VHCL Industries Ltd Management Discussions

We have pleasure in submitting the Managements Discussion & Analysis Report ("MDA") on the Companys businesses. We have attempted to include discussions on all specified matters, to the extent relevant or within limits that in our opinion are reasonably imposed by the companys strategic and competitive position. The year under review has been extremely challenging with continuing macroeconomic challenges. Substantially slowed GDP growth, high inflation-particularly in food, weak currency, a high current account deficit, rising fuel & energy costs and poor consumer sentiments characterized the domestic situation. Global geo-political developments such as quantitative easing by the US treasury and adverse developments in parts of Asia and the Middle-East added to the concerns. Overall consumer confidence remained low in the backdrop of the uncertain political situation leading up to the general elections. Some steps taken by the Government yielded results but the limited excise relief on same consumer durables is yet to result in a market.

FINANCIAL PERFORMANCE AND ANALYSIS

The current financial year was depressed compared to previous financial year. The highlights of the financial performance are:

1) Net sales increased Rs. 49,820.81 Lacs from Rs. 48017.21 Lacs in the previous year, at a growth rate of 3.76%.

2) The Profit before Depreciation, Finance cost, exceptional item and Tax increased from Rs.2235.45 Lacs in the preceding financial year to Rs. 3217.81 Lacs in the year under Report

3) Earnings before interest, depreciation, tax (EBIDTA) increased by 48.09 % to Rs. 3091.07 Lacs in 2013-2014 against Rs. 2087.36 Lacs in 2012-2013.

4) The Profit after tax for the current year of Rs.2.84 Lacs was lower as compared to Rs. 694.09 Lacs in the previous year due to increase in finance costs and forex losses.

The Company striving to decrease financial costs and forex loasses and making all efforts to improve value additions, reduce operating costs and improve efficiencies to overcome higher input costs.

INDUSTRY OVERVIEW

Ever since 1957, the Plastics Industry in India has made significant achievements as it made a modest but promising beginning by commencing production of Polystyrene. The chronology of manufacture of Indian polymers is summarized as under:-

• 1957-Polystyrene,

• 1959-LDPE ,

• 1961-PVC,

• 1968- HDPE,

• 1978-Polypropylene.

Such potential Indian market has motivated the entrepreneurs in the country to acquire technical expertise, achieve high quality standards and build capacities in various facets of the booming plastic industry. The Phenomenal developments in the plastic machinery sector is coupled with the developments in the petrochemical sector, both of which support the plastic processing sector.

This has facilitated the plastic processors to build capacities for the service of both the domestic market and the markets overseas. Today Indian Plastic processing sector comprises of over 30,000 units involved in producing a variety of items through injection moulding, blow moulding, extrusion and calendaring. The capacities built in most segments of this industry coupled with inherent capabilities has made us capable of servicing the overseas markets. The Indian plastic industry has taken great strides and in the past few decades, the industry has grown to the status of a leading sector in the country with a sizable base.

Plastic material is gaining notable importance in different spheres of activity and the per capita consumption is increasing at a fast pace. Continuous advancements and developments in Plastic technology, processing machineries, expertise, and cost effective manufacturing is fast replacing the typical materials. On the basis of value added share, the Indian Plastic industry is about 0.5% of Indias GDP. The export of plastic products also yields about 1% of the countrys exports. The sector has a large presence of small scale companies in the industry, which account for more than 50% turnover of the industry and provides employment to an estimated 0.4 million people in the country. Approximately Rs.100 billion are invested in the form of fixed assets in the plastic processing industry.

The Indian Plastic industry is facing severe demand crunch in the domestic industry for quite some time. Demand for major polymers was 10% lower in Q2 this financial year as compared to the same period last year. The slowdown demand is adversely affecting the industry comprising of 15 raw material producers and there are about 26,000 processing units in the country with adverse impact on the employment of 3.3 million people associated with this industry. The contribution of the plastic industry in the economic growth of countries the world has been great.

With a population over one billion where 40% are under age 15, opportunities for plastics producers in India include near-term rapid growth in the nations internal consumption of plastic products and the Indian middle class is 300 million and rising, and the annual GDP growth rate is 8%.

THE COMPANYS OUTLOOK

The outlook for the Company is positive. The Company is engaged in recycling of plastic wastes. The Company is engaged in:

(i) Manufacture of reprocessed Plastic Granules

(ii) Wind Mill Power Generation.

The Company is also having metal division and overview of which given hereinbelow.

Company generates major revenue from sales of granules which contributed 99.74% of total sales made by the Company during the year 2013-14.

The Board of Directors of the Company decided to de-merge the Metal Division of the company into a separate entity in order to invite industry specific investment as well as unlock shareholder value.

REPROCESSED PLASTIC GRANUELS

There is a vast untapped demand in rural areas. The Industry is fragmented and there are large numbers of small units scattered at various places in the country. Moreover the range of recycled produce varies as per the requirements of the customers. The potential to grow depends on procurement of plastic wastes and producing recycled products as per market demand. Most varieties of plastics are recyclable. As per general estimate, reprocessed material used by plastic reprocessing industry accounts for about 40% to 50% of the virgin material processed. It takes 91 % less energy to recycle a kilo of plastic than it takes to recycle a kilo of paper. Recycling of plastic bags generate 80% less waste as compared to paper bags. Many other advantages of recycling highlight its importance and the need to develop and support Plastics Recycling Program nationally as a modern solid waste management practice. The Company had made substantial growth in last few years which reflected in his financial performance.

