Together, the company projects to register a better performance this year as compared to the last year.

B) INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY:

The Company has proper and adequate internal control systems to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition and those transactions are authorized, recorded and reported correctly.

C) FINANCIAL AND OPERATIONAL PEFORMANCE:

Please refer Board Report on performance review.

D) MATERIAL DEVELOPMENTS IN HUMAN RESOURCES /INDUSTRIAL RELATIONS FRONT:

It is people who make or break an organisation. One of the biggest strengths of Rubfila is its manpower which manages various levels of functions from management to the shop floor operations. The team is committed and dedicated which is reflected in the performance of the company.

The employee - employer relationship at Rubfila continues to be cordial. It believes in the power of people and trains each individual so as to develop the person into a better performer. The company is keen on identifying talent and nurturing it to take on higher responsibilities and development of manpower is considered to be a key objective of the management.

E) RISK MANAGEMENT

The company has set up a robust risk management framework to identify, monitor and minimize risk and also to identify business opportunities. The Audit Committee also functions as the Risk Management Committee. The Committee assist the Board in its oversight of various risks, analyse risk exposure related to specific issues and review the risk profile.