MANAGEMENT DI SCUSSI ON & ANALYSIS Industry structure and development Your company operates in the Antifriction bearing industry and the major user industries of antifriction bearings are automobiles, general engineering, railways, electrical equipment etc. Your company manufactures needle bearing products and operates in the following market segments: 1. Automotive OEM 2. After Market 3. Exports The market segmentation of demand is approximately 90% from original equipment manufacturers (OEM) and the balance coming from the replacement market/exports. The demand for roller bearings has grown in single digits during the last years reflecting overall sluggishness in industrial activity. The automotive industry is the largest consumer of bearing products. Market segment wise, demand from the Automotive industry remains subdued with only Medium and Heavy Commercial Vehicles showing a recovery (over 25% growth) and Passenger cars (including Utility vehicles) modest growth of 6%. Roller bearings have wide ranging applications and are critical to industrial progress. As Indian industry develops demand for bearings is expected to grow both in quantitative as well as qualitative terms towards bearing solutions that are efficient and support productivity. Your company has enhanced capacity at Ranchi and is now in a position to offer a more combrhensive product portfolio to our customers. Economic Environment Developing economies showed continued growth deceleration amid subdued global trade and weak commodity prices. In India, economic performance was impacted by weak monsoon, slowdown in exports and delayed reform initiatives owing to the political situation. However, there is hope that the Indian economy will remain on recovery path helped by lower global fuel and commodity prices, well managed fiscal deficit and various positive policy actions of the government. Downside risks continue in the form of NPA's of the banking system and the drought and water crisis situation brvailing in most parts of the country. Weak monsoon and low farm output impacted rural demand for 2/3 wheelers - a large and important market segment for your company, with overall demand flat during the year and farm equipment (including tractors) showing further de-growth of over 15% over the brvious year. The growth in demand for commercial vehicles and the higher than expected growth of certain key customers helped your company register growth in sales. With forecasts of a more bountiful monsoon and government initiatives to increase the spend on rural infrastructure and the ''Make in India'' drive to boost manufacturing in sectors such as defense, aerospace, etc. it is expected that industrial growth will revive. The automotive sector is also expected to benefit, particularly with a growing middle class and rapid urbanization which will drive the need for personal and public transportation. The continued capacity expansion by major OEMs, in line with market demand is expected to encourage auto component manufacturers to invest in new capacities and expand operations. Opportunities for exports are expected to increase both for finished automobiles as well as auto components. Many new launches are also planned during the year which will help in expanding the size of the market. Interest rates and inflationary brssures are expected to moderate during the course of the year along with containment of fuel prices which should enable bearing manufacturers to focus on cost reduction. Your company will continue to focus on improved products to meet this expected growth in offering value added solutions and leverage its competitive strength to match customer growth plans. Opportunities and Threats The long term prospects for the Indian economy remain bright owing to the growth of internal consumption. Demand for personal vehicles will be driven by the aspirations of the rising middle class with improving purchasing power and disposable incomes. Rapid urbanization will drive the need for public transportation. As India addresses the twin challenges of inclusive growth and sustainability, even a normal monsoon, with improved availability of rural finance, will positively influence demand for motor cycles as well as agricultural tractors. The overall mobility sector is expected to benefit from continued growth in the longer term. The domestic bearing industry is facing the following threats: a. The menace of spurious bearings continues to adversely affect the industry. As per estimates roughly one in every four bearings sold in the replacement market is fake/ of inferior quality brsenting a threat to unsuspecting users. Concerted efforts by the industry to control the same are required on a continuing basis to make any impact. b. With global demand weakening, dumping of cheap bearings by Chinese and other South East Asian countries has intensified. The industry is working with the government for imposition of safeguard duties to protect the domestic industry. c. Slowing economic growth leading to flat user demand for the industry's products could cause idle investments and a higher burden of fixed costs. Of course, the industry and your company have to continuously explore ways and take all measures to strengthen competitive advantage by minimizing waste, increasing efficiencies and producing high quality products to counter the threat of cheap imports. Financials The company has made a profit after tax of Rs.567.76 lakhs as compared to Rs.454.96 lakhs in the brvious accounting year. The net sales at Rs.3006.67 lakhs , show a growth of 13% as compared to net sales of the brvious year Rs 2648.29 lacs. The company expects that the market will improve and with the new capacities which have become operational, it will be able to enhance volumes, improve efficiencies, broaden its customer profile and product range so that the financial results are better during the current financial year. Risks and risk mitigation The company has combrhensive risk management processes for identification, assessment and mitigation of all potential business risks which include operational, financial , legal and strategic risks. Depending on probability of occurrence and extent of potential damage, these risks are categorized as material risks and non critical risks. These are periodically brsented to the Board. Risk mitigation measures and their implementation are regularly reviewed and discussed, and after evaluation, improved and updated. The macro concerns which could significantly impact industry performance during the year are inflation, fiscal deficit, high interest rates, government's inability to build and expand critical infrastructure and the adverse impact of the FTAs which have resulted in higher imports of auto components and could therefore negatively impact the industry's plans to achieve the targeted size of US$ 40 billion by 2016 under the Automotive Mission Plan. Company's internal auditors review the internal controls, risk assessment and mitigation procedures, independently as part of their internal audit process and their observations and endings are brsented, reviewed and discussed in the audit committee meeting. The Plant head and his continuing interactions with the functional heads of the holding company, employees and other stakeholders, helps management with regular monitoring and reports about the developments in the market, competition, extension of product range and financial, legal and compliance issues. Internal control systems and adequacy The company has in place adequate internal control systems which ensures reliable financial reporting, safeguarding of assets, adherence to management policies and promotion of ethical conduct. The company has implemented an integrated ERP system which will help the company in its growth process and make it more responsive to changes in the business environment and processes. Some of the significant features of the internal control systems are: a. Internal auditors who in addition to transaction audit cover operational audit and review business processes and performance b. Standard operating procedures and guidelines are being reviewed in the light of the ERP implementation to ensure tighter controls, including recommendations to strengthen business processes. Improvements/modifications are being effected to meet with changes in business conditions, statutory and accounting requirements The Audit Committee closely interacts with and guides management and along with statutory auditors and internal auditors reviews significant endings and follows up thereon. Segment wise Performance During the current year, ball and roller bearings have been the primary business segment for the company. industrial Relations and Human Resource management The company's industrial relations with employees at its Ranchi plant continued to be cordial and peaceful. The company has continued its efforts towards strengthening Human Resource by providing employees a better working atmosphere and creating a culture which nurtures personal and organizational growth. During the year under review, Wage Settlement for the workmen has been finalized on 15/04/2016 effective from Jan 2016. Previous wage settlement was done in Jan 2013. This settlement was done for Rs.2,900/- plus Rs.200/- as production allowance. The productivity rise agreed by the workmen is 18% i.e. OPPM 317 to 375. The total impact in FY15-16 will be Rs. 7 lacs and in FY 16-17 for full year impact would be Rs 40 lacs. The additional productivity will ensure that enhanced production of Rs 34.5 cr will be achieved with net addition of 34 Diploma Technician/ Trainees. Employee cost as % of net sales is expected to remain at par or lower than brvious years. Permanent employees directly employed by the company currently total 148 nos. Cautionary Statement Statements in this Management Discussion and Analysis describing the company's objectives, projections, estimates and expectations may constitute "forward looking statements" within the meaning of applicable laws and regulations. Actual results may differ materially from those either exbrssed or implied. |