MANAGEMENT DISCUSSION & ANALYSIS 1. ECONOMY OVERVIEW 1.1. Global Economy The global economy grew at a sluggish pace in FY 2015-16 primarily impacted by developments in the commodities sector, especially the fall in oil prices, monetary policy decisions across countries, sharper-than-expected slowdown in the Chinese economy; and a volatile financial and political environment in emerging markets. While growth in the developed countries remained modest as the countries struggled to escape the legacies of the financial crisis, weakness in the Chinese economy along with the commodity-price downswing and the US Federal Reserve's move to start raising interest rates, affected the emerging economies around the world. The outlook for global growth remains muted as major macro-economic realignments are affecting prospects differentially across countries and regions. In the US growth is expected to be flat, as the strong domestic demand will be negated by weak external demand and soft oil prices. The economy of the countries in the EU region is recovering at a modest pace, but with a mounting refugee crisis and the UK's potential exit from the European Union, there is a mild risk related to the recovery. A moderate slowdown in China is expected, as excess capacity continues to unwind and the economy rebalances from investment to consumption. The World Bank's baseline projection for global growth for CY 2016-17 is expected to be modest; 2.4% primarily on account of a slower-than-expected recovery in advanced economies. The recovery is projected to improve marginally in CY 2017-18 and strengthen beyond, driven primarily by emerging market and developing economies, as conditions in stressed economies start gradually to normalize. However, uncertainties continue to exist and risks of weaker growth scenarios need to be mitigated by broad-based structural and monetary policy reforms across developed and emerging countries. Stronger near-term fiscal policy support, with a focus on bolstering future productive capacity and financing demand-friendly structural reforms should provide a significant impetus to growth. 1.2. Indian Economy India's GDP grew by 7.6% in FY 2015-16 primarily aided by policy initiatives of the Government of India, despite contraction of global exports and two consecutive years of inadequate rainfall. The Government is focusing on strengthening the economy with various reform measures; and is aiming to improve both social and physical infrastructure in order to set structural drivers for long-term sustainable economic growth. These all-encompassing initiatives, coupled with a low current account deficit, low inflation levels and adherence to a fiscal recovery path have supported economic recovery. Industrial growth in FY 2015-16 faltered to 2.4% from 2.8% in the brvious year, but the average growth rate over the last two years has been above 2.5%. The Government through a continued focus on various initiatives and increased spending is trying to revive the manufacturing industry. Besides, with inflation closer to historic lows and budget deficit under control, the interest rates are expected to decline further. These factors are expected to restart the private investment cycle and aid industrial growth in the coming year. The GDP growth in FY 2016-17 is projected to be at 7.6% and improve marginally in FY 2017-18 to 7.7%. India is expected to remain as one of the fastest growing economies, ahead of China, for the next three years. Lower energy prices and higher real incomes continue to support private consumption. Additionally, enhanced infrastructure spending, pick-up in industrial activity, an improved investment climate and a rebound in rural economy on the back of an above average monsoon are expected to further strengthen growth. 2. GLOBAL AUTOMOBILE INDUSTRY The global automotive industry is in the middle of a far-reaching and widesbrad transformation. It is facing stringent regulatory requirements, a taxing economic environment and shift from a product-centric past to a customer-centric future. North America's auto industry witnessed strong growth with passenger vehicle volumes reaching br-crisis levels. This sustained sales growth was driven by the favourable economic situation, low interest rates and benign gasoline prices, as well as enhanced consumer confidence The European auto industry is also witnessing a positive trend in volumes both in the passenger car and heavy truck markets, driven largely by the economic recovery in the EU countries and low fuel prices. The emerging economies are seeing some demand constraints. While China remained the world's largest automotive market, its annual sales growth has lost steam since 2012, largely driven by economic slowdown. There has been a considerable de-growth in the auto industry of other emerging countries like Brazil and Russia as well. Although key auto markets are demonstrating different growth rates, aggregate global automotive market demand is expected to grow at a stable pace. It will be driven largely by a growth in the US and Western Europe, mitigating lower sales in Japan and slowing growth in China 3. INDIA'S AUTOMOBILE INDUSTRY India's automobile industry was the lone star among emerging economies, as it experienced another good year. The country's total automobile production grew by 7% vis-a-vis the brvious year. A slew of product launches at attractive prices, softening interest rates and benign