MANAGEMENT DISCUSSION

AND ANALYSIS

Mr. Ramneek Jain

Chief Executive Officer

Mr. Amit Jain

Chief Financial Officer

Mr. Anil Kant Yadav

Head - National Sales

Mr. Anil Kumar Bamby

Sr. Manager - Quality Assurance

Mr. K Manohar

Vice President - Operations

Mr. Avinash Kumar Singh

Head - Strategy & Business Incubation

Mr. Rishabh Taksali

Head - Human Resources & IR

Mr. Sanjeev Yadav

Head - Product, Application & Business Development

Overview

A pioneer of BOPP films in India, Max Speciality Films Limited (MSFL) continues to strive towards its goal of being a niche player with a continued focus on speciality films.

Polymer-based BOPP films play a critical role in the flexible packaging of processed foods, confectionery, fast moving consumer goods (FMCG) and industrial goods. The Company is also a leading producer of Graphic Lamination films for print finishing and luxury packaging. MSFL with an eye on the future plans to commission a new BOPP line in FY 2018 with an investment of 250 crore. having a capacity of 32,000 tonnes speciality line which will enable MSFL to become a speciality player.

As one of the oldest and most respected BOPP specialists in India, MSFL has both the expertise and the experience to exploit the enormous potential that India has to offer in the coming years.

Known for innovation, quality of output and customer service, the Company has a growing roster of both Indian and International clients served from its state-of-the-art facility in Railmajra, near Chandigarh. The facility has three BOPP lines (one on order), three extrusion-coated lines, three chemical-coated lines and three metallisers.

The facility follows stringent global standards and has the following accreditations:

  • ISO 9001-2008 Quality Management System

  • ISO 14001-2004 Environmental Management System

  • OHSAS 18001-2007 Occupational Health & Safety Management System

  • BRC / IOP (Food Safety) - British Retail Consortium

  • HACCP - Hazard Analysis Critical Control Point

In addition, the MSFL Quality lab is the first in this industry in India to have won the coveted NABL accreditation.

MSFL is recognised as a producer of quality speciality packaging films and for partnering with convertors and brands to develop unique packaging, labelling and graphic lamination solutions. MSFL works closely with convertors and brands to develop new packaging solutions covering a range of attributes: Barrier, Sealing Reliability, Special Surfaces, Haptics and Optics, Sustainability and so on.

Industry Structure and Development

The global market for BOPP films is 7800 KTA and that of India is 330 KTA. The BOPP industry continues to grow at 5% globally, while its growth fell from 10% to 8% in India mostly due to the Government’s demonetisation drive in November 2016. With a penetration of just 0.32 kg per capita in India, compared to the global average of 1.15 kg, the scope for growth in the polymer films market is immense in India. Consequently, there is rapid capacity expansion taking place in the industry at the moment with 80 KTA added in FY 2017 alone to reach 580 KTA.

MSFL is recognised as a producer of quality speciality packaging films and for partnering with convertors and brands to develop unique packaging, labelling and graphic lamination solutions.

Food companies have come to realise the value of flexible packaging as it plays a critical role in post-harvest conservation, nutrient preservation, and damage-free distribution. Packaging is now seen as a vital technology as well as a communication link in the value chain. MSFL supplies films to convertors who laminate, print and process these into ready-to-fill flexible packages for the food companies or brands.

Further, the mushrooming of retail malls across the country – fuelled by rising consumer spends and acceleration in demand for convenience and quality products – has sparked a revolution in the packaging business. Demographic and lifestyle changes, increasing share of women in the workforce, etc. are driving the needs as well as the growth of flexible packaging.The expansion of modern retail has also seen the proliferation of high profile packaged foods and luxury brands that focus on four key areas: pack size, aesthetics, preservation, and labelling.

These trends are drivers of growth. At a conservative estimate, annual domestic demand for flexible packaging – as well as BOPP – should rise by 11% at the very least. The international scene continues to be bright with an overall economic recovery. Global demand for BOPP is expected to grow at a steady 5%.

Market Position

The Company’s strategy is to focus on innovation, building long-term customer relationships, ensuring excellence in operations as well as service delivery and talent development. The Company’s customer-centric focus has yielded longterm dividends. Customers consistently rate MSFL very high on customer satisfaction surveys and a major portion of the Company’s domestic revenue continue to flow in from customers who have been associated with MSFL for more than a decade. The Company continues to develop and reach out to new customers to widen its spread.

MSFL exports approximately 26% of its output and while Europe continues to be the largest overseas market, the Company has a growing presence in demanding markets such as Japan and the Americas. Sales to the fast growing food industry alone account for 66% of the MSFL output.

