1. MANAGEMENT DISCUSSION AND ANALYSIS  

ECONOMIC & BUSINESS ENVIRONMENT

The period under review witnessed multiple changes with limited impact on the overall business environment. Economic indicators on manufacturing continued to reflect delayed investments, shrinkages in output, infrastructural bottlenecks and slackness in demand, especially in the rural economy.

The expected favorable impact of softening commodity prices was not felt strongly enough during the period and tariff barriers on Steel towards the latter half of the financial year deprived Steel consuming segments of price arbitrage opportunities. Volatilities in exchange rates with a downward bias on the Rupee contributed to higher costs on imports.

Key end customer segments for Welding products were affected to various degrees by the above elements.

The Company continued to focus on expanding its brsence across segments through varied product offerings with support from the parent company on specific product ranges.

The challenging business environment demanded shoring up of internal efficiencies and control on costs. During the year under review, the Company discontinued manufacturing operations at its Khardah Plant. The Company is in the process of completing some of the transfer of assets from Khardah to its other Consumable manufacturing locations.

We continue to explore avenues to drive down costs and improve productivity through internal and global benchmarking of performance metrics.

OUTLOOK, OPPORTUNITIES AND THREATS

The Business outlook continues to be relatively positive for the medium term with short term volatilities arising from local and global factors. Speed of policy execution in the economy, stability in commodity prices, monsoons and a revival in the investment cycle are key to outlook for the ongoing fiscal. We also bank on improved liquidity and lower financing costs for customers to achieve better turns on working capital and improved margins.

A favorable tax regime and implementation of GST can have significant changes in the way businesses work on supply chain and logistics with potential short term disruptions during the transition phase. Margins and working capital are expected to be under strong brssures with over capacities in the industry, aggressive pricing and credit terms by competitors.

RISKS AND CONCERNS

Risks arising from delayed implementation of Government policies, exchange rate risks from a weaker rupee and global trends on oil prices can have a significant impact on the short term profitability. Competition from unorganized players with local advantages can have an impact especially on mass market products in Consumables business.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company operates in an environment where internal controls are continuously evaluated by Management and by the Internal Auditors. The Company had taken up a detailed evaluation based on risks and controls in key processes to an extent leveraging on the work done as part of its global reporting requirements. The Audit Committee reviews key findings and follow up actions at its meetings. The Company has modified the scope and coverage for audits with a focus on the Internal Control on Financial Reporting (ICFR) framework. Management testing through independent audit teams followed by external testing were done during the year.

The reviews by Internal Auditors are scheduled and cover the various manufacturing and office locations. The scope of their work includes review of controls on accounting, financial reporting, statutory and other compliances and operational areas in addition to reviews relating to efficiency and economy in operations.

Our efforts as above are expected to ensure compliance with the requirements of Internal Controls on Financial Reporting.

FINANCIAL PERFORMANCE OF THE COMPANY INCOME AND EXPENDITURE

Net Sales and other operating revenue grew by 2.15% on a comparable and annualized basis with growth in the Consumables and R&M businesses. Equipment business continued to be affected by a slowdown in the capital expenditure cycle.

Other income was lower by about 12.74% due to effect of exchange gains in the brvious accounting year and lower interest rates that translated to lower yields on Investments in Mutual Funds. Cash surpluses were deployed in debt and liquid funds through the year.

Materials costs as a percentage to sales fell from 66.24% in the brvious year to 63.98% on the back of softening in commodity prices and an improved product mix.

Overheads including employee costs were higher at 27.46% of Net Sales and Service Income as against 26.2% in the brvious accounting period. The increases were primarily on account of;

- Employee cost higher by 4.79% on a comparable basis driven by wage inflation and retirement benefits costs increases based on actuarial valuations.

- Higher costs on transportation outwards in line with changes in terms of trade and customer mix.

- Fixed Assets written off during the year based on obsolescence reviews on an ongoing basis.

Debrciation was lower by 13.45% as compared to 2014-15 with reduced capital expenditure and ageing Plants. The reduction was also due to impairment of some of the Company's Plant and Machinery items at Khardah following the discontinuance of manufacturing operations. The Company has continued to provide for Debrciation at rates aligned to the erstwhile Schedule XIV of the Companies Act, 1956. The rates are different from those recommended in Schedule II of the Companies Act, 2013. The decision to continue with the same rates as before is based on a technical evaluation of useful life of assets.

BALANCE SHEET

The Company continued to focus on key Balance Sheet metrics to shore up internal efficiencies. Working capital situation was challenging with tight liquidity and short term difficulties in some customer segments. Despite strong brssures on working capital, the company closed the year with increase in cash and equivalents by 8.81% over the brvious financial year.

Capital Expenditure was about Rs.1,044 lakhs as against Rs.560 lakhs in the brvious year. The capital expenditure was primarily on productivity improvements, capacity enhancements and upgrading IT systems.

Current Investments and Cash grew by Rs.1,375 lakhs during the year due to internal accruals amidst strong brssures on working capital.

Inventories were higher by about 8.3% in value terms due to seasonal elements and forecast based inventory levels at the end of March 2016. Measured in days to sales, it went up from 45.7 days in the brvious financial year to 48.6 days.

Trade receivables were relatively stable at 37.8 days to sales as compared to 37 days at the end of the brvious financial year. This is due to higher sales to end customers and increases in credit cycles to trade.

SUBSIDIARY / JOINT VENTURE / ASSOCIATE COMPANY

The Company does not have any subsidiary, joint venture or an associate company.

HOLDING COMPANY

Colfax Corporation is a Delaware, USA based industrial group with existing global business interests in gas and fluid handling and fabrication technology products and services. Colfax Corporation holds 73.72% of equity shares of your Company through ESAB Holdings Limited, UK and Exelvia Group India BV, Netherlands which are its indirect wholly-owned subsidiaries.

12. EXTRACT OF THE ANNUAL RETURN

The Extract of the Annual Return in form MGT 9 of the Company made up as on the Financial Year ended 31 March, 2016 is attached by way of Annexure - 1 to this report.

13. STATUTORY AUDITORS

M/s S R Batliboi & Associates, LLP, Chennai (Firm Regn No.101049W / E300004) were appointed by the shareholders at the Annual General Meeting held on 7 August, 2015 as the Statutory Auditors of the Company for a period of five years in compliance with Section 139 (1) of the Companies Act, 2013. Their appointment as statutory auditor was informed to the Registrar of Companies through Form ADT-1 dated 14 August, 2015 vide SRN S39001086.

Further as envisaged in Section 139 and 142 of the Companies Act, 2013, their appointment is subject to ratification by the shareholders of the Company at the Annual General Meeting. This being the second consecutive year out of the five years that they have been appointed, the subject is being placed before the shareholders at the Annual General Meeting on 4 August, 2016.

M/s S R Batliboi & Associates, LLP, Chartered Accountants, have vide their letter dated April 5, 2016 given their written consent to continue as the Statutory Auditors of the Company and have also issued a certificate that the appointment if made shall be in accordance with the conditions and that they satisfy the criteria provided under the relevant section and Chapter X of the Companies Act read with Companies (Audit and Auditors) Rules, 2014.

The Statutory Auditors have issued a clean report on the financials of the Company and have not issued any qualifications for the financial year ended 31 March, 2016.

14. SECRETARIAL AUDIT

In terms of Section 204 (1) of the Companies Act, 2013, the Company has appointed M/s V Mahesh & Associates, Chennai to do the secretarial audit of the Company for the financial year 1 April, 2015 to 31 March, 2016. The said firm has vide their letter dated 24 April, 2015 issued their consent to do the secretarial audit for the company for the said period. Their appointment was informed to the Registrar of Companies, Chennai vide form MGT-14 dated 11 June, 2015 vide SRN C55529101.

