MANAGEMENT DISCUSSION  AND ANALYSIS

ECONOMIC OVERVIEW :

The global economy grew 3.1% in 2015 as compared to 3.4% in 2014. Despite slowdown in growth rate for the fifth consecutive year, emerging and developing economies continued to be the major contributor (over 70% share in growth) to the global growth as it grew by 4% in 2015 compared to 4.6% in 2014. China and India witnessed a growth of 6.9% and 7.3% respectively. The outlook for economic growth is not very strong given volatility in global asset market, declining growth momentum in the advanced economies, headwinds in emerging and low-income countries and other non-economic stresses. The global economy is expected to grow marginally by 3.2% in 2016 and pick up momentum to 3.5% growth in 2017. Emerging and developing economies would continue to be major growth driver with a 4.1% and 4.6% growth forecast in 2016 and 2017 respectively.

According to RBI's advanced estimates the real GDP in India is expected to grow from 7.2% in 2014­15 to 7.6% in 2015-16 primarily driven by increasing private consumption due to lower energy prices and higher real incomes. However, the second half of the year witnessed a slowdown due to poor monsoon impacting agricultural productivity, weak rural consumption and on-going fiscal consolidation. The gross value added by industry sector increased 9.5% despite lower production volumes owing to reduction in input prices. The services sector continued expanding at nominal rates. The inflation levels in the country have continued to fall due to relatively tight monetary policy, various supply side measures and lower commodity prices. The trend is  expected to continue and it is expected the country can achieve its headline CPI inflation target of 5% in 2016-17. The real GDP growth in India is expected to be 7.6% in 2016-17.

INDUSTRY OVERVIEW:

The Indian stationery market, comprising a mixed range of products, (paper, writing and marking instruments, computer, staplers, erasers, binders, punching machines and other related items) caters primarily to the school and office segments. Notebook and paper comprise the largest pie in the segment followed by writing instruments, computers and other daily use stationery. The stationery market in India is highly fragmented and dominated by the unorganised sectors. However, with rising income and aspiration levels the demand for brmium products is increasing, leading to opening up a gamut of opportunities for the organised sectors. The entry of various leading international players is a testimony for the same. The market is driven by rising literacy, demand for brmium products, product personalisation, growing number of offices and favourable demographics. Indian stationery market is pegged at Rs. 15,000-18,000 cr, and growing at around 10% p.a.

BUSINESS OVERVIEW:

Kokuyo Camlin Limited (the Company) is one of leading and most trusted stationery brand in India. The Company started operations in 1930s and has an unmatched legacy with the brand name synonymous with quality products for schools, offices and niche art markets. CAMEL and CAMLIN are the flagship and the most recognised brands of the Company. In 2011, Kokuyo S&T Co. Ltd. ( now Kokuyo Co. Ltd.) , a leading Japanese stationery manufacturer, acquired a majority stake in the erstwhile Camlin Ltd. enabling the Company to enhance its brsence in the Indian market with increased product portfolio. The strong R&D capabilities of Kokuyo will also enable Camlin to improve its product quality and develop innovative and aesthetically pleasing products for the Indian market.

The Company has a huge product portfolio comprising inks, writing instruments, colours, technical and drawing instruments, office stationery, markers, fine art, notebooks and scholastic and hobby art materials.

These products are broadly classified into three  business segments:

1. School and Education products

2. Fine Art and Hobby Materials

3. Office Stationery products

Kokuyo Camlin currently has market leadership in many categories like Crayons, Water Colours, Mechanical Pencils, Geometry box, Markers etc, with the help of increased marketing and distribution efforts. (Kokuyo Camlin advertising efforts on both TV and social media has won awards like Abby, DMA and CEF). Company is now strengthening its portfolio in the categories of pens & notebooks.

Kokuyo range of brmium stationery products have been launched to cater to the needs of discerning consumers.

