MANAGEMENT DISCUSSION & ANALYSIS REPORT 1.0 INTRODUCTION The Company is engaged in the business of manufacture of power driven pumps and industrial valves. Castings are mainly produced for captive consumption. 2.0 INDUSTRY STRUCTURE AND DEVELOPMENT 2.1 General In 2015, global economic activity remained subdued. Growth in emerging market and developing economies—while still accounting for over 70 percent of global growth—declined for the fifth consecutive year, while a modest recovery continued in advanced economies. Key transitions continue to influence the global outlook, namely, the gradual slowdown and rebalancing of economic activity in China away from investment and manufacturing toward consumption and services, lower prices for energy and other commodities, and a gradual tightening in monetary policy in the United States in the context of a resilient U.S. recovery as several other major advanced economy central banks continue to ease monetary policy. India and the rest of emerging Asia are generally projected to continue growing at a robust pace, although with some countries facing strong headwinds from China’s economic rebalancing and global manufacturing weakness. India’s stable macroeconomic environment and strong growth outlook stand out relative to other emerging markets. Growth in 2014-15 was 7.3 %, substantially higher than 6.9 % in 2013-14. This strong growth performance continued in the first quarter of 2015-16 with 7.0 % growth, compared to 6.7 % in the corresponding period of 2014-15. Headline Consumer Price Index (CPI) inflation reached its lowest level in August, 2015 since November 2014. In addition, inflation expectations have also eased. Liquidity conditions eased considerably during August to mid-September. The Reserve Bank of India reduced the policy rate by 50 basis points from 7.25 % to 6.75 %. India’s foreign exchange reserves rose to US$ 355 billion (as of August 2015), up by US$ 12 billion from the level on April, 2015. 2.2 Pumps & Valves Industries The business situation in mechanical and plant engineering improved only minimally in 2015. Globally, the sector’s sales revenue grew by a mere 1%. In terms of the main sales markets for pumps and valves, demand developed positively in the manufacturing sector, the chemical industry, and the water and waste water management industries, while the oil and gas industry, as well as petrochemicals, suffered major slump. Investments by companies in the mining and energy sectors also remained modest. 3.0 OPPORTUNITIES AND THREATS With India’s ever growing requirements of energy and capacity addition planned by the Government through various initiatives, though demand is subdued at the moment, there exists substantial opportunity for future growth as the Company’s products are geared up for the requirements. With the globalisation, new international players are making a thrust in the Indian market by creation of additional manufacturing capacities. This would result in further intensification of competition leading to price brssures. 4.0 SEGMENTWISE PERFORMANCE During the year under review, pumps and related spares worth Rs. 6,174 Million (Previous year Rs. 6,120 Million) and valves and related spares worth Rs.1,325 Million (Previous year Rs. 1,223 Million) were sold. Out of the above, export of pumps, valves and their spares in terms of value were Rs. 1,588 Million (Previous year Rs. 1,210 Million). 5.0 OUTLOOK The Company expects the market for pumps and services to grow moderately. The market for valves is expected to be sluggish, primarily due to poor demand from the power sector. Company is taking effective steps to improve operational efficiency to maintain the earnings. 6.0 RISKS & CONCERNS THE MANAGEMENT PERCEIVE The competition is expected to be more aggressive leading to price brssures. Uncertainty in global economic growth is expected to impact the growth rate in India and consequently the Company’s operations. The growth in the industrial sector depends on government policies, better infrastructure, removal of labour market rigidities and growth in agricultural sector would depend on favourable monsoons and effectiveness of implementation of Government policies to boost income of farmers. 7.0 INTERNAL CONTROL SYSTEM & THEIR ADEQUACY Internal Control Systems are implemented: • To safeguard the Company’s assets from loss or damage. • To keep constant check on cost structure. • To provide adequate financial and accounting controls and implement accounting standards. The system is improved and modified continuously to meet with changes in business condition, statutory and accounting requirements. Internal controls are adequately supported by Internal Audit and periodic review by the management. The Audit Committee meets periodically to review - • Financial statement, with the management and statutory auditors. • Adequacy/scope of internal audit function, significant findings and followup thereon of any abnormal nature, with the internal auditors. 8.0 DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL EFFICIENCY Due to better working capital management, utilization of short-term borrowings has been reduced resulting in reduction of interest expense. The following statements cover financial performance review, which are attached to this report. a) Distribution of income b) Financial position at a glance c) Financial summary. 9.0 MATERIAL DEVELOPMENTS IN HUMAN RESOURCES, INDUSTRIAL RELATIONS Attracting and retaining the talent continued to be a challenge for the Company in last year. With sustained focus on talent management and talent development initiatives, the Company was able to maintain the overall attrition in line with the projections in the job market. The ongoing human resources initiatives on Leadership Development, Succession Planning, Competence and Capability Development, Performance Management, Communication Meetings, Functional Development Interventions, Team Synergy, Sales Activity Management, and Development continued with the addition of new initiatives on Health and Safety Management. During 2015, we also focused on the improvement of human resources processes to make the Company a brferred employer. We concluded productivity linked wage agreements at 2 plants during 2015. Industrial relations at all the plants were cordial in 2015. 10.0 CAUTION This report is based on the experience and information available to the Company in the Pump and Valve business and assumption in regard to domestic and global economic conditions, government and regulation policies etc. The performance of the Company is dependent on these factors. It may be materially influenced by the changes therein beyond the Company’s control, affecting the views exbrssed in or perceived from this report. On behalf of the Board of Directors, G. SWARUP Chairman Mumbai, 18th February, 2016 |