M/s V Mahesh & Associates, have now completed their secretarial audit and have issued their certificate as per the brscribed format in MR-3 to the shareholders of the Company, which is annexed to this Report as Annexure -2. They have no observations in their report and have confirmed that the Company has proper board processes and a compliance mechanism in place. They have also complied with the relevant statutes, rules and regulations applicable to the Company and with the applicable secretarial standards.

15. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE OUTGO

The information required under Section 134 (3) (m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014, is given in the Annexure - 3 and forms part of this Report.

16. DETAILS RELATING TO DEPOSITS

The Company has not accepted any deposits during the period under review as envisaged under Section 73, 74 & 76 of the Companies Act, 2013.

17. SIGNIFICANT & MATERIAL ORDERS PASSED

BY THE REGULATORS

During the year under review, there have been no significant and material orders passed by any regulators / courts / tribunals that could impact the going concern status and the company's operations in future.

18. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

The Company has not made any loans to any third party as envisaged under Section 186 of the Companies Act, 2013 during the year under review.

The Board of Directors from time to time have authorized the Company to invest the surplus of the Company in deposits with Bank and the investments in debt funds, liquid funds and fixed maturity plans with mutual funds for a tenor not exceeding 100 days. The investments are made in liquid and debt funds .The Company has earned an income of around Rs.643 lakhs for the period 1 April 2015 to 31 March, 2016 in the form of dividends and profit on redemption of investments. The Company has not given any guarantees other than bank guarantees in the normal course of business to meet contractual obligations.

19. RISK MANAGEMENT POLICY

In order to comply with the requirements of Section 134 (n) of the Companies Act, 2013 and as required under Regulation 21 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 the Company has constituted a Risk Management Committee consisting of Mr Daniel A Pryor, as the Chairman and Mr Rohit Gambhir, Managing Director and Mr B Mohan, Chief Financial Officer as the Members of the Committee. The said Committee has laid down the procedures to identify the risks and the minimization procedures and the policy in this regard has been approved by the Board of Directors. The Board of Directors defined the roles and responsibilities of the said Committee. The policy on Risk Management has been hosted in the Company's website www.esabindia.com The said Committee updates the Board of Directors on a periodical basis on the material risks faced by the Company and the measures taken by the Company to mitigate the said risks.

20. CORPORATE SOCIAL RESPONSIBILITY

As required under Section 134 (o) read with Section 135 (1) of the Companies Act, 2013, the Company has constituted a Corporate Social Responsibility Committee. The Committee has Ms Sabitha Rao, as the Chairperson, Mr Daniel A Pryor and Mr Rohit Gambhir as the Members of the said Committee.

The said Committee formulated and recommended to the Board for approval a policy on Corporate Social Responsibility. The Board of Directors at its meeting held on 6 November, 2014 approved the policy on Corporate Social Responsibility. The said policy as required under Section 135 (4) (a) of the Companies Act, 2013 has been uploaded on the Company's website www.esabindia.com

The Company's policy on CSR envisages expenditure in areas falling within the purview of Schedule VII of the Companies Act, 2013. The annual report on CSR activities is enclosed by way of Annexure - 4 to this report. The Company was very selective in identifying the projects which were deserving and which qualified as focus of attention. The Company also wanted to ensure that the projects funded were well within the meaning of what is recognized under Schedule VII of the Companies Act, 2013.

However with the Company choosing to be very conservative in its approach and also to ensure that the money is spent only on projects where it would really benefit the deserving and genuine projects and at the same time improve the image of the Company, the Company has expended about Rs.22.29 lakhs only during the financial year. The Company would continue its search for identifying projects which are deserving and genuine to enable the Company to achieve its CSR objectives enshrined in its policy.

