SPARTEK CERAMIC INDIA LIMITED
ANNUAL REPORT 2003-2004
The Members of
Spartek Ceramics India Limited
Your Directors present the Twentieth Report and Audited Accounts of the
Company for the year ended 31.03.2004.
(Rs. in lakhs)
Particulars 2003-2004 2002-2003
(12 months) (6 months)
Gross Income 6308.50 3048.63
EBDIT - before provisions & write offs 724.99 391.91
Add Extra-ordinary items 96.74 2282.63
Less Provisions & Write offs 35.86 2238.61
Profit / (Loss) before taxation
(after Extra-ordinary items) 178.15 20.57
Provision for taxation - -
Profit / (Loss) after tax 178.15 20.57
Net Profit 178.15 20.57
Surplus / (Deficit) brought forward
from previous year (4092.42) (4113.00)
Net Profit / (Loss) for the year
available for appropriation (3914.27) (4092.42)
Dividends - -
General Reserve - -
Debenture Redemption Reserve - -
Surplus / (Deficit) transferred to
Balance Sheet (3914.27) (4092.42)
This Division produced an output of 17.76 lac sq mtrs during the year. The
first half of the year witnessed good performance, but the latter half
production suffered due to the tremendous insufficiency of working capital.
Added to this was the market dynamics which saw the onslaught of low
quality low priced Chinese origin products coupled with enhanced capacity
output from competitors. The market also saw an emerging segment of high
quality imports from Italy and Spain positioned as niche products.
The original plan .of introducing new designs (eg. Mediterranean Series
etc.) and more value added products like 40cm x 40cm could not fructify,
pending completion of capital expenditure programme for modernization / de-
A well structured and comprehensive capex program will be implemented soon
i hereby enabling the Company to achieve the revised business / turnaround
plan with a definite reduction in costs.
This division achieved an output of 4.52 lac sq mtrs during the year. This
segment of vitrified tiles, which is the growing segment of the industry
witnessed the following.
a. The Chinese, here too, dumped the markets with their low priced low
quality products in large numbers in not a straightforward legal manner as
has been widely reported in the Press. Large volumes of antidumping duties
were evaded. In fact a large representation of manufacturers have protested
against this dumping.
b. A few new entrants also resorted to the low quality low price game thus
leading to market disturbances.
However your Company stayed clear out of this price / commodity game and
stuck to its positioning of offering high quality products albeit at right
In this market war, the consumer has now, become wary of the Chinese
quality and output. This, added to the rising costs in China, has started
having a dampening effect on the Chinese imports. It seems reasonably clear
that Brands with a tested legacy of reliability with service providing
capabilities will emerge as winners in the long run.
Even here, our Company has planned a significant capital expansion program
to enable the division to offer large format, sophisticated designs of
polished tiles as well as variants in the glazed vitrified tiles. Once
these products are made available, your company is confident of leveraging
on the brand strength and outlast competition. Basically your company is in
the process of moving up the value chain.
The Company continues to enjoy tremendous brand loyalty and independent
studies have confirmed that we are recognized as the benchmark on all
quality parameters. The Company currently has a huge order backlog position
from very reputed buyers and is confident that once the working capital
issues are resolved, can bounce back to its original days of profitability
During the year, a significant feature was the Corporate Debt Restructuring
(CDR). This CDR package which was offered brought the overall debt to
reasonable levels. The operations picked up momentum during early part of
the year with the company reporting annualised net profits of around Rs 6
crores for the quarter ending Sept '03.
However your Company continues to suffer from the problem of dealing with a
multiplicity of lenders. It is extremely difficult and time consuming to
make the lenders to agree to common terms and time frame for implementing
decisions. This delay ultimately affects the spirit and purpose of the CDR
package whose success hinges on timely implementation of the reliefs and
One of the main reasons for the Company not to sustain a good performance
during the year was lack of timely availability and inadequacy of working
capital. Though the Consortium assessed the enhanced working capital, the
same has not been made available so far. Despite constant follow up and the
directions given in the CDR package, the working capital banks, mainly the
lead bank, are yet to take the final supportive stand in the matter.
