INNOVENTIVE INDUSTRIES LIMITED
ANNUAL REPORT 2011-2012
The Members of,
Innoventive Industries Limited,
The Board of Directors (the Board) is pleased to present the performance of
your Company for the year ended March 31, 2012. The Financial highlights
ofthe year under review are as follows:
FINANCIAL HIGHLIGHTS: Rs. in lacs
PARTICULARS YEAR ENDED YEAR ENDED
MARCH 31, 2012 MARCH 31, 2011
Turnover/Income (Gross) 68,604.09 62,067.77
Turnover/Income (Net) 63,830.59 59,037.32
Other Income 1,174.90 144.43
Total expenditure (Including
interest & depreciation) 56,152.45 52,909.43
Profit before tax 8,853.04 6,272.32
Provision for tax
- Current 1,765.36 1,432.01
- Deferred 1,414.87 706.47
- MAT(Credit) (1,427.01) (877.16)
Reversal of tax provision
of earlier period
- Current tax - (489.12)
- Deferred tax - (155.18)
Profit after tax 7,099.82 5,655.30
Balance brought forward from last year 6,328.18 5,674.35
Profit available for appropriation 13,428.00 11,329.65
Proposed dividend on equity shares 1,789.32 1,192.88
Corporate dividend distribution tax 290.27 198.12
General reserve 709.99 565.53
Less: Utilisation for issue of Bonus Shares - 3,044.94
Surplus carried over to Balance Sheet 10,638.42 6,328.18
EPS (Face value- Rs.10/- per equity share)* 12.27 15.59
*EPS for the period ended March 31,2012 is not comparable due to issue of
shares in IPO.
Note: Figures of previous year have been regrouped wherever necessary.
SUBSIDIARIES AND STEP-DOWN SUBSIDIARIES:
The previous year saw your Company and its subsidiaries venture into new
markets and territories with a view to increase its presence in the
overseas markets. The details of various subsidiary companies of
Innoventive Industries Limited (IIL) are displayed below:
During the Financial Year 2011-12, the Company has incorporated a Wholly
Owned Subsidiary, named Innoventive Americas, INC (IAI) in the Delaware
State of United States of America to acquire business of Salem Steel North
America, LLC (Salem). Salem was incorporated as a Limited Liability
Corporation in the year 2002 and it represents international producers of
DOM (Drawn over Mandrel) and seamless tubing, supplied in carbon and
alloygrades, as well as welded and seamless stainless steel tubing in the
IIL started supplying DOM/ CEW tubes to Salem in March 2009 and since then
it marketed its product in USA through a long term arrangement Salem. Salem
caters various industries such as aircraft, construction, automotive,
boilers and heat exchanges etc.
The Company has formed a step down subsidiary known as Salem Steel NA, LLC
to acquire the business of Salem. Accordingly, Innoventive Americas, INC
has 85% stake in Salem Steel NA, LLC.
Your Company is also looking forward to establish strong footprint in
Europe and with the goal in view the Company has incorporated Innoventive
Industries UK Limited1 at London, United Kingdom (UK) to explore market
potential for Company`s products in UK.
Further, Sankalp Forgings Private Limited (Sankalp) has incorporated its
Wholly Owned Subsidiary (WOS) in the United States of America (USA), named
`Sankalp Americas, INC.` The Board of Directors of Sankalp desires to
expand Company`s customer base, sales, revenue through this WOS.
Recently, Sankalp has also incorporated a Wholly Owned Entity in Sharjah,
UAE by name Sankalp Middle East FZE.
`MEGA PROJECT` - PIMPLE JAGTAP
It is a great pleasure to share that the Company continues to enjoy the
Mega Project1 status granted by the Government of Maharashtra in the year
2007, forthe Company`s plant located at Pimple Jagtap. This entitles the
Company for some monetary benefits which include; Industrial Promotion
Subsidy (IPS) in the form of VAT refund equivalent to 75% of the eligible
investment made in the plant with effect from March 28, 2007, subject to
certain terms & conditions. In the previous year the eligible investment
limit granted to the Company has been increased to Rs. 562 Crores and the
tenure to receive this VAT refund has been increased to 9 years from 7
The Government of Maharashtra, Directorate of Industries has disbursed
amount of Rs. 25.46 Crores for the year 2010-11 as IPS claim in the form
of VAT refund. This disbursement represents the third consecutive refund
which in turn validates that the Company`s business practices are in-line
with the requisite regulatory guidelines required to continue being
eligible for the Mega Project` status. The incentive sanction received
further enhances the value proposition forthe Company.
