The Directors have pleasure in presenting their report along with the accounts for theyear ended 31st March 2013.
|Corporate Results || || |
| ||2012-13 ||2011-12 |
| ||Rs. Crores ||Rs. Crores |
|Sales and other income ||2523.59 ||2352.36 |
|Profit before interest, depreciation and taxes ||255.83 ||1 84.65 |
|Interest ||150.46 ||161.36 |
|Depreciation ||93.89 ||93.39 |
|Profit/ (Loss) before tax ||11.48 ||(70.10) |
|Reversal/ (Provision) for tax || || |
|- Current Tax ||- ||- |
|- Deferred Tax ||0.47 ||20.96 |
|Profit/ (Loss) after tax ||11.95 ||(49.14) |
|Reversal/ (provision) for income tax relating to earlier years ||- ||(2.81) |
|Profit/ (Loss) after earlier years tax ||11.95 ||(51.95) |
After a consecutive four years of losses due to extremely difficult businessconditions, the Company staged a recovery in 2012-13 with a profit after tax of Rs. 11.95crores. The year under reference has witnessed 7% growth in sales & other income overthe previous year. This was achieved on the back of a smart increase in the marginsachieved on Cuddalore PVC operations overall reduction in operating costs and lowerinterest outgo.
In spite of a profitable year, taking into account continuous losses incurred over thepast four years and with a view to conserve resources, the Directors do not recommendpayment of dividend on equity shares for the year 2012-13.
MANAGEMENT DISCUSSION AND ANALYSIS
Review of Operations
The company has two plants for production of PVC resin, one at Mettur Dam to produceSuspension and Paste PVC and the other at Cuddalore to produce Suspension PVC. The MetturDam plant is integrated with on-site Vinyl Chloride Monomer (VCM) manufacturingfacilities. The Ethylene Dichloride (EDC) required to make VCM for Mettur plant operationis produced at the company's plant at Karaikal using imported ethylene and on-sitechlorine. The company imports VCM required for Cuddalore plant operation.
The demand for Suspension resin in India grew sharply in the year under review toaround 23 lac tonnes, a growth of 15% over the previous year. Of this, around 12.5 lactonnes was supplied by domestic producers while the balance was imported into the country.Domestic demand was high due to the very good demand from the pipes segment, the largestapplication for Suspension PVC.
Prices of Suspension PVC fluctuated in line with the quotes for imported material. AsIndia is one of the largest and fastest growing PVC markets in the world, this has becomean attractive and potential market for many international producers.
Towards the end of the year, a significant VCM producer in the region, namely, VCMSBMalaysia, decided to close down their plant. This, coupled with the shutdown of the Tosohplant in japan the previous year, took out around 800,000 MT of VCM from the Asian market.This resulted in a spurt in VCM prices. This was mitigated to a large extent by therenegotiation of VCM purchase contract terms, the sourcing of additional quantities of VCMfrom geographically advantageous locations. Also increase in netbacks on sale of PVC wasachieved by optimisation of logistics costs.
The market for Paste PVC in India grew to around 105,000 MT, a growth of over 20% overthe previous year. The growth was driven by a good growth in the artificial leathersegment, which accounts for a major part of the demand for Paste PVC in India. The marketis expected to grow further. With this in mind, and to retain the company's pre-eminentposition in the Paste PVC market in India, the company has embarked on a grade conversionproject to convert the entire Mettur PVC facility (currently capable of producingSuspension PVC, Paste PVC and Battery Separator grade PVC of an aggregate capacity of66,000 MT per annum) into an exclusive Paste PVC facility of 66,000 MT per annum. Thisconversion project has since been successfully commissioned.
Domestic prices for Paste PVC dropped significantly during the year due to very lowprices quoted for imported Paste PVC. Due to the economic slowdown in Europe and theconsequential shrinking of the markets there, European and other international Paste PVCproducers have been offering material to India at low prices, affecting domestic prices.
The Indian PVC industry, including both Suspension and Paste segments, has beensuffering unduly from a combination of very low duty protection as also the continuationof dumping from other countries. Import duties on all polymers, including PVC resin, hadbeen brought to a level of 5% in India as against levels of around 6.5% to 20% in othercountries. Also, while there are some anti-dumping duties levied on imports of PVC resin,the main sources of PVC imports have been exempted from anti-dumping duties. This hasfurther exacerbated the problem of low priced imports. The industry has been agitating forboth an appropriate level of duties on polymers, as also the imposition of anti-dumpingduties on all sources that dump material into India. Your company is glad to report that,heeding the industry's pleas, the Government of India has increased the import duties forpolymers from 5% to 7.5% in May 2013.