Though MSFL has only 8% share of the country’s installed capacity, its market share in the speciality films segment is an impressive 30%.

Though MSFL has only 8% share of India’s installed capacity, its market share in the speciality films segment is an impressive 30%

Though MSFL has only 8% share of India’s installed capacity, its market share in the speciality films segment is an impressive 30%

To sustain its strong market position, the Company strives to meet the customer requirements through innovative and customised solutions.

The recent investment by Toppan, a market leader in the industry with worldwide presence in the Company stands testament to the confidence and the high regard that the Company enjoys internationally. We expect that this strategic partnership augurs well and will give a fillip to the growth plans both in terms of scale and technical expertise.

Performance Highlights

The total revenue earned by the Company during the year was 665.99 crore, with profit before tax being 2.78 crore The Company earned a profit after tax of 4.99 crore.

While the overall industry outlook remains positive in the long run, it was a challenging year for the Company due to a variety of reasons:

  • Demonetisation: Liquidity constraints disrupted end-use demand and cash cycle across the value chain. Demand growth dropped to 8% p.a. instead of historic & projected 10% p.a.

  • Brexit: Pound devalued by 15% in Q1 FY 2017, resulting in negative impact on exports.

  • Temporary oversupply in the market due to increased capacities.

Consequently, EBITDA fell 34% in FY 2017. But the Company’s focus on manpower optimisation and finance costs has paid off with the reduction of 11% and 12.5% respectively from FY16 levels.

EBITDA( Cr.)

With a new production line commencing operations next year, MSF’s capacity will increase to 75,000 TPA.

With a new production line commencing operations next year, MSF’s capacity will increase to 75,000 TPA.

The Company remained a net exporter and delivered 24.31 crore of net foreign exchange earnings.

Customer Engagement

‘Customer comes first’ is the mantra followed by every employee and customer satisfaction is the responsibility of every employee in the Company. Customer-centric initiatives during the year include:

  • Stage gate innovation process and well-equipped innovation centre

  • An advanced CRM to further strengthen customer engagement

  • Investments in order & material tracking to improve customer service

  • Review of all processes to improve customer-centricity and responsiveness

  • Comprehensive complaint-handling process that expedites complaint resolution

Human Capital

Capital As of 31st March, 2017, the Company had 423 employees. There are no labour unions at its facilities.

Culture of Compliance and Ethical Behaviour The Company’s

The Company’s Ethical Committee promotes and monitors the highest standards of professional and personal behaviour.

Health , Safety and Environment

MSFL is acutely aware of its responsibilities in the ecosystem – as a producer of polymer films, an employer, and a corporate citizen.

In collaboration with Max India Foundation, MSFL contributes generously to local communities in the areas of Healthcare, Nutrition, Education, and Environment. The Company improved the sanitation and poor drainage system in the nearby Railmajra village.

The Company follows a strict Green Policy and has signed the code for Ecologically Sustainable Business Growth formulated by Confederation of Indian Industry (CII).

The safety of our employees and visitors is of paramount importance and the Company continues to systematically identify and eliminate risks and hazards. The Punjab Government presented the Company with the Kirt Veer Award 2016 for its safety record.

Internal Control System and Adequacy

MSFL has institutionalised robust internal control as well as management systems and processes through ERP as well as manual controls. These are periodically audited by accrediting agencies. The performance is also reviewed with reference to the Company’s budget, year-on-year variances and against competitors. The statutory and internal auditors also review the internal controls every year and their reports are submitted for review with an Audit Committee.

As a strategic partner, Toppan will share their expertise in managing a global speciality films business, and leverage their global sales network.

As a strategic partner, Toppan will share their expertise in managing a global speciality films business, and leverage their global sales network.

Risks and Outlook

The Indian economy continues to grow from strength to strength, spurred on by widespread access to banking, technology adoption, structural reforms, key government initiatives such as “Make in India”.

Equally encouraging are the market indicators. Advances in food packaging and changing consumer demographics and psychographics have led pundits to believe that both the flexible packaging industry and the BOPP industry will see growth at double the pace than the Indian economy.

The possible speed-breakers could be the expected increase in domestic capacity as well as the volatility of input costs and imports both of which could adversely impact margins.

Despite these concerns, MSFL remains on the solid ground supported by ongoing investments and on account of a sharper focus on cost optimisation, speciality portfolio, strong customer base and service ethos. The “Toppan Partnership” with the Company, wide access to international customers, technical knowhow and deeper market understanding, the Company will continue to drive efficiencies and benchmark its operations against the best in the world.