MANAGEMENT DISCUSSION AND ANALYSIS REPORT Global Economy Growth analysis The global economic growth rate for 2015 is estimated to be 2.4%, i.e. 20 basis points lower than last year's GDP. The economic world has been through ups and downs throughout the ongoing financial year. Such a downshift was accelerated because of underperformance of the emerging markets, and slow growth of the advanced economies together with weakened commodity prices and less capital flow. Volatility in oil price Some of the emerging countries have witnessed their economy strengthen during the year, while many developed economies showed slow growth. Oil has been the talk of the globe for the entire FY15-16. Turbulent oil prices have largely affected the oil producing nations. The over-production of crude oil along with lessened demand of the same in the global market led to a record decline in the international oil prices. In addition to that, several geopolitical tensions are resulting in disruption of trade and financial growth in the Middle-East countries for oil. Crude price dropped almost 75% from USD 106/Barrel in June 2014 to USD 26/Barrel in February 2016. As per the latest reports price of international crude stands at USD 41.40/Barrel as on March 2016. (Source: NASDAQ) Advanced economies Economic growth in the USA has been moderate. America's economy grew by 2.4% in 2015 , which is the same rate as the brvious financial year. China, on the other hand, reported their GDP growth as the lowest figure in last 25 years. The Chinese GDP was projected to be 6.9%, which is 40 basis points down from 2014. The Chinese economy is mainly known for its manufacturing and supplying capacities. Recently, the economy has been shifting from a manufacturing hub to a service and consumption market. Such a changing trend in the market might be responsible for the nation's low GDP. Indian Economy GDP and currency volatility India has been witnessing some steady growth since the new government took over the centre. During FY15-16, India's GDP growth is projected to be 7.6%, i.e. 30 basis points above the brvious financial year. The government is looking forward to promote the nation's GDP growth onto a double digit growth trajectory within 2020. The Indian Rupee has witnessed further fall against dollar, which apbrciated by 6.60% during FY 2015-16. Monetary policies Reduction in interest rates had been a debate for last few months. After a series of rate cuts, the current base rate for lending money from RBI stands at 6.50%. Another aspect that the new central government has been paying continuous notice is the inflation rate. Currently, the inflation rate in India stands at 5.39% as on April 2016, which is marginally higher than the Government of India's objective of 5% by 2017. (Source: Trading Economics, World Bank) Oil India is the third largest consumer of oil in the world, with usage of4.1 million barrels per day (Forbes). Our country is also amongst the largest importers of crude, ranking third after USA and China (Oil Price). A steady decline in the international crude price had a direct bearing on growth prospect of Indian economy. Domestic oil prices also witnessed periodical decline, that in turn has boosted vehicle sales across the nation. Government initiatives and taxation In order to boost the economic scenario of the country, certain policies have been initiated by the Government. The 'Make in India' initiative has already attracted investors across the globe. The recent budget stresses on the development of infrastructure, which is expected to provide a boom to the automotive industry. The Government has levied 1% tax on luxury cars and infrastructure cess on passenger cars. While the amount of infrastructure cess for petrol, CNG and LPG cars is 1% of the total price, the same for diesel vehicles and SUVs would vary from 2.5% to 4%. (Source: ACMA) Per Capita Income The per capita income of India grew about 7.3% from INR 86,879 in FY2014-15 to INR 93,231 in FY2015-16. It is expected that at current prices, the per capita income would exceed INR 1 lac in FY 2016-17. Industry Overview Auto Sector Market Almost 7% of the country's GDP is contributed by the automotive sector.In between April 2015 and March 2016, a total of 23.96 million vehicles were produced as compared to the production of 23.35 million in the brvious financial year. Out of this huge lot, 79% of the total market share is constituted by two-wheelers, i.e. 18.83 million. The overall passenger vehicle segment has 14% market share. As of FY 2014-15 about 31% of small cars sold globally are manufactured in India. (Source: IBEF) Growth Indian automotive sector today is a $74 billion industry and by 2026, the industry is expected to achieve a turnover of $300 billion clocking CAGR of ~15%.. The Indian automotive industry has grown by 2.58% during the current financial year. The growth rate has, however declined as compared to that of FY2014-15, i.e. 8.68%. According to the research reports, the decline in growth has been noticed in the third quarter of the current financial year. The reason been portrayed is the reduced demand for motorcycles and tractors, because of unseasonal rainfall in the rural areas that led to uneven incomes. Domestic sales of passenger vehicles in FY2015-16 grew by 7.24% as compared to FY2014-15. Within this section, sales of passenger cars grew by 7.87%. On the other hand, sales of commercial vehicles have been increased by 11.51%. Within this section, the biggest gainers has been the Medium & Heavy Commercial Vehicles (M&HCVs)which has witnessed a growth of 29.91% (Source: IBEF). Opportunity Only 18 people per 1000 own a car in India, which is far from the figures in other developed nations. In the USA, 809 out of 1000 own a vehicle, while the numbers are 519 and 101 in UK and China, respectively. Such a statistic illustrates the possible scope of growth for the automotive sector in the years to come. Auto Components The Indian auto component industry registered a turnover of USD 38.5 billion in FY 2014-15, which is nowhere comparable to the largest markets around the globe. However, it is estimated that our country would surpass Japan, Germany and Brazil to become the third largest auto market in the world in the next financial year (The Economic Times, March 2016). Majority of the auto component industry's revenue, i.e. 54% comes through the sales to OEM Segment. The remaining share is with replacement and exports markets that accounts for 17% and 29% respectively. During FY2015-16, the demand for equipments in the international market was on the lower side, which led to less export from the Indian manufacturers. However, the decline in the price of raw materials allowed the companies to increase the margins. According to the estimates , OE demand might grow by 6% in FY 2016-17. Government initiatives The government of India has been focusing on the development of the nation as a leading global manufacturing hub and R&D centre in the near future. In order to develop effective and prominent communication between the administration and the automotive industry, different councils have been set up. Setting up of the National Automotive Testing and R&D Infrastructure Project (NATRiP) centres and a National Automotive Board are some of the steps initiated for the overall welfare of the automotive and auto component sector. Growth of the auto and auto components industry is one of the major thrust area of the Indian Government. The Automotive Mission Plan (AMP 2006-2016) would come to end this year, and during the last 10 years it has proved to be a growth promoter for the auto and auto components industry. Keeping its benefits in mind, the government has been working on re-establishing the AMP for the next 10 years, i.e. 2016-2026. On the other hand, the government is also focusing on policies and opportunities to increase export of small cars, MUVs, two wheelers as well as three wheeler vehicles. Foreign Direct Investment (FDI) In order to develop the Indian automotive sector into a global powerhouse, 100% FDI is permitted in the industry. This has undoubtedly opened up newer scopes for the international investors to yield maximum benefits from a potential market like India. Growth Drivers Since the automobile industry is directly linked with the auto component industry, growth drivers of auto industry would have a cascading effect on the auto component industry. Here are some of the growth indicators that are likely to strengthen both the industries. Growing young population: India currently has the largest youth population in the world. According to United Nations (UN), 356 million people in India are in the age group of 10-24 years This figure indicates that more and more people would be looking forward to buy a vehicle in the coming years, which will ensure sustained growth of the auto industry. Rising Income levels: The Indian middle-class population is growing steadily , which has led to increased demand for automobiles. As per capita income of people continues to rise, the demand for cars is expected to grow in coming years. Lower labour cost with high skill set: Many international players are setting up their manufacturing activities in India because of the vast availability of trained labours and that too at cheaper price. It can be estimated that more demand for Indian workforce will be witnessed in the coming years and more foreign auto players would look to settle down in India, which will give rise to auto component sector as well. Availability of financial assistance: The RBI has cut down the lending rates for the banks to the base rate of 6.50%. It has not only forced the banks to lower their interest rates, but also the private players as well. With the easy availability of finance at a cheaper interest rates, buying a vehicle has become much more affordable than ever. Hence, more number of people would get access to cars, leading to an increased need for auto components. Government Policies: Since the change took place in the Central Legislature, the nation has seen a lot of policy reforms initiated by the Government. One of the major initiatives is aiming the automobile sector one of the main drivers of growth