MANAGEMENT DISCUSSION & ANALYSIS REPORT 1. INDUSTRY STRUCTURE & DEVELOPMENTS In FY 2015-16, the Government took the lead in reviving the investment cycle, but hesitation from the private sector to undertake capital expenditure lead to a slowdown in new investment expected during the year. Despite GDP growth of around 7.6% during last financial year, declining inflation and the RBI interventions by way of reduction in key interest rates, demand from some key sectors like Oil & Gas, Power & Engineering, remained sluggish. Severe competition from domestic Companies as well as imports in a sluggish market put brssure on margins. Global economic growth slowed down from 3.4% to 3.1%, causing commodity prices to remain subdued and disincentivizing investment in new projects. China devalued the Renminbi to boost exports, putting brssure on the Indian Rupee. Many smaller players found it extremely difficult to survive in such a market and were compelled to sell assets or close operations. Technologically advanced products and Customer specific solutions remained our key focus in this scenario. Our initiatives of introducing new products and providing solutions to customers played a critical role in addressing a larger market. Despite the odds, we continued to grow in both the segments, though marginally. 2. OPPORTUNITIES & THREATS Various recent initiatives taken by the Government and the Reseve Bank of India (RBI) in reviving the investment cycle are encouraging. Continued R & D focus on developing new products and solutions will enable us to grab newer opportunities. Our streamlined manufacturing capabilities are poised to address market demand. The continuous focus on nationwide market penetration by enhancing our strong distributor network is enabling us reach out to more number of end users. Liquidity continues to remain a key concern for us, and for our dealers & distributors. With the investments picking up, this situation is expected to improve. Quite a few critical reforms brsented in the Parliament are yet to be passed, which could help debottleneck the economy. 3. RISKS & CONCERNS The recovery in the economy in FY 2015-16 was slower than expected. The turnaround in manufacturing and Capex in FY 2016-17 would be a key determining factor for market growth, in the absence of which, fierce competition for market share can continue. Also, the headwinds of Global slowdown can fuel dumping from some countries. In the scenario of global commodity cycle having bottomed out and growth in domestic investments remaining gradual, margins could continue to be under brssure. To address these concerns, building efficiencies through low cost automation and production remains a key focus of our strategy. Sales collection continues to be area of concern, putting stress on cash flow. AWL has been able to create strategic competitive advantage by leveraging technology. Technology has emerged from being computation intensive to collaboration intensive and has helped drive efficiency & growth, build risk management system, deliver accurate & timely MIS as well as foster greater customer connect. Technology initiatives are focused to bring about business and digital transformation, provide robust and scalable IT infrastructure, efficient service delivery, automation in processes and provide information security. Our current technology capabilities include: • World class ERP system and Business Intelligence (BI) system. • Centralized IT service desk for incident and service request handling. • Data centre facility giving maximum availability of business applications. • Software applications for the state-of-the-art engineering division, customer relationship, web initiatives, reporting and business analytics. • IT policies aligned with ISO / IEC 27002:2007-Part 1 Code of practices for information security Management. • AWL Technology infrastructure supporting a network covering all the operating units and Sales offices. It has been a continuous endeavour at AWL to leverage technologies and create a digital edge for our business growth, improve productivity and enhance customer experience. Our focus will be to use and innovate mobility solutions for improving stakeholder productivity and for enhancing customer experience. 4. INCOME STATEMENT ANALYSIS The total operating revenues for the year ended 31st March, 2016 reported a growth of 5.23%. The Consumable business revenue for the year was Rs. 27,470 Lacs, registering a marginal growth of 1 % over the brvious year. The Equipment and Project Engineering business revenue for the year was Rs.13,213 Lacs, registering a growth of around 1 7% over the brvious year. Other income of Rs.556 Lacs mainly consisted of FOREX gains, interest income and sale of investments. Expenditure to sales ratio decreased to 93% as against 96% in the brvious year. Manufacturing expenses to Materials ratio has decreased to 8.56% (PY - 8.58%) on account of effective control over costs. Various initiatives taken at Plants like lean manufacturing, line balancing, etc. helped us trim down costs. We are continuously working towards improving margins through sale of high value electrodes, focusing on Project Engineering Business and through strategic sourcing. EBITDA & before exceptional items is higher at Rs. 4,630 Lacs (PY - Rs.3,297 Lacs) on account of decrease in material cost and other expenses. 5. BALANCE SHEET ANALYSIS The Company funded all its operating expenses and capital investment from its internal accruals. Inventory holding period decreased to 39 days in the current year as against 41 days in the brvious year. Debtors are at 107 days and creditors are at 106 days. The Company had no loan outstanding as at 31st March, 2016. 