Dear Esteemed Members
It is my pleasure to welcome you all to the 100th Annual General Meeting ofthe Company. It is indeed a historical moment for all of us. Last year the Companycompleted 150 years of its foundation and now we are at the 100th AGM. This isa unique happening and an awe-inspiring milestone in our corporate journey. Very feworganisations are fortunate to achieve such a rare distinction in its corporate lifecycle. The sheer hard work determination foresightedness able leadership andperseverance of all the stakeholders have made it possible for the Company to complete itsjourney of 150 years with a glorious track record of being profitable always. Though weare steering ahead on a growth path we have to stay vigilant and combat the variouschallenges too.
Before I make my customary observations I express my gratitude to all of you for yourcontinued trust support and patronage that you have placed in this Company for so manyyears. It is my privilege to present to you the Annual Report of the Company for thefinancial year 2016-17 which is the 100th Annual Report of the Company. May I take thisopportunity to brief the stakeholders about the Company's performance during 2016-17 andthe economic scenario under which it had operated.
On the domestic front this year was marked by several historic economic policydevelopments. A constitutional amendment paved the way for the long-awaitedtransformational Goods and Services Tax (GST). In addition the Government overhauled thebankruptcy laws codified the institutional arrangements on monetary policy with theReserve Bank of India (RBI) and solidified the legal basis for Aadhaar to realise thelong-term gains from the JAM trifecta (Jan Dhan-Aadhaar-Mobile).
Real GDP growth in the first half of the fiscal year was 7.2 percent. At the sectorallevel growth of agriculture and allied sectors improved significantly in 2016-17followed by normal monsoon in the current year. As in the previous years the servicesector continued to be the dominant contributor to the overall growth of the economy.
Many new initiatives have been taken up by the Government to facilitate investment andease of doing business in the country. Noteworthy among them are initiatives such asMake-in-India Invest India Startup India and e-biz Mission Mode Project under theNational e-Governance Plan. Measures to facilitate ease of doing business include onlineapplication for Industrial License and Industrial Entrepreneur Memorandum through the 24x7eBiz website for entrepreneurs; simplification of application forms for Industrial Licenceand Industrial Entrepreneur Memorandum; limiting documents required for export and importto three by Directorate General of Foreign Trade; and setting up of Investor FacilitationCell under Invest India to guide assist and handhold investors during the entirelife-cycle of the business. All these initiatives are expected to give a big boost to allthe sectors of the Indian economy in the coming years.
Against this economic backdrop I am happy to share an overview of our performance ofthe various Strategic Business Units (SBUs) of the Company.
INDUSTRIAL PACKAGING [SBU: IP]
SBU:IP is the largest manufacturer and the market leader in the business of 200 Ltrcapacity Steel Drums in India. The SBU has the capability to meet the Steel Drumrequirements of neighbouring countries as well through its six manufacturing facilitiesclose to major consumption centres.
Steel Drums are utilized for safe packaging and transportation of liquid andsemi-liquid pulp greases powders chemicals etc.
The major opportunities for SBU:IP lie through increase in product range leveragingthe "Most preferred supplier" status from most of the large Steel Drum buyers inIndia and neighbouring countries moving up in value chain with customers etc.
During the year SBU:IP maintained its profitability in spite of increase in steelprices. Higher sales volume was accomplished despite shrinkage of available market in thewake of directives to Government Organisations and PSUs to procure MS Drums only fromSmall & Medium Enterprises.
The year 2017-18 appears to be promising similar to what it was in 2016-17. Thoughthere would be no business from any of the Public Sector Oil Companies or Government in2017-18 SBU:IP is geared-up to meet the challenges by aggressively positioning itself inthe market through acquisition of new customers and improvement of market share from theexisting customers. The Navi Mumbai plant provides competitive advantage to the SBU as itis located at close proximity to one of the largest consumption centers for Steel Drums inthe Western Region.
GREASES & LUBRICANTS [SBU: G&L]
India continues to be the third largest lubricant market in the world providing alarge potential market for achieving volume growth by both PSU Oil Companies as well asprivate players including MNCs. However the market is fragmented and the lubricantcompanies are focusing on niche segments for their growth based on their strengths andexperience.
Current lubricant industry is driven by "technology" as well as"customer value proposition". The business of SBU: G&L may be divided intoProcessing/Contract Manufacturing Direct Sales and Channel Sales (Retail &Industrial).
In the Indian market channel sales (Automotive & Industrial) has the highestpotential amongst the sales verticals. The SBU has plan for increasing brand visibilityand expanding retail network. Focus would be on import substitution therebysubstantiating the "MAKE IN INDIA" campaign.
The major challenges in the business are (i) Cut-throat competition (ii) Limitedproduct endorsement and (iii) Difficulty to capture the retail automotive sales.
During the year under review despite severe price competition from PSU Oil Companiesmajor MNCs and other private players the SBU has been able to better its overallperformance level in terms of production and sales as compared to last year. Thebottomline for the year has however been affected due to abnormal increase in price ofLithium Hydroxide increase of base oil prices in the second half of the year and increaseof other input costs which could not be passed on to the customers fully because of thecompetitive market situation and contractual delivery terms.
All the three manufacturing units of the SBU are certified for quality managementsystems and periodic audits are being conducted for ISO 9001:2008 ISO 14001:2004 andOHSAS 18001:2007. The Silvassa plant in addition has the ISO/TS 16949:2009 a worldclass quality assurance system specifically for the automotive industry.
LEATHER CHEMICALS [SBU:LC]
The Leather Chemicals industry is highly competitive comprising reputed MNCs anddomestic companies as well as small local and transnational players. Bigger players offera range of products across all three segments such as beamhouse wet-end and finishingwhile smaller players may offer products limited to one segment or even a sub-segment.
The global trade in leather and leather products has not undergone any significantchange in the past five years. There has been a shift in leather production from developedcountries to developing and under developed countries.
Being the market leaders in the synthetic fat liquor segment SBU:LC has awell-developed distribution network loyal customer base and adequate number of technicalservice centers which can be leveraged by the SBU towards enhancing its business in othersegments.
The SBU:LC sees opportunity in increasing sales through newly introduced productsmatching the quality offered by products of reputed MNCs and yet competitively priced.
Opportunity also lies in the syntan market space where SBU:LC can penetrate further.New Beam House chemicals developed by the Company have been well appreciated by ourcustomers. The SBU:LC has plans to foray into the Finishing Chemical segment by leveragingthe existing distribution network technical service centers and cordial relationship withcustomers to its advantage.
The manufacturing unit Product Development and the Marketing functions are certifiedfor Integrated Management System comprising of ISO 9001:2008
ISO 14001:2004 and OHSAS 18001:2007.
Under this SBU there are two verticals viz. Logistics Infrastructure and LogisticsServices.
A. Logistics Infrastructure (LI)
The Logistics Infrastructure business comprises of three main segments viz. ContainerFreight Stations (CFS) typically set up in the vicinity of Ports Warehousing &Distribution (W&D) and Temperature Controlled Warehouses (TCW/Cold Chains). Presentlythe Company has three state-of-the-art CFSs located at Nhava Sheva (Navi Mumbai) Chennaiand Kolkata. Warehousing & Distribution facilities are presently available at Kolkataand Coimbatore. The first state of the art TCW was commissioned in Hyderabad in March2016. The second TCW has been established at Rai and is ready for operation. Somestatutory approvals are awaited from the State Government. The third one at Patalganganear Taloja Navi Mumbai is expected to be ready for commercial operation by end of thisfiscal.
Balmer Lawrie is setting up its Multi Modal Logistics Hub (MMLH) project at Vizag inpartnership with M/s Visakhapatnam Port Trust (VPT). In this MMLH facilities will becreated for handling Exim and Domestic Cargo. The commissioning of the same is expected inthe last quarter of financial year 2017-18.
There are opportunities for growth as India's containerisation level is still muchlower than most of the developed countries which offer a glimmer of hope to thisindustry. The advantage of Balmer Lawrie having its CFS in three major locations thestrength of relationship with major shipping companies through its other activityLogistics Services its efficiency of operations and ability to offer integrated andcustomized services are continuously providing opportunities for growth for the business.
For the last few years CFS/ICD industry was facing tough times which reflected indeclining container volumes and reduced Profit margins for most of the operators. Thedwell time of the containers at the CFS have been falling drastically year on year due tothe implementation of technology driven policies to get the clearance of the containerswith minimum documentation work. Opportunities for earnings are coming down year afteryear and per TEU profitability is continuously under pressure.
