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Pearl Engineering Polymers Ltd.

BSE: 526562 Sector: Industrials
NSE: PEPL ISIN Code: INE843A01023
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Pearl Engineering Polymers Ltd. (PEPL) - Director Report

Company director report

PEARL ENGINEERING POLYMERS LIMITED ANNUAL REPORT 2010-2011 DIRECTOR'S REPORT Dear Members, Your Directors are pleased to present the Seventeenth Annual Report of the Company alongwith the Audited Statement of Accounts for the year ended March 31, 2011. FINANCIAL HIGHLIGHTS Key aspects of the financial performance of the Company for the year ended March 31, 2011 are tabulated below: (Amount in Rs. '000) Particulars For the Year For the Year Ended March Ended March 31, 2011 31, 2010 Net Sales 1,050,971 1,395,418 Other Income 37,341 20,792 Total Income 1,088,312 1,416,210 Total Expenditure 1,144,426 1,445,311 Profit/(Loss) before Depreciation & Tax (56,114) (29,101) - Exceptional/Extra-ordinary Items - 18,492 - Depreciation 48,983 48,582 - Tax Expense 10 26 Net Profit/(Loss) after Depreciation & Tax (105,107) (59,217) MANAGEMENT DISCUSSION AND ANALYSIS Highlights of Financial and Business Performance During the year under review, the Company faced operational difficulty at its plant at Kurkumbh due to the abnormal market conditions and price volatility in addition to financial liquidity constraints that stained the continuous raw material supply. In order to counter the said problem, the operations at the plant were kept rigid and controlled and the LIQUID POLY operations in the plant had to be temporarily suspended which resulted in the shut down of a part of the Company's Plant at Kurkumbh for a few months. In consequence of the reduced production of 15492.936 MT during the year, your Company has reported a turnover of Rs. 10509.71 lacs against turnover of Rs. 13954.18 lacs in the previous year. The net loss of the Company for the current year is higher at Rs. 1051.07 lacs against previous period loss of Rs. 592.17 lacs owing to lower throughput. Amidst various constraints, your Company has attempted to revive the plant operations and recover from the situation during the current year. Based on the actions that will follow as per the planned action mechanism instituted, the Company continues to strive for stability and improvement in spite of the deterring factors and is expected to reap benefits out of the decisions and initiatives planned by the management for the year ahead. Dividend In view of losses, your Directors regret their inability to recommend dividend on Equity Shares of the Company for the year ended March 31, 2011. Industry Structure and Business PEPL is a manufacturer and supplier of Polyethylene Terephthalate (PET) Resin (Bottle and Super Bright Textile Grade) and has its production facility located at Kurkumbh, Pune in Maharashtra. Company's PET resin finds application in the packaging of mineral water, carbonated soft drinks, edible oil, personal care products, diary & alcoholic beverages, pharmaceuticals, toiletries etc.and is widely consumed by the manufacturer of PET container. PET is very inert material that is resistant to attack by micro-organisms and does not react with food products. On account of attributes like hygiene, strength, light weight, unbreakable and economical, 'PET resin' has become the world's packaging choice. Health-safety agencies around the world approve PET as safe for packaging foods and beverages. Economic Scenario and Outlook Despite the relative sluggishness of the past years, PET remains the packaging choice for new products or for conversion from other packaging materials, due to its excellent mechanical and barrier properties and its good recycling capability. Emergence of new applications, changing lifestyles have also added to the rising demand of plastics & particularly that of the plastic packaging. During the year under review, demand for Pet Resin in India is estimated at around 550k TPA against total World Pet Resin demand of 16,529k TPA. With increasing population, urbanization and health awareness among the people around the world, global PET resin demand is expected to clock a growth rate of around 7% by 2015, from a growth rate of 2% in 2008. However, relentless increase in feedstock purified terephthalic acid (PTA) and monoethylene glycol (MEG) values has resulted in a hike in PET spot prices around the world. Opportunity and Threats Pet packaging industry has grown and the consumption of PET is projected to increase owing to its cost, convenience, energy saving benefits and changing demand dynamics. The Indian PET packaging industry is presently at about USD 1 bn, growing at 22%-25% per year & is expected to sustain the growth rate due to wider scope of increased penetration in carbonated soft drinks, mineral water, fruit juices, health care and agro chemical segments. Some of the key threats to PET industry include sharp fluctuation in crude prices and PTA/MEG prices, which are the primary raw materials for the PET resin