Non-compliance of an agreed condition of the CDR Package by the Lead Bank
in not providing the additional working capital (as per CDR scheme approved
by all lenders including the lead bank and as assessed already by the bank)
and simultaneously having the available working capital reduced by around
30% has compounded the problems of cash flow month after month and today we
are at a point where with more than Rs.9 crores of orders on hand, are
keeping the plants operating at far below full capacity levels.
The Company has made all efforts to meet its commitments under the CDR
scheme and is expecting substantial equity inflow from investors soon. The
equity inflows, which were tied up in Nov 2003 have got delayed due to the
non compliance of the CDR package by the working capital banks and non
availability of the all important working capital, which, in turn, has had
an adverse impact on the functioning of the plants and hence en the entire
operations for the current year 2004-05.
As the company is unable to cater to the large domestic demand even with
substantial orders on hand, despite significant export enquiries, any
focused export activity was not undertaken. Though, for the year 2005-
2006,, anticipating the capital expansion program to take off effectively,
a new activity in this direction of Export Promotion has been initiated. A
very senior member of your Company is currently exploring tie ups with
Distributors and Agents overseas for developing this business.
NEYCER INDIA LIMITED
A strategic tie up is on the anvil with an international brand in terms of
a Joint Venture for the Sanitaryware company unique as the only
manufacturer with a complete range of wall, floor, ceramic, vitrified tiles
and Sanitaryware division. This division will be hived off as a separate
company after the JV. This would be a significant step up since the
proceeds from this venture will be used to repay all debts to financial
institutions. Thus the Sanitary ware Division of Neycer will start debt
free and will take up modernization for it's onward path to growth again.
The remaining Neycer entity with tile division will start off financially
strong and will take up modernization. With these developments, your
Directors expect the subsidiary to start providing positive cash flow on
completion of modernization plan. Thus, Neycer, which for 12 years was
stuck in BIFR process and been a substantial drag on Spartek's finances all
through will now have the opportunity of being a healthy outfit and can
give good return to Spartek on a regular basis.
The performance of Neycer was affected largely by the loss made in the
tiles division, which was closed for about 5 months during the year. A
comprehensive capex program explained in the foregoing paragraphs will also
include modernization of the Neycer- tiles plant, enabling the unit to
manufacture high-end wall/floor tiles. Neycer India Limited's Balance Sheet
as at 315' March 2004, Profit & Loss Account, Auditor's Report and
Director's Report for the Year ended 315' March 2004 are attached for
STILES INDIA LIMITED
As mentioned in the fore going paragraphs, Stiles Ceramic Tiles plant could
not be operated due to non-availability of working capital. The Company is
also working with a few banks for tying up with working capital
This Plant will also be modernized as a part of the overall capex program
which will enable the Plant to produce large size / high-end floor tiles.
Although this plant was a drag on the Overall group, with this
modernization etc. it should be an asset for the future.
Stiles India Limited's Balance Sheet as at 31st March 2004, Profit & Loss
Account, Auditor's Report and Director's Report for the Year ended 31st
March 2004 are attached for information.
With the consumer preference shifting towards Ceramic /Vitrified tiles as
the preferred floor covering, coupled with the boom in the construction /
housing sector, the performance of your company is expected to improve
during the current year. The performance level will also get bolstered with
the implementation of the proposed capex program. The company is also
redesigning its marketing strategy to meet domestic and international
challenges. A totally new segment of wall tiles is proposed to be
manufactured which will then make the company unique as the only
manufacture with a complete range of wall, floor, ceramic, vitrified tiles
The Company has developed a detailed Business/ turnaround plan that
involves all aspects of manufacturing, marketing, financial restructuring
and Human resources. Despite a temporary setback experienced in the past 9
months due to non compliance of the CDR package by working capital lenders,
a solid foundation is laid for reaping immediate benefits, once the
restructuring plan is fully implemented within 12 -18 months after approval
from concerned authorities and institutions.