fuel prices played a big role in driving consumer demand. After witnessing a sharp drop in sales in FY 2013-14, the M&HCV segment has registered strong volume growth of 21% and 28%, respectively in FY 2014-15 and FY 2015-16. This growth was driven by strong fleet replacement and renewal demand on the back of the improving profitability for operators on declining diesel prices, lower interest cost and firm freight rates. The demand from various SRTUs as well as some demand escalation from high tonnage trucks in the mining and construction sectors also remained robust. Stricter emission norms for old vehicles and mandatory adoption of safety devices on all new trucking platforms are leading to a strong impetus for fleet replacement Domestic passenger vehicle sales in FY 2015-16 saw a year-on-year growth of 5.5%, primarily supported by a slew of new model launches at attractive price points. While there are some concerns in the passenger vehicle industry related to a levy of additional tax in the form of infrastructure cess, luxury cess and other actions focused on curbing pollution; the expected pick-up in the economy, favourable monsoon, reduced interest rates as well as benefits of the 7th Pay Commission and OROP are expected to support overall growth in the domestic PV sector. Light commercial vehicles (LCVs) grew by 3.1% in FY 2015-16, compared to that of last year. The LCV demand is expected to pick up, amid improving consumption demand and expected ease of financing. A normal monsoon would aid agricultural freight demand and hence the demand for LCVs for last-mile connectivity. 4. COMPANY REVIEW BFL's manufacturing facilities, equipped with high-end technology, are sbrad across India, Germany, France and Sweden. It has significant brsence in automotive and industrial sectors with wide domain knowledge in design and engineering, complemented by full service capabilities. The Company manufactures an extensive array of critical and safety components for several sectors including automobiles (across Commercial & Passenger Vehicle), oil & gas, aerospace, locomotives, marine, energy (across renewable and non-renewable sources), construction, mining and general engineering. 4.1 Automotive FY 2015-16 was an encouraging year for the domestic automotive market with strong demand in all segments, barring the tractor segment, which was impacted by poor monsoon in FY 2015-16. The Medium and Heavy Commercial Vehicle (MHCV) segment saw its second year of growth; volumes increased from 267K in FY 2014-15 to 341K in FY 2015-16. The growth was driven by pick-up in replacement demand, benign fuel prices & interest cost and revival in infrastructure investments. The Passenger Vehicle segment witnessed a 5.5% increase in demand, driven by new product launches. BFL sales into the domestic MHCV market grew by 18%, lower than market growth due to lower raw material price pass-through to customers. The passenger vehicle segment globally witnessed growth in all three major geographies namely, U.S., EU and China. It is expected to witness growth going into CY2016 also. The CV segment performance was positive in the European Union and North America propped up by replacement demand and buoyant economic growth respectively. CV revenues into the export market grew by 8% in FY 201516, impacted in H2 FY 2015-16 by a slowdown in the North American Class 8 truck market. BFL passenger vehicle export revenues grew by 87% in FY 2015-16, driven by a strong ramp-up of orders. Looking Ahead The domestic demand for automobiles is likely to be determined by improving economic fundamentals; lowering interest rates and increased public sector spend on infrastructure led by improving consumer confidence. A proposal to implement scrappage policy across all vehicle class, stricter emission norms and increased profitability of fleet operators is expected to support the replacement demand in the future. A pick-up in demand from infrastructure and industrial sectors in view of Government's reforms, as well as the initiative to expand the network of roads and highways is expected to keep the commercial vehicle segment on a good growth trajectory. In the export market, the growth trajectory is expected to continue in the EU market across both commercial and passenger vehicles, whereas the CV market in North America is expected to decline to realign production with a lower level of demand expected in CY2016. The passenger vehicle export business will continue to witness robust growth in FY 2016-17, driven by the ramp-up of orders and development of new products for that segment. 4.2 Industrial Business In FY 2015-16, the sluggish infrastructure activity, slowdown in global economy and its resultant impact on commodity prices adversely affected the Company's industrial business. Revenues from the industrial segment declined by 23% from Rs. 19,460 Million in FY 2014-15 to Rs. 14,930 Million. The bulk of the damage was witnessed in the export market where revenues declined by 35% from Rs. 13,220 Million to Rs. 8,660 Million, the majority of decline visible in Oil & Gas and allied commodity space. Despite the increase in crude oil prices from its lows of US$ 30 per barrel, weak global industrial demand coupled with continuing massive capex cuts by Oil & Gas OEMs are expected to result in further decline in off-take from the commodity and allied sectors. The domestic industrial business was sluggish last year affected by the lack of investments in infrastructure and capex related sectors. However, the Government's reforms in road, mining sector and working on creating a more congenial environment is starting to bear some fruits. The transportation & government agency business in FY 2015-16 grew by 39% compared to FY 2014-15. Looking Ahead To diversify the industrial business, the Company is focusing on increasing the share of business from the locomotive and aerospace sector and mining sector in India. These sectors saw enhanced activity levels, following the removal of mining ban. BFL is also focusing on the renewable sector, which is witnessing global resurgence, following the Paris Climate Conference. The Conference called upon global leaders to help promote renewable energy to combat climate change. 