FINANCIAL STATEMENTS OF THE SUBSIDIARY COMPANIES
As per Section 212 of the Companies Act, 1956 the Company is required to
attach Directors` Report, Balance Sheet and Profit & Loss Account of its
subsidiaries. However, the Ministry of Corporate Affairs, Government of
India, vide General Circular No. 2/2011 dated February 8, 2011 has granted
general exemption to companies from complying with under Section 212,
provided such companies publish the audited consolidated financial
statement in the Annual Report. Accordingly, the Annual Report 2011-12 does
not contain the annual reports of our subsidiaries. A statement containing
summarized financials which includes reserves, total assets, total
liabilities, investments, total sales, profit before tax etc. of all
subsidiaries is included in this report. The audited annual accounts and
related information of our subsidiaries will be made available upon
request. These documents will also be available for inspection during
business hours at our registered office.
Considering the Company`s financial performance, the Board of Directors is
pleased to recommend a Final dividend of Rs. 3/- per share. The said
dividend, if approved by the Members, would involve a cash outflow of Rs.
17,89,31,997/- (excluding applicabletaxes).
PARTICULARS OF EMPLOYEES
Employees are driving force for any industry. The Company has created a
favorable work environment that encourages innovation. Further, the
industrial relations are cordial at all units of the Company. The support
from the workforce and union is upbeat and positive.
The relevant details required to be mentioned under the provisions of
Section 217(2A) of the Companies Act, 1956 read with the Companies
(Particulars of Employees) Rules, 1975 are given below:
The Company has not accepted deposits and, as such, no amount of principal
or interest was outstanding as of the Balance Sheet date.
During the last year Mr. Sanjay Asher and Mr. Rahul Raisurana were inducted
to the Board of Directors of the Company as Additional Directors holding
office till the ensuing Annual General Meeting. Mr. Sanjay Asher is an
Independent Director whereas Mr. Rahul Raisurana is Nominee Director
representing interest of Standard Chartered Private Equity. The Board has
recommended their appointment as Directors to the Members.
Further, pursuant to Section 255 & 256 of the Companies Act, 1956, Mr.
Sanjay Waghulade, Mr. Ramprasad Joshi and Dr. Rajendra Jagdale retire by
rotation and being eligible, offer themselves for reappointment at the
ensuing Annual General Meeting.
Mr. Ravindra Katre has resigned as the Managing Director of the Company
with effect from May 30, 2012 and continues as a Whole Time Director of the
Company subject to necessary approvals. Mr. Chandu Chavan is appointed as
Chairman cum Managing Director (CMD) with effect from May 30, 2012
subject to necessary approvals.
The information about the Directors proposed to be appointed/re-appointed
at the Annual General Meeting is given in the annexure to the Notice
calling 21st Annual General Meeting.
A separate section on Corporate Governance forming part of the Directors`
Report and certificate from the Auditors of the Company confirming
compliance of Corporate Governance norms as stipulated in Clause 49 of the
Listing Agreement with the Indian Stock Exchanges is included in the Annual
M/s. B.K. Khare & Co., Chartered Accountants, who are the Statutory
Auditors of the Company hold office until the conclusion of the ensuing
Annual General Meeting. It is proposed to re-appoint them to examine and
audit the accounts of the Company for the Financial Year 2012-13. M/s B.K.
Khare & Co., Chartered Accountants have, under Section 224(1) of the
Companies Act, 1956, furnished a certificate of their eligibility for re-
Pursuant to Section 233B and other applicable provisions, if any, of the
Companies Act, 1956 and Order passed by Ministry of Corporate Affairs vide
F. No. 52/26/CAB-2010 dated May 3, 2011, the Company carries out an audit
of cost accounts. The Board has re-appointed M/s. A. J. Paranjape & Co.,
Cost Accountant, to audit the cost accounts of the Company for the
CORPORATE SOCIAL RESPONSIBILITY (CSR)
Your Company is committed to improve the quality of life of the work force
and their families and also the community. Further, the Company believes
that undertaking activities in such a mannerthat promote the interest of
all stake holders and society will help overall development of the society.
ENERGY, TECHNOLOGY AND FOREIGN EXCHANGE
Annexure A to the Directors` Report contains details of information in
relation to energy conservation and research and development activities
undertaken by the Company. This information is as per the provision of
Section 217(l)(e) of the Companies Act, 1956 read with the Companies
(Disclosure of Particulars in the Report of Board of Directors) Rules,
FOREIGN EXCHANGE EARNINGS AND OUTGO
Foreign exchange earnings (FOB value of exports) - Rs.6,567.18 Lacs
(previous year Rs.2,581.04 Lacs) Foreign exchange outgo Rs.4,401.62 Lacs
(previous year Rs. 196.59 Lacs).