The revised plan includes capital expenditure for debottlenecking, up-
gradation for new product categories to meet the market expectations,
capacity expansion in some areas and development of export markets. Thus
this would be a comprehensive plan encompassing all the plants
simultaneously rather than one plant at a time. This entire capex plan is
expected to be undertaken at a cost of Rs. 54 crores, out of full plan of
close to Rs.100 crores.
Effectively, with new equity inflows, the cost effective modernization for
the whole group is structured in a way that with an incremental debt of as
low as around Rs.20 to Rs.25 crores, an additional annual capacity of
5 Mn.Sq, mts, which would have otherwise cost Rs.100 crores to achieve the
same from a greenfield stage, is added to the group. The Company is also
getting this plan validated by an independent agency..
With this, all plants will be upgraded to higher levels of modernity and
efficiency. This, while enhancing output and improving productivity, is
expected to bring the cost level down by approximately 20%
HUMAN RESOURCES DEVELOPMENT
Your Company lays a very strong emphasis on nurturing and developing Human
Resources. Towards this, a lot of initiatives have been taken. These are
basically aimed at Trust & Transparency building across the organization as
a management practice, Organizational Restructuring to deliver the new
business goals, Competency .Enhancement, Measurement and Review Mechanism
to monitor progress. This will ensure top class performance of your Company
and equip the Company to take on competition effectively.
Yet another strong HR Initiative has been in putting together a strong
Management Team with both International and domestic exposure and your
company is confident that this new team will bring back the market
leadership position for the Brand.
Your Company has not accepted and renewed any deposits during the year
During the year under review, the industrial relations remain stable and
Mr. Sadanand A. Shetty, Director retires by rotation and being eligible
offer himself for.
M/s. Brahmayya & Co., Chartered Accountants, Chennai the Company's Auditors
retire at the ensuing Annual General Meeting and being eligible offer
themselves for reappointment.
The Company's shares are traded compulsorily in dematerialised form. In
this Connection Company has already entered into agreements with NSDL and
CDSL and about 26.46% of the shareholders have already availed this
The other shareholders are also requested to demat their shares in view of
the advantages in holding shares in the electronic form.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND RESEARCH AND DEVELOPMENT
In your manufacturing plants, the major input resource is energy - energy
both in terms of fuel and in terms of power. These alone account for over
30% of the cost of production. Therefore your management has addressed this
seriously and ensured that the concentration of the capital expenditure
program is directed towards energy savings. All kilns are designed to save
at least 10-15% of the fuel costs. Also your company already initiated a
shift of certain sections to alternate fuels that could generate a saving
of around Rs. 2,5 crore per year at each of 3 plants where this is expected
to be implemented. The capex also cuts electricity consumption
significantly. On the whole, this program is expected to bring down the
total energy costs from over 30% of current sales to much lower percentages
on enhanced sales in a 2 year period after implementation.
The progress made and details on energy conservation, technology absorption
and research and development are furnished in Annexure A to this Report.
PARTICULARS OF EMPLOYEES
Information as per Section 217(2A) of the Companies Act, 1956 read with
Companies (Particulars of Employees) Rules, 1975 and forming part of the
Directors' Report is given in the Annexure B to this report.
Pursuant to the provisions contained in the Listing Agreement, a Management
Discussion and Analysis Report (Annexure C) and a report on Corporate
Governance together with the Auditors' Certificate on the compliance of
conditions of Corporate Governance (Annexure D) is furnished as Annexure
forming part of this Directors' Report.
DIRECTORS' RESPONSIBILITY STATEMENT
The Board of Directors Report:
i) That in the preparation of Annual Accounts, the applicable accounting
standards had been followed along with proper explanation relating to
ii) That the directors had selected such accounting policies and applied
them consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
company at the end of the financial year and of the profit or loss of the
company for that period;
iii) That the directors had taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of the Companies Act for safeguarding the assets of the company
and for preventing and detecting fraud and other irregularities;
iv) That the directors had prepared the annual accounts on a going concern
In respect of observations made by the Auditors in their Report pertaining
to point nos.