The Company has a pan-India network of 1,500+ dealers/distributors ensuring supply of the Company's products to over 300,000 retailers in the remotest corner of the country.

The Company annually organises "Camel Art Contest (CAC)", erstwhile known as "All India Camel Colour Contest (AICCC)", across schools in India with the objective of promoting art and art culture. In 2011-12, the contest was recognised by the Guinness Book of World Records as the largest Art Competition in the World for the year 2011-12, with 48.50 lac participants across 6601 schools. The contest has now become international and is also gradually getting online.

RECENT DEVELOPMENTS:

Patalganga Plant:

The Company commenced construction on its integrated manufacturing plant at Patalganga, MIDC, in May 2015. The work is nearing completion and the plant is expected to commence commercial production in the second quarter of financial year 2016-17. Once the Patalganga plant is fully operational, it will have a significant impact as economies of scope, scale and size come together to unleash major competitive advantages to the Company in terms of capacity, costs, logistics, procurement as well as other operational efficiencies.

The Patalganga plant is sbrad over 14 acres of land, with the current unit constructed over 6.5 acres. The site has additional land available to further expand and enhance capacity in the coming years, as growth in demand is witnessed.

REVIEW OF PERFORMANCE:

There has been a rise in demand for mass quality, particularly with numerous foreign players entering the Indian markets. Another growing sub-segment of the market is brmium products, particularly in the stationery and writing instruments categories. Your Company has a brsence in both mass quality as well as brmium product segments, and plans are afoot to garner a larger share in these segments, particularly leveraging the wide portfolio of Kokuyo. This is in addition to dominating segments like arts and hobby materials, scholastics products and school products, where your Company is an established leader. The year saw your Company launching many innovative products in order to fulfill the promise of making learning fun for children such as:

Washable crayons and brush pen Water colour pen Premium sketch pen etc.

The notebook category of your company is showing good promise and is gaining momentum on the back of superior product quality and range. Our association with Kokuyo has helped in this area.

During the year, your Company has continued with its long-term plan to expand its reach and penetration on a Pan-India basis. Distribution expansion is key to any consumer product. Your Company will continue to focus in this area. Further your Company is one of the first movers into the online commerce space and has its products available on popular e-market places. The Company's is very active and visible on the social media.

Apart from digital marketing your company is aware of the tremendous advantages and efficiencies that can be delivered by IT to every aspect of its business. Your company has been deploying IT solutions to enhance supply chain efficiencies, streamline processes and systemise operations.

REVIEW OF FINANCIAL PERFORMANCE:

Your company continued to focus on optimum levels of inventory, operating efficiencies and cost saving across the organisation.

The Company's cost cutting measures through Kaizen, Value Analysis, Value Engineering and procurement processes have yielded results. The earlier cost cutting initiatives which continued as per  the plan during the year under review such as supplier consolidation, outsourcing and indigenization are helping to reduce the cost of operations.

Other Income:

Decrease in current year is due to utilisation of funds raised for Patalganga project. Last year the company has earned interest income on the funds raised through rights issue of equity shares, amounting to Rs. 101.56 crs (net of issue expenses) which has been maintained as Fixed Deposits with banks until utilization for the project.

Cost of Material:

The increase is due to increase in production required  for increased sales and inventory as compared to brvious year. The increase is proportionately lower to sales due to improved product mix and cost reduction.

Outlook of business:

The Indian stationery market, although dominated by unorganised players, is set on immense growth in the coming years. The various factors that shall drive growth in the coming years are:

• Government initiatives: The budget allocation to the education sector in 2016-17 increased 4.9% from Rs. 68,963 cr in 2014-15 to Rs. 72,394 cr 43,554 cr towards school education and Rs. 28,840 cr towards higher education). Currently India spends only about 3.4% of the GDP on education compared to 5-6% in developed countries. However, over the time the government plans to increase education expenditure to meet the growing demand for skilled force in India.

