INDIAN RAYON AND INDUSTRIES LIMITED - Aditya Birla Nuvo, Ltd

of Turkey and Jordan. A successful entry into the new export markets as well as a wider reach into existing global markets have been themainstay of this performance.Consequently, overall volumes grew by 8 per cent YoY, despite a decline in domestic volumes. Insulator sales in the domestic marketslessened by 7 per cent, from 13,319 tonnes in FY 2000 to 12,343 tonnes in FY 2001. The ongoing restructuring of SEBs and resourceconstraints faced by many SEBs affected demand in the domestic markets.Change in product and market mix enabled better realisationOverall realisation at Rs.71,480 per tonne rose by 9 per cent YoY compared to Rs.65,398 per tonne in the earlier period. Greaterexports in the overall sales and a change in the product mix in favour of higher value added insulators provided for a satisfactorygrowth in average realisations. While traditionally the export sector offers higher realisation, the Company witnessed a marginalgrowth in domestic realisation as well. This emanated from a change in product mix in favour of high value, higher rating insulators.But for continuing pressures on realisation in traditional product segments due to stiff competition from low cost manufacturers inAsia, our margins could have been better. Divisional revenues at Rs.183.6 Crores mark a rise of 18 per cent as against Rs.155.0 Croresin FY 2000.Margins improved significantlyDivisional margins improved significantly during this period – up from 15 per cent to 17 per cent in FY 2001, primarily due tobenefits of better economies of scale, change in product mix in favour of high realisation products and above all a considerable improvementin operating efficiencies. These have been amply demonstrated - be it in terms of recovery and yield, reduced consumption norms andlower energy requirements. Collectively these had a telling impact on the overall cost of production and are evident in better operatingmargins during the year. We expect this positive development to continue in the years to come.The division has a healthy growth in its order book position as well. At the year end, the division carried forward outstanding ordersworth Rs. 82 Crores, equivalent to over 5 months of production. We are optimistic on the future outlook for this division.Sector OutlookThe outlook for the Insulators business remains positive both in the short and long term. The slew of new policy measures announcedby the Government in the Union Budget beefs up its position even further. The recent policy announcements aim at ensuring speedierreforms in the power sector. The Government has declared its intent of revamping and upgrading the transmission and distributionsystems, along with plans for the construction of new power highway. These measures, together with the continuing emphasis on ruralelectrification should boost the demand for insulators in future. The 10th & 11th five-year plans target an addition of 1.6 lac circuitkilometres of new lines. In addition, the scheduled completion of partial restructuring of SEBs and renewed demand from OEMs will spurthe growth for insulators in the short term.The industry outlook is even more buoyant in the long run, due to the continuing thrust on the power sector and the likely entry ofthe private sector in the Transmission and Distribution segments. The Government is also in the process of putting HVDC lines towardsreducing transmission losses. These measures augur well for the industry.The outlook for global market is encouraging, offering as it does significant opportunities for enhancing volumes and realisation.Traditionally, exports offers higher realisation and thus improving export prospects bodes well for volumes and profitability of domesticmanufacturers. In the global market, China comes across as an interesting case. On the one hand India faces severe competition fromChina in the lower end of the insulator market, but on the other hand, it affords an excellent export opportunity in the higher end of theinsulator market. European markets also offer a strong growth potential. European manufacturers are scaling down production, onaccount of costs. They are outsourcing volumes. Various multilateral agencies are committing large funds for electrification programmesin developing countries. All these developments open up bright opportunities for quality conscious manufacturers from India, includingyour Company, to raise volumes significantly in the export markets in future.123 14