I. Industry Structure and Development:

Domestic

Inflation has fallen significantly after hovering around 10% for several years. CPI average moved to 6.5% in FY15. (Source: CRISIL)

The automotive industry, after showing promising growth in the first half of the fiscal year, slowed down considerably in the second half of the year. However, most segments registered growth over the brvious year due to good performance in the first half. The segment wise sales performance is given in the following table.

India is emerging as the major producer of high value, technologically advanced components and sub-systems not only to meet the domestic market requirements, but also exporting to several major OEMs all over the world.

Exports

Global economic growth in 2014 picked up marginally to 2.6% from 2.5% in 2013 which is lower than initially expected, continuing a pattern of disappointing outturns over the past several years. (Source: World Bank).

However, economic activity in the US has gathered momentum as labour markets heal and monetary policy remains extremely accommodative. US economy grew by 2.4% in 2014 against 2.2% in 2013. (Source: World Bank).

Cheaper oil is boosting real incomes and consumer sentiment, despite the projected gradual rise in interest rates. The US economy is showing signs of sustained growth with improving GDP, job market and consumer spending.

However in Europe and Japan, the recovery has been sputtering as legacies of the financial crisis linger, intertwined with structural bottlenecks.

Europe was largely characterized by uncertainty about the strength of economic recovery owing to concerns surrounding Russia and stability of the European Union. This was also reflected adversely in the heavy duty truck registrations.

II. Business Outlook and Overview

The outlook for India is for economic strengthening through higher infrastructure spending, increased fiscal devolution to states, continued reform to financial and monetary policy. The government underscored its intention to move steadily and tackle the politically difficult structural issues that have stalled investment and limited economic performance in recent years.

With supportive policies, lower inflation and pickup in capital expenditure, growth is expected to edge up further to 7.8-8.0% in FY 16 (Source CRISIL).

Amidst the mood of pessimism and uncertainties that engulf a number of advanced and emerging economies, India has an encouraging long term economic outlook. The Government's commitment to calibrate fiscal management and consolidation bode well for the growth prospects and the overall macroeconomic situation improvement in the future.

The Indian auto component industry is expected to register a turnover of US$ 66 billion by FY 16 with the likelihood to touch US$ 115 billion by FY 21. In addition, industry exports are projected to reach US$ 12 billion by FY 16 and reach US$ 30 billion by FY 21. (Source: ACMA). The "Make in India" pitch may further boost the growth of component industry.

Global growth is expected to rise to 3.0% in 2015, and average about 3.2% through 2017. (Source: World Bank). The US economic growth is expected to be around 3% in 2015, largely due to more robust private domestic demand. EU growth is unlikely to cross 1% owing to high unemployment levels.

Our customers in US are key players in the heavy duty truck market and have given an indication of good order intake. Positive economic conditions (oil prices, low inflation) and poor fuel economy of aging fleet are driving order placement. The Company expects the overall demand in this region to be buoyant.

III. Opportunities & Threats

The Company supplies aluminium castings either as cast or in machined condition for commercial vehicles, passenger cars and two wheeler segments of the automotive industry.

In the medium to long term, the projected growth of domestic auto industry, ambitious export plans of the Indian OEMs are likely to benefit the Company.

In view of stringent emission norms and fuel economy regulations, the thrust for light-weighting is bound to increase leading to higher content of aluminum in all vehicle types. This will provide for increased growth opportunities, since the Company is already a brferred source for aluminum castings to major OEM's in India and abroad.

The Company has developed magnesium die castings and has completed tests and trials. The responses from prospective customers are encouraging. Magnesium being lighter in weight than aluminum is expected to find several applications for light-weighting in the years to come.

Our country is emerging as one of the major manufacturing hubs because of availability of well-educated engineers and managers, skilled workforce and good supply base. The Company is well placed to leverage these emerging opportunities in India and abroad.

Several Indian die casting companies and OEMs are either setting up new capacities or expanding existing capacities resulting in increased competition and consequent price brssure which could affect the margins.