DIRECTORS` RESPONSIBILITY STATEMENT
Pursuant to the requirement under the section 217(2AA) of the Companies Act
1956, with respect to Directors` Responsibility Statement, it is hereby
1. that in the preparation of the annual accounts for the financial year
ended on March 31, 2012, the applicable accounting standards have been
followed along with proper explanation relating to material departures;
2. that the Directors have selected such accounting policies and applied
them consistently and made judgments and estimates that were reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company at the end of the financial year and of the Profit of the Company
for the year under review;
3. that the Directors have taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of the Companies Act, 1956 for safeguarding the assets of the
Company and for preventing and detecting fraud and other irregularities;
4. that the Directors have prepared the accounts for the financial year
ended on March 31, 2012 on a "Going Concern basis`.
The Company has taken due caution while preparing this Annual Report (`the
Report`). The Report may contain futuristic or forward looking statements,
which the management believes are true to the best of its knowledge and
actual results, may differ from those mentioned in the Report.
The Board of Directors of your Company wishes to record their appreciation
for co-operation, supportfrom all the stakeholders of the Company. Your
Directors also gratefully acknowledge the sincere efforts and guidance
extended to the Company by its customers, vendors, government authorities,
For and on Behalf of the Board of Directors
INNOVENTIVE INDUSTRIES LIMITED
Place: Pune CHANDU CHAVAN
Date : May30,2012 Chairman and Managing Director
Information under Section 217(l)(e) of the Companies Act, 1956 read with
Companies (Disclosure of Particulars in the Report of Board of Directors)
Rules, 1988 andforming part of Directors` Report
(A) Power and Fuel Consumption
SR. PARTICULARS YEAR ENDED YEAR ENDED
NO. MARCH 31, 2012 MARCH 31, 2011
Units (KW) 14,731,079 14,943,676
Total Amount 92,379,560 71,806,448
Rate/Unit(Rs.) 6.27 4.80
(b) Own Generation N.A. N.A.
2. Coal: NIL NIL
3. Furnace Oil:
Quantity 261,910 219,450
Total Amount 83,78,225 60,52,531
Average Rate 32 27.58
4. Other/Internal Generation: NIL NIL
(B) Consumption per Unit of Production
In view of the heterogeneous product mix the consumption per unit of
product has not been indicated for the various products/units. However the
efforts are being made to arrive at such figures in years to come.
CONSERVATION OF ENERGY
Your Company is committed to conservation of energy and therefore innovated
the use of cold pilgering process to make CEW tubes directly from ERW tubes
without the use of draw bench. This process results in energy, labour and
process-related cost saving and provides tubes with enhanced mechanical
properties like better surface finish, dimensional accuracy and strength,
compared to typical CEW tubes.
TECHNOLOGY ABSORPTION, ADAPTATION, INNOVATION AND RESEARCH & DEVELOPMENT
Your Company has made significant investments in building state of the art
Manufacturing facilities and developing its In-house Research and
Development (R&D) to improve the Company`s processes and product
This has led to significant savings in resources and increased
competitiveness. The Company`s patent for its unique manufacturing process
(Pilgering process for CEW/DOM Tubes from ERW Tubes) has passed the public
domain and the Company is in the process of filing additional patents for
other products and processes.
In-house R&D efforts have helped the Company to develop processes, tools
and technology to include Special Purpose Machines to make manufacturing
process more efficient and broaden its product range.
For and on Behalf of the Board of Directors
INNOVENTIVE INDUSTRIES LIMITED
Place: Pune CHANDU CHAVAN
Date : May30,2012 Chairman and Managing Director
Management Discussion & Analysis
I) GLOBAL ECONOMY
The Global Economy has seen significant challenges in 20112012 due to the
unfolding of the Eurozone sovereign debt crisis and a sluggish performance
by the US economy. The political crisis in the Middle East, Natural
Disaster in Japan and diminishing growth in BRIC nations have also added to
the challenges. Persistent inflation and high interest rate regimes in
China and India have also contributed to slowing growth. The IMF projected
the growth in emerging economies to slow down to 5.4% this year, from 6.2%
II) INDIAN ECONOMY
The challenges in the global economy, had an impact on the domestic economy
which is now increasingly integrated. In addition, the high interest rate
regime, sluggish industrial activity which resulted into moderation in
growth of tax revenues, increasing prices of crude oil as well as other
commodities and higher than expected subsidies resulted in an expanded
fiscal deficit. This has led to a decline in the value of the rupee against
The combined impact of all these events led to moderation in GDP growth
which, as estimated by the Central Statistical Organisation (CSO)
diminished to 6.5% in 2011-2012 from 8.4% in 2010-2011. Persistent
inflation which forced the RBI to continue with its stringent monetary
policy has shown no sign of abating. The financial challenges plaguing
central and state governments and key sectors of the economy will need to
be addressed head on in order to enable the domestic economy to return to a
high growth trajectory.