21. RELATED PARTY TRANSACTIONS

As required under Section 188 of the Companies Act, 2013 and Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the company places before the audit committee the list of related parties from whom they buy raw materials or finished goods, to whom the Company extends services or exports goods. The details of the basis of pricing and the margins on such transactions are also tabled. The Audit Committee accords its omnibus approval for such related party transactions on an annual basis. The updates on the transactions with the related parties are placed before the Audit Committee on a quarterly basis. The details are also placed before the Board of Directors for its information.

As required under Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 the Company has formulated a policy on related party transactions and the same was approved by the Audit Committee and the Board of Directors. The said policy has been uploaded on the Company's website www.esabindia.com

All the transactions with the related parties entered into during the period under review have been in the ordinary course of business and at arms' length basis. There have been no material related party transactions entered into during this period which required the approval of the shareholders by way of special resolution. The details of related party transactions pursuant to Clause (h) of sub-section (3) of Section 134 of the Act, is enclosed in form no. AOC 2 as Annexure - 5.

22. FORMAL ANNUAL EVALUATION

As required under Section 134 (p) of the Companies Act, 2013 and Regulation 17 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board of Directors had already approved the evaluation criteria for evaluating the performance of the Board of Directors, its Committees and the performance of Independent Directors.

Accordingly, as required under Schedule IV of the Companies Act, 2013 and Regulation 17 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Independent Directors at their separate meeting held on 4 February, 2016 evaluated the performance of the Non-independent Directors and the Board as a whole. They also reviewed the performance of the Chairman of the Company and also assessed the quality, quantity and timeliness of flow of information between the Company Management and the Board that was necessary for the Board to effectively and reasonably perform their duties.

Also as required under Regulation 17 (10) SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board assessed the performance of the Independent Directors as per the criteria laid down and has recommended their continuation on the Board of the Company at its meeting.

The Board of Directors assessed the performance of the individual Directors on the Board based on parameters such as, relevant experience and skills, ability and willingness to speak up, focus on shareholder value creation, high governance standards, knowledge of business, processes and procedures followed, openness of discussion / integrity, relationship with management, impact on key management decisions etc. The Members of the Committee of audit, nomination & remuneration, stakeholders relationship, corporate social responsibility and risk management committee were also assessed on the above parameters and also in the context of the Committee's effectiveness vis-a-vis the Act and the listing regulations.

23. COST AUDITOR

As required under Section 148 of the Companies Act, 2013 the Board of Directors at its meeting held on 19 May, 2016 have appointed M/s Geeyes & Co., Cost Accountants within the meaning of Cost & Works Accountants Act and holding a valid certificate of practice No.000044 as the Cost Auditor for conducting the Cost Audit for the financial year 2016-17. The Audit Committee recommended the appointment subject to the compliance of the requirements stipulated in the relevant notifications issued by Ministry of Corporate Affairs.

The Company has received a letter from the Cost Auditor stating that the appointment, if made, will be within the limit brscribed under the Act.

The relevant Form CRA2 for appointment of Cost auditor for the financial year 2015-16 was filed with the Registrar of Companies on 29 June, 2015 vide SRN S38400693.

The cost audit report issued by the Cost Auditor for the financial year ended 31 March, 2015 was filed with the Registrar of Companies vide form I XBRL dated 28 September, 2015 vide SRN S39613369.

24. RATIO OF REMUNERATION TO EACH DIRECTOR

As required under Section 197 (12) and Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the details of ratio of remuneration to each Director to the median employee remuneration are as given below:

A. Executive Director

Ratio of remuneration paid to Mr Rohit Gambhir, Managing Director vs the median employee is : 16 : 1 (17: 1 for the year ended 31.3.2015).