India's cold chain industry is still evolving not well organized and operating belowcapacity. The industry has now become an integral part of the supply chain industrycomprising refrigerated storage and refrigerated transportation. Cold storage capacity isexpected to grow at nearly 13% per annum on a sustained basis over the next 4 years withthe organized market growing at a faster pace of 20%.
Changing consumer trends for convenience and processed foods are also givingopportunities to the cold chain industry. Government of India is also setting up 30 FoodParks to promote the cold chain industry. The Indian Pharma industry is also giving aboost to the cold chain industry.
Logistics Services (LS)
India spends around 14.4% of its GDP on logistics and transportation as compared toless than 8% spent by other developing countries. The Indian Logistics market is expectedto grow at a CAGR of 11% upto 2020 driven by growth in various sectors.
Thanks to the boom in the e-commerce sector and expansionary policies of the FMCGfirms Smart Growth' in the Logistics sector is also expected. The industry as awhole has moved from being just a service provider to the position where it provides endto end supply chain solutions to its customers.
Overall the industry is poised to grow although there may be challenges on account ofpolicy changes in India changes taking place in the industry at the international leveland entry of multinationals in the industry. With Make in India' push by CentralGovernment it is expected that there will be heightened activity of imports of rawmaterials capital equipment and intermediates. Exports are also expected to sharplyincrease once the Make in India' campaign reaches a feverish pitch when India wouldbe producing much more than its requirement.
Project Logistics is also expected to get a big boost as more and more multinationalcompanies are setting up manufacturing hubs in India.
Air freight services continues to be a dominant activity of the SBU and provides morethan 62% (earlier 50%) of the SBU's overall topline. The dismantling of Transchart hasopened up new opportunities in Ocean freight activity which the SBU is keen to capitalizeon. As Balmer Lawrie is in CFS operations since 1994 its relationship with Shipping Linescan be leveraged to get more competitive rates for ocean freight which in turn can help itin grabbing more ocean freight business.
The Logistics Services vertical during 2016-17 achieved the highest ever topline andPBT registering a growth of 13% in Turnover over the previous year which is primarily onaccount of surge (15% growth YOY) in air freight and ocean freight activities.Profitability improved due to better sales mix and handling of a higher volume of Projectlogistics.
Balmer Lawrie is also taking adequate steps to mitigate the challenges by increasingthe global network of associates and offering clients single window logistics solutions.The SBU has revamped its existing technology and has plans to further upgrade the same inthe near future to meet future business challenges.
TRAVEL & VACATIONS [SBU:T&V]
Synergy from the two verticals viz. Ticketing and Vacations has resulted in morecustomers opting to go for complete end to end travel services including hotels andholiday packages rather than just booking air tickets with the SBU.
Today SBU:T&V is one of the largest tours & travel operators in the countrywhich provides end to end domestic and international travel ticketing tourism and MICErelated services to its clients. It is one of the oldest IATA accredited travel agenciesof India operating from more than 88 locations across 19 cities in the country. Travel& Tourism is one of the world's largest industries and the Indian Outbound Market isemerging as one of the fastest growing sector.
The Government of India as an austerity measure down scaled the entitlement ondomestic sector of Government Officials. Airlines continue to offer lower or nocommissions and minimal performance linked bonus (PLB). Despite these adverse factors theTravel business has registered an improved performance during the year 2016-17.
Despite the stiff challenges in the Travel industry the SBU has continued to providesizeable turnover from the Travel and Vacations business.
In the last one year the Company has strengthened its position in the leisure travelsegment of the retail market and the Vacations vertical has added many retail clients. Itis expected that this vertical will play a significant role in the SBU's growth as an endto end travel solutions provider in the coming years.
While business travel holiday trips dominate outbound volumes people are also optingfor niche products like sports tourism luxury travels honeymoon packages and cruises.The SBU is set to grow in these areas as well. Low cost carriers have started operating onboth domestic and international sectors and are adding new aircrafts. This will certainlyhelp in growth in volumes of the industry.