Outlook: Despite a 50 bps repo rate cut by RBI in its annual monetary
policy review for FY13, the overall guidance on future monetary policy
statements continues to remain neutral. The central bank has projected a
similar GDP growth for 2012-2013 at -6.5%.
III) INNOVENTIVE INDUSTRIES LTD (IIL)
Innoventive Industries Ltd is a multi-product engineering company which
manufactures precision steel tubes, power equipment components, auto
components, oil & gas components, and other steel products catering to
applications in diverse sectors such as Transportation, Oil & Gas, Power
and General Engineering.
Business Review: The year 2011-2012 has been a year of growth for the
Company amidst a challenging business environment. With IIL`s established
business segments (precision tubes, oil & gas and auto components) faring
well, overall company has performed exceptionally well in the turbulent
times. The total income for the year grew by 12.1% to Rs. 790 crore from
Rs. 705 crore in FY11. The EBITDA margin improved to 26.7% in FY12 from
23.7% in FY11 and PAT margin improved modestly to 10.1% in FY12 from 8.8%
in FY11. The Board of Directors has recommended a dividend of Rs. 3 per
share. During the year, the Company acquired 85% stake in the business of
US based Salem Steel North America, LLC for Rs. 25.5 crore which will help
it to expand its footprints in developed markets.
Outlook: The company targets a rising customer base through various
initiatives undertaken coupled with an increase in the number of products.
Going forward, innovation through R&D will continue to be an integral part
of IIL, leading to enhancement of cost competitiveness in existing
processes, developing newer products and discovering newer product
applications. IIL`s endeavour will be focused on increasing presence in
export markets with products of unmatched quality.
IV) PERFORMANCE OF BUSINESS SEGMENTS
A) SEGMENT-WISE REVENUE Rs. Crore
Particulars Consolidated Year Ended
March 31, March 31,
Tubes & Products 426.18 349.47
Auto Components 174.35 174.80
Oil & Gas 101.37 82.18
Cold Rolled Coils 57.99 45.76
Others 17.52 51.80
Total 777.40 704.02
B) PRECISION TUBE SEGMENT
Industry Overview: The Indian precision tubes market is expected to double
over a 5 year period between 2009-10 to 2014-15 (Represents a CAGR of
16.8%, with industry growing from Rs. 3,490 crore in FY 2010 to Rs. 7,590
crore in FY 2015). Within Precision tubes, the market volume for Cold-drawn
Electric Welded (CEW) tubes is expected to grow at a CAGR of 14.2%, whereas
that of Electric Resistance Welded (ERW) and seamless tubes will grow at a
CAGR of 9.6% and 9.3% respectively during the same period (Source: Frost
and Sullivan Report).
Business Performance: This segment`s revenue stood at Rs. 426.18 crore in
FY 2012 as compared to Rs. 349.47 crore in FY 2011 achieving a Y-o-Y
growth of 22%. Within Precision Tubes segment, ERW tubes are basic steel
tubes made by rolling HR coils and welding along the length of the tube.
CEW / DOM tubes are made from ERW tubes by reducing its diameter and wall
thickness through various processes such as our patented cold pilgering and
cold drawing. Typically, CEW tubes are more complex in nature compared to
ERW tubes. These manufacturing complexities coupled with the low volume
requirements from customers deter large manufacturers from employing
economies of scale in production of CEW tubes. However, CEW tubes enjoy
higher realisations and margins compared to ERW tubes. The Company enjoys a
cost advantage compared to global CEW tubes producers due to its low cost
of production arising out of its patented technology. The overall tube
segment margins were also enhanced by increased revenues of Membrane Panel
Strips (Narrow width -10.3 mm), which is an import substitute.
IIL`s current capacity for ERW tubes is -70,000 tonnes and it is on the
verge of completing its capacity expansion of the high margin CEW tubes by
2.7x to 76,701 MT p.a.
Outlook: In the wake of a global slowdown, the Company continues to remain
optimistic of demand for its range of tubes manufactured by its unique
processes across the geographies. The need for superior products at
competitive price is pushing customers to opt for products from suppliers
meeting these criteria. Further, the implementation of the capacity
expansion coupled with a pipeline of new products will help the Company
successfully meet its customers` demand and requirements. The Company is
well positioned to tap this opportunity, thereby increasing its presence
The Company is confident of its membrane panel strip which finds
applications in heat exchangers and boilers and is an import substitute.
Membrane panel strip is a well-established product and we are hopeful of
maintaining the growth momentum.
C) AUTO COMPONENTS SEGMENT
Industry Overview: The auto sector is facing challenging times with slowing
industrial growth, rising fuel cost, fluctuating currencies, high inflation
and interest rates. These factors have led to mixed sentiments for the
sector, affecting the growth of Original Equipment Manufacturers (OEMs) in
the domestic and overseas markets. However, the two-wheeler segment has
been able to grow at a moderate pace.
Business Performance: IIL group`s revenue in this segment remained at
Rs.174.35 crore in FY 2012 as compared to Rs. 174.8 crore in FY 2011. The
Company manufactures a variety of machined components, press fabricated
parts, welded components and assemblies, catering to the automobile sector.
The auto components are manufactured from precision steel tubes, sheets and
other raw material. India`s leading two-wheeler manufacturer, Bajaj Auto,
has been one of our esteemed long established customers for the Auto
Components division and continues to repose faith in our capabilities.
Outlook: We believe that the auto industry may continue to face challenges
due to macro factors discussed earlier. To capitalize on the growing
opportunities of the two-wheeler market, the Company is constantly
developing new products for its customers and making strategic moves.
D) OIL & GAS COMPONENTS SEGMENT
Industry Overview: World daily crude oil production has remained fairly
stagnant at -70 million bpd (+2%) over the last five years. (Source: OPEC
Annual Statistical Bulletin 2012) Global demand has remained buoyant
despite moderating demand in developed economies, high prevailing oil
prices and supply shocks due to the state of the global economy. Global
demand has been sustained by emerging economies which have experienced an
increase in per capita income, rising consumption and the need to satisfy
the growing appetite for energy from high growth economies.
Further, natural gas has emerged as an effective addition in the global
energy chain due to its emission properties and the advent of new
technologies enabling its extraction and use.
The easily accessible reserves of crude and natural gas have already been
exploited and are responsible for a large majority of the oil and gas
produced today. Oil & Gas companies are now forced to venture into wells
and regions which were previously regarded as difficult, unfeasible and
expensive to access. However, improved seismic data, new extraction
technologies and improved realizations have made hitherto unfeasible
reserves viable. Further, improved financial strength of global oil & gas
producers have enhanced their ability to spend on discovery and extraction.
As demand for energy is expected to sustain for several years, it is
expected that investments on oil & gas exploration will continue to grow.
Business Performance: Revenue in this segment stood at Rs. 101.37 crore in
FY 2012 as compared to Rs. 82.18 crore in FY 2011 achieving a Y-o-Y growth
of 23%. Under this segment, the Company manufactures fully machined, ready-
to-assemble parts such as machined tubings, couplings, casing couplings,
pup joints, cross-overs, open-die and closed-die forgings. The Company has
added new international customers such as Welded Tube of Canada, Gulf
International Pipe Industry LLC, etc. in this segment. It has also received
approvals from companies such as Petrobras, Shell, Petroleum Development
Outlook: The Company expects to be a preferred supplier for oil & gas
supplies across the globe with various API certifications and Shell audit
in place. While this business has been increasing steadily over the last
few quarters, we see a potential to increase it even further as the Oil &
Gas exploration market is subject to favourable trends. Oil producers are
now drilling newer oil wells which are located deeper underground and in
terrain that is more difficult to access. This has been made possible as
sustained increases in the price of end products made these oil wells
viable. Also, the tonnage per well has been increasing continuously since
past few years. This is resulting in robust demand for the Company`s
products such as couplings, pup joints, crossovers, valves, etc.
E) COLD ROLLED COILS & OTHER PRODUCTS SEGMENT Industry Overview (General
Engineering and Indian Manufacturing Industry): As per National
Manufacturing Competitiveness Council (NMCC), manufacturing is an important
segment of the Indian economy, contributing -16% to the GDP and employing -
13% ofthe total workforce in India. Indian manufacturing is an emerging
sector and has all qualities to further enhance the economic development of
As targeted by NMCC, manufacturing is set to contribute 25% to the GDP by
2025 compared to the current share of -16%. According to `2010 Global
Manufacturing Competitiveness Index1 by Deloitte Touche Tohmatsu and US
Council on Competitiveness, India ranked 2nd in terms of manufacturing
competence. As per the same source, India would continue to dominate the
global manufacturing sector over the next five years. The Index of
Industrial Production (IIP) recorded a growth of 2.8% in FY 2012 w.r.t. FY
2011, while manufacturing recorded a growth 2.9% over the same period.
Business Performance: Revenue from this segment stood at Rs. 57.98 crore
in FY 2012 as compared to Rs. 45.76 crore in FY 2011. Others contributed `
Rs. 17.52 crore in the total revenue for FY 2012. Under this segment, the
Company and its subsidiaries manufacture Cold Rolled (CR) Coils, Cold
Rolled Sheets Strips, Metal Wires, Laminates and Stampings, etc.