Based on a strategic re-evaluation of business priorities, the Company decided to exitthe PVC pipes business. Accordingly, during the year under review, the Company divestedthe Trubore Piping Systems business.
Risks and concerns:
Low import quotes into India for products like Suspension PVC, Paste PVC and MethyleneChloride affect the profitability of the company.
Ethylene prices are highly volatile - such volatility impacts the input costs of PastePVC.
Alcohol usage for fuel doping, and the increased usage of alcohol for the potablesector, affect the availability of alcohol for industrial use, resulting in inability ofthe company to source adequate quantity of alcohol for its operations.
The company's chlorochemicals business at Mettur Dam is fully integrated. Thechloromethanes production draws the chlorine from the on-site caustic soda facility. Thepower and salt required for manufacture of caustic soda are available from captivesources. Chloroform, produced in the chloromethanes facility, is utilised to producerefrigerant gas.
During 2012-13, there was an addition of 1.68 lac tonnes of capacity in the country,mainly in the West and partly in the East. A plant of 59,000 MT capacity shut down in theSouth. Caustic prices were strong right into the fourth quarter of the year - pricesstarted softening around this time.
Increased salt production from the captive salt fields enabled the company tocompletely avoid purchase of salt. The expansion activities in the salt farm have beencommissioned.
The trend seen towards the end of the previous year, of falling prices of chloromethaneproducts in Europe, continued this year as well, and the impact of this was felt in India.European material was being dumped into India at very low prices right through the year,which put enormous pressure on domestic prices. Domestic prices have consequently droppedsignificantly as compared to the previous year.
To combat this spate of low cost imports dumped into India, the domestic industry hasinitiated action for an anti-dumping investigation.
HCFC 22 demand in India and Asian markets remained healthy and the company operated itsplant at full capacity during the year.
In the year under review, the European Union announced the discontinuation ofacceptance of HFC-23 based Certified Emission Reduction (CER) credits. This thereforemeant that the year under review was the last year where the company earned revenue onsale of CERs. Also, in Europe itself, due to the severe economic slowdown, the marketprice of CERs has also collapsed to less than a Euro (from earlier levels of around 13Euros).
The company's coal based power plant at Mettur was impacted during the year due to abreakdown at one of the two turbines. This affected power production for six months. Theplant was brought back on line towards the end of the year. The company has lodged aninsurance claim and the claim is expected to get settled in the ensuing year.
Coal prices saw a declining trend during the year.
Risks and concerns:
a) Any surge in international coal prices would affect the cost of generation of power,thereby impacting cost of production of both caustic/ chlorine and other products.
b) Unseasonal rains and climate change affect your company's salt production.
As a responsible corporate citizen, the company has continuously improved upon itsmanufacturing processes, tapping new technologies to make production processes efficientand keeping well ahead of mandated norms in compliance with environmental standards. TheCompany is fully committed to environment protection and has made dramatic improvements inits processes over the years by making considerable investments, within the limitations ofthe latest available technologies.
In the true spirit of protecting the environment, the company has taken severalpositive initiatives, some of which are discussed below:
The company has put in place a ZLD facility at Mettur to completely recycle andreuse the liquid trade effluents generated, including solid waste, inside the plants. Nota drop of its treated effluent is let out from the factory premises since September 2009.
The company has invested in Air Cooled Condensers (ACC) in the coal based powerplant at Mettur for the sole purpose of conserving water. Around 30 lac litres of water issaved on a daily basis.
The ACC also paved the way for reducing the internal consumption of power in thecoal based power plant. The normal internal consumption for similar sized power plant varyfrom 11-12% of total generation whereas with ACC in place the internal consumption atMettur plant is less than 10% of the total generation.
In the Karaikal plant also, no treated effluent is discharged, as a Zero LiquidDischarge (ZLD) facility is operational. Karaikal plant has a desalination facility tomeet water requirement for the process. Similarly, the new Greenfield PVC facility atCuddalore commissioned in September 2009 is having ZLD facility from the date ofcommissioning. The company does not discharge water in to land or sea. The ZLD facilityalso enables complete recycling.
A unique feature of the PVC plant at Cuddalore is that it does not draw anywater from the ground source for the plant operations and the entire water requirement ofabout 3500 kilo litres (kl) per day is being met by sea water desalination and recyclinginitiatives (ZLD).
The company has kept a mobile VCM monitoring station at the Cuddalore PVC plantwhich would, on a real time basis, monitor the presence of VCM in the workplace. Thecompany has a mobile van equipped with Gas Chromatograph to monitor VCM in and around thevillages in Cuddalore.
The company attaches utmost importance to sustainable development.
At Mettur, the company maintains schools where primary, matriculation and highersecondary education is imparted to about 2500 students from the local community. Thecompany also offers free education at different centres in the villages around the plantarea to provide supplementary after-school coaching. The company provides thirty laclitres of drinking water every day to the nearby villages. It has four rural healthcenters in and around Mettur, with diagnostic facilities where free medicines are alsodispersed.
The company also provides preventive healthcare services by conducting periodicalhealth camps and running health centers with services of a doctor and para-medical staffand has also been supporting Self Help Groups in and around various plants of the company.
The Tailoring Training Centres are run for Rural Women aiming at Women empowermentwhere a batch of 75 ladies are trained for 6 months in each batch in Mettur.
Industrial relations with employees remained cordial during the year. Human ResourceDevelopment activities continued to receive considerable attention. The emphasis was onimparting training and develop the skill set of employees to enable them face thechallenges in an increasingly complex work environment.
Internal Control Systems
Your company has adequate internal control procedures commensurate with the size andnature of its operations. The audit committee constituted by the Board of Directors isfunctioning effectively. Internal audit for the year 2012-13 was carried out by PKFSridhar & Santhanam covering all areas of operations. All significant observationswere discussed in the audit committee, which met four times during the year under review.
Your company has established a good track record with the bankers and financialinstitutions, thereby enjoying their confidence fully.
The auditors in their report have referred an opinion with regard to creation ofdeferred tax asset. They have also commented that the company's accumulated losses at theend of the financial year are more than fifty percent of its net worth after consideringthe reversal of creation of deferred tax asset in line with their opinion. Consistent withthe practice, which was followed in earlier years, the company has created net deferredtax assets in respect of depreciation and carry forward losses in the current year also.The net deferred tax asset for the year 2012-13 is Rs.47 lacs, bringing the total netdeferred tax asset to Rs.8184 lacs as of 31st March 2013. Considering the income itexpects to generate from its installed asset base in future years, the company believesthat the requirements of the Accounting Standard 22 - Accounting for Taxes on Incomerelating to the creation of deferred tax asset are satisfied. The company's accumulatedlosses at the end of financial year are less than fifty percent of its net worth afterconsidering the creation of deferred tax asset.
The auditors, in the annexure to their audit report, have mentioned that "thefunds amounting to Rs.79,762.04 lacs raised on short term basis by way of working capitalhave been used for long term investment in non-current assets and funding of losses".
Given the nature of its operations, the company is able to generate cash surplus fromworking capital. Because of the continuous nature of its operations, this cash surplus isexpected to remain as a long term fund in the company and hence the company believes thatits utilisation for investment in non-current assets and funding of losses will not resultin tenor mismatch.
The amount of Rs.79,762.04 lacs mentioned by the auditors represents the cumulativeposition as on 31st March 2013. As will be seen from this report, the company has staged arecovery in 2012-13 and generated sufficient profits and other long term resources toleave a long term surplus for the year, after meeting all its long term obligations. Thecompany expects this trend to continue in the future.
Sale of Trubore Piping System
Over the last few years, the company was facing major challenges in this business whichincluded very low margin and difficult market conditions resulting in substantial underutilization of its installed capacity. Despite various initiatives taken by the company,desired results could not be achieved. The company has therefore sold the Trubore PipingSystems business as a going concern to Messrs. Prince Pipes and Fittings Private Limited,Mumbai in October 2012.
DELISTING OF SHARES
As reported last year, following the completion of all the formalities under theSecurities and Exchange Board of India (Delisting of equity shares) Regulations, 2009("Delisting Regulations"), the equity shares of the Company were de-listed fromBSE Limited, The National Stock Exchange of India Limited and The Madras Stock ExchangeLimited effective June 25, 2012.
The Audit Committee comprises four directors namely, Mr M S Sekhar (Chairman), Mr V KParthasarathy, Mr S V Mony and Mr M N Radhakrishnan. The composition of the AuditCommittee is in conformity with the requirements of the Companies Act, 1956.