industry. Risk and Concerns Risks and prospects are indivisible components of the Company's business. The Directors and the Management of your Company keep this in mind in taking all decisions such that the stakeholders' interests are not adversely affected. The Company has also put in place a risk management framework to identify, assess, prioritize and alleviate risk. The risks are periodically assessed and reviewed and corrective actions are taken to mitigate effects. Internal Control System PEARL's internal control system is commensurate with the nature of its business and the size & complexity of its operations. The system is designed to ensure that the assets of the Company are safeguarded and protected against loss and that all the transactions are properly authorized, recorded and reported. The internal audit function team comprises of well-qualified experienced professionals who control regular audits across the Company's operations. The management duly considers and takes appropriate action on the recommendations made by the Statutory Auditors, Internal Auditors and the Independent Audit Committee of the Board of Directors. Further the CEO/ CFO certification also confirms the adequacy of internal control system and procedures in the Company Human Resource/ Industrial Relation During the year, the Company continued with its initiatives to foster people development, harness their creativity and ensure a motivated and contended work team. The requirement of professionally qualified and trained personnel is regularly reviewed to obtain optimum results in all spheres of its activity. The Company also accentuate on training and development of its human resources and makes sincere efforts to ensure numerous opportunities for their growth in the organization. As on March 31, 2011, the Company had employee strength of 138 employees. The Industrial relations at all levels of the Company have remained cordial during the year. CAUTIONARY STATEMENT Certain statements in this section may be forward looking and be based on expectations/projections about the future. Company's actual results, performance could thus differ materially from those projected in any such forward looking statements. The Company assumes no responsibility to publicly amend, modify or revise any of such statements on the basis of subsequent developments, information or events. PUBLIC DEPOSITS During the year under review, the Company has not accepted any public deposit under Section 58A and 58AA of the Companies Act, 1956 read with the Companies (Acceptance of Deposits) Rules, 1975. Hence, there is no outstanding amount as on the Balance Sheet date. BOARD OF DIRECTORS The composition of the Board of Directors of the Company is governed by the provisions of Companies Act, 1956 (the 'Act'), the Articles of Associations of the Company and satisfies the requirement as envisaged in the Listing Agreement entered into with the Stock Exchanges. However, during the year, there has been a change in the compostion of the Board of Directors of the Company and details with respect to such change are as follows: (a) Appointment Mr. Harish Kumar Midha was appointed as an Additional Director of the Company with effect from May 30, 2011, in accordance with the provisions of Section 260 of the Act, read with Article 96 of the Articles of Association of the Company and holds office till the date of the Annual General Meeting of the Company scheduled to be held on September 30, 2011. The requisite notice has been received from a member pursuant to Section 257 of the Act, proposing the candidature of Mr. Harish Kumar Midha as a Director of the Company. Necessary resolution for his appointment as a Non-Executive and Independent Director forms part of the notice of the Annual General Meeting of the Company. (b) Re-appointment In terms of section 256 of the Act, read with Article 110 of the Articles of Association of the Company, Mr. B.B. Mathur, Director, retires by rotation and being eligible offers himself for re-appointment at the ensuing Annual General Meeting of the Company. The brief resume and other particulars of the appointing/re-appointing Directors, as required by Clause 49 of the Listing Agreement are furnished in the explantory statement to the Notice calling Annual General Meeting of the Company. (c) Cessation During the year under review, Mr. Chand Seth, Chairman & Managing Director resigned from the Board with effect from February 24, 2011. The Board of Directors considered and accepted the resignation of Mr. Chand Seth, vide resolution passed by way of circulation on February 24, 2011. Mr. Ashok Khanna has resigned from the position of Non-executive and Independent Director of the Company w.e.f. May 30, 2011. The Board places on record its deep sense of appreciation for the valuable contributions of Mr. Chand Seth and Mr. Ashok Khanna to the Company during their tenure of office. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, with respect to Directors' Responsibility Statement, it is hereby confirmed that: (a) In the preparation of the Annual Accounts for the year ended on March 31, 2011, the applicable Accounting Standards have been followed and that no material departures are made from the same; (b) The Accounting policies selected, have been applied consistently and judgements and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at March 31, 2011 and of the losses of the Company for the year ended on that date; (c) Proper and sufficient care have been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and (d) The Annual Accounts have been prepared on a going concern basis. AUDITORS & AUDITORS' REPORT The Statutory Auditors, J. C. Bhalla & Co., Chartered Accountants, retire at the ensuing Annual General Meeting and are eligible for reappointment. They have expressed their willingness to continue as the Statutory Auditors, if re-appointed at the Annual General Meeting to hold office until the conclusion of the next Annual General Meeting of the Company. The Company has also received a certificate from the Auditors stating that their appointment, if made, would be within the prescribed limit under section 224(1B) of the Companies Act, 1956 and that they are not disqualified for such appointment within the meaning of section 226 of the Act. The notes to Accounts referred to in the Auditors' Report are self- explanatory and therefore do not call for any further comments. CLARIFICATION TO REMARKS CONTAINED IN POINT 3(x), 4(d) & 4(f) OF THE AUDITORS REPORT Clause 3 (x) of the Auditors' Report: During the year ended March 31, 2011, the accumulated losses of the Company have exceeded 50% of the peak net worth of the Company during the immediately preceding four financial years, making it a potentially Sick Industrial Company, pursuant to the provisions of Sick Industrial Companies (Special Provisions) Act, 1985. The Company has also incurred cash losses during the financial year ended on that date and also in the immediately preceding financial year. Accordingly, as per section 23 of the Sick Industrial Companies (Special Provisions) Act, 1985, the Board of Directors will report the fact of such erosion of net worth to the Board for Industrial and Financial Reconstruction (BIFR) as potentially sick company within the prescribed time i.e. within 60 days from the date of adoption of Accounts of the Company at the ensuing Annual General Meeting to be held on September 30, 2011. Clause 4(d) & 4(f) of the Auditors' Report: As per the legal opinion given by the legal advisors of the Company, the Foreign Financial Institution (AFIC) or its Assignee, cannot enforce any outstanding against the Company in any court of law despite existence of debt, as the same has become a time barred debt under the provisions of the Limitations Act, 1963. Based on the said opinion of the advisors: Clause 4(d): The outstanding by way of secured and unsecured loan and interest aggregating to Rs.1619.24 lacs thereon (shown as an 'Erstwhile loan barred by limitation' in the Balance Sheet of the Company for the financial Year ended March 31, 2011) have not been reinstated, as required under Accounting Standard (AS11) on the effects of changes in foreign exchange rates notified in the Companies (Accounting Standards) Rule 2006; and Clause 4(f): The provision for interest amounting to Rs.50.54 lacs (including interest of Rs.35.19 Lacs for the year ended March 31, 2011), in respect of the foreign currency loan of Rs.1619.24 Lacs has not been made. CORPORATE SOCIAL RESPONSIBILTY We at Pearl conduct our business in a way that reflects best practices as well as the highest standards of legal and ethical conduct. As a socially responsive organization, your Company is committed to ensure well being of the communities around it while recognizing interest of all its shareholders, consumers, employees and suppliers at all times. During the year, your Company continued with the following initiatives: Safety: 40th National Safety week was observed from March 04, 2011 to March 11, 2011 to sensitize employees towards safer work practices and habits. Safety pledge was taken by all employees. Environment: The Company organized the World Environment day on June 05, 2011, thereby promoting awareness for a clean, green and healthy environment amongst the employees. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO The particulars relating to the Conservation of Energy, Technology Absorption and Foreign Exchange Earnings & Outgo, as prescribed under Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosures of Particulars in Report of Board of Directors) Rules, 1 988 form part of this Report as Annexure - 'I'. PERSONNEL During the financial year ended March 31, 2011, none of the employees was in receipt of remuneration exceeding limit specified under Section 217(2A) read with Companies (Particulars of Employees) Amendment Rules, 2011. CORPORATE GOVERNANCE Your Company believes that good Corporate Governance is the basis of stakeholders' statisfaction and is thus, committed to attain the highest level of transparency, accountability