of 'Make in India' programme . The Automotive Mission Plan 2016-26 aims to increase passenger vehicles between 9.4 - 13.4 million units, commercial vehicle between 2.0 - 3.9 million units, two wheeler to grow to 50.6 - 55.5 million, and tractors to 1.5 - 1.7 million units by 2026. Development of infrastructure: Broader focus has been emphasized on the development of infrastructure, including building roads, bridges, highways and many more. Now that the narrowest parts of the country would be connected, need for vehicles would be felt like never before. Thus, it would be an opportunity for the auto component players to meet rising demand for OE. Threats and challenges of the auto component sector Import from China: India's auto component industry turnover of USD 38.5 billion, is merely a fraction of that of China's, i.e. USD 400 billion. A huge portion of the Indian market is occupied by Chinese goods and that too in the auto component sector. Given the fall in the value of Chinese Yuan, more players are willing to import from China at affordable rates. More imports of cheap products from China can emerge to be one of the threats in the path of development of the native industry. Apbrciation of INR: Many of the foreign companies are paying attention to the potential of India as a manufacturing hub mainly because of the low cost associated with the country. In the near future, if the INR tends to apbrciate in terms of foreign exchange, challenges would be faced by the automotive players. In such a scenario, the costs would rise leading to reduced margins. Low income levels in rural areas: In most of the rural portions of the country, people have to live under low income levels. This has certainly been restricting the auto sector from gaining full attention of the rural consumers Business Overview a) Company Strengths Customer Satisfaction: We strongly believe in delivering quality products to the customers on time. This has been the reason why our customers trust us as their suppliers. Market Presence: We enjoy a strong brsence in the vehicle lighting segment across domestic and international markets. Our client base consists of many well-known brands. We are growing over the years in terms of business, which is very likely to help us build more relations and strengthen our client base. Partnership: Our relation with Stanley, Japane has successfully completed 32 years. During this period, we have been able to develop several new products and we will continue to explore more opportunities together in the future. State-of-the-Art technology: Over the years, we have invested significantly in R&D. We have also made investments in technology that has helped us to stay ahead in terms of competition. Our state-of-the-art plants are all set to help us achieve new milestones in the years to come. Committed workforce: We have dedicated employees on board who are driven by passion and their eagerness to achieve success. Having such workforce is undoubtedly a weapon for the company's development. Governance- Strong board and advisors: Expertise and commitment of our board members has been our strength. Over the years they have been passionately guiding the company and driving its success. Dynamic approach and adaptability: We are well versed with the changing trends of the industry. We are adaptable to changes and deliver performance irrespective of the challenges. Value System: We follow a strong set of values that drive us to success. Our values cover everything from leadership, innovation, integrity, transparency to welfare of our employees and social sustainability. b) Quality Assurance At Lumax, we strive to achieve operational excellence by developing quality products. We are proud of having the best and most modern manufacturing and testing facilities in India. We have been continuously investing in quality and this, in the long run has allowed us to gain high-class certification from many of the best rating associations. Being Quality as our backbone, we are continuously thriving towards 'Customer Delight' and our products see the light of most OEM's in India. d) Internal Control Systems and their Adequacy The Company has a combrhensive system of Internal Controls to safeguard the Company's Assets against loss from unauthorized use and ensure proper authorisation of Financial Transactions. The Company maintains a system of internal controls designed to provide a high degree of assurance regarding effectiveness and efficiency of operations, the adequacy of safeguards for assets, the reliability of financial controls and compliance with applicable laws and regulations. The Company has an exhaustive budgetary control system to monitor all expenditures against approved budgets on an ongoing basis. The Legal & Secretarial Department headed by the Senior Vice- President (Legal) and the Group Company Secretary plays a key role in ensuring the compliances with applicable statutory and regulatory requirements across the plants and also monitors the Internal Control System and their adequacy. Recognizing the important role of Internal Controls, the Company has appointed a separate Independent firm of Internal Auditor for looking over the Operations of the Company. The Internal Auditor is separately responsible to examine the Internal Control Systems and Procedures of the Company. Continuous Internal Audit of the systems enables various business groups to plug any shortcomings sooner rather than later. In addition, the top management and the Audit Committee of the Board review the findings and recommendations of the Internal Auditors on regular basis. Risk and Concern The Company is exposed to external and internal risks associated with the business. The operations of the Company are directly dependent on the Automobile manufacturer's (OEMs) growth and business plans. General economic conditions impact the automotive industry, and in turn, the operations as well. To counter these risks, your company continues to broaden the product portfolio, increase customer base and geographic reach. The Company is exposed to strong competitive brssures from both domestic and overseas. Your company's established reputation, close customer relationships, ability to provide higher level of engineering, design support and relentless drive for improvement gives it a competitive edge. The Company is also exposed to financial risk from changes in interest rates, foreign exchange rates and commodity prices. In order to address these risks the company has implemented adequate risk management approach. Discussion on Financial Performance with Reference to Operational Performance The auto industry In India has been experiencing one of the most challenging times ever. The production of Automobiles in the financial year 2015-16 has grown by 2.58% as compared to the last financial year ended on March 31, 2015. Your Company clocked a growth of 9.86% year on year. REVENUE Your company's business is directly dependent on the Original Equipment Manufacturer(s) of Automobiles (OEM's). Your company has achieved Net Sales of H 12551.75 Million for the year ended March 31, 2016 as compared to H 11425.59 Million in the brvious year. PROFITS Your Company has recorded a Profit Before Tax (PBT) of H 415.90 Million for the year ended March 31, 2016 as compared to Profit Before Tax (PBT) of H 142.74 Million in the brvious year. DIVIDEND The Company has been declaring dividend for the last 31 years continuously. During the F.Y.2015-16, the company has declared and paid an Interim Dividend @120% (H 12 per Equity Share) [H 5.50/- per Equity share in the brvious year]. The total amount of Dividend distributed is H 112.17 Million (excluding Dividend Tax). g) Human Resources At Lumax, our people are essential and fundamental to our existence and business objectives can only be achieved through their dedication and professionalism. The rapidly changing economic environment, characterized by the globalization and deregulation of markets, changing customer and investor demands, and ever-increasing product-market competition has an important bearing on our performance. To compete this, we continuously improve our performance by reducing costs, innovating products and processes and improving quality, productivity and speed to market. With special focus on Human Resource Management and organizational performance, we hope to contribute to a better understanding of the role of human resource decisions in creating and sustaining organizational performance and competitive advantage. Further the improvement activities through Kaizen, Quality Circles, Total Productive Maintainence, Total Quality Management, 6 sigma, 5-S, 7-W processes are being done throughout the Company to enhance the productivity and efficiency of the employees. The Company believe that the success path of organization is driven by none other than the skilled and competent human resources. As skilled manpower will always give the incremental push to the sustained growth of the organisation. Keeping in view of the above belief, LUMAX Training School (LTS), which is named as GURUKUL, has been inaugurated on 4th June 2015. GURUKUL established with the objective to "Be a brmier Centre for Excellence in Skill Development of Human Resources in Automotive Industries to enable the Company to generate results with sensitivity towards Safety, Quality, Cost, Delivery & Environment and meeting the challenges globally". LTS is situated at Bawal Plant as Regional Training Centre for all our plants located in northern India. It is well equipped with all required modern training facilities for developing competent and skilled individual. The key focus of LTS would be on- I. Exposure to Safety Culture Building II. Technical Skill Development III. Behavior & Soft Skills Training GURUKUL team is in process of designing specified training modules for people from front line operator to senior management of the Company with emphasis at integration of industry relevant skill set and curriculum for efficient exposure to work place. The Directors acknowledge and apbrciate the contribution of all employees towards the performance of the Company. At the end of the year the Company employed 2241 numbers of employees. |