However collection of dues in time non-availability of adequate number of trainedquality manpower high attrition levels and poor IT penetration continue to be matter ofconcern. Balmer Lawrie is fully conscious of the risks and concerns of this industry andhas a clear strategy to move forward and remain as one of the top Corporate TravelManagement Companies in the country. The Company is also leaving no stones unturned foreffective utilisation of Information Technology to provide best in class services.
REFINERY & OIL FIELD SERVICES [SBU:ROFS]
The SBU:ROFS is engaged in the activity of Mechanized Sludge/sediment Cleaning andHydrocarbon Recovery Services from Crude Oil Storage tanks and Lagoons. This continues tobe a niche industry with very limited number of players and the SBU:ROFS is a pioneer andmarket leader in this business.
The SBU:ROFS continues to enjoy sizable market share in the processing of oily sludge.Additional growth opportunity exists with the implementation of strict pollution controlnorms in the Oil and other related industries.
In 2016-17 the SBU:ROFS has achieved growth above the last year's turnover and alsosubstantial increase in segmental profit. The SBU:ROFS has also achieved substantial jobbooking for the next financial year. This is owing to high market demand for services inthe current year along with improvements in operational efficiency and effective costcontrol.
Overall Financial performance
During the financial year 2016-17 the gross turnover increased by 6.91%. The Companyrecorded gross turnover of Rs.190117 Lakh as against Rs.177836 Lakh in 2015-16. TheCompany recorded a Profit Before Tax of Rs. 25411 Lakh in 2016-17 as against Rs. 24021Lakh in 2015-16 the increase being attributable primarily to increase in Profits earnedby Logistics Services Travel & Vacations Leather Chemicals and Refinery & OilField Services Verticals.
During the year 2016-17 the paid-up share capital was increased upon the issue ofBonus shares in the ratio of three new shares for every one share held. The Board ofDirectors has recommended a dividend at the rate of Rupees Seven per Equity share for thefinancial year 2016-17 for declaration by the members at the 100th AnnualGeneral Meeting.
Your Company's culture policies relationship with stakeholders and loyalty to valuesis reflected in the
Corporate Governance Report. Following are the five pillars of Governance that theCompany conforms to as a part of its commitment to adopt global best practices
High accountability to its stakeholders;
Absolute transparency in its reporting system and adherence to disclosurecompliance;
High ethical standards in the conduct of business with due compliance of lawsand regulations;
Enhancement in the stakeholders' value on consistent basis; and
Contributing to the enrichment of quality of life of the community throughdischarge of Corporate Social Responsibility and promotion of Sustainable Development.
With the Companies Act 2013 and the related Rules followed by Listing Regulationsthere has been a material change in the area of statutory compliances. Your Company ismaking best efforts to adapt and comply with the changing statutes. During the yearpolicies were adopted as per the requirement of the statute and to standardize the variousactivities and procedure of the organization. The Company continues to comply withCorporate Governance guidelines/ norms to the extent within its control.
Corporate Social Responsibility
"We are committed to serve the community by empowering it to achieve itsaspirations and improving its overall quality of life."
Balmer Lawrie's CSR initiatives are driven by two Flagship Programs - Balmer LawrieInitiative for Self-Sustenance [BLISS] and Samaj Mein Balmer Lawrie [SAMBAL]. While thefirst Program is directed at providing and improving the long term economic sustenance ofthe underprivileged the second Program aims at improving the living standards and qualityof life of the population in and around our Company's work-centers. During the year2016-17 the Company spent Rs.412.65 Lakh towards various CSR activities which is theentire amount prescribed for CSR expenditure for the year.
I once again thank all of you for your continued trust and support which have been oursource of inspiration. On behalf of the Board of Directors I would like to convey to youour sincere gratitude.
I acknowledge the continued support and guidance of our Administrative Ministry theMinistry of Petroleum & Natural Gas Government of India for the guidance andencouragement provided to your Company. I also wish to thank other Ministries of theGovernment of India and other Governmental authorities for their cooperation.
I would also like to thank our holding company Balmer Lawrie Investments Ltd. ourvalued shareholders customers vendors business associates bankers financialinstitutions and other stakeholders for their continued support and co-operation.
Finally I must convey my gratitude to my colleagues on the Board for their wisecounsel and valued involvement. We are grateful for your presence today.
Chairman & Managing Director
27th July 2017