MANAGEMENT DISCUSSION AND ANALYSIS 2015-16

Division-Wise Business Analysis

Plantation Business: (A) TEA:

Industry structure and development:

Indian tea Crop:

India's Tea output stood at 1233.14 million kgs. for FY 15-16 compared to 1197.18 million kgs for FY 14-15, an increase of 35.96 million kgs. North India Tea output was at 1008.56 million kgs compared to 935.71 million kgs in brvious year, recording an increase of 52.74 million kgs. However South India Tea output was 224.58 million kgs compared to 241.36 million kgs, registering a decline of 16.78 million kgs. Total Exports for FY 15-16 has been at 220.84 million kgs compared to 199.08 million kgs in FY 14-15.

Indian Tea Industry is primarily divided into two geographies viz. North India consisting of Assam & other North-Eastern states contributing about 80% of the total tea output and South India consisting of Tamil Nadu & Kerala contributing about 20% of the total output. Further, India has always been a Tea surplus country where the total output of tea exceeds the domestic demands. As such,the Indian Tea industry also depends on its capability to export which brings in global challenges from dominant Tea producing countries like Kenya, the global economic conditions and customer behavioral trends in the international market.

The other major factors that affect the Tea industry is the weather pattern, rising input costs and unremunerative prices for tea as a 'commodity' compared to value added branded tea.

South India Tea, particularly in the last two years witnessed extreme weather pattern in form of high temperatures, uneven scattered rainfall and increased pest activity with change in bio diversity and drought conditions.

All these resulted in crop loss, challenges in productivity and rising input costs. The companies which are only in plantation activities compared to those engaged in branded tea / packaged tea, have been adversely impacted due to these of factors.

Your company has its Tea Plantation Estates in South India and has traditionally been a commodity market player. It has been facing these challenges over last two years and in particular, in FY 15-16 during which, the tea business was severally impacted as detailed hereinbefore.

Total tea production during the year ended 31st March, 2016 increased by about 3% and total tea sales increased by approximately 10 % as compared to the brvious year. However, average selling price decreased by about 4% due to lower realisation in domestic markets. Overall domestic volumes improved by 24% though average price realized declined by 3.13%.

Exports: Overall export quantities of BBTC's teas declined by 18.40%, However the price realization were higher by 3.72%; benefiting from a weaker rupee. Due to adverse weather conditions, Organic crops declined and consequently Organic quantity exported was lower.

Opportunities & Threats:

Our products in Green Tea segment addresses the current consumer trends and we foresee significant growth in this area. There is a growing demand for brmium products. Our capability to make good liquoring teas will help us to improve the overall price realizations. This, added with better awareness of health benefits of Organic teas will drive growth in the current year.

We have made beginning in the areas of packaged tea by introducing "Oothu" and "Manjolai" brands in Organic Green and black tea segment. The Corporation's pioneering efforts and expertise in producing Organic tea will help to consolidate the Corporation's position in major Organic market globally. Your company continues to strive to meet these expectations by expanding the category of teas and cost rationalization. Further it has started shifting its focus from being a commodity players to value added tea and brand building.

However, the production being largely dependent on the vagaries of nature, adverse climatic conditions affect the quality of tea leaves and volumes. Onslaught of pests like Tea Mosquito Bugs is difficult to contain especially in the light of brscribed usages of pesticides under the Plant Protection Code. Being a labour-intensive industry, rising input costs due to wage revisions and settlements controlled by plantation associations and possibility of migration of labour to urban areas are areas of concern.

Outlook:

The consumer product choices are increasingly shifting towards health, wellness and lifestyle. There is a growing trend for more brmium produce of higher quality tea. Much of the growth is expected to come from rise in Green Tea demand. The customers are becoming value conscious and seek better values. Private labels and regional players are growing in market share. On the export front, better relationship with our neighbouring countries and a lower Kenyan crop should bode well for the Indian market. Russia and Iran have picked up higher quantities this year and this trend is expected to continue giving a fillip for the Orthodox tea produce. Weakening rupee and a fall in freight charges are also expected to support exports. Indian consumption has been steadily growing with share of packaged teas improving.

Lower global production and good export demand is likely to firm up the global tea prices in the current year.

(B) COFFEE

Industry structure and developments:

The global production of coffee for the year FY 2015-2016 was 144.75 million bags and the consumption at 148.08 million bags. As per International Coffee Organisation (ICO), the consumption grew at approx. 2% over the brvious year.

With total production of 5.83 million bags, India is an insignificant player in the global market. Further domestic demand is also restricted to 2.25 million bags. Hence the Coffee business largely depends on International markets.

Coffee prices in International as well as domestic market were caught up in a broader commodity cycle with similar movements observed in other agricultural commodities.

Performance Highlights:

During the year, own Coffee production was 625 tonnes as compared to 670 tonnes in the brvious year and that from bought beans was 981 tonnes compared to 835 tonnes in the brvious year.