5. SUBSIDIARIES International Operations BFL's global subsidiaries have helped the Company enhance its foray into new geographies, increased proximity to a diverse customer cross-section and strengthened the ability to cater to customers through a dual-shore based model. It will reduce the customer's dependence on suppliers for different components, and facilitate exchange of best practices and technology. The Company's total income and EBITDA was marginally lower vis-a-vis the brvious year, while EBITDA margins remained flat at 3.2%. Our loss for the year stood at Rs. 314 Million, compared to the brvious year, when it recorded a loss of Rs. 44 Million. This happened due to an increase in interest and debrciation cost on account of a new aluminium forging facility at BF-AT; and one-time expense incurred on brss break-down. With full revenues of the new aluminium forging order coming in CY2016 - coupled with cost reduction and productivity measures implemented at the subsidiaries - we expect to see a sharp performance improvement in CY2016. Total Income FY 2015-16 witnessed a marginal decline of 5% in total revenues from Rs. 45,481 Million in FY 2014-15 to Rs. 43,054 Million in FY 2015-16. Domestic sales grew by 4%, primarily on account of a buoyant M&HCV market, aided by revenues from the industrial sector, which showed marginal growth. This happened, despite a tough demand environment, amid slowdown of infrastructure activities. However, there was a noticeable drop in exports (10%) largely due to a decline in the industrial sector; the demand environment in the commodity related sectors (Oil & Gas and Construction & Mining) was challenging due to low commodity prices. Expenditure The Company's raw material cost as a percentage of total income declined from 38% in FY 2014-15 to 35% in FY 2015-16 on account of benign input costs. Manufacturing cost, during the year, accounted for 16% of total income vis-a-vis 17% of last year; it declined due to consistent focus on gaining operational efficiencies. Costs towards salaries were at 8.6%. Other expenditure increased to 8.7% from 7.7% on a y-o-y basis due to increased spends on R&D initiatives and increase in expenses towards new business development. EBITDA percentage showed an improvement of 110 bps, rising from 29.8% to 30.9%, despite a fragile environment. 7. STRATEGIC REVIEW Focus on new product development - The Company is planning to extend its expertise to develop new products and expand its footprint in the global aerospace and defence value chain. Also, the Company under the "Make in India" initiative has identified a few sectors where it can contribute in a meaningful way by developing a new product portfolio. Mining, power, railways, marine, defence and aerospace are the key focus sectors. Keeping an eye on the future, the Company is also developing a line of new products for the automotive sector with applications in both the commercial and passenger vehicles segments. A technology and innovation focused approach, strong domain knowledge, a global customer base and a constantly enhancing R&D capability will be the cornerstone of this strategy. Leveraging R&D capabilities - The Company's research and development capabilities focus on developing a highly differentiated portfolio of technology-driven products. A high innovation driven approach to all products under development will help the Company for timely delivery of its envisaged future product portfolio. All products manufactured today and those under development are the fruits of our steadfast focus on ingenious R&D. The Company has continued its endeavour to adopt and learn new technologies for its product range; and stay ahead of the curve in view of a globally competitive market. The Company is adding muscle to its R&D facility at KCTI, which will help in the research of new exotic materials and new additive manufacturing processes. Focus on quality excellence and customer satisfaction - One of the Company's principal objectives is to maintain and also continuously improve the quality standards for its products and services. To that end, the Company has established a combrhensive purchasing and quality control ecosystem that is designed to consistently deliver quality products and superior service to our customers. Investment in technologies - BFL is looking forward to enhance its technological capabilities further. The aim is to create new products and processes that complement the manufacturing excellence programs that have been the Company's mainstay. This approach has helped the Company optimize the different manufacturing processes and gain significant operational efficiencies. Focus on key sectors - The Government of India is focused on investing in railway infrastructure by making investor-friendly policies. It has moved quickly to enable foreign direct investment (FDI) in railways to improve infrastructure for freight and highspeed trains. At brsent, several domestic and foreign companies are also looking to invest in Indian rail projects. The awarding of contracts to companies like GE & Alstom for building locomotives is one such example. - The commercial aerospace subsector is expected to continue its decade-long trend of above-average growth rates, driven by growth in passenger travel demand and an accelerated equipment replacement cycle. With many distinguished OEMs like Boeing and Airbus supporting the 'Make in India' initiative and committing to source more components from India, the opportunity landscape is widening. - India's high Defence sector spending, along with the Government's make in India' initiative is expected to encourage domestic forays into the sector. The Government has been encouraging the procurement of indigenously manufactured or developed technology and weapons systems, under its Make in India initiative. It has also revised the Defence Procurement Procedure (DPP) to support domestic manufacturers. 8. INNOVATION AND INTELLECTUAL PROPERTY RIGHTS (IPR) Innovation is at the heart of everything BFL does. At BFL, we have a strong in-house R&D team committed to work on various projects, which help in developing new products and technologies. Innovation is a continuous on-going process in the Company, which has helped us explore new ideas and deliver solutions for transformation consistently. Innovative application of best-in-class technologies has helped the Company develop critical and high value-added products for the automotive and non-automotive sector. Patents A total of 12 patent applications were filed in FY 2015-16, bringing the number of patents filed till date to 22. BFL has been already granted two patents, while the remaining has been submitted and awaiting examination. In the coming year as well, BFL has a healthy pipeline of patents on which work is being carried out. Design improvements BFL is involved with its clients throughout the product development process - right from the initial stages of product design and development to the time of product delivery. The Value Analysis and Value Engineering (VAVE) proposals submitted by BFL on various product improvements have been readily accepted by our domestic and international customers. Light weighting programs This has been BFL's key initiative, to help our customers in reducing weight of the product, without compromising on functional performance. This helps in reducing fuel consumption and improving emission levels. BFL continues to work with various customers to develop innovative light weighting design concepts. New technology development BFL is focusing on introducing new process related to our core competence and development of new high strength material for light weighting application. The Company strongly believes that the next round of growth will be propelled by such initiatives and opportunities, supported by innovation. Knowledge exchange Various employee exchange programs are organised by the Company's subsidiaries in order to facilitate pan-organisational knowledge transfer and best practices exchange. The experiences regarding various challenges faced during the year and the manner in which they were overcome, are shared. This helps resolve operational challenges in a timely and efficient manner. 9. KALYANI CENTRE FOR TECHNOLOGY & INNOVATION: CONTRIBUTING TO GROWTH KCTI's research contributions in international journals and conferences have demonstrated the capability of Bharat Forge in developing new components and solving problems, related with processes and products. In the span of a short period of time, the Company has acquired an international status in R&D contributions. KCTI's role in developing new technologies and filing new patents has reinforced Bharat Forge's status as an innovation-driven company. Prestigious awards from CII, IIE and international bodies have recognised Bharat Forge as one of the world's most innovative companies. This has enhanced customer stickiness and their confidence in our capabilities. KCTI's learning curve on Additive Manufacturing (3D printing) of metals is one of the fastest in India. Development of several critical components by KCTI and its capability to test critical metallurgical parameters of materials is helping the Company to develop technologically advanced products related to Defence & Aerospace. NABL accreditation and expected NADCAP approval are the essential requirements to supply materials in these segments, which is being met by KCTI. Several R&D projects in the area of high strength steels and alloys of exotic metals have helped BFL build a portfolio of components with application over different sectors. KCTI team is also helping Bharat Forge in developing new components for a number of sectors for the Make in India program. Successful development of simplified and cost-effective processes of heat treatment and conducting R&D in the area of die life improvement are some of the other initiatives of KCTI that has helped the Company in saving costs on the operational front. 10. INFORMATION TECHNOLOGY FY 2015-16 highlights Starting a Journey of Industry 4.0 The Company started exploring the strategy towards 4th industrial revolution - Industry 4.0. Industry 4.0 means the technical integration of cyber-physical systems (CPS) in production and logistics and the use of the Internet in industrial processes - for instance, by locating, tracking, coordinating, and controlling physical objects via the internet. The Company's Leadership team from India, Germany and Sweden went through focused workshop on Industry 4.0 at Fraunhofer IAO, Germany. Fraunhofer IAO is laying the foundation for building Germany's 4th industrial revolution. This team also visited various companies of Germany, which have showcased live examples of Industry 4.0 deployment. The Company has decided to work on 5 building blocks for this initiative: Digitisation of information flow from top floor to shop floor Digitisation of information flow from shop floor to top floor Automating the Real Time KPIs Monitoring Visualization Layer Digitisation of Material Flow Digitisation of Services Various initiatives have been undertaken under these five building blocks. Information Security & Assurance The Company transitioned from ISO/IEC 27001:2005 to ISO/IEC 27001:2013. ISO/IEC 27001:2013 specifies the requirements for establishing, implementing, maintaining and continually improving an information security management system (ISMS) for the Company. This transition will help it enhance market assurance and consistent governance. InfoSec Technology Deployment Tool to Manage Segregations of Duties (SoD). SoDs are a primary internal control intended to brvent or decrease the risk of errors or irregularities, identifyproblems, and ensure corrective actions are taken. This is achieved by ensuring no single individual has control over all phases of a business transaction Security information and event management (SIEM) solution: It brings event, threat, and risk data together to provide strong security intelligence, rapid incident response, seamless log management, and compliance reporting — delivering the context required for adaptive security risk management The Company deployed the state-of-the-art Backup & Recovery Solution, spanning aspects of complex Business Continuity Management Awards Recognised by Computer Association of India as 'Top 50 CIOs as part of India's Best CIOs' Recognised by Centre of Recognition & Excellence (CORE), as 'Manufacturing Icon' at the second CIO Power List Targets for next year Establishing core platform for Smart Manufacturing under Industry 4.0 Program Exploring Product Life Cycle Management (PLM) for Aerospace Business Vertical Implementing Integrated Customer Relationship (CRM) Solution Implementing Company-wide Data Leakage Prevention (DLP) Solution Implementing Information Rights Management (IRM) Solution Redesigning campus-wide network to support converged communications of Data, IoT, Video and Voice Deploying various initiatives under Industry 4.0 Program Pillars Integrating Industry 4.0 with Bharat Forge Excellence System to make it a part of the Company's DNA Upgrading SAP to ensure compatibility to implement GST related functional needs 11. HUMAN RESOURCE MANAGEMENT Training Programs To enhance engineering knowledge in employees, BFL set a three-month, fulltime Engineering Development Program at Chakan, during the year. The program is based on the objectives of training operative manpower, the basics of modern engineering terms, engineering drawing reading and new 2D and 3D CAD techniques. Till date, three batches comprising 37 employees have undertaken the training. After a successful completion of the program, employees are transferred to new projects. Talent Managers Initiative To enrich connectivity and employee engagement across the Company, 'Talent Managers' initiative was strengthened during the year. Consequently, the department of talent managers are equipped to support talent acquisition and development activities in a holistic manner. The initiative, which has now reached maturity, has been streamlined across departments and aids in talent and competency mapping activities. To strengthen this initiative, all talent mangers have undergone Psychometric Testing on defined parameters. After the testing, a special training programme was organised for them. The competencies, which were identified for these trainings were initiative, people understanding, stress tolerance, planning and prioritisation. Monthly meetings are organised, involving talent managers to understand the important HR strategies across the Company. Industrial Relations Industrial relations were cordial across locations. Periodic meetings were held to involve unionised employees in business-related activities. In these meetings, important issues related to business challenges were briefed to union members. They were also regularly updated on future business challenges; and were made aware of the need to uplift skills and competencies. Policy for female employees There is a stringent policy in place, to address issues pertaining to female employees at BFL. Various quarterly meetings are held for women employees to provide a safe environment for them. These meetings help redress their concerns regarding safety and dignity at workplace. Program on Strategic Human Resource Management (SHRM) The senior management team needs to understand challenges for Human Resource Management and their individual role in it. Keeping this view in mind, a programme on Strategic Human Resource