and compliance of law in all facets of operations. A detailed report on Corporate Governance along with the certificate from the Statutory Auditors confirming compliance with the conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges, forms part of this report. ACKNOWLEDGEMENTS Your Directors take this opportunity to express their gratitude for the assistance and cooperation received from the shareholders, customers, vendors, financial institutions, banks, Government authorities for their consistent support and cooperation to the Company during the year under review. Your Directors also wish to place on record their deep sense of appreciation for the committed services by the executives, staff and workers of the Company. On behalf of the Board of Directors For Pearl Engineering Polymers Limited Place : New Delhi Harish Seth Date : August 11, 2011 Chairman & Managing Director ANNEXURES TO THE DIRECTORS' REPORT 'Annexure-I' Statement of Particulars with respect to Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo in accordance with the Companies (Disclosure of Particulars in the report of the Board of Directors) Rules, 1988 A CONSERVATION OF ENERGY a) Energy Conservation measures taken: None, Plant was run at low through put, hence, drives were optimized for efficient running only. b) Additional Investments and Proposals, if any, being implemented for reduction of consumption of energy Bepex crystallizer was commissioned and after that one SSP process was reduced for Sealpet production thus reducing energy consumption. c) Impact of measures taken already and proposed vide (a) & (b) above There was a saving of Rs 7.2 lacs in terms of electricity as one step was avoided d) Total energy consumption and consumption per unit of production as per Form 'A' is given below FORM 'A' Form for Disclosure of Particulars with respect to Conservation of Energy Year ended Year ended 2010-11 2009-10 (A) POWER AND FUEL CONSUMPTION 1. Electricity a) Purchased Units (in '000 Kwh) 8185 9438 Total amount (Rs. in lacs) 458.82 469.29 Rate/Unit (Rs.) 5.60 4.97 b) Own Generation (i) Through Diesel Generator Units (in '000 Kwh) 57.20 43.00 Units per litre of Oil 2.33 2.72 Cost/Unit (Rs.) 16.10 12.64 (ii) Through steam turbine/generator Units (in '000 Kwh) N.A. N.A. Units per litre of Fuel Oil/Gas Cost/Unit (Rs.) 2. Fuel Oils (FO, FOLV, LDO, HSD) Quantity (Kilo Litre)* 1533 1994 Total cost (Rs. in Lacs) 434.90 497.55 Average rate/litre (Rs.) 28.36 24.95 * including fuel used for power generation. 3. Coal / Coke N.A N.A. Quantity (MT) Total cost (Rs. in Lacs) Average Rate/Kg. (Rs.) 4. Others/Internal Generation N.A. N.A. Quantity (MT) Total cost (Rs. in Lacs) Average rate/Kg. (Rs.) (B) CONSUMPTION PER UNIT OF PRODUCTION PET Resin production (MT) 15131.241 22560.195 1. Electricity 540.9 Kwh/MT 418 Kwh/MT 2. Fuel Oils 101.13 Ltr./MT 88 Ltr./MT 3. Coal N.A. N.A 4. Others N.A. N.A B. EFFORTS MADE IN TECHNOLOGY ABSORPTION AS PER FORM 'B' GIVEN BELOW: FORM - B Form of Disclosure of Particulars with respect to Technology Absorption 2010-11 1. RESEARCH & DEVELOPMENT (R&D) a) Specific areas in which Research & Development was carried out by the Company R & D was done to Develop Specialty Polymer for a) Extrusion blow molding b) Injection blow molding to replace thermoforming c) LOW melt PET applications d) Heat sealable applications b) Benefits derived The Company was able to achieve Commercialized EPET for EBM in Japan and LOW MELT PET application in EUROPE and USA c) Future Plan of Action More emphasis is on developing EBM for bigger bottles and other specialty grades for commercializing grades already developed. d) Expenditure on R & D No substantial expenditure done on R&D except maintenance cost and running cost. 2. TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION a) Efforts made, in brief, towards technological absorption, adaptation and innovation * Technology for new grade is being developed * Patent filed in AUSTRALIA jointly with BASF * Working with few well known overseas companies in developmental activities under confidentiality agreements b) Benefits derived as a result of the above efforts, e.g. product improvement, cost reduction, product development, import substitution, etc. * It will help marketing and operations of the Company get better * We can switch over from the non remunerative commodities to remunerative Specialties. * We are expecting Contract Research & Licensing based on patented products c) Information regarding importing technology : Nil 3. FOREIGN EXCHANGE EARNINGS AND OUTGO (a) Activities relating to exports, initiatives taken to increase exports, development of new export markets for products and services and export plans We have exported some of the special grades to EUROPE, USA and JAPAN (b) Total Foreign Exchange Earnings and Outgo: (Rs. in '000) 2010-11 2009-10 Foreign Exchange Earnings (FOB) 59,685 58,348 Foreign Exchange Outgo (on CIF Basis) (i) On Imports (a) Raw Material 23,556 10,994 (b) Stores & Spares 1,832 7,307 (ii) Others 1,577 6,832