Annual report 2012-2013 - Grasim

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MANAGEMENT DISCUSSION AND ANALYSIS Grasim Industries Limited - Annual Report 2012-2013 MANAGEMENT DISCUSSION AND ANALYSIS RISKS AND CONCERNS Risk Management is an important aspect in today’s business environment. The aim of Risk Management is to identify, monitor and take mitigation measures in respect of the events that may pose risks for the businesses. The Company’s Risk Management is embedded in the business processes. Your Company has identified the following risks: Key Risk Impact on Grasim Mitigation Plans Commodity Price Risk Securing Natural Resources Uncertain Global Economic Environment – slow growth in global economy Interest Rate Risk Foreign Exchange Risk Risk of price fluctuation on raw materials, energy as well as finished goods Cement business operations are dependent on continuous availability of quality coal at economical prices Unavailability of limestone may impact Cement business growth plans in long term Acquisition of land for expansion is a key challenge Impact of demand for VSF and pressure on realisations Any increase in interest rate can affect the finance cost Your Company exports VSF to a number of textile manufacturing countries. Pulp in VSF and coal in Cement constitute major portion of imports. Any volatility in – Backward integration in pulp and caustic soda in the VSF business mitigates risk of increase in the prices of raw material – Setting up of captive power plants reduces the effect of rise in energy cost in Cement business – Multi fuel capable kiln/power plants in Cement business helps in optimising fuel mix – Focus on value added products, e.g., speciality fibre in VSF, wall-care putty in white cement, etc., help in lowering the impact of demand/ prices fluctuation in finished goods – Entering into long-term contracts, securing coal supplies at competitive prices – Identifying/acquiring captive coal mines – Efforts to increase the use of alternative fuels in cement business – Sufficient limestone reserves available at existing facilities – Continuous look out for securing additional limestone reserves for enhancing the existing plant life as well as future expansion – Company’s CSR activities and delivering societal value will stand it in good stead in this regard – Diversification of sales across geographies – Diversification of product offering by introducing high-end speciality products like Modal and Excel fibre – Judicious use of fixed and floating rate debts – Continuous monitoring of interest rate trends – Use of interest rate swaps in case of forex borrowings – Hedge long-term and short-term foreign exchange exposure within the defined parameters – The long-term foreign exchange 22
Grasim Industries Limited - Annual Report 2012-2013 MANAGEMENT DISCUSSION AND ANALYSIS Key Risk Impact on Grasim Mitigation Plans Project Execution Risk Human Resources Risk Competitor Risk Compliance Risk — Increasing regulatory requirements the currency market can impact profitability Your Company undertakes large expansion projects to expand its businesses, which are exposed to risk of time and cost overrun. Any delay in project implementation impacts the revenue and profit for the delayed period Company’s ability to deliver value is dependent on its competence to attract, retain and nurture talent. Attrition and nonavailability of the required talent resources can affect the performance of the Company With no barriers for entry of new players, your Company is always exposed to competition risk. The increase in competition can create pressure on margins, market share, etc. Any default can attract penal provisions liability is fully hedged on held to maturity basis – Differential short-term exposure between exports and imports is suitably hedged – Dedicated project implementation cell to review project execution on a continuous basis – Continuously benchmarking of the best HR practices across the industry and carrying out necessary improvements to attract and retain the best talent – Continuous efforts to enhance the brand image of the Company by focusing on R&D, quality, cost, timely delivery and customer service – Regular monitoring and review of changes in regulatory framework – Implementation of Legal Management software INTERNAL CONTROL SYSTEM Your Company’s internal control system is commensurate with its scale of operations. Roles and responsibilities are clearly defined and assigned. Standard operating procedures are in place and have been designed to provide a reasonable assurance. Internal audits and checks from time to time ensure that responsibilities are executed effectively. The Audit Committee reviews the adequacy and effectiveness of internal control systems and suggests ways of further strengthening them, from time to time. Apart from having all policies, procedures and internal audit mechanism in place, your Company also periodically engages outside experts to carry out an independent review of the effectiveness of various business processes. The observations and good practices suggested are reviewed by the Management and the Audit Committee and appropriately implemented for strengthening the controls of various business processes. CONCLUSION In the near term, demand growth slowdown in global economy coupled with surplus capacities (for VSF in China and for Cement in India) may impact Company’s profitability. However, with continuous cost optimisation initiatives, the Company is well positioned to meet short-term challenges. Capacity expansions in VSF and capacities under implementation/unutilised in Cement will provide additional volumes, driving growth and further consolidation of the Company’s leadership. The Company aims to utilise these capacities at the earliest notwithstanding the present difficult economic conditions. The Company will continue to focus on cost reduction measures and improving asset productivity to maintain its position as the lowest cost producer and expanding specialty products portfolio for sustained shareholder value creation. CAUTIONARY STATEMENT Statement in this “Management Discussion and Analysis” describing the Company’s objectives, projections, estimates, expectations or predictions may be “forward looking statements” within the meaning of applicable securities, laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company’s operations include global and Indian demand-supply conditions, finished goods prices, feedstock availability and prices, cyclical demand and pricing in the Company’s principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries within which the Company conducts businesses and other factors such as litigation and labour negotiations. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent development, information or events or otherwise. MANAGEMENT DISCUSSION AND ANALYSIS 23 ⊳
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GRASIM INDUSTRIES LIMITED Registere
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Scheme 2013 shall automatically sta
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Jayendra Ganj, Gwalior - 474 009 (M
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and Exchange Board of India (Employ
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Purchase Scheme) Guidelines, 1999,
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GRASIM GRASIM INDUSTRIES LIMITED Re
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