MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Economic Overview

The Economy of India is the seventh largest in the world by nominal GDP and the third largest by purchasing power parity. India's economy became the world's fastest growing major economy from the last quarter of 2014, replacing China.

The long term growth prospective of the Indian economy is moderately positive due to its young population, corresponding low dependency ratio healthy savings and investment rates and increasing integration into the global economy. The Indian economy has the potential to become the world's 3rd largest Economy by next decade and one of the  largest economies by mid- century.

According to a forecast done by Frost & Sullivan analysts demand from construction industry to propel the 19.72 Billion Indian Hydraulic Components market towards 50.43 Billion in 2017. India's emergence as a manufacturing hub attracts international participants to its Hydraulic components market. The rapid boom in Indian infrastructure industry, along with the more moderate growth of the manufacturing sector, has stabilized the demand for hydraulic components in India. The Government of India's planned investment of 45 trillion in infrastructure in the 12th five year plan (2012-17) should be a major boost for construction equipment and thereby, hydraulic components.

Reforms and Policy initiation with stress on Make in India is expected to propel growth of Industrial sector and there by hydraulic power sector.

The increased investments and expansions in core sector like infrastructure, steel, cement, mining, as well as Oil & Gas is driving the market for ancillary products such as hydraulic components. Emphasis on the Indian power sector is also expected to give a leg up to the hydraulic component market. With rapid capacity additions and expansions, the market is anticipated to grow by more than 15% over the next five years.

Outlook

Despite the projected double digit growth rate, low availability of reliable Raw material and components from unorganized sector restrains further growth of the hydraulic components market. Moreover, escalating input costs directly affects the margins of component manufacturers. The scarcity of Raw materials results in higher costs, compounding the challenge for component manufacturers.

Recent successive devaluation ofYuan by China adds to existing and significant competition from that country. By and large, in the midst of a challenging and dynamic environment from several areas, Financial year 2014-15 has given some hope for bright future with a caution on too big an Optimism. Continued higher cost of Raw materials and finances and challenges across different sectors, Industrial operations remained a little slow through most part of the financial year under review.

However, the proven track record of VDL as a quality manufacturer ofvane based hydraulic pumps, valves and power pack systems with close to four decades of experience in the industry with geographically diversified customer base, drawing on the established relationships with the Original Equipment Manufacturer (OEM) customers, dealer networks in India and abroad and government agencies, resulting in stable revenues. VDL's low dependence on imported raw material combined with indigenous and own manufacture of the individual components results in a considerable pricing advantage over larger competitors who have fairly large import content. However, the Growth has been constrained by the modest scale of operations of VDL with brsence in a niche segment of products that limits its addressable market size. The Growth is also constrained by the vulnerability of the company's sales to the economic down turns given the capital goods nature of its products, as can also be seen from the limited turnover growth the company witnessed since 2011.

In the current year due to slowdown in the end user industry and the vulnerability of the company's sales to economic down turns given the capital goods nature of its products, the company has not seen any substantial growth in its revenues. VDL is also exposed to technology up gradation of competitors and substitute product risks inherent to the sector.

In spite of the difficult economic environment, VDL achieved stable revenues and remained committed to face the external challenges and continued to focus on strengthening its competitive edge.

OPPORTUNITIES :

Growth in the hydraulic equipment industry depends on overall economic expansion and, in particular, growth in industrial production. Similar to other industrial segments, the hydraulic industry experienced a significant downturn during the 2008 - 2009 economic recession but has gradually recovered. With fears of another recession subsiding completely , growth prospects for 2015 and beyond, further corroborated by recent GDP growth, industrial production and consumer confidence data looks encouraging.

Experts believe the positive outlook in certain end user markets such as material handling equipment and construction machinery is a positive sign that the industry may achieve a steady growth rate.

With revival of business confidence coupled with aggressive actions on reforms, infrastructure and inclusive growth by the government, the economy is likely to be vibrant and develop positively.

Developments to upgrade technology and the steps to expand the range of hydraulic equipments will gradually restore better competitiveness of your company vis-a-vis, the manufacturers and importers of foreign goods.

The top credit rating agencies, World Bank and IMF are optimistic and have pegged the GDP growth in 7.5%+ trajectory. Your company believes in positive outlook and moderate growth over the next year and well poised for the opportunities in and around Hydraulic component Industry.

THREATS :

Expanding activities of powerful multinationals in the field with latest applications knowledge has to be countered. Stated optimism of the  economic development is yet to be seen in real terms.

Any adverse changes in the industrial environment or government policy making affecting our customers could lead to reduction in demand for their finished products, in turn can have a direct impact on the demand of our products.

RISKS AND CONCERNS:

The rise in interest-rate and / or raw material prices and any slackness in implementation of various infrastructure projects may slow down the demand.

Increasing Competition from cheaper imports, may impact the Company's market-share and volumes. Cost increase in basic materials has a major impact on the Company's input costs.

Availability of components, in right quality and at right time from the vendors is a constant cause of concern.

Rise in the input costs such as Power, Human Resources, and drop in demand due to unforeseen adverse market conditions, technological obsolescence are issues of concern and may put brssure on the performance of the Company.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has adequate Internal Control Procedures commensurate with the size of the  Company.

HUMAN RESOURCES/INDUSTRIAL RELATIONS:

A cordial environment brvailed in the manufacturing unit and offices of the Company during the year. The Company has been continuously training its employees in the newer technologies. Industrial relations continued to be cordial.

CAUTIONARY STATEMENT:

Cautionary Statement in this "Management Discussion & Analysis "may be considered to be "forward looking statements" within the meaning of applicable securities laws or regulations. Actual results could differ materially from those exbrssed or implied. Important factors that could make a difference to the Company's operations include, among others, economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors.