MANAGEMENT DISCUSSION AND ANALYSIS 1. Industry Structure and Development The Indian Auto Industry comprises of Automotive Manufacturers and Auto Component manufacturers. The auto component industry which is directly dependent on the Auto industry is segmented on the basis of the production of different components. The overall auto industry registered a growth of 2.58% (in terms of units production) during the period April 2015 to March 2016 vis-a-vis brvious year in all segments. Tyre and Tyre related components are considered as part of the automotive supply chain. 2015-16 has been a mixed year for tyre industry. On the one hand, while the demand for tyres grew marginally coupled with lower raw material costs, on the other hand, Chinese imports into India have become an area of concern for Indian tyre industry. The Fluid Power Industry has evolved combrhensively over the last century and has generated intensive research, efficient production systems and integrated applications. The fluid power industry has three large segments: mobile hydraulics, industrial hydraulics and industrial pneumatics. Historically, the mobile hydraulic segment has been the largest, accounting for about 50% of total fluid power sales. The industrial hydraulic and pneumatic segments are nearly the same size, each with about 25% of total fluid power sales. The Indian Fluid Power Industry faced one of its most challenging periods in last three years, due to a significant slowdown in industrial demand and dearth of new projects and investments in sectors like Steel, Power and Infrastructure. The industry sustained itself by diversifying in to new areas and applications, where automation needs are increasing. Sectors like power, cement, ferrous and non ferrous, mining and heavy engineering will continue to drive demand for Industrial Fluid Power and Automation. The automotive, steel, cement, construction & mining equipments, machine tools, textile machinery accounts for the bulk of the market share for industrial pneumatic products. The demand for industrial pneumatic products also comes from OEMs and aftermarket sales. Industry and process automation too contributes significantly to market revenues. 2. Opportunities and Threats The Government of India's thrust on infrastructure growth coupled with the opening up of the Rail and Defence sectors, are new avenues of growth. Since experts in the field of infrastructure brdict an accelerated growth in the Asian market, Indian fluid power industry is brdicted to have a huge growth potential in this region. Global multinationals in the fluid power industry are not only consolidating but started setting up joint ventures and subsidiaries in India to tap the rich Indian talent pool of skills in manufacturing and design. The Government recently launched "Make in India" campaign to make India a manufacturing hub. As the "Make in India" story unfolds, the road ahead for the automotive industry is fraught with both excitement and challenge. India is all set to become a global outsourcing hub with several foreign players are planning to invest in the country. This will significantly help the auto industry sector to grow. The Indian auto industry has been going through a challenging period for the past three years. A subdued economy, weak consumer demand and high interest rates resulted in sluggish sales in the sector. Keeping in view the major constituents of the raw material cost (i.e. Copper and Butyl rubber) and exchange rate volatility in the international market, margins will continue to be under brssure. Major technological changes have taken place in tyre design from the conventional bias or diagonal ply of the past to the current steel-belted radial tyres, tubeless tyres, puncture resistant tyres etc. These technological changes have a direct impact on the tube valve consumption by the tyre industry. In Fluid Power and Automation, the company is in the process of exploring new customers and markets. For this, new initiatives like rationalization of standard and customized products, value engineering and new product developments have been undertaken. The Fluid Power & Automation unit faces stiff competition from large established companies and low cost players, particularly in standard product segment where cost competitiveness is a challenge. 3. Segment wise / Product wise Performance The company's product lines can broadly be classified into Automotive Tyre Valves & Accessories and Fluid Power & Automation products. The sales performance, during the year on these segments compared to the brvious year is as follows: 4. Outlook Amidst a relatively subdued market, our FPA sales have increased by 14% on year to year basis. We successfully executed some marquee projects, particularly in the Power Sector and diversified our brsence across industry segments. After a year in development and validation our new Rotary Actuator range is ready for the market. The rapid industrialization, wide number of applications employing the use of actuators and the advancement in technologies are the major drivers for the global actuators market. Ample opportunities are expected for actuators market as large number of associated industries is coming up in the future. However, as the market is crowded and very competitive, it will be challenging to the Company to gain share in such a market. Tubeless tyres are gaining ground in Indian market as almost all the automobile manufacturers are launching their vehicles with tubeless tyres. This shows that tubeless tyre market will exhibit tremendous growth in the coming years. The demand for tube valve is still there in the aftermarket segment but the transition is happening very fast there as well. Considering the brvailing market conditions, the Tube Valve Product line business of the Company was under review due to lack of viability. Taking into account the increased operating cost, stagnant demand and uncertain future, the Management decided to close the said Product line in April 2016. The company will continue to focus on the Tubeless Tyre Valves and Off Highway tyre products going forward. New product range for TTVs (Tubeless tyre valves) has been established and discussions with automotive OEMs for product and plant approvals are underway. Future growth of the company is linked to the Industrial segment. Growth prospects look bright with continuing investments in this sector and large infrastructure spending. The Company also expects to improve its operating profits by improving sales, operating efficiencies and aggressive cost cutting. 5. Risks and Concerns In the automotive segment, overcapacity and demand projections, not materializing continues to be risk. In Fluid Power & Automation segment, where the company operates in Industrial and Infrastructure Sectors, which are technology intensive it needs continuous focus on product and technology development, which is imperative to sustain in a highly competitive environment. Apart from the risk associated with the volatility in Industry specific sectors, your company is also exposed to other general risks related to volatility in foreign exchange rates, change in taxation structures, increase in interest rates, natural/man-made disasters and political risks. 6. Internal control systems and their adequacy The Company has proper and adequate systems of internal controls in all areas of its operations, through internal and external auditors. Regular internal audits and checks are carried out to ensure that responsibilities are executed effectively and that adequate systems are in place. A thorough test of different processes of Internal Financial Controls were carried out by the Statutory Auditors to ensure orderly efficient conduct of business including adherence of company's policies, the safeguarding of its assets, the brvention and detention of frauds and errors, the accuracy and completeness of accounting records, and the timely brparation of reliable financial information. This is a mandatory requirement under section 134(3) of the Companies Act, 2013. An Audit Committee headed by a Non-Executive Independent Director is in place to review various areas of the control systems and their adequacy. 7. Discussion on financial performance with respect to operational performance The details of the financial performance of the Company appear in the Balance Sheet, Profit and Loss Account and other Financial Statements. Highlights for the year 2015-16 are as under: 8. Human Resources The Company values its human resources and encourages innovation by empowering people at all levels. Nurturing and developing human resource has been a major source of creating competitive advantage at Schrader Duncan. Over the years Company has maintained consistency in its efforts in training and developing its human resource with a view to face the competition Industrial relations continued to remain cordial throughout the year and saw increased co-operation between the management and the workers in working towards the overall objectives of the Company. The workmen in the company have set up their internal trade union to further better workmen and management relations. 9. Cautionary Statement Statements in the Management Discussions and Analysis section describing company's projections, estimations, expectation and brdictions may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from the exbrssed or implied. Important factors that would make a difference to the Company's operations include demand supply conditions, raw material prices, changes in government regulations, tax regimes, competition, economic developments within and outside the country, etc. Shantanu Parvati Whole-time Director Place : Pune, date : May 25, 2016 |