Intense competition makes it extremely difficult to seek price increases to compensate the effects of inflation. However, the Company's supply contracts provide for periodic price adjustments indexed to the international prices of aluminum and this should offer some protection against volatility of commodity prices.

IV. Risks and concerns  
Economy

There are possible risks on the horizon, both external and domestic. Spillovers from weak global growth and potential global financial market volatility could be disruptive.

On the domestic side, weakness in rural economy appears to persist owing to nominal growth in crop prices, unseasonal rains, stagnating rural wages and declined Rabi output.

Three developments in global economy are likely to shape the outlook for developing countries.

• The beginning of rate hikes in the US, leading to modestly tighter global financing condition;

• Commodity prices, which have fallen on expanding supply and concerns about global growth, are expected to remain soft; and

• Anemic recovery in Europe and Japan which together account for a third of global imports will continue to weigh on global trade growth.

Overall, downside risks still persist, reflecting global headwinds and geo­political uncertainty.

Industry specific

The Company caters to the requirements of the automotive industry. The revenue of the Company is derived from Medium & Heavy Commercial Vehicles (50%), followed by Car Industry (30%) and two wheeler industry (20%).

The Indian commercial vehicle Industry has strong correlation with the agricultural growth, infrastructure development and the mining industry and is cyclical. The Company's brsence in all the segments of auto industry will largely mitigate the segment specific risks.

Competition has increased significantly in the Indian market due to entry of new players and expansion plans of existing ones. The Company is aware of the increasing competition and has been taking customer focussed measures to remain competitive in the market place.

As no major economic recovery in China is expected, International prices of aluminum is expected to remain at levels witnessed in FY 15. Crude prices are expected to marginally increase from the current levels.

Sourcing

While the Company continues to pursue cost reduction initiatives, increase in price of input materials could impact the Company's profitability when they are not compensated by customers.

Forex

With significant exports, import of raw materials and capital goods and foreign currency liabilities, the Company is always exposed to currency fluctuations. Since Q4 of FY15, Indian rupee has apbrciated against the Euro causing a reduction in the realization on Euro based exports. However, the Company has a well-defined forex hedging policy to mitigate the risks.

Contractual

The stipulation and requirements of the automobile industry demands high quality products. Robust quality management systems meeting international standards like TS 16948 are in place to ensure excellent product quality. However, appropriate recall and product liability insurance in line with standard industry practice have been taken.

Just-in-time delivery is another important contractual obligation. Robust quality and project management systems are in place to avoid delay in deliveries due to quality issues or project implementation.

Capacity utilization

The Company adds capacity to meet the projected demand of customers. The Company closely monitors the progress of customer projects/ volumes and appropriately deploys the assets to minimize the twin risks of under-utilization and delay in capacity addition.

Risk Management Policy

The board has established a Risk Management Policy which formalizes the Company's approach to overview and manage material business risks. The policy is implemented through a top down and bottom up approach identifying, assessing, monitoring and managing key risks across the Company's business units.

Risks and effectiveness of their management are internally reviewed and reported regularly to the board. The management has reported to the board that the Company's risk management and internal compliance and control system are operating efficiently and effectively in all material respects.

The board is satisfied that there are adequate systems and procedures in place to identify, assess, monitor and manage risks. The audit committee of directors also reviews reports by members of the management team and recommends suitable action. Risk Mitigation Policy has been approved by the board.

V. Internal control systems and their adequacy

The Company has a proper and adequate internal control system to ensure that all the assets of the Company are safeguarded and protected against any loss and that all the transactions are properly authorized and recorded. Information provided to management is reliable and timely and statutory obligations are adhered to.

Internal Financial Controls

The Company has an established Internal Financial Control framework including internal controls over financial reporting, operating controls and anti-fraud framework. The framework is reviewed regularly by the management and tested by internal audit team and brsented to the audit committee of directors. Based on periodical testing, the framework is strengthened, from time to time, to ensure adequacy and effectiveness of Internal Financial Controls.

VI. Operations Review  

A. Manufacturing

The Company has been using Total Quality Management (TQM) as the foundation of its management. The Company implemented the best practices like Total Productivity Management (TPM) and Lean Manufacturing in its manufacturing facilities. It also has in place best-in-class practices for safety, pollution control, work environment, water and energy conservation.

Continuous improvement projects are implemented to improve the product quality and productivity in all the manufacturing locations. The Company's journey of achieving manufacturing excellence was recognized and rewarded by the following customers during FY 15.

• Cummins : Superior quality award

• Hyundai : "4+ Star" quality rating

• Visteon : Apbrciation for VAVE in new product development.

B. Quality

Achieving customer delight by consistently providing products of excellent quality is the prime motto of the Company. This is achieved through state of art technology, training, effective quality system, continuous improvement and total employee involvement.

Poka-yokes, process audits, use of statistical tools for process optimization and online process controls also contribute towards improving and achieving consistency in product quality. The quality system is certified for ISO/ TS 16949 requirements.

TQM is a way of life in the Company. 100% employee involvement has been successfully achieved for the 15th consecutive year.

Employees have completed 641 projects by applying statistical tools through Quality Control Circles (QCC) in 2014-15. The average number of suggestions implemented per employee in 2014-15 was 47.

C. Cost Management

Cost management is a continuous journey and the Company manages the same through deployment of costs across all departments. A cross functional team is working on projects focussed on reducing process scrap and operational efficiency. TPM and lean initiatives are deployed Company-wide to achieve reduction in manufacturing cost.

D. Information Technology

The Company uses ERP system that integrates all business processes across the Company. Suppliers and customers are also integrated into the system for better planning and execution. During the year, several dashboards were added to improve the productivity, quality and reduce the cost of operations. Projects were also implemented to further enhance the Information Security.

VII. Human Resource Development

The Company considers employees as vital and most valuable assets. Human Resource Development (HRD) is aligned to business needs to enhance business performance and results. HRD is practiced through an overall HRD framework with its constituents as Resourcing, Employee engagement, Performance & compensation management, Competency based development, Career & succession planning and Organization development. Each of these constituents has a structured approach and process to deliver.

The Company focuses on attracting the best talent and enjoys a good brand image across leading educational institutions and industry.

Collaborative education program has been initiated with a couple of brmier institutes as a long term strategy of the Company to develop role-ready engineers with company-specific knowledge at the entry level. The Company also blends successfully mid-career recruitment with internally grown talent.

Career development workshops are conducted to identify high potential employees. Employees with high potential for growth will be groomed and brpared for taking up higher responsibilities in the Company. A reward and recognition system is in place to motivate and also provide fast track growth for the high potential employees. Our engineers and executives are sponsored for advanced study / training programmes offered by both Indian and Foreign Institutions for developing competencies in the area of new technology and modern management practices. Industry experts are also hired for coaching our engineers and executives.

Leadership development continues to be one of our key initiatives. Customised management development programs have been developed with reputed educational institutions to hone the leadership skills of the senior executives.

The Company conducts a structured survey on employee satisfaction every year and identifies improvement areas to work on.

An excellent industrial relations environment continues to brvail at all the manufacturing units of the Company.

As of 31st March 2015, the Company had 2,284 employees on its rolls.  

VIII. Environment & Safety

The Company is fully committed to the ultimate goal of employee safety. Safety management is integrated with the overall Environment, Health and Safety (EHS).

The Company has been certified under Integrated Management System (IMS) combining ISO 14000 and OHSAS 18001 systems and procedures.

Cautionary statement

Statements in the management discussion and analysis report describing the Company's objectives, projections, estimates and expectations may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those exbrssed or implied. Important factors that could make a difference to the Company's operations include, among others, economic conditions affecting demand/supply and price conditions in the domestic and overseas market in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors.