Management Discussion And Analysis Bearing Industry Structure and Development Your Company's performance largely depends on the demand and growth of manufacturing and core infrastructure sectors in India. During the FY15-16 upto Feb'16, the Index of Industrial Production (IIP) for 11 months grew at 2.6% compared to the brvious year. The Manufacturing industry (76% of total IIP) had picked up growth during the first half but it slipped to negative zone over last few months. Major reason being some of the important segments like Metal and Cement got worst hit due to lower demand and excess available capacity. The Mining industry (14% of IIP) has seen some revival with effective policy measures and government initiatives in coal production which now is in surplus. On the back of adding more capacities, Electricity generation (10% of IIP) has been one of the drivers of growth. Riding on the cyclical growth, the Medium and Heavy Commercial Vehicle (M&HCV) sales grew phenomenally by 30% to 302,373 units in FY15-16 compared to last year whereas the Light Commercial Vehicles has recorded flat growth over decline in demand last year. Indian Railways carried revenue freight similar to last year of 1,104MT during FY15-16 on lower business activities but has started building more wagons to provide better connectivity in remote and industrial zones. Reserve Bank of India supported the government agenda and execution for growth by lowering the policy interest rate to 5 years low of 6.5% easing out the brssure on industry. The inflation (Wholesale Price Index) throughout the year remained in negative zone indicating low input costs at the same time lower demand. In terms of exchange rates, Indian Rupee continued debrciating against USD from 62.6 (Mar'15) to 66.3 (Mar'16) as well as other major currencies like GBP and EUR making the imports and input costs more expensive. The current size of anti-friction bearings market is approximately INR 95 billion. It is estimated that around 40% of demand is catered through imports. The automotive sector accounts for approximately 45-48% of the bearing demand and the rest is consumed by the industrial sector. Business Review Your Company is one of the leading manufacturers of tapered roller bearings and components in India with manufacturing facility at Jamshedpur and Raipur which largely cater to medium and heavy trucks, off-highway equipments, Railways markets and exports. The Company meets the demand for other types of bearings viz., large size tapered roller bearings, spherical roller bearings, cylindrical roller bearings and specialty ball bearings by sourcing these from other Timken Company plants globally. Aiming to provide a complete offering in the area of Mechanical Power Transmission and Timken commitment to improve system reliability, your Company brings the portfolio of belts, industrial chains and augurs, couplings, housed units, high performance grease, and lubrication systems. With the acquisition of capabilities around the globe like Revolvo and QM, The Timken Company has today the widest range of housed units under one roof and the maintenance friendly products that reduces customer downtime. Your Company endeavors to provide value offering to customers along with partnering customer operations and maintenance program to bring efficiency and enhance performance. The extended services footprint in Raipur with Philadelphia Gears capability focuses on the industrial gearbox repair, journal rebuilding and chock repairs along with bearing refurbishment. Onsite MILLTEC® program provides around-the-clock management of a steel mill's roll shop to minimize operational problems and downtime. MILLTEC® continues to add value creation at its customer sites. Despite difficult times in Metal industry, your Company added new customers making total of 13 sites across India. The service capabilities have got further extended in the Long Product mills winning 2 new contracts. Your Company plans to add more services for its existing and new sites and believes that more opportunity may open in the coming fiscal when the Metal segment picks up. Following are some key achievements at company's Jamshedpur and Raipur facility: • Zero LTA/OSHAS Recordable rate during financial year 2015-16. • Plant is rated as satisfactory with qualification by Timken Global EHS Auditor • Plant has received ISO 9001:2008 Quality document • Machineries and capability for Bearing Repair facility has been established • Gear Checker has been installed and TIL Raipur is geared up for Reverse Engineering of gear and pinion • Many critical gear boxes have been repaired and significant improvement in engineering/quality and delivery lead time to customer • Electrical load reduction from 1500KVA to 1000KVA • Technical capability enhancement of associate: Level 2 certification for reliability of industrial equipment (ISO18436-2). During the financial year under review, total income grew by approx 14% primarily due to increase in domestic sales by 18% and increase in export sales by 8%. Expenditures on the other