1) Para 4(f) : In respect of, loans given to and amounts due from other
companies including advances, it is known that those companies are in the
process of implementation of restructuring plans and once the restructuring
is completed, we are hopeful of recovering the amounts.
2) Para 4(g) : In view of the inadequacy of the profits for appropriation,
the transfer to Debenture Redemption Reserve could not be effected. The
Debenture holders have agreed for re-schedulement and payment of the
amounts in four annual installments.
3) Para 4(h): The non-compliance of provisions of section 372A of the
Companies Act, 1956, had arisen out of changes in the law coupled with
reduction in the net worth of the Company and not due to further borrowing
or investment after changes in law. The Company had made an application
seeking permission from Institutions and the same is pending.
4) Para 4(i): The reconciliation of debtors and creditors accounts are in
progress. Steps have been taken to collect old debts and some amounts have
been collected and some other amounts have been adjusted. Still there are
some debtors accounts that need to be reconciled.
The Directors acknowledge the support received from various Government
Departments, Financial Institutions, Banks, Shareholders, Debenture
holders, Customers, Dealers and Employees.
For and on behalf of the Board
SADANAND A SHETTY
Place: Chennai KRISHNA PRASAD TRIPURANENI
Date : 30.11.2004 Vice Chairman & Managing Director
ANNEXURES TO THE DIRECTORS' REPORT
Information under Section 21 7(1)(e) of the Companies Act, 1956 read with
the Companies (Disclosure of particulars in the Report of Board of
Directors) Rules, 1988 which forms part of the Directors' Report.
Form for Disclosure of Particulars with respect to Conservation of Energy
Power and Fuel Consumption:
2003-2004 2002-2003 2003-2004 2002-2003
(12 months) (6 months) (12 months) (6 months)
a) Purchased Units 5591932 2554530 4253373 1889969
Amount paid - Rs. 22280888 10693962 20018105 9129085
Cost/Units (Rs./KWH 3.98 4.19 4.71 4.83
b) Self Generation 24672 76728 214286 155654
Units/Lit. of Diesel 2.67 3.33 2.96 3.11
Cost/Units (RS/KWH 8.23 6.65 7.59 6.94
B) LPG Consumption (MTS) 2101.95 1086.08 1223.46 555.26
Total Cost 49114273 23945312 27291914 12111727
Cost/Unit (Rs./Mt.) 23366.05 22047 22307.25 21798.92
C) LDO/HSD Consumption 1761.057 852.22 757.99 323.67
Total Cost 37297487 16206074 16727053 6371807
Cost/Unit (Rs./KL) 21179.03 19016 22067.64 19686.12
D) Consumption/Unit of
(in sq.m) 1775188 901375 452274 190974
a) Power (Units) 3.16 2.92 9.88 10.71
b) LPG (Kg./sq.m) 1.18 1.2 2.71 2.91
c) LDO/HSD (Lit/sq.m) 0.99 0.95 1.68 1.38
Information on Technology Absorption in Form B is given below:
RESEARCH AND DEVELOPMENT
The Company has a continuous on going R&D program which during the period
under review introduced larger format (40x40 cm) Tile in both matt and
glossy finish from it's Ceramic Factory along with number of new designs.
At Granites unit, we developed several new designs and also introduced
50x50 cm tiles in to the market.
In addition to development of new products, the R&D Department also
instituted a comprehensive quality audit of all factories to ensure that
all the Company's products meet or exceed international standards.
Continuous cost reduction efforts in all Factories are another facet of the
R&D section. Reduction in Raw Material, Power and Fuel cost as well as
improved efficiency has been achieved.
BENEFITS DERIVED FROM R&D
New designs and larger format Tiles have enabled the Company to be more
competitive in the market.