Mr S Gopal, Managing Director retired from the Board effective 31s1 March2013 on reaching superannuation. The Directors place on record their appreciation of hiscontribution during his tenure as Deputy Managing Director and Managing Director of thecompany.
In March 2013, Mr B Natraj was appointed as an additional director and he holds officeupto the date of the ensuing Annual General Meeting. Notice under Section 257 of theCompanies Act, 1956 has been received from a member proposing the appointment of Mr BNatraj as director of the company and the Directors commend this proposal to theshareholders.
Mr P S (ayaraman was reappointed as Chairman of the company for a further period ofthree years effective V April 2013.
Mr S V Mony and Mr M S Sekhar, Directors retire by rotation at the ensuing AnnualGeneral Meeting and are eligible for re-appointment.
S R Batliboi & Associates LLP, (Formerly S R Batliboi & Associates), CharteredAccountants, Chennai, retire and are eligible for re-appointment.
Information as required under Section 217 of the Companies Act, 1956, to the extentapplicable and relevant is furnished in annexures forming part of report.
DIRECTORS' RESPONSIBILITY STATEMENT
a) In the preparation of the annual accounts for the year ended 31s1 March2013, the applicable accounting standards have been followed by the company.
b) The Directors have selected such accounting policies and applied them consistentlyand made judgements and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the company as at 31st March 2013 and ofthe profit of the company for the year ended that date.
c) The Directors have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act, 1956 forsafeguarding the assets of the company and for preventing and detecting fraud and otherirregularities.
d) The accounts of the company have been prepared on a going concern basis.
Statements made in the report, including those stated under the caption"Management Discussion and Analysis" describing the company's plans, projectionsand expectations may constitute, "forward looking statements" within the meaningof applicable laws and regulations. Actual results may differ materially from those eitherexpressed or implied.
| ||For and on behalf of the Board |
|Chennai ||P. S. JAYARAMAN |
|October 19, 2013 ||Chairman |
|10 || |
Annexure to the Directors' Report
Information under Section 217(1)(e) of the Companies Act,1956 read with Companies(Disclosure of particulars in the Report of Board of Directors) Rules, 1988 and formingpart of the Directors' Report for the year ended March 31, 2013.
1. CONSERVATION OF ENERGY
a. Measures Taken:
The company continues to accord high priority to conservation of energy. Details ofsome of the measures undertaken during the year to optimise energy conservation are:
1. In caustic plant at Karaikal, recoating of high voltage elements in theelectrolysers helped company to save power to an extent of 11.68 lac KWH.
2. In Poly Vinyl Chloride (PVC) plant at Mettur, we have conventional bulbs of variousratings in the plant location. Some of these bulbs were replaced with energy efficient LEDbulbs and CFL bulbs. The energy savings due to this replacement works out to 3.48 lacs KWHper year.
3. In caustic plant at Mettur,
i. Replacement of 210 numbers of anode elements in electrolysers resulted in powersavings of 33 lacs KWH.
ii. Replacement of cooling tower with fan less cooling tower in caustic fusion plantresulted in power savings of 1.93 lacs KWH per year.
b. Additional Investment
The company has not made any major investment during the current year.
c. Impact of measures taken under (a) above.
| ||Substitution/ Reduction in energy consumption per annum ||Savings in cost of Production (Annualised) (Rs. Lacs) |
|1. Reduction in power consumption due to recoating of high voltage elements in the electrolysers. ||Power 11.68 Lac KWH ||42.66 |
|2. Replacement of conventional bulbs with high energy efficient LED & CFL bulbs. ||Power 3.48 Lac KWH ||19.14 |
|3. Reduction in power consumption in caustic plant at Mettur ||- || |
|- Replacement of Anode elements ||Power 33.00 Lac KWH ||181.50 |
|- Replacement of cooling tower with fan less cooling tower ||Power 1.93 Lac KWH ||10.61 |
2. TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION
|1. Efforts, in brief, made towards technology, absorption, adaptation and innovation ||: The technology transferred to the company prior to those being currently imported, has been fully absorbed. Developments, where required, have been carried out by adapting to Indian conditions. |
|2. Benefits derived as a result of the above efforts, e.g. product improvement, cost reduction, import substitution, etc. ||: The technology absorption has contributed to substantial savings in foreign exchange by way of import substitution. |
|3. In case of imported technology, (imported during the last 5 years reckoned from the beginning of the financial year), following information may be furnished. || |
|Technology imported ||Technology for manufacture of suspension grade PVC from Ineos Vinyls UK Ltd., UK ||Membrane Technology for manufacture of Caustic Soda from Asahi Kasei Chemicals Corporation, lapan |
|Year of import** ||2006-07 ||2006-07 |
|Has technology been fully absorbed ||Yes ||Yes |
|If not fully absorbed, areas where this has not taken place, reasons therefor and future plans of action ||- ||- |
(** year of entering into technology agreements)
RESEARCH AND DEVELOPMENT (R&D)
The Company's R&D laboratory is engaged in carrying out process/ productimprovement programmes. In particular, the areas of focus have been on importsubstitution, optimising the utilisation of available resources, evolving alternative andmore economic processes for the existing range of products and environment conservation.
3. FOREIGN EXCHANGE EARNINGS AND OUTGO
| ||(Rs. Lacs) |
|a. Foreign exchange outgo ||148177.71 |
|b. Foreign exchange earnings ||4701.01 |
| ||For and on behalf of the Board |
|Chennai ||P. S. JAYARAMAN |
|October 19, 2013 ||Chairman |
|Description ||2012-13 ||2011-12 |
|A. POWER AND FUEL CONSUMPTION || || |
|1) Electricity (a) Purchased || || |
|Units - lacs kwh ||1623.28 ||1565.74 |
|Amount - Rs. lacs ||7882.08 ||6211.67 |
|Rate per unit - Rs. ||4.86 ||3.97 |
|(b) Own generation || || |
|1) Through generators || || |
|a) With diesel as fuel || || |
|Units - lacs kwh ||14.97 ||13.04 |
|Units per Ltr. of diesel ||2.67 ||2.69 |
|Cost per unit - Rs. ||18.07 ||16.14 |
|b) With natural gas as fuel || || |
|Units - lacs kwh ||780.70 ||675.37 |
|Units per M1 of gas or equivalent ||4.04 ||4.03 |
|Cost per unit - Rs. ||2.49 ||2.24 |
|II) Through turbines || || |
|a) Steam turbine || || |
|Units - lacs kwh ||2637.27 ||2846.58 |
|Unit per KG of coal ||1.43 ||1.50 |
|Cost per unit - Rs. ||3.86 ||3.96 |
|b) Wind mill power || || |
|Units - lacs kwh ||15.72 ||8.99 |
|2) Coal || || |
|Quantity - MT ||271588.58 ||273743.45 |
|Amount - Rs. lacs ||14682.03 ||15892.25 |
|Average - Rs./MT ||5406 ||5806 |
|3) Furnace oil || || |
|Quantity - KL ||1377.70 ||1691.00 |
|Amount - Rs. lacs ||548.04 ||584.09 |
|Average - Rs./KL ||39780 ||34541 |
|4) Diesel || || |
|Quantity - KL ||578.89 ||598.86 |
|Amount - Rs. lacs ||281.46 ||258.83 |
|Average - Rs./KL || |
|5) LSHS || || |
|Quantity - MT ||3371.93 ||3218.31 |
|Amount - Rs. lacs ||1510.00 ||1305.28 |
|Average - Rs./MT ||44781 ||40558 |
|6) Natural gas || || |
|Quantity - lacs Scm ||193.56 ||172.84 |
|Amount - Rs. lacs ||1947.29 ||1560.27 |
|Average - Rs./Scm ||10.06 ||9.03 |
|7) Superior kerosene || || |
|Quantity - KL ||7041.39 ||7106.62 |
|Amount - Rs. lacs ||3510.32 ||3126.94 |
|Average - Rs./KL ||49853 ||44000 |
|8) Others - Internal generation || || |
|Methane gas - lac M1 ||2.15 ||6.00 |
|Hydrogen - MT ||1184 ||900 |
|B. CONSUMPTION PER UNIT OF PRODUCTION || || |
|1. PVC RESIN || || |
|Electricity - (Kwh) ||402 ||409 |
|Superior kerosene - (ltr) ||145 ||145 |
|Furnace oil - (Kg) ||523 ||524 |
|2. Caustic soda || || |
|Electricity - (Kwh) - Membrane ceil plant ||2710 ||2734 |
|3. Chloromethanes || || |
|Electricity - (Kwh) ||422 ||400 |
|LSHS (equivalent) - (Kg) ||217 ||202 |
Electricity for caustic soda is for electrolysis. LSHS denotes the LSHS equivalent ofsteam consumption.