MANAGEMENT DISCUSSION AND ANALYSIS REPORT In the sections that follow, the information required to be given in the Management Discussion and Analysis Report have been provided GENERAL PERFORMANCE REVIEW After three consecutive years of down turn and global disarray marked by muted growth, the Indian economy is finally seeing some signals of gradual pick up in the activities and positive growth trend. Although the pace of recovery has been slow, there seems to be some optimism backed by positive sentiments across all segments. Thanks to the new government and its announcements of various pro-growth programmes and fiscal measures since it came into power with absolute majority one year back. As a consequence, the Indian economy could achieve a moderate growth rate of around 5.9%, highest growth in the last four years. Backed by revival in the economy in some of the developed countries such as US, slow rise in demand in the domestic market and inflation being in comfortable zone as well as expansion of manufacturing activities, all this supplement the positivity thereby boosting demand. This has resulted in better performance of industry segments like Automobile, Auto Component, Engineering, Ceramics, Refractory and Cutting Tools compared to brvious year although sectors like Steel, Construction, and Infrastructure etc are yet to return to positive zone. As mentioned in earlier section, your company's domestic business achieved a growth of 11% and the export has achieved a growth of 14% compared to the brvious year with an overall 12% growth for the year on overall basis. In the domestic business, the Super abrasives products sales to industry segments like Automotive, Cutting Tools, Engineering, Ceramics, Refractories and Glass has achieved better performance over the brvious year, sales to Steel and Machine tools has been lower with few project orders. During the year, your company continued to put its best efforts and new initiatives for new developments of products and applications besides working closely with customers to explore new opportunities for its products which could serve as import substitutions. For the Machine Tools & Precision Components, on the other hand, the performance level was 18% higher than last year mainly on account higher volume offtake of brcision components and improved order inflow for machines during the second half of the year which as a whole helped to company to achieve the above respectable growth compared to brvious year. As you may be aware, for most of the year, the customers continued their reluctance towards new capacity additions, expansions and fresh capital investments resulting in fewer machine orders from Engineering, Refractory, Steel and Automobile customers. ECONOMIC OUTLOOK The Indian economy is expected to achieve a growth rate around 6.5% in the coming year and according to the latest brdictions by IMF, India growth rate will overtake China in next two years. India has become a promising investment destination for many of the foreign Companies looking forward to do business here following the launch of 'Make in India' initiative by the Government. This initiative is expected to increase the purchasing power of the common man, boost demand, and hence spur development, in addition to benefiting investors. Some of the policy measures focusing on development of agriculture, fast tracking of infrastructure projects, special emphasis on manufacturing and capital markets are expected to result in building business confidence in the coming year. The major Industry segments which are expected to benefit from the above measures are Automotive, Construction, Infrastructure, Mining, General Engineering, Steel, Defense and Aerospace, Power, Food, Services and Consumer durables during 2015-16. New investments, capacity expansions and implementation of projects in Infrastructure and Construction, Power, Engineering and allied industries are expected to take advantage of the opportunities in the coming year. INDUSTRY STRUCTURE & DEVELOPMENTS The Indian Super abrasive tooling market continues to remain fragmented in nature and operates in a highly competitive environment, mostly dominated by the brsence of few organized players such as your Company and many owner driven small companies with strong focus on regional brsence. Your company continues to be a brferred supplier, many a times as a single-source supplier for many major customers for a wide spectrum of industry for Super Abrasive products, with its combrhensive range and considered as Total Grinding & Honing Solution Provider. As a result of this, your company's growth continues to be dependent on the performance of these industries and customers. Major contribution to your Company's topline in the coming year is expected to come from sectors such as Automotive, Engineering, Cutting Tools, Refractory, Aerospace, Defence, Steel, Ceramics and Construction. Therefore, your Company's performance will also be in commensurate with the performance levels of these industries. As mentioned earlier, it is a constant endeavor of your company to focus on exploring every new opportunity, new projects, tenders, new customers and new industrial segments. As such, it has been working on various projects and has added some of the new products to enhance the product basket especially in the brcision grinding areas. At the same time it is also consciously working on progressively minimizing dependency on few specific industries e.g Automobile and its related industries. The effect of this endeavor is evident from the fact that your company has developed many new products for brcision applications for industries like Aerospace, Turbine, Gears, Defence, Construction, Infrastructure, Healthcare, Paper and Printing and Bearing. OPPORTUNITIES & THREATS Opportunities: While the growth in Indian economy is expected to remain modest in the medium term, your company would continue to have high confidence and resultant higher growth levels on account of the industry sbrad and wide business canvas. Added to this, the combrhensiveness of the product range be on constant search for potential business opportunities in new industries and markets as