Outlook: While other products are expected to grow at similar levels, the
CR coil division will continue to focus on low batch size and value added
products within the space.
V) OPERATIONAL REVIEW
During FY 2012, Innoventive Industries raised Rs. 217.41 crore through its
IPO. The proceeds have been utilised for expansion of capacity, repayment
of debt and general corporate purposes. Also, Innoventive has received
disbursement of Rs. 25.46 crore as VAT refund for FY 2011 which represents
85% of the total eligible claim amount of "f 29.95 crore from the
Directorate of Industries, Government of Maharashtra (GoM). Further, in FY
2012, GoM has increased the eligible investment limit for IIL`s facility at
Pimple Jagtap to " Rs. 562 crore under the Industrial Promotion Subsidy
(IPS). GoM has also increased the tenure for receiving VAT refunds under
IPS for this facility to 9 years from 7 years earlier (from FY 2016 to FY
2018). The company has implemented SAP systems across its operations to
facilitate real time reporting of information and improved internal
controls, leading to higher efficiencies.
VI) SALEM ACQUISITION
As a part of the Company`s strategy to drive growth and improve penetration
in developed markets, Innoventive acquired 85% stake in the business of US
based Salem Steel North America for Rs. 25.5 crore. The balance 15% is
being held by one of the existing promoters to ensure smooth functioning of
the Company. With this transaction in place, it will help the Company to
forward integrate and strengthen relationships with end customers in the
North American markets. Further, the Company will be in a better position
to cross sell other products in its portfolio in US markets. Another upside
is the Company will realize distributor and manufacturer margins on
products sold, thereby enhancing existing margins. The payback period for
this acquisition is expected be approximately two years.
VII) SWOT Analysis
Process Expertise: IIL has developed a proprietary `cold pilgering`
technology for manufacturing Cold Drawn Electric Welded Tubes (CEW) / Drawn
Over Mandrel (DOM) tubes. This patented technology significantly reduces
the requirement of resources such as material, labour, electricity, etc.
when compared to the conventional draw bench technology. Apart from savings
in cost, the end product is augmented in characteristics through better
surface finish, higher tensile strength and improved quality. IIL received
the patent grant for this technology in July 2012, which is valid for a
period of 20 years. IIL is focused on leveraging its technological
expertise to manufacture wide range of products. Its expertise in this
technology results in the cost competitiveness in manufacturing at a global
Diversified Operations: IIL manufactures a wide range of products which
find applications in diverse sectors.
It is a highly competitive manufacturer and caters to a varied customer
base. It operates in multiple sectors, multiple end-user industries, and
across multiple geographies. The product, market and geographical
diversification lend a de-risked nature to the business model.
Regulatory Incentives: Under the Industrial Promotional Subsidy (IPS)
scheme, the Company`s Pimple Jagtap plant has been awarded a `Mega Project`
status under which it is eligible for VAT refunds for sales in Maharashtra.
Further, this tenure has been increased by 2 years till FY 2018 and the
investment amount has been capped at Rs. 562 crore. This has significantly
improved the capital outlay in setting up capacity and has enhanced the
Company`s financial strength to its high-capex low-opex business model.
Strong Leadership Team: IIL is led by a team of experienced technocrats and
well qualified professionals. Most of its employees and management
personnel have several years of experience in the industry and possess
relevant industry knowledge and expertise, including the ability to improve
operational performance of acquired assets. Through this team, IIL enjoys
deep and relevant expertise in the sector and well positioned to establish
Barriers to Entry: The Company enjoys several advantages such as
proprietary technologies, robust track record, rich customer base and API
certifications, etc., which act as entry barriers for competition. The API
certification is an industry standard for manufacturers aiming to cater to
the oil & gas exploration sector. It is a time consuming process and can
take up to 24 months to receive such approval. The company has received a
host of API certifications and customer approvals, putting it ahead of its
peers. The company is now well positioned to tap business opportunities
with the help these approvals.
Customer Base: The Company through its consistent delivery of quality
products has built long term relationships with several companies. Some of
its marquee customers include reputed companies such as Bajaj Auto, BHEL,
Arcelor Mittal, Welded Tube of Canada, Volvo-Eicher, etc.
Strong R&D Setup: The in-house R&D setup has helped the Company to develop
products, processes, tools & technology to make its manufacturing process
more efficient and broaden its product range. Further initiatives are
underway to explore improvements to manufacturing processes of synergistic
products and to discover new applications for existing products. The
company has inculcated a bottom driven innovation culture.
Capital Intensity: The Company`s business has significant requirements for
both capital outlay as well as working capital. In order to set up
capacities, significant investments are required in land, building, plant
and machinery before commencing operations. Similarly, working capital
investments in materials, resources, labour, machine implements, tools and
dies are also fairly significant. Due to the peculiar nature, where small
batch quantities, high precision and special grade materials are required,
the overall investment requirement is high.