Opportunities and threats:

Off take to new markets like South Korea, has helped us offset recessionary pricing from Europe. Continued focus on increasing sales to retail roasters, and exploring non-European markets is expected to keep our export prices stable.

The continuous recession in commodity markets, is an area of concern as buyers will look at pricing based on NYCE/LIFFE indicators. Competitors are offering coffees at prices substantially lower than ours. Exports to non traditional markets, like South Korea has increased off take of Arabicas and ensured better prices than what could be achieved from European markets.

Coffee production worldwide, is expected to fall due to erratic weather conditions. This is expected to have a positive impact on prices in the second half of 2016

The lack of rainfall in the last four months is cause for concern and could impact crop and affect percentage of primary grades in season 2016-17.

White stem borer is a major threat being faced by Arabica growers across the industry. Vagaries of nature is another threat since the industry is dependent on nature.

Outlook:

We produce and market brmium Coffees such as Washed Arabica and Robusta, Speciality and Monsoon Coffee. Premium Coffees are the core of our business and signifies our drive to move away from commoditization. Our thrust towards improving quality has won number of awards and is reflected in better realization of the prices.

Retail roasters continue to need good, consistent coffees in their blends and this has helped us maintain prices closer to brvious year's levels and better than the international benchmark price as is reflected in the above table.

The Corporation's Coffee curing unit is well equipped to handle not only the in-house curing / processing requirements but also the Bought beans from small growers. This has helped the Corporation to increase its overall activities and improve the price realization by catering to export / direct sales to ultimate consumer. The Corporation has also implemented management and conversion of the effluents at the pulp house and convert the same into energy.

Looking ahead, there are increasing concerns in the international market that dryness caused by El Nino could reduce output in the second half of the year, with reports emerging that this could increase Colombia's susceptibility to damage from coffee berry borer. Drought is also affecting supply expectations in Vietnam and Espirito Santo in Brazil, which could lend support to Robusta prices in the near future.

AUTO ELECTRIC COMPONENTS BUSINESS

Industry Structure and Developments:

The Indian Auto-Components Industry continued to be subdued due to the unfavorable economic conditions and poor market sentiments led by an atmosphere of uncertainty and volatility; growing input costs and imposition of infrastructure cess in the FY 16-17 Budget. The industry accounts for 7.1 per cent of the country's Gross Domestic Product (GDP).

However, several initiatives by the Government and the major automobile players in the Indian market are expected to make India a global leader in the Two Wheeler (2W) and Four Wheeler (4W) market by 2020 according to ACMA, the Automotive Component Manufacturers Association of India.

Globally, the automotive landscape is also witnessing unbrcedented changes driven by the need for better fuel efficiency, increased safety and stricter emission norms. The Indian Auto Components Industry needs to gear-up to these changes in the rapidly changing global environment.

ELECTROMAGS division, engaged in manufacturing Auto Electric Components viz. Solenoids, Sliprings switches etc. is dependent on the Auto Industry especially Passenger cars, Two Wheelers and Commercial vehicles and hence the performance of the industry has a direct impact on the Division's performance.

1) Passenger Vehicles : Domestic and Export sales of passenger car segment have grown 5.69 % in India compared to brvious year. The sales of utility vehicles in India have grown by 12.12% compared to fiscal 14-15. Maruti and Hyundai continue to hold up 70% of market share.

2) Commercial Vehicles grew by 28.15% with 337,565 units compared to 263,407 units in the brvious year.

3) The two wheeler segment has seen marginal growth of 2.73% over the brvious year and is expected to decline over 6% in the coming year as per Hero Moto Corp & Bajaj.

Performance Highlights:

Even though the overall Auto Industry grew marginally during the year, the Divisions major end Customers like WABCO, TATA Motors, Delphi, and NCR had f lat sales for our range of product supplied during FY 15-16. The New Product Development Projects were also adversely impacted due to longer validation periods with OEM's and end Customers.

Opportunities and Threats

Due to recent Government Policy change - 100 % FDI through Make in India effort, more foreign OEM's and Auto component manufacturers are likely to set up facilities in India.

Environmental imperatives and safety requirements are two critical issues facing the Auto Industry worldwide. Indian Auto industry in the last decade has made significant progress in the environmental front by adopting stringent emission norms and is progressively aligning with international technical and safety standards. The new Euro VI norms will be in place by 2020 and as a result drastic changes are expected in the Auto Electricals - Engine segment.

Suspension, braking system and engine parts segment is estimated to grow with high demand, with players maintaining a diversified customer base. The Division's New Product Development team is working towards these opportunities.

The major areas of concern are volatility in raw material costs, increased input and labor costs. Rapidly changing technology and the need to introduce new models by OEM's is making product life cycles shorter and therefore rapid New Product Development is necessary to maintain share of business.

There is also increased brssure on margins due to increase in input costs and value expectation from end customers on existing product range.

High attrition, limited availability of stable and trained manpower are major concerns for the Division.

Outlook

The major contribution is expected from the New Product Developments. New Products for the Division are mainly in the area of moving up the value chain and this is expected to deliver additional turnover during the Financial Year.

The Division is actively exploring opportunities in the non-auto segment as well. Few Products in Non-Auto segment are lined up to be started in FY 16-17 to increase our non auto share.

The Supplier quality expectation by Customers is ever increasing in the industry and is now comparable to international standards which need to be matched with improved manufacturing facilities with fully automated lines and in-house testing equipment. There were numerous product recalls in the brvious two years, resulting in increased focus on quality by OEM's.

HEALTHCARE BUSINESS:

Industry Structure and Development

The global dental products market is growing at a rate of CAGR 5% in the last five years with the Asian markets showing highest growth of 10% followed by the US at almost half the rate of 5.5% With over 5000 dental laboratories and 297 dental institutes, the Indian dental market is vast and it is brdicted that India will soon be the single largest country market for dental products and materials. The current 'dentist to population' ratio in urban area is 1:9000 and in rural areas it is 1:200000. The total market for dental equipments and materials is estimated to be around US$ 90 million annually.

In the last decade, the dental services scenario in India has vastly improved due to growing healthcare awareness ,better economic growth ,increased healthcare expenditure ,investor friendly government policies and reduction in customs duty.

Majority of the dental market in India is private. Several large multinational players are setting up a chain of dental clinics to tap into this rapidly growing dental market. Over 90% of the dentists work in and around major cities. Every year approximately 12,000 to 15,000 new practices start in the country. There is a greater demand than supply of dental technicians in India. Currently there are about 5000 dental laboratories, yet only 32 colleges which offer diploma courses for the post of a dental technician. More colleges are now offering the course to match the growing demand.

Performance Highlights:

The Dental Products division has performed well during the year under review registering a growth rate of 6% over last years' sales. The sale of the Division's key product -"alloy" has declined by 4% compared to the brvious year, since dentists brfer more composites than alloy for teeth restoration. However, the Division has outperformed in another key product group viz. "dental imbrssion materials" with 24% increase in sales as compared to brvious year. The Division launched "Dental x-ray film" during the latter part of 2015 and performed well in this category.

Opportunities and Threats:

The dental market is expected to have a growth rate of above 20 percent, with investment groups building multispecialty hospitals offering general dentistry and specialist treatments. A large portion of dental products are imported into the country. About 85% of India's annual requirement is supplied by Germany, USA, Italy, Japan and China. Foreign companies are investing in the Indian dental equipment market by establishing their production units in India. India is rapidly becoming a manufacturing hub for supplying dental equipment and material to less developed countries such as Africa, Sri Lanka and parts of the Middle East. Looking at India's rapidly growing dental market, many multinationals have set up offices in India. The Division is evaluating some of these opportunities to grow the business in line with the market trends.

Outlook:

While the market for dental imbrssion materials and X-ray films is expected to show reasonably good growth, one of the major product categorizing Dental Alloys is expected to be static in terms of growth. The Division is planning to launch "dental implants" and also to add some more consumable products in the portfolio. Overall, the outlook for the ensuing year looks favourable.

Internal Control Systems and Adequacy:

The Corporation has adequate internal control procedures commensurate with its size and nature of business. These business control procedures ensure efficient use and protection of the resources and also compliance with the policies, procedures and statutory requirements. The internal control systems provide for well documented guidelines, authorization and approval procedures. The Corporation carries out audit of the same through internal auditors. The prime objective of such audit is to test the existence, adequacy, and operating efficiency of all internal financial controls laid down by the management and to suggest improvements.

The Internal Auditors monitor and evaluate the efficacy and adequacy of internal financial control policies and procedures .The internal audit plan and the reports and findings of the internal auditors on the internal financial control systems are periodically reviewed by the Audit Committee . Significant audit observations and corrective actions thereon are also brsented to the Audit Committee.

Based on the framework of internal financial controls and compliance systems established and maintained by the Corporation and duly reviewed by the management and the Audit Committee, the Board is of the opinion that the Corporation's internal financial controls were adequate and operating effectively during the year under review.

Human Resources:

The Corporation regards human resources as a valuable asset. The Corporation evaluates performance of all employees on annual basis. Key result areas of employees have been well defined. The Corporation has initiated incentive schemes for employees to reward exceptional performance. The training needs of employees are periodically assessed and training programs are conducted using internal resources and also by engaging external trainers/facilitators.

Cautionary Statement:

Statements in the Management Discussion and Analysis describing the Corporation's objectives, projections, estimates, and expectations may be forward-looking statements' within the meaning of applicable securities laws and regulations. Actual results could differ materially from those exbrssed or implied. Important factors that could make a difference to the Corporation's operations include economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Corporation operates, changes in the Government regulations, tax laws, vagaries of nature and other incidental factors