they unfold resultant to the emerging Mega trends. Your Company heavily leverages on its long experience in the industry with its combrhensive product range catering into every industry and its superior technology for manufacturing Super abrasive tooling and The Precision Grinding/Honing machines. Extension of this advantage to Precision component manufacturing in last few years has only been a natural choice for your company which has been turned out to be sizeable business for your company. It would strive to utilize the maximum and derive benefits from being the provider of Total Grinding & Honing Solution by extending its offerings "from Tools-To- Machines- To- Components". The spirit of Innovation lies behind every action at your company. This has been gaining momentum as a process for development of new products and processes. It would continue to work on this pursuit for adding more number of innovative products to the existing basket. Your Company continues to work on some of the identified new projects in both Super abrasive tooling, Machines Tools and brcision components. Like brvious year, it has planned some more new machine models / ranges for introduction during the coming year. As a part of driving aggressive growth, your company has also been working on few new projects for Machine Tools & Precision Components vertical which would further strengthen the business Threats As you may be aware, the Domestic Super abrasive tooling market is marked by the brsence of few organized players such as your company and many unorganized players. Due to the polarized nature of the market structure where there are unorganized players in one end who are small time proprietary-driven companies often with strong regional focus and on the other end, there are organized players. The small companies, by virtue of their size and operations, continue to cater to a small section of customers and industries with a limited range of products. Focus on specific regions and addressing customer requirements with lower prices has been one of their forte. The few large organized players from both domestic and global arena focus on technology and application engineering. Almost always, the global players rely on OEM Tie-ups with established Grinding / Honing machine manufacturers, thus making use of their long established parental backgrounds right from the beginning stages, offering combination of methods involving performance, cost and technology, service lock-ins and warranty clauses. In order to address this divergence, your company continues to adopt its unique approach to improve the market brsence and market share and reach both segments. While the low cost and innovative products are offered to address the low end competition, for the high end segment, it focuses on developing import substitutes based on approaches like price-to-performance measures and value addition backed by regional technical supports, hand-holding and use of customer facing technology like CRM and customer education etc. The competitive advantage for your company is derived from continuous efforts in application development and market development. This is well complemented by Product and Process innovation where it brings new developments for the customers including import substitutions in order to stay ahead of competition and create entry barrier. Your company makes all attempts to constantly harness the knowledge base and competency levels of the people in the respective product verticals BUSINESS OUTLOOK A lot depends on the Government's reform-based approach where there has been a steady flow of reforms focusing on areas like governance, ease of doing business and fiscal prudence. During the past few months, the new government has announced labour reforms, diesel price de-control; the 'Make in India' movement along with progress in GST roll out consideration. Such concrete initiatives could herald an era of sustainable growth for India. In the optimistic and cautious business environment, your Company's primary focus would be to retain its leadership position in the domestic market by continuing to offer its wide range of products, increased market reach & penetration as well as addition of new products to its basket. Besides this, your company would continue its endeavor of strengthening its brsence especially in the overseas market. In order to enhance the awareness levels, brand recall and improve customer engagement levels, your company will continue its active participation in both domestic and international exhibitions & trade fairs to promote its products and services In the Super abrasive business, your Company will continue to drive the three chosen growth drivers, Innovation, New Product Development and Indigenization Efforts. While this would give stability to your company, it will also focus on capitalizing on new opportunities in industry segments with high growth potential in conjunction to ensure future growth. Machine Tools & Precision Components vertical has been gaining strength year on year and is expected to yield dividend in the coming years, with new machine launches. Increased population of machines supplied has been a point of good reference base in the industry and translates into gaining good traction in the machine tool business. Like brvious years, your company has already planned few new machine launches and developments in the coming year especially for steel, refractory, engineering, auto components and automobile industries. In order to strengthen the design capabilities and automation competencies, your company in the meantime, has forged a strategic partnership with one of local leading companies well-known for its capability in design, automation and controls. The brcision component business also is being strengthened with addition of new components and new accounts for long term growth. Already the new component business is seeing steady increase in volume and ramped up volumes are expected in the coming year. Simultaneously, your company is actively considering adding few more brcision components to its offering in near future and accordingly will make suitable investments in creating the physical