The Company has availed Government incentives which help ease the burden of
capital outlay significantly and have entered into negotiations with
suppliers, banks and customers to effectively manage IIL`s working capital
Susceptible to Delays: The Company is susceptible to any delay in setting
up capacity or delay in timely procurement of raw materials. Further, the
Company may face delays in obtaining approvals to transact business in new
markets. These delays or cost escalations may impact its profitability.
Improve Product Mix: The Company`s product portfolio comprises recently
added products as well as products which have been in existence for several
years. Further, the industries that it caters to are at different phases of
growth and its customers have varying requirements. The margins on its
products vary and some of its niche products which require higher
manufacturing complexity enjoy better margins. Additionally, IIL has
launched some unique products which have specific applications, (e.g.
bimetallic tubes, bearing spacers, etc.) There is an opportunity for the
company to alter the product mix and to increase the share of niche, high
value products, which will result in an improvement in blended margins at
the Company level. Also, the potential of most of current customers is high
as the Company is supplying only a part of their total requirements and
with increased capacities, it will be in a position to increase its share
New Markets: While the revenue from exports represents 24% of overall
revenues, it is still in a growth phase. IIL`s manufacturing capabilities
and technologies are highly competitive and it aims to leverage its process
expertise to exploit cost arbitrage in several markets. The company is
currently focused on expanding its global reach and distribution network to
allow it to access a wider customer base by entering in newer markets and
New Industries: While IIL currently caters to the precision tubes,
automobile components, oil & gas, and general engineering segments, there
are several other industries which may require similar products or whose
manufacturing processes can realize synergies by using the Company`s
products and processes. In order to enhance its capabilities and strengthen
its business model, the Company will look to broaden its product range to
cater to newer industries which demonstrate significant potential.
Acquire Niche Assets: The Company has been able to
successfully identify and acquire businesses, which have great potential
but lacked financial ability to grow further, at an attractive value. The
Company has been able to successfully integrate and grow such businesses
profitably and thereby, enhancing its presence into newer segments and
increasing the Company`s scope of activities. Enhancing the product
portfolio, newer segments and geographical presence would be the key
drivers to acquire such niche assets.
Increasing Competition: The increasing size, scale and popularity of the
Indian manufacturing sector on a global scale as well as the healthy demand
for the Company`s products may attract more players resulting in
intensifying competition. In long run, this may result in re-pricing of
products as well as firming up of cost of resources such as labour,
materials and suitable operating sites which are in limited supply. All of
these factors could have a bearing on growth and performance of its
Regulatory and Political risks: Any measures adopted by the government to
regulate the industries or the companies the Company serves or specific to
IIL`s industry can impact its progress. Any adverse changes in regulation
or the incidence of higher levy and charges could also hamper
profitability. A premature withdrawal of subsidies and incentives granted
to it can alter expected returns. The uncertain political environment
resulting in policy flip flops can have an adverse effect on aggregate
demand forthe Company`s products.
Disruptive Technologies: The pace of technological change has increased and
industries can be impacted by disruptive technology. Any new technology
that impacts the Company`s customer industries could also affect the
requirement for its products catering to those industries.
VIII) Financial Performance
For the full year ended March 31, 2012, the Company has reported on a
consolidated revenues of Rs. 790 crore resulting in the growth of 12% in
comparison to revenues of Rs. 705 crore in FY 2011.
Consolidated EBITDA for FY 2012 stood at Rs. 212 crore, higher by 27% when
compared to FY 2011 ( Rs.167 crore). PAT at consolidated level for FY 2012
was Rs. 80 crore, higher by 29% when compared to Rs. 62 crore in FY 2011
including reversal of excess tax provision of earlier period.
EPS (consolidated) stood at T13.83 per share on enhanced capital base
following IPO in April, 2011 as against FY 2011 EPS of Rs. 17.20 per
share. The Board has recommended a final dividend of Rs. 3 per share on
Face Value of Rs.10 each.
IX) Internal Controls
The Company and its management have implemented comprehensive systems and
processes commensurate with the Company`s size to ensure the highest level
of internal controls. These ensure that its assets and interests are
carefully protected; checks and balances are in place to determine the
accuracy and reliability of accounting data. Well documented processes have
been implemented throughout the organization to ensure that policies are
promoted and adhered to. There are clear demarcation of roles and
responsibilities at various levels of operations. The Internal Control
system aims to make sure that the business operations function efficiently.
It also ensures that the applicable laws, rules, regulations and policies
of the Company are followed and the company adheres to the highest
standards of financial reporting. The Finance Department implements and
monitors the internal control environment and compliance with statutory
X) Company Outlook
The Company expects the coming year to be both exciting and challenging.
Challenging because the weak macro-economic conditions are expected to
continue into the coming year which in turn is exciting as it presents a
huge ocean of opportunities for the Company. Over the last couple of years,
acquisitions, R&D efforts and product innovations have helped the Company
put together the building blocks to tackle the impeding global slowdown.
R&D continues to be an integral part of the Company. It has helped the
Company innovate newer processes to manufacture a host of the Company`s
products and also find newer applications for some of its existing
products. The Company`s diversifications of products, geographies and
customers have taken it a long way in mitigating risks associated with a
single revenue source. The Company has incubated newer businesses and have
done well in most of the ventures undertaken, which has led increased
revenues. The Company in the coming years will continue to look out for
nascent businesses with promising opportunities to further expand its
horizons. The Company would look forward to the coming year and would take
the opportunities and disappointments in its stride.
XI) Human Resources
The Company understands the value of a talented workforce and keeping this
in mind, it has put various talent retention policies in place. The Company
has worked towards building a more effective organizational structure
across all its business verticals and creating a leadership pipeline.
Active engagement of employees in the business, strong employee oriented HR
policies and competitive compensations have helped in enhancing the
productivity of the workforce. All the employees of Innoventive are
shareholders through the Employee Trust.
Periodically, various training programs have been conducted to improve both
their professional and personal lives, thereby improving individual growth
and achieving the organizational goals. As per recognised industry
standards, various safety and health measures have been initiated. The
cordial industrial relations were maintained during the year under review.
XII) Risk Management
The Company recognizes the importance of risk management as a constituent
of business strategy and a key ingredient for long-term sustainability. It
has a well-structured risk mitigation framework covering key elements of
its global operations. The Board periodically reviews the risk assessment
procedure and risk mitigation procedures laid down by the Company.
Risk Management Framework
Risk Management is an integral part of the Company`s business model. The
business practices at IIL are oriented to leverage risk management to
optimise returns while keeping risks below a defined level. The Risk
Management Framework encompasses risks under the following categories:
Strategy: Relates to the impact on the organization, which arises out of
the strategic decisions taken by management.
Operational: These risks have the potential to impact the efficiency and
effectiveness ofthe Company`s operations.
Financial & Reporting: Relates to transmission of timely and accurate
information to shareholders and accurate representation of financial
Compliance: Relates to inadequate compliance with existing or new
regulations, inappropriate conduct of contractual obligation and inadequate
safeguard of Intellectual Property leading to litigation or loss of
Forex: Relates to key operational risks and risks of fluctuations in
foreign currency exchange rates.
* Foreign currency loans and Imported machineries
* Exports of products exposes us to fluctuation risks
Simultaneous imports and exports provide us with a natural hedge. Wherever
required, the company undertakes plain vanilla forward contracts and other
derivative instruments to hedge its net exposure.
Human Resources challenge
* Attracting and retaining employees in a competitive engineering space
Senior Management is actively engaged with employees to ensure their
commitment. An employee trust has been created by the Company to ensure
that every employee is a stakeholder and thereby, views the company as an
owner and long term partner.
Raw Material Volatility
* Fluctuations in prices of steel
* Higher inventory build up
The Company undertakes strategic sourcing initiatives and tie-ups with
steel producers to reduce the price fluctuations and ensures
rationalization of inventory on a periodic basis.Better technology has
offset the rising raw material costs, thereby enabling us to maintain
* The company utilises various niche processes to improve profitability.
Any infringement of these processes could affect the profitability of the
The Company has received patent for its cold pilgering process to
manufacture CEW tubes. Patents for other products and processes are
* The Company has traditionally been reliant on the Auto Sector.
* Bajaj Auto remains the largest customer of the Company
The company has reduced its dependence on a single industry and is in the
process of expanding its customer and end user industry base by enhancing
the product profile. The company has also steadily increased exports which
will help to diversify its geographies and currencies of operations.
* Any disruptive technology or innovation may affect the competitiveness of
the Company`s manufacturing operations against its peers.
R&D is an integral part of the Company and it is continuously developing
newer processes, products and finding newer application for its products.
IIL is also abreast of technology innovations in its industry and are
focussed on maintaining its competitive edge.
* Competition from unorganized and integrated steel mills
Improving its product profile and timely delivery with consistent quality
is something being followed very closely. Various customer engagement
programs in place.
* The Company has been increasing its capacities over the last one year and
any drop in demand for its products could affect its performance.
A wide range of products catering to a diversified client base both
domestically and globally is being manufactured at IIL`s existing
facilities and demand across varied sectors will ensure the right capacity
utilization levels. The Company is aggressively enhancing its distribution
infrastructure which will lead to new clients and increased demand for its