Non-executive Independent Director

Ratio of remuneration paid to Mr Vikram Tandon, Non-executive Independent Director vs the median employee is : 0.58 : 1 (0.88 : 1 for the year ended 31.3.2015)

Ratio of remuneration paid to Mr Sudhir Chand, Non-executive Independent Director vs the median employee is : 0.66 : 1 (0.91 : 1 for the year ended 31.3.2015)

Ratio of remuneration paid to Mr K Vaidyanathan, Non-executive Independent Director vs the median employee is : 0.70 : 1 (0.98 : 1 for the year ended 31.3.2015)

Ratio of remuneration paid to Ms Sabitha Rao, Non-executive Independent Director vs the median employee is : 0.62 : 1 (0.11 : 1 for the year ended 31.3.2015)

B. The percentage increase in the median remuneration of employees in the financial year was 9%.

C. The number of permanent employees in the rolls of the Company as at 31 March, 2016 is 344 (329 as on 31 March, 2015).

D. The average percentage increase in remuneration of employees to that of the increase in performance of the Company = 9% : 1.7%.

F Variations in the market capitalization of the Company and the PE Ratio.

Market Capitalisation as on 31.03.2015 - Rs.1,063.65 Crores.

Market Capitalisation as on 31.03.2016 - Rs.970.22 Crores.

PE Ratio as on 31.3.2015 - 45.98. PE Ratio as on 31.3.2016 - 36.18.

The Company made a public offer of Equity Shares at par (Rs.10/- per Share) in the year 1989.

G. Average percentile increase made in salaries of employees other than KMP in comparison to the percentile increase in the remuneration of KMP and the justification thereof.

The average percentile increase in salaries of employees other than KMP is 9% while that of KMPs is 5%.

Justification thereof : Compensation revisions take into account performance metrics on sales, operating profits and working capital apart from specific elements attributable to various functions within the organization. Despite difficulties in the operating environment, the Company's performance against the above metrics were close to expected levels. The revisions also need to be reviewed in the light of short and medium term forecasts and budgets. Taking into account all the above elements, we chose to consider higher percentage of increase to the lower and middle level management employees to sustain the morale and motivation levels. The final percentage of revision therefore was worked out with 5% for the senior most levels and a maximum of 9% at the junior levels.

H. The key parameters for any variable component of remuneration availed by the Directors.

Variable Component to Mr Rohit Gambhir - This is linked to various parameters, financial and non-financial. Key elements include sales, operating profit, working capital, implementation of business systems.

Variable Component to Independent Directors -Is based on the roles and responsibilities and their contribution to the Company in their respective capacities. The Commission is individually determined based on their varying commitments of time and effort to the Board and to its Committees.

I. The ratio of remuneration of highest paid Director to that of the employees who are not Directors but receive remuneration in excess of the highest paid Director during the year : NIL

The Board of Directors would like to affirm that the remuneration paid to the Executive and Non-executive Directors and the Key Managerial Personnel is in line with the Remuneration Policy of the Company.

As required under the provisions Section 203 of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment of Remuneration of Managerial Personnel) Rules, 2014 as amended, the name and other particulars of the employee is set out in the Annexure - 6 to this Report.

As at the end of March, 2016 the Company had 622 employees as against 587 at the end of 31 March, 2015. The Company believes in providing a working environment that is focused on the customers, teamwork, continuous improvement, innovation and a competitive environment where employees strive to improve value for shareholders.

25. FINANCE

The Company's relationships with its Bankers viz. AXIS Bank Ltd. and HDFC Bank Ltd. continued to be cordial during the year. The Company would like to thank its Bankers for their support.

26. ENVIRONMENT, HEALTH AND SAFETY

The Company continued its commitment to industrial safety and environment protection and all its five factories have obtained its OHSAS 18001 certification. Periodical audits are done by external and internal agencies to assess the continued levels of EHS efficiency of each of these plants and the OHSAS certification given is renewed after every such audit. The Company is also networked with the Group on EHS initiatives and works closely with them on initiatives and actions concerning EHS.

Cautionary Statement

Certain statements in this Directors' Report may constitute "forward looking statements" within the meaning of applicable laws and regulations. Actual results may differ materially from those either exbrssed or implied in this Report.