Savings from cost reductions and improved efficiency have improved the
Company's profitability as well as allowing it to meet competitor's prices
on certain large projects.
Benefits from quality improvements give the Company better realization as
more of the product goes to first grade. Improved quality also gives the
Company a better image in the market therefore improving the marketability
of its products.
FUTURE PLAN OF R&D
Continued development of new designs and colors to meet the changing market
Develop and implement cost effective methods of running high fuel
consumption areas of manufacturing, such as Biomass for heat in spray
driers. Develop more products utilizing indigenous materials in place of
Expand quality-training programs in all factories.
Foreign Exchange Earnings and outgo
(Rs. in lakhs)
For and on behalf of the Board
SADANAND A. SHETTY
Place: Chennai KRISHNA PRASAD TRIPURANENI
Date : 30.11.2004 Vice Chairman & Managing Director
Management Discussion and Analysis Report:
During the year under review, a number of new players both in the organized
and unorganized set up manufacturing facilities. The competition in general
increased significantly and this exerted tremendous price pressure on the
established companies. This took away to some extent sustainability of
profitability levels achieved by Spartek during the earlier years. However
there is a continuing boom in the real estate/construction activities in
all the metros and tier 2 cities.
Tiles Industry - Structure, Trends & developments
The over all market size for Tiles was around 100 million Sqm with a value
of around Rs. 2500 Crores. The Market is dramatically shifting to large
size formats and intricate designs. The leading players in the Industry are
now moving towards large format floor tiles -vitrified in particular. While
some of the established companies have started to import tiles from Far
East/ South East Asian countries, some others have set up new units which
are mainly natural gas based plants.
This has been dealt with in detail in the Directors' Report to the
Marketing & Distribution
New Products Offering
SPARTEK is positioned as a unique solution provider for the home for the
discerning upper and middle class user providing convenience, flexibility
and visible value for money. With this in view the Company plans to
introduce superior Enhanced Products in larger sizes and Innovative product
With the impending expansion plan and to spruce up the distribution
network, the Company intends to :-
* Enhance the current Dealer Channel in terms of Availability,
Merchandising and Servicing.
* Create a separate Architects/Builders channel through technically savvy
market professionals. Create a `New' channel, complementing the existing
* Extend Distribution by 75% across the country through both new Areas and
greater penetration in the existing areas
* Create relationship orientation through exclusive Spartek Outlets
especially in new towns (estimated at 20)
The Tile Industry is fast transforming. The fierce competition in the
domestic market has resulted in the players looking at product
differentiation as the marketing mantra. This has also underlined the
importance of export markets. Spartek has also realigned its marketing
strategy on the above premises. The future plans of the Company have been
accordingly drafted. These will result in reinstating the brand image of
Spartek and leverage the same. Therefore the future is expected to be full
of opportunities as well as challenges. The government policies continue to
be conducive and the consumer behaviour is also holding out a lot of
discernment and brand loyalty.
Internal Control System
The Company continues to emphasize the importance of a good internal
control system that ensures transparency in operation, statutory
compliance, reliable MIS and a built in correction mechanism. As a part of
this, internal audit programme is conducted covering all the key areas of
the operation. The top management and the audit committee on a regular
basis review the internal audit reports.
This has been dealt with in detail the Directors' Report to the
This has also been dealt with in detail the Directors' Report to the
Risks and Concerns
As mentioned in the foregoing paragraphs, the Tile Industry is going
through some short term threats like cheap imported tiles, advent of low
cost producers in the market and increased transportation costs. However
these are not insurmountable and the companies should look at a medium term
horizon to mitigate the risks. Constantly bringing in new & innovative
products will provide the cutting edge of product differentiation for
strong brand players like Spartek.
Statements in this Management Discussion and Analysis Report and Directors
Report giving company's objectives, projections, estimates and expectations
may constitute "forward looking statements" within the meaning of
applicable laws and regulations. Actual results might differ materially
from those either expressed or implied.