WIND POWER

During the Year 2013-14, the sales from Wind Power were Rs.131.84 Lacs as against Rs. 155.87 Lacs in the year 2012-13.

There is a huge gap between demand and supply of power in India which is likely to continue for many years to come. The government has taken various initiatives to increase public as well as private investment in this Sector to enhance generation capacity. This Sector provides ample of opportunities for growth and there are no perceived threats.

METAL PLANT AT SANJAN

The metal division of the company is engaged in the recycling of non-ferrous metals and aluminium alloy. Currently the company has two ongoing projects and this project is divided into two phases which are:

(1) Manufacturing of Aluminum Alloys ingots to the tune of 36000 MT P.A.

(2) Production of non-ferrous alloy, Billets of Brass alloys, cupronickel alloys, and lead alloys other ferrous to the tune of 18000 MT P.A.

Both these units are under the EOU scheme and facilitate exports. The Board of Directors of the Company decided to de-merging the Metal Division of the company into a separate entity in order to invite industry specific investment as well as unlock shareholder value.

The Proposal outlined that the second phase expansion would require an investment to the tune of Rs. 400 Cr. in fixed assets and working capital which may not be possible for the company to generate from its existing shareholder base and internal accruals. The Proposal suggested that the company go in for FDI for the project. Initial discussions with a few players indicate that the investment may come in only if the metal division is a separate entity. To achieve this, the metal division would have to be demerged from the plastic division through a court order to retain the licenses obtained till date intact. The demerger would have the added advantage of unlocking shareholder value of the existing stakeholders as well as allow the metal division to grow faster.

OPPORTUNITIES AND THREATS

The industry has encountered high volatility and uncertainty on price movement of raw material. Dependency on imported raw material for certain critical applications is a recognized risk.

Recycling is one of the most important actions currently available to reduce these impacts and represent one of the most dynamic areas in the plastics industries today. Recycling provides opportunities to reduce oil usage, carbon dioxide emission and the quantities of waste requiring disposal. The advantage is the ability to recycle a larger proportion of the plastic waste stream by expanding post-consumer collection of plastic packaging to cover a wider variety of materials and pack types. Product design for recycling has strong potential to assist in such recycling efforts. Most current material recovery facilities have difficulty in handling flexible plastic packaging because of the different handling characteristics of rigid packaging. Plastic carry bags are extremely resource-efficient disposable bag choice. There is a big opportunity in this industry in view of rapid growth in the economy and consumerism growing at fast pace. However, the growth is constrained by the factors like environment concerns and uncertain regulatory framework. Plastic bags can be made into dozens of useful new recycled products such as sheetings, garbage bags, liners, industrial packing, shoe soles building and construction products, low maintenance fencing and decking. There is high demand for plastic waste, and in most areas, demand exceeds than available supply. We can also get material saving by recycling clean waste and also energy saving in our national interest. Plastic waste industry is at point of fierce competition, the industry may encounter difficulties and in future the survival will be to the fittest. It is therefore necessary for the industry to evolve profitability and competitiveness, focus on improving the technical content, improve business strategies, increase specialization and its transformation equipped with latest Technology.

RISKS AND CONCERNS

The Company faces normal business challenges from market competition and needs to continuously search attractive growth areas and opportunities. The Company has so far adapted successfully to changes in the market environment.

The company now caters to a wider range of applications and user industries, with resultant lower risk in an economic downturn.

Operational Risk : Payment recoveries in uncertain economic conditions are and will continue to be a risk, which will need a very close attention.

Competition Risk : In order to mitigate competition risk the Company is moving into higher value added products, which are difficult to replicate and need time and technical service competency for product acceptance.

Financial Risk : The Companys operations are exposed to various types of financial risks, like currency risk, interest risk, liquidity risk and credit risk. The continuous monitoring of cash flow and market factors helps in minimizing these risks and disruptions in normal operations.

Interest and finance cost has been increased due to increase in utilization of borrowed funds and its cost.

The increase in borrowed fund was due to capital expenditure incurred and increased working capital requirement for the growth of the business. The Company is exposed to risks from the market fluctuations of foreign, commodity prices, business risks as well as price fluctuation on raw materials and finished goods in its entire product.

Litigation Risk : Outcome of litigation in matters of Tax Law or in any other statutory obligation cannot always be predicted and therefore also poses a risk.

ENVIRONMENT AND SAFETY

We firmly believe that safe and healthy working conditions in factories and other premises are as necessary and important as production, productivity and quality. Our policy requires conduct of activities to take foremost account of health and safety of all concerned, besides conservation of natural resources and protection of the environment to the extent possible.

HUMAN RESOURCES

Employees represent our significant asset and potential. It is only through motivated, creative and business-minded employees that we can achieve our aims. Involvement, commitment, teamwork and updating of skill and knowledge are integral to our objectives of advancing a profession, productive culture.

CAUTIONARY STATEMENT

Certain Statements in this Management Discussion and Analysis describing the Companys objectives, projections, outlook, estimates, expectations or predictions may be forward-looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. These include climatic conditions and economic conditions affecting demand and supply, government regulations and taxation, natural calamities and so on over which the Company does not have any direct control.

The Company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned not to place undue reliance on these forward looking statements that speaks only as of their dates.

	For and on behalf of the Board
	Sd/-
	Pankaj H. Valia
	Chairman & Managing Director
Place : Mumbai
Date : 30/05/2014