I. MANAGEMENT Management Discussion and Analysis Report Industry Structure and Development The Indian Auto industry started in the form of joint venture model in the 1980s and witnessed remarkable growth over the last three decades. The initial cautious phase involved the setting up of businesses mainly by India players with small investments and technology tie-ups with global players. Later on several Indian and Global players have decided to setup or expand the business independently without partners. The Indian two-wheeler (2W) industry, the largest in the world in terms of volumes, had demonstrated positive volume growth in the last three years (2011-14) even when some of the other automobile segments such as passenger vehicles and commercial vehicles experienced volume contraction in at least one of the last three fiscals. The sector has witnessed nominal growth rates which are in line with overall economic activity. India's low vehicular penetration makes it one of the most attractive auto markets in the world. Indian Auto Component players and global auto component players setting up joint venture in new segments which are expected to see localization in medium term and also setting up global export hubs. Auto and Auto component are key sectors for the success of 'Make in India' campaign. These sectors may be major contributors to India's growth story and help India to become a world leader. Opportunities and Threats The Government and the Reserve Bank of India (RBI) acted proactively in the recent period to ensure better macroeconomic management and reduce financial volatilities which resulted in tightening of Fiscal deficit, Current Account Deficit (CAD) being contained, Inflation being moderated and stability in exchange rates. India's GDP is expected to grow from USD 950 Billion in 2010 to USD 1390 Billion in 2016. In order to fulfill aim of National Manufacturing Policy and to raise contribution of Automotive Industry to 25% of GDP focus should be both on Domestic markets as well as exports. The Indian auto components industry has experienced healthy sequential growth over the last tone-and-a-half years. The growth can be attributed to factors such as strong buoyancy in the end-user industry, recovery of the global economy, improved consumer sentiment and return of adequate liquidity in the financial system. The Indian auto-components industry can be broadly classified into the organised and unorganised sectors. The organised sector caters to the original equipment manufacturers (OEMs) and consists of high-value brcision instruments while the unorganised sector comprises low-valued products and caters mostly to the aftermarket category. The Indian auto component industry is expected to register a turnover of US$ 66 billion by FY 15-16 with the likelihood to touch US$ 115 billion by FY 20-21 depending on favourable conditions, as per the estimates by Automotive Component Manufacturers Association of India (ACMA). In addition, industry exports are projected to reach US$ 12 billion by FY 15-16 and add up to US$ 30 billion by FY 20-21. The rapidly globalising world is opening new avenues for the transportation industry, generating the need for more efficient, safe and reliable modes of transportation, which is subsequently adding to the auto component industry's growing opportunities. According to a report by the Confederation of Indian Industry (CII), the Indian auto component industry is set to become the third largest in the world by 2025. Also, by that time, newer verticals and opportunities for component manufacturers will open up as the automobile market will shift towards electric, electronic and hybrid cars and newer technologies will have to be adopted via systematic research and development. There are some significant difficulties that the auto component industry has been facing since 2012, and we hope that the potential interest rate reduction and incentives will aid the development and financial growth of the industry. The excise duty concession on auto components expired and in this budget the tax rate has gone upto 12.50 per cent." The current instability in rupee value is hindering the growth of the industry. The fluctuating currency against the greenback has been a major concern for the industry. There is a constant effort to achieve zero defect, zero waste and zero rejections through initiatives like smart design, and by applying various Total Productive Maintenance and Total Quality Management techniques. CRISIL's ratings affirmation on the bank facilities and commercial paper programme of the Company continue to reflect Company's healthy operating efficiencies, and continuing strong business linkages with its customers, including Hero MotoCorp Ltd (HMCL; rated 'CRISIL AAA/FAAA/Stable/CRISIL A1+') and Honda Motorcycle & Scooter India (Pvt) Ltd (HMSI), the largest players in the two-wheeler industry in India. The ratings also factor in the company's healthy financial risk profile, supported by zero debt and healthy cash accruals. Product Wise Performance All products of the Company come under single primary business segment i.e. Shock Absorber. Its variants are Front Forks, Rear Cushions, Struts and Gas Spring/Rear Door Lifters etc. Therefore requirement for analyzing segment-wise or product wise performance does not arise. Outlook Auto component production is forecast to rise at a steady pace in 2015-16, mainly due to improved demand from OEMs and healthy growth in exports. Demand for auto components recovered in 2014-15, helped by a modest rise in domestic automobile production and strong pick up in exports. The industry's long-term growth prospects remain healthy as domestic and global OEM demand continues to rise. The Company will continue to benefit over the medium term from its strong business linkages with large motorcycle OEMs and its healthy operating efficiencies. The company will maintain its healthy financial risk profile over this period, supported by steady cash accruals and modest capex plans. The Company's financial risk profile remains healthy, supported by steady cash accruals and nil outstanding debt. Steady cash generation, prudent working capital management, and moderate capital expenditure (capex) in 2014-15 have enabled the company to maintain its debt-free status. Our key customers are planning to establish Greenfield facilities in Gujarat with their respective suppliers of Key Components being currently at various stages of making investments in close proximity to these new facilities. The Rural demand for automobiles has been adversely impacted by unseasonal rains in the month of March. Poor Crop realization and slowdown in the rural wages have pulled back the rural economy impacting retail off-takes. However, our major customer, Hero MotoCorp Limited has sold more than 6.6 million two wheeler in the financial year 2014-15 and also over five lakhs vehicles in the non festive month of April 2015. The outlook of the company appears promising as our key customers Hero MotoCorp Limited, Honda Motorcycles and Scooters India Private Limited and Maruti Suzuki India Limited have strong brsence in the market inspite of the current economic key performance indicators. Risks and Concerns The Company regularly conducts a study to develop a combrhensive 360° view on the opportunities, risks and threats to the business. These include areas such as market trends, new competition, changing customer brferences, disruptions in supplies, product development, talent management etc. Key risks identified unit are as follows:- Inability to timely ramp-up production to meet market demand and planned growth. - Entry of new players in the brmium segment that may pose direct/ indirect competition. - Loss of Customer Satisfaction and brand image due to quality issues The management has put in place a combrhensive 'Risk Management Mechanism' to manage these risks. To manage and mitigate the same, these mitigation plans are embedded in the various initiatives that the management will execute in 2015 and beyond. These plans are reviewed periodically with the Risk Management Committee of the Company. There is no legal requirement to constitute Risk Management Committee. But for better mitigation of the Risk your Company has made a Risk Management Committee. The Committee periodically reviews the concern risk. The Company reviews the effectiveness of the mitigation strategies and their implementation progress. Internal Control System and its Adequacy With new Company Law 2013 coming into operation and reforms in various other Laws, more emphasis has been laid on Internal Control Systems and Vigilance Systems to ensure efficacy and monitoring of Company's Operations. Your company is dedicated to improve and strengthen system as and when required to ensure efficacy of operations, Compliance with applicable legislation, Safeguarding of assets, Promotion of ethical code. The Company has in place an adequate system of internal controls to ensure efficacy of operations, compliance with applicable legislation, safeguarding of assets, adherence to management policies and promotion of ethical conduct. Audit Committee is reviewing the internal control systems & procedures periodically. A dedicated Legal Compliance cell ensures that the Company conducts its business with high standards of legal, statutory and regulatory compliances. The company has instituted a legal compliance programme in conformity with best international standards, supported by a robust online system that covers all manufacturing units of the Company. The Company has robust ERP systems based on SAP platform. This ensures high degree of systems based checks and controls. The Company maintains a system of internal controls designed to provide a high degree of assurance regarding the effectiveness and efficiency of operations, the reliability of financial controls and compliance with laws and regulations. Discussion on financial performance with respect to operational performance The Financial statements have been brpared in compliance with requirements of Companies Act 2013, Indian Generally Accepted Accounting Policies (IGAAP) and Schedule III. All mandatory accounting standards have been complied with. The turnover of the Company for the year under review has increased to Rs.17,9197.05 lakhs as against Rs. 17,4074.41 lakhs during the brvious year showing a growth of 2.94% and profit before tax was Rs. 10,630.71 lakhs as against Rs. 8,018.54 lakhs of brvious year . Material Development in Human Resources/Industrial Relations, including number of people employed The human resources received commensurate attention during the year considering the growth of the organisation and the need arising therefrom. The relation at all levels were cordial throughout the year and the Company has initiated many programs on up-skilling / training its manpower. As an ongoing exercise, the Company has continued to look at, identify, create and execute seamlessly, initiatives which enhance productivity and efficiency. While direct employment is by way of workers engaged in production of automobiles & auto components, indirect employment is generated in feeder and supplier industry to automotive industry. The Company continues to invest in people through various initiatives which enable the work force to meet the production requirements and challenges related thereto and to infuse positive enthusiasm towards the organization. The Company's strength of employees stood at 3,401 as on March 31, 2015. Cautionary Statement Certain statements in the Management Discussion and Analysis describing the Company's objectives, projections, estimates, expectations or brdictions may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ from those exbrssed or implied. Important factors that could make a difference to the Company's operations include raw material availability and prices, cyclical demand and pricing in the markets, exchange rate variations, global economic, social & demographic factors, changes in Government regulations, tax regimes, economic developments within India and the countries in which the Company conducts business and other incidental factors. For and on behalf of the Board Yogesh Chander Munjal (Managing Director) (DIN 00003491) B-175, Greater Kailash, Part I, New Delhi, 110048 Krishan Chand Sethi (Director) (DIN 00004471) 9/304 East End Apartments,Mayur Vihar Extn. Phase I, New Delhi, 110096 Place: New Delhi Date: May 22, 2015 |