hand registered an increase of 13% due to volume increase and inflationary brssure. Increase in debrciation was due to capitalization of new Plant & Machinery and other assets for expansion projects and change in basis for charging debrciation in terms of applicable provisions of law. Exceptional item rebrsents net loss arising out of fire at third party service provider's warehouse (please refer note no 38 in the financial statements). Profit before tax registered an increase of 18% to Rs. 1448 Million due to increase in volume and margin in respect of both domestic and export sales. Opportunities, Threats and Outlook With more than a century of expertise in tapered roller bearing, the Timken group is transforming into a wider solutions provider across the mechanical power transmissions space over the last decade. The group's acquiring and adding global capabilities benefits your company extensively - exploring and launching new products and services, thereby increased share of customer penetration into Indian market. Your Company is working on expanding channel footprint and value added services to meet customer demands at doorstep. Your Company is continuously engineering products and technology that can deliver more compact, energy efficient and cost effective solution which can take desired loads. Custom application knowledge and optimum design considerations help customer realize extended life and lesser downtime. In terms of threat, any adverse changes in the industrial environment or government policymaking affecting our customers could lead to reduction in demand for their finished products, in turn can have a direct impact on the demand of our products. Low quality counterfeit or spurious products pose bigger risk to the end users and threat to the superior manufacturer. Efforts are being taken by manufactures to educate customers on the importance of using genuine high quality bearings and procured from authorized channel partner. Metal components are one of the key raw materials of our products and purchased by our vendors from our approved list of global suppliers, in order to leverage The Timken Company's economies of scale. The prices and supply of raw materials may depend on factors beyond our control, including economic conditions, exchange rates, competition, consumer demand, production levels, transportation costs and import duties. The current government at the Center has been pushing some of the major initiatives to promote domestic manufacturing with 'Make in India' campaign and developing more Rurban (rural urban) societies. Some of the planned expenditure in building road and rail infrastructure corridor, private participation in defense and allied sector, electrification will drive the next fiscal's demand. The top credit rating agencies, World Bank and IMF are optimistic on India growth being the fastest growing developing economy and have retained the GDP forecast in 7.5%+ trajectory. While the manufacturing sector growth is far from visible on the ground, Industry analysts are cautious about the reforms agenda and the kick start of the demand cycle. Your company sees positive outlook for the Rail, M&HCV, Power, Mining and Defense sector over opportunities in and around bearings and cautious over Metal, Cement and other manufacturing industry segments to pick up the pace. With value added product and services portfolio, your company is focused to get more share of business from the existing customers and win new opportunities beyond traditional business segments. Internal Control Systems The various internal control systems operating in the Company are working satisfactorily. The adequacy and effectiveness of these systems is continuously examined by M/s Price Waterhouse & Co. Bangalore LLP - Internal Auditors and the findings of these audits are reported to the Audit Committee of the Board and also to the Board of Directors. The adequacy of the internal control system has also been examined by the Statutory Auditors and the Audit Department of The Timken Company, USA and the Company has not received any major adverse comments from them on the adequacy of the internal control systems. HR Front During the financial year under review, the Company did not witness any adverse development on the HR/IR front. The relationship between the Associates of the Company and the Management remains congenial all through-out the year. The Company employed 637 Associates as on 31 March, 2016. Cautionary Statement: Certain statements made in this report describing the industry structure and development, business outlook and opportunities may be "forward looking statement" within the meaning of applicable Securities law and Regulations. Actual results could materially differ from those exbrssed or implied. Important factors that could make difference to the Company's operations include economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statues and incidental factors. For and on behalf of the Board of Directors Sanjay Koul Chairman & Managing Director DIN: 05159352 Bangalore 20 May, 2016 |