It gives me immense pleasure to present the annual report for the financial year2016-17.
Overall economic activity was subdued in 2016 with the world economic growth decliningto a level of 2.31 percent as compared to 2.71 percent in theprevious year. Emerging markets and developing economies continued to outshine advancedeconomies and this trend is expected to continue.
Growth in China and some of the other commodity importing countries is projected toremain strong thereby resulting in recovery of commodity prices which in turn isexpected to favourably impact world economy. While a recovery in advanced economies isexpected in 2017 increasing pressures for inward-looking policies in these economies consequent to the United Kingdom's exit from the EU and the new US administration raises some level of uncertainty. Implementation of critical structural reforms andfavorable terms of trade have facilitated robust growth in the Indian economy in recentyears. Despite a temporary setback owing to the demonetization initiative the Indianeconomy grew by 7.01 during the year retaining its position amongst thefastest growing economies. Implementation of GST is expected to facilitate ease of doingbusiness and help in reducing cost of indigenous goods which would further supportgovernment initiatives such as "Make in India" and "Digital India"thereby boosting economic growth in the coming years.
The performance of your company during 2016-17 was not up to the expectations. Salesdeclined by 8.0% mainly due to drop in polyester chips business lower selling pricesacross businesses and sales drop in specialty polymer business.
While the polyester film market in India continued to grow by 12-13% in 2016-17 newcapacities commissioned during the year expanded the supply availability leading to lowerprices and margins. As a result the Sales turnover of Ester's Polyester film BU declinedby 1.7% as compared to the previous year. Despite significant downtime due to plannedprojects sale in quantitative terms grew by 4.6% due to various productivity improvementinitiatives taken by your company. Your company continued to expand its global presencewith its overseas customer base enhanced by 11%. Your company's focus towards buildingbusiness relationships with key end users yielded positive results during the year withcommencement of business with some leading FMCG companies and successful qualificationwith one of the largest global converters. Aligned with its objective of becoming atechnology driven enterprise your company enhanced its specialty product portfoliothrough introduction of new products such as Shrink PET film bio-degradable films and arange of soft touch and UV printable films. Sales of Value Added & Specialty productsin the domestic market continued to grow with a 4 year CAGR of 18% which is expected togain impetus with continual enhancement in the product portfolio.
Ester's Engineering Plastics SBU witnessed a negative sales growth of 0.7% (volumetricterms) in FY 2016-17. The corresponding drop in value terms was higher at 6.9% owing tothe steady drop in unit selling price that commenced in the second half of theprevious year (2015-16) continuing through most of 2016-17 as well. The downwardmovement in selling price influenced by the drop in polymer prices consequent to thedeclining crude price saw a trend reversal only from the 4th quarter of 2016-17. Whilesales volumes of EP compounds (catering to end-use segments such as automotive electrical& electronics and appliances) registered a negative growth of 3.5% an improvedcustomer/product mix yielded improved profitability levels. Sales of EP compounds weremainly impacted by a significant drop in volumes sold into the lighting industry withdirect imports of low-priced products from China dominating this segment. Thedemonetisation initiative of the government also had an adverse impact on volumes for aperiod of 2 to 3 months. Volumetric sales to the Optical Fiber Cable industry saw arevival in 2016-17 registering a growth of 7.5%. Despite the overall negative growth inFY 2016-17 the 4-year CAGR of Ester's EP SBU at 8.2% & 11.9% in value and volumetricterms respectively continued to be ahead of industry growth.
Our focused customer acquisition process and improved product range helped in enhancingour active customer base in the domestic as well as exports markets with some more keyapprovals being secured at OEM /Tier 1 customer accounts and repeat orders secured fromcustomers in the Exports market. Your company intends to focus on expanding its globalfootprint through aggressive pursuit of identified opportunities in the Exports market aswell as further enhancing its relationship at key OEM / Tier 1 customer accounts in thedomestic market. Concerted efforts would be maintained towards further enhancingprofitability levels through productivity/efficiency improvement initiatives as well ascontinual improvement in customer/product mix.
In Specialty Polymer SBU your company continues its endeavour to leverage technologyfor ensuring a profitable & sustainable growth and has strengthened its R&Dcapabilities to ensure faster turnaround of products. Your company plans to further investin downstream pilot production equipment and testing facilities to reduce dependence oncustomers for product evaluation thereby hastening the product development process.
With a view to expanding its global footprint your company has recently approached theChinese & European markets with innovative products for textile applications withhigh level of initial interest evoked. China being the largest producer of PETFibre/Filament in the world is expected to yield significant volumes. While theEuropean market is not expected to be as attractive in volumetric terms it wouldcontribute towards enhancing the bottom-line of the Specialty Polymer business. Yourcompany has also worked towards expanding its product portfolio with introduction ofEasy-dyeable master batch Cationic-dyeable master batch & alkali soluble polymer. Weare confident that the Specialty Polymer business will be a strong contributor to the top& bottom line of the company in coming years though time needed for ramp-up may turnout to be longer than envisaged.
In today's intensely competitive world human capital is one of the key factors whichdifferentiate a successful organization. In cognizance of the same and aligned with theorganizational objective of profitable growth driven by innovation & technology yourcompany brought on board technology and product specialists to further strengthen itsR&D capabilities. Focus was also maintained towards productivity/ efficiencyimprovement initiatives. Your Company has always believed in nurturing talent anddeveloping in-house leaders. As part of this journey some identified high potentialresources were successfully placed in key leadership positions. Your Company wouldcontinue to invest in capability development aligned with its growth aspirations. Whileyour company's financial performance was sub-optimal focus towards its strategicobjective of enhancing the sales of Value Added & Specialty products were sustainedacross all SBUs. Going forward your company would continue to leverage on technologywhilst maintaining focus on business improvement initiatives for enhanced profitability.Moreover with the expected growth in demand your Company is actively consideringinvestments towards capacity enhancement to capitalize on this opportunity.
I would like to take this opportunity to appreciate the hard work and commitmentdemonstrated by Team Ester in this challenging period for endeavoring to create valuefor our investors.
I express my sincere gratitude to our shareholders investors and banks who continue tosupport us. I wish to express my appreciation to colleagues on the Board for theircontinued support and confidence in your company. We solicit your continued supporttowards Ester's transformation.
Chairman & CEO