infrastructure, capacity, machineries, equipment, and human resources in this area. Towards the International Businesses, your company continues its focus on pursuing & growing the business through the established Wendt / 3M channel. Further to enhance the market reach for it's products , your company also uses CUMI's overseas marketing channels , and the other Strategic partners / Alliances in identified countries for boosting the exports. Accordingly your company has started promoting its products under CUMI & Neutral Brand as well , thereby opening up new business opportunities . Your 100% owned subsidiary in Thailand, Wendt Grinding Technologies Ltd, continues to churn out superior results year on year despite the region being repeatedly affected by global slowdown, declined demand and shifting of manufacturing base by many Japanese companies as also labor and political disturbances. The subsidiary shows enough confidence and resolve for a better performance in the coming year too. Your company's subsidiary will continue to embark on new opportunities, addition of new industry segments and markets with improved service levels, while increasing it's product basket. Your Company's second fully owned subsidiary, Wendt Middle East FZE, Sharjah has been delivering consistently better performances over last three years. As mentioned earlier, it operates in an environment that is affected by prolonged slowdown, market volatility, fall in oil prices, socio-economic crisis and declined investments in key areas in the region. However despite the turbulent uncertain conditions, restructuring and change in our Business strategy have started delivering positive results. Your subsidiary will continue to operate as the Product Availability Point (PAP) for the entire GCC region with focus on General Engineering, Aerospace, Steel, Ceramics, Auto component, Oil and Gas and associated industry segments & is expected to better it's performance in the coming year too. RISK & CONCERN Your Company follows a combrhensive and robust risk appraisal, mitigation and management process in the areas of operations, finance, technology and other business functions. Risks are uncertainties and possible outcomes from the environment which can impact a company's performance and future prospects. The Senior management of your Company is involved in mapping the risks arising out of both internal and external environment and comes out with effective plans for mitigation of these risks. Business risk mitigation helps your Company to find ways to manage situations that could adversely impact the financial, physical and human capital of the organization. The risk management and mitigation strategies enable your Company to retain its market leadership position and also improve upon the operational efficiencies to insulate it from various risks. The Risk management process for your Company encompasses the following sequence: •Identification of risks with the associated risk owners •Evaluation of the risks as to the likelihood of occurrences and related Consequences • Assessment of options for risk mitigation • Prioritizing the risk management actions • Development of risk management plans • Authorization for the execution of the risk management plans • Implementation and review of the risk management process Risk management reinforces the robustness of the business. The Senior Management of your company takes the overall responsibility of total risk management processes in the organization. Through its quest on anticipation and identifying risks before risks govern your company's actions, the Risk Management Committee of your Company analyses the potential impact of risks on the current business portfolio and decides which business should receive more focus, where to invest, what needs to be added or discontinued from the product portfolio etc. to alleviate the risks. Your Company incessantly seeks to identify, assesses, review, manage and works on developing the robustness of the system in terms of adequate internal controls and compliances. The business risks of your company are managed through cross functional Team involvement and communications. Some of the risks associated with the business and the related mitigation plans are given below. However, the risks given below are not exhaustive and the assessment of risk is based on management's perception. User Industry Concentration Risk Why is it considered as a Risk? • Significant Business exposure to select & limited sectors. • Time lag in passing of the price correction / variations in input costs to the customers. • Effect on Customer Relationship with change in guard / ownership. • Global economic scenario leading to decline in demand. • Cessation of the technology agreement and access to new developments in the super abrasive. • Rebranding of products and the resultant delay in brand establishment. • Disruptive innovation & process changes. Mitigation Plan / Counter Measure to address • De risking the business with widening the customer base, identify new industry segment & new geographies . • Exploring growth opportunities in Construction, Infrastructure, Steel, Defense, Aerospace, Glass, Ceramics and other industries. • Continuously pursuing product innovation and new application development for diverse sectors. • Improving the on time delivery levels through operational efficiency measures like Lean addressing the sustained competitive advantage. • Leveraging relationship and Engagement with the customer-WOW initiative / Exhibitions like IMTEX, participation in international shows & CRM application. • Setting up of the In-house DSIR approved R&D center. Also the innovation focusing on New Product Development, is now well embraced at Wendt to yield results. • Developing and promoting alternative brands-one being well-known-"CUMI". • Entering new geographies Competition Risk Why is it considered as a Risk? • Presence of too many unorganized small regional players often offering Low pricing strategy, free samples, higher credit days etc • Cheaper Imports from China. • Imports Direct and through OEM route. • New Big Player entry - Setting up manufacturing base in India consequent to Make in India Drive. Mitigation Plan / Counter Measure to address • Offer sustained competitive advantage to customer through operational efficiencies • Focus on Lean & Address QCD - Superior Quality, Cost competitive products & Reliable, Consistent Delivery • Internal Efficiency Measures/ process automation/ Reduce throughput time • Creating entry barriers for competition / exit barriers for customers - key account management • Continued drive on Innovation on products, process and applications • Enhancing value added services • Enhance the product basket & offerings • Increased focus on New product development • Central Monitoring System • Building agile Supply chain • Drive E-Commerce • Automation and Robotization to address Lower manufacturing cost and enhance Competitiveness Technology Risk Why is it considered as a Risk? • The rapid changes taking place in the fields of grinding technology and material science. • Adoption of Disruptive technologies like 3D printing. • Access to New Alternate technology following the expiry & Non renewal of technical collaboration agreement with Wendt GmbH post Sept 2012. Mitigation Plan / Counter Measure to address • Indigenous development of Bonds independently /external consultant • Collaboration with external consultants • Established DSIR approved R&D centre and build on self-sufficiency in technology & new products • Association with external Research laboratories / Technical institutes for technological upgradation. • Product and Process Innovations • Online Data & Information Security Risk Why is it considered as a Risk? Data breach leading to loss and critical information infrastructure breakdown Mitigation Plan / Counter Measure to address • Policy in place for Technical Controls • Business Continuity Plan and Disaster Recovery Strategy in place. • Security operations centre under process • Authorized access to the Data centre • Crisis Management Group in Place. INFORMATION TECHNOLOGY For your company harnessing the use of Technology and SAP ERP system has been an integral part of the business. A unified incorporation between various modules, being the key for deriving full benefits of the ERP had been identified and given priority by your company. Accordingly it has continued to work on some of the critical business processes such production planning, materials management, stores and receipts, financials and controls as a part SAP-CIP integration project towards productivity improvement, prioritization. This year with lean integration through SAP is been embarked on for scheduling and cycle time & Cost reduction. IT enabled Knowledge Management System which your company has been has been embarking on is expected to enhance the company's application engineering capabilities and offering technology solutions to the customers. During the year, your company has accomplished the implementation of SAP CRM business application (Customer Relationship Management) ,yet another demonstration of becoming more customer-centric. This initiative will take your company one step closer to the customers in terms of relationship management and real time interactions, better understanding of their requirements and addressing them with brcise technology solutions besides giving a unique experience . In addition to this CRM is interfaced with the Knowledge Portal making it a single technology driven platform for all users to access any time and service the customers globally with insightful technology solutions with least effort and ease. INTERNAL CONTROL SYSTEM & ADEQUACY Your Company has a well-defined and documented internal control system which is effectively monitored. These measures are regularly reviewed and updated by incorporating changes in the regulatory provisions. These are regularly tested for their effectiveness by Statutory as well as Internal auditors. Your company remains committed in its endeavor & ensures an effective internal control environment that provides assurance on the efficiency and effectiveness of operations, reliability of financial reporting, statutory compliance and security of company's assets. The checks and balances in the internal control system have been time-honored to ensure that all assets are safeguarded and all transactions are authorized, recorded and correctly reported. Material errors and irregularities are detected and brvented in time. Capital and revenue expenditures are meticulously monitored and controlled with reference to approved budgets. The Company has well established, time tested, robust internal processes in place to ensure smooth functioning of the operations. This is ensured by well documented policies, authorization guidelines commensurate with the level of responsibility and standard operating procedure specific to the respective business. This is enhanced by an extensive review & monitoring system whereby the management regularly reviews your company's performance periodically as per its' relevance for both financial and operational parameters and takes timely measures to address variances, if any. The internal audit function is carried by external independent Chartered Accountant firm which covers all operational areas and ensures that the revenue has been correctly deployed and that there is no wastage / leakage of any resources. The Wendt Board, Audit Committee and the Management, review the findings and the recommendations of the Internal Audit and take corrective measures wherever necessary. Risk assessment supports identification and giving focused attention to on all high - risk expanses. The periodic reviews includes all the business critical functions, such as revenue assurance, collection, credit and risk, MIS, information technology, network security, procurement and financial reporting. The Audit Committee regularly reviews the audit plans, audit observations of both external and internal audits risk assessment and adequacy of internal controls. During the year there were no changes in internal control over financial reporting that have materially affected, or are likely to have any financial reporting lapse. The company continues its efforts to align all its processes and controls with best global practices |