Management (SHRM) was organized at Baramati for employees belonging to managerial and above levels. The programme's coverage includes classroom sessions, case studies, management games, group discussions and live happenings of BFL, where managers are required to develop their team members to strengthen the global talent pool. During FY 2016-17, the Company is aiming to cover employees from managers and above level at other locations too. VETNET Programme in collaboration with Indo German Chamber of Commerce (German Chambers worldwide network (AHK) for cooperative, work-based Vocational Education and Training) To exchange operational technical knowledge, we started the 'Industry Mechanic' training course for ITI qualified employees during the year. It was organised with the help of Indo German Chamber of Commerce and Don Bosco Industrial Training Institute. This is a 'dual training' comprising classroom as well as on-the-job training. The Company had a total of 4,766 permanent employees as on March 31, 2016. 12. CORPORATE SOCIAL RESPONSIBILITY Corporate social responsibility (CSR) has always been fundamental to Bharat Forge. It is an integration of social environmental objectives and business objectives, with sustainability being the soul of CSR. Social responsibility has been ingrained in the Bharat Forge culture since our earliest days as a company. Our CSR journey started way back in 1970, when the community centres were established for the social-economic development of women and family members of our workers. Bharat Forge has been contributing and working towards the objective of giving back to society, much before it was mandated by the introduction of Section 135 in the Companies Act 2013. Today, CSR activities at Bharat Forge have acquired wider and bigger dimensions and we are trying to align ourselves with the national agenda. During the year, Bharat Forge spent more than the brscribed amount on CSR projects. Objective Bharat Forge is proud of being a socially-responsible corporate. We would like to further scale-up our CSR activities through the initiatives aimed at improving the lives of economically-deprived children, women and senior citizens. We propose to empower them to effectively participate in unfolding social and economic opportunities. This will enable them to become an integral part of the mainstream growth and development. We would strive to achieve total inclusiveness by encouraging people from all sections of the community irrespective of caste, creed or religion to benefit from our CSR initiatives. Such initiatives would be focused around communities that reside in the proximity of our Company's various manufacturing locations. Vision At Bharat Forge, we believe in giving back to the society in some measure what we have gained from it. We are therefore committed to address issues relating to child welfare, women empowerment and safety and security of senior citizens, among others, through our various initiatives which will lead to protection of environment, health & hygiene and skill education on sustainable basis for society as a whole. Community development Under Community Development Project, we have started self-help groups (SHGs) for empowering women and reaching out to the needs of senior citizens. Community development programmes are classified under the following heads - Health Activities Health Awareness Health Check-up Camps Health Clubs Medical Check-up Camps for senior citizens IGP (Income Generation Programme) Skill Development Training Environmental Initiatives Other Recreational Activities Self Help Groups Swachh Bharat Abhiyan Under Swachh Bharat Project, we have started to work in nearby communities. We have launched a Waste Management Project; under this project, we have installed 60 composter planters in the community. Besides, women have been trained to manage their household kitchen waste through vermiculture. We have adopted Pune Municipal Corporation (PMC) and Zilla Parishad (ZP) schools in our vicinity; and as per guidelines of the Hon'ble Prime Minister the project of Sanitation of Schools [SOS] has been taken up on priority. Our responsibility does not end just by building toilets. Sustainability is equally important and we ensure this through initiatives like maintenance of toilets, behavioural training to students and creation of sanitation committees in schools for long-term benefits. BFL also conducts tree plantation drives in various localities and adopted schools Education The Kalyani School, supported by BFL is growing from strength to strength. The school's vision is to provide a harmonious and stimulating environment, which inspires all students to strive for excellence; and emerge as responsible citizens. The Kalyani School (spanning 9.5 acres) provides children with an environment, which is conducive for holistic development. It is a K-12 Co-ed, CBSE English Medium School. Academics and co-curricular activities are well balanced to ensure that every aspect of the child's growth and development is catered to. Facilities for both indoor and outdoor games have been provided, keeping in mind diverse interests and aptitudes of children. We have launched a project called 'Life Lab' in our adopted School Rajrshi Shahu Maharaj to introduce experiential learning related to science curriculum of the school.Life-lab envisions creating a world where children enjoy learning and view the world rationally, and with a proper scientific perspective. Under the flagship of a well-known NGO 'Pratham', we have reached out to 25 communities and 20,000 children of Pune for non-formal education. 'Jnana Prabodhini' has become our partner in the project Pradnya Vikas to fast-track children's holistic development from these communities. Khelghar initiative is started in association with Paalakneeti Parivar Pune. It aims to develop children from deprived section of society helping them in personal grooming and developing creativity skills, imparting awareness regarding various social, education, health, etc. Skill Development Initiative We have set up an ITI at Khed in 2007 by signing an MoU with the Government of Maharashtra. It was probably the first PPP model in the skill development area. Today, it is considered as one of the best ITIs in India. Besides, we have also adopted ITIs at Bhor and Malegaon. Through these efforts, we are helping enhance skills and supporting the Skill India initiative. Conservation of water We have contributed to Jalyukta Shivar Abhiyan - Drought Free Maharashtra: 2019, initiated by the Government of Maharashtra. We have adopted three villages in three different blocks of Pune district, namely Kanhersar in Khed, Kalewadi & Navali in Purandhar and Pansarewadi in Baramati. This initiative has restored the water-storage capacity and benefited over 6,000 people. Sports We are helping prominent sports (tennis, chess, and boxing) players and women engineers by sponsoring their training and education. Our employees from different departments have taken up CSR projects in various areas; and are actively participating in social transformation. We evolve a holistic, participatory, collaborative and sustainable approach in programme implementation. We also reach out to our employees, business stakeholders, society, NGOs and local governance; and include them in this journey towards social change. This change is a gradual process and has to be dealt with patience, thoughtfulness and consistency. FY 2015-16 - Highlights Implementation of SOS (Sanitation of schools) at 9 corporation schools Setting up of a new state-of-the-art communications lab at ITI Khed Completion of Jalyukta Shivar Abhiyaan at Kanhersar, Kalewadi and Pansarewadi Winner of Greentech Award 2015 13. OUTLOOK Increasing thrust on infrastructure spending and road development augurs well for the automotive industry, especially M&HCV and the construction equipment industry as well as their suppliers. The Government's 'Make in India' initiative increased outlay towards defence equipment is positive for suppliers brsent in heavy forgings and allied industries. The National Skills Mission programme (planned to be launched) can potentially provide the industry access to a more skilled workforce. The lack of skilled workforce is expected to hamper industry growth in the long-term, if left unaddressed. Moreover, robust fiscal management, lower borrowing costs by keeping inflation expectations down, higher revenues from coal and telecom auctions and collection of higher taxes will enable the Government to spend more on value-creating assets; and pass on price benefits to consumers. Such a scenario is expected to enhance consumer spending significantly. 14. RISK MANAGEMENT BFL's risk management policies are formulated in such a way that the Company can respond swiftly to the risks and implement necessary mitigation measures. A prudent risk management framework has been developed and a cautious approach is undertaken to identify and analyse internal and external risks and minimise their impact on operations. Macroeconomic Uncertainty - Given the global nature of the Company's business, its operations are directly dependent on general economic conditions; not only in India but across key markets worldwide. Recently, global economic growth has remained volatile and uneven with several key markets facing economic challenges. Risk Mitigation - The Company assesses and evaluates the macroeconomic performance in its key markets regularly; and takes suitable remedial actions. Geopolitical and other risks - Political instability, wars, terrorism, multinational conflicts, natural disasters, fuel shortages and their prices, epidemics and labour strikes brsent business risks. Risk Management - To counter these risks, the Company continues to expand its geographic brsence across all major economies in the world. Raw Material Prices - Prices and availability of various raw materials such as steel, non-ferrous, exotic metals and petroleum products are dependent on various environmental factors. Even as the Company continues to pursue cost control measures, any unforeseen or sudden spike in cost of these items could impact the profitability of the Company. Risk Mitigation - BFL has raw material pass-through clauses in all contracts, to protect itself from commodity volatility. A number of other measures have been taken to reduce energy consumption through modification of processes. Currency Risk - With significant exports and foreign currency liabilities, Bharat Forge is always exposed to global currency fluctuations. Risk Mitigation - BFL has followed a consistent policy of taking simple forwards on a one year rolling basis to protect its export realisation. At any given point of time, BFL's exports are higher than its foreign currency borrowings thereby giving it a natural hedge. Company Policy The Company, during the year, further refined its Risk Management Policy to align it with the current business environment. A combrhensive framework has been developed to identify, monitor and mitigate various risk elements in accordance with the risk management process. Strategic and operating risks were identified and further grouped across in six broad categories: Technology, Customer, Business Continuity, People, Regulatory and Financial Reporting. The Company has laid down a mitigation plan to address the identified risks. Independent assessment of various risks and mitigation plans are put in place. The Finance & Risk Management Committee and the Audit Committee ensure the ongoing review and compliance to the risk management framework. The Board is kept appraised of the same. Internal Financial Controls The Company has developed a robust Internal Financial Controls framework by revisiting and refining process notes, flowcharts and control matrices across finance and other operating functions. A controls assurance program covering IT General Controls (ITCG) was implemented during the year. System covered under ITCG includes a proactively implemented SAP Segregation of Duties (SOD) management tool. The internal financial controls were also reviewed by an independent auditor and found to be adequate and operating effectively for ensuring accuracy and completeness of the accounting records. No reportable material weaknesses were observed. 15. INTERNAL SYSTEMS AND THEIR ADEQUACY Bharat Forge has a proper and adequate internal control system in place to safeguard assets and protect against loss from any unauthorised use or disposition. The system authorises, records and reports transactions and ensures recorded data are reliable to brpare financial information and to maintain accountability of assets. The Company's internal controls are supplemented by an extensive programme of internal audits, review by management and documented policies, guidelines and procedures. 16. THREATS AND OPPORTUNITIES Threats Due to increasing competition and the brsence of global players, the ability to attract and retain managerial talent and the availability of skilled and unskilled manpower is becoming a key issue. Improving the quality of human resource is also an issue for the industry. With increasing globalisation of markets there is potential competition from forging capabilities in other developed and developing countries. Hence R&D costs have to be increased substantially to add value to existing products and create new differentiated products. As the world moves towards a green earth campaign, one of the first industries that come to one's mind, is the automobile industry. In such a scenario, companies need to focus more on innovation and develop new products that embrace the technology changes and customer brferences. The commodity sector is highly volatile and changes in the cycle are hardly brdictable. It thus becomes imperative to improve product mix and diversify business over long gestation industrial sectors. Additive manufacturing techniques are no longer in their infancy and are finding increased application in the production of metallic parts. It is necessary to track changes of this unfolding technology and develop similar capabilities. Opportunities The Indian Government's focus on improving the ease of business with its 'Make in India' initiative is expected to relax regulations and reduce complex procedures. Also, the expectation of increased infrastructure spending will open up a host of opportunities in the capex related Industrial sectors. Over the past few years, India's automobile market has benefited from an increased focus from various global OEMs, who view India as their global manufacturing hub. Government support and the availability of skilled human resources make India an attractive manufacturing destination. With many OEMs establishing their facilities in India, it is expected to unleash significant opportunities for the Indian component makers to supply to these players for their domestic and international demand. With the Government of India's emphasis on the substitution of imported goods to reduce import bills, sectors such as Mining, Railways, Aerospace and Defence are expected to rely on Indian companies and domestic expertise for procurement. This provides manufacturing companies an opportunity to grow in the non-automotive business. Different geographies follow separate business cycles; hence expanding the global footprint and establishing a global brsence in some of the world's largest markets helps take advantage of the varying differential growth opportunities. The Government of India has permitted 100% foreign direct investment (FDI) in the automotive industry through the automatic route. This has encouraged global OEMs to invest in and develop innovative products, technologies and supply chains. 17. CAUTIONARY STATEMENT Statements in this Management Discussion & Analysis describing the Company's objectives, projections, estimates and expectations may be 'forward-looking statements' within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those exbrssed or implied. Important developments that could affect the Company's operations include a downtrend in the forging industry — global or domestic or both, significant changes in political and economic environment in India or key markets abroad, tax laws, litigation, labour relations, exchange rate fluctuations, interest and other costs. |