6. OUTLOOK The Indian Economy is expected to grow at a rate between 7-7.5% in FY 2016-17 as per ESI. This projection is bullish as compared to the overall global growth estimate, which has been revised downwards to 3.2% multiple times by IMF. The Indian Economy is seen fairly poised for growth given the expected rise in consumption, coupled with sustained low inflation and softening interest rates. This is expected to culminate into Industrial Production growth and revival of the investment cycle. The continued focus on Infrastructure development, 'Make in India' initiative, Localization of Defense products, Investments in Railways by Government of India will drive the related Industrial production. 7. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY The Company strongly believes that effective internal controls are inherent to the principle of good corporate governance and that operational freedom of conducting business should be exercised within the framework of appropriate checks & restraints. During the year, the Company, with the help of a professional Audit & Consultancy firm, has developed a formal "Internal Financial Control System" (IFCS) comprising of authority, level & power, supervision, checks & balances, planning & procedures. The system (IFCS) is reviewed and updated on an on-going basis. The system covers the following aspects of business processes and reporting: • Financial propriety of business transactions. • Manufacturing operations and processes. • Accurate reporting of financial transactions, as per the applicable Accounting Standards. • Efficient use and protection of resources of the Company. • Compliance with the established Company policies, guidelines and statutes. The Company has, in place, a well-defined Internal Audit System. The scope of Internal Audit is made in consultation with the Statutory Auditors and approved by the Audit Committee. The audit plan is focused on the following objectives: • All operational and related activities are performed efficiently & effectively. • Review of potential risks and their mitigation plans. • Significant legislative and regulatory provisions impacting the organization are recognized and addressed appropriately by ensuring that all the relevant / applicable statutory compliances are complied with. • Areas identified during audit for improving management control, process efficiency, etc. are communicated and acted upon. The Audit Committee consists of 3 (three) Independent Directors and 1 (one) Non-Independent Director, who reviews the Internal Audit Reports and offers necessary guidance with respect to its coverage & scope. The Company has a sound ERP system. The strengthening of our ERP system has made our Financial and Accounting Management Systems more robust. Further, Business Intelligence (BI) has helped in analyzing and taking faster decisions. The Company's aim and endeavor has been to sustain its culture of continuous learning and leveraging talent as the fundamental enabler of its business growth. The Company's CRM software, helps to identify our target customers, optimize sales management, improve customer relationship through personalization, identify customer needs, offer solutions and analyze distribution patterns for faster reach to the customers. The Company has a very good compliance track record with all the Legal and Statutory authorities in the Country, and there is a regular audit mechanism to ensure that the Company does not violate any of the Legal or Statutory provisions applicable to the Company. 8. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES AWL believes in its people's capability to take business to new heights of success. No business is strong enough to amplify the potential of its offerings without being able to build and leverage great talent. AWL's sustained success has largely been attributed to each & every Adorian who has consistently put in best efforts in delivering the Company's business objectives. To retain and nurture this talent, AWL continues to adopt a culture of innovation, learning and contribution through various HR policies, learning & development programs, employee engagement, reward & recognition and employer branding initiatives. An open and collaborative work environment where meritocracy and performance are rewarded is an important characteristic that marks the culture at AWL. All policies and processes are designed to align with Company's business objectives. AWL's aim and endeavor has been to sustain the culture of continuous learning and leveraging talent as the fundamental enabler of its business growth. The Company is aimed to achieve two important objectives: • Contributing towards improving Business and • Contributing to employee well being Being a labour intensive industry, training and development of human capital is of paramount importance. The well-structured in-house training programmes conducted by the experienced and competent faculty have improved the skill levels of the employees and their level of commitment. Several development interventions were conducted to train the leadership team, managers and junior employees. Channel Sales Management, Finance for Non-Finance, Competency Based Interviewing Skills, Train the Trainer, Internal Auditor Training are a few of the interventions that took place apart from the regularly conducted on-the-job and other technical trainings. We also provide forums for employees to voice their opinion with initiatives such as "Town Hall", "Talk to your MD" and "Skip Level Meeting". Through our various employee friendly initiatives like Talent Management and other Best-in-Class practices, we look forward to be amongst one of the desirable Employers to work for. The employee strength as of 31st March 2016 stood at 606. Disclaimer: The information and opinion exbrssed in this section of the Annual Report may contain certain forward looking statements, which the Management believes are true to the best of its knowledge, at the time of its brparation. The Company and the Management shall not be held liable for any loss, which may arise, as a result of any action taken on the basis of the information contained herein. For and on behalf of the Board Aruna B. Advani Executive Chairman (DIN: 00029256) Place: Mumbai Date: 10th May, 2016 |