• Increasing student enrolments: Since 2001, India has brought in 20 million children in primary school through its various educational programmes. India currently has 95% children attending primary schools but just 44% of 16 year olds complete class 10. To change the scenario the government further targets to bring 90% of the country's 50 million secondary age children to school by 2017.

The gross enrolment ratio (GER, ratio of total enrolment to the eligible population) in higher education has improved from 21.5 in 2012-13 to 23.6 in 2014-15 with 33.3 million enrolments. The Ministry of

Human Resources Development targets to achieve a GER of 30% by 2020.

• Increasing workforce: Growing economy and rising industrialisation is likely to generate additional workforce requirement. According to skill gap report commissioned by National Skill Development, India will need an additional 119 million skilled workforce across 24 sectors to sustain its economic growth momentum.

• Rising literacy in India: India, with the second largest population in the world has the largest number of students' body. It is the world's fastest growing stationery market owing to the increasing rate of literacy in India. According to the Census data, literacy rates in India increased from 64.8% in 2001 to 72.99% in 2011. The rising students' base in India and government's impetus to enhance literacy in India is likely to boost growth in the segment.

With the Patalganga plant becoming fully operational this year, your Company is poised to launch newer products at a faster rate, as well as continue to grow product categories where it is already established with more capacity. The Company has taken a step-by-step approach to consolidate its manufacturing and scale up its capacity. It believes that the building blocks are now firmly in place, and as the Company is confident of reaping the rewards in the years to come.

The Company will participate in growth by i) widening its market reach in terms of width and depth, ii) increasing its manufacturing efficiencies,

iii) generating and adding capacities and

iv) introducing new products.

RISKS & CONCERNS:

Competition:

The Indian stationery market, especially the organised and brmium segments, is growing rapidly. With the growing economic development the country's industrial and educational sectors are likely to witness strong growths which in turn would create significant demand for the office and school stationery products. This has led to entry of major international stationery companies to invest in the Indian market making it more competitive.

Your Company, enjoys a strong brand connect in the Indian market through its flagship brands Camel and Camlin. It is also one of the leading stationery companies with a strong pan-India distribution network having over 2,000 stock keeping units (SKUs).

Moreover, the Company's association with Kokuyo will further enable it to expand its product portfolio and develop innovative products leveraging the strong R&D capabilities of the Japanese leader. The Company's notebook is one such business segment, as a result of this association, that has found immense popularity in the Indian market and is growing really fast.

Marketing:

Stationery business is highly competitive, low margin, high volume business and the inability of the Company to manufacture quality products and market the same may lead to inventory blockage and in turn result in losses for the Company.

Your Company has significant marketing brsence in India with a network of 1,500+ dealers/distributors ensuring regular supply of products. Over 300,000 retailers across India continue to trust the quality of products and strong brand of the Company resulting in ready demand for our products. Moreover, the Company's association with Kokuyo will open up opportunities for export of products.

Foreign exchange:

The primary raw materials used by the Company for stationery production is petrochemicals and fuel, which are imported and dependent on international commodity prices. Any major increase in prices of the commodity or devaluation in the currency may spike up production costs resulting in brssure on margins.

The Company has strong intellectual capital having experience in raw material procurement for getting the best deal. The Company has also worked on its production parameters and R&D to reduce production costs. In some cases the Company is also able to pass on the increased costs to the customers thereby limiting reduction in margins.

Business seasonality:

The Company's products cater to three primary end user segments - the office segment, art and hobby segment and the school segment. The office segment and art and hobby segment witness regular flow of business throughout the year. However, the school business is seasonal in nature - as the demand rises during the beginning of school term which tapers towards the end of session. Though the school segment which is a larger business segment is seasonal in nature, the risk is mitigated by office and art and hobby segment which witnesses the regular flow of business throughout the year.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has internal control systems in place commensurate with the size and industry it operates in. It has well-defined and well-documented systems, policies, procedures and guidelines to cover various aspects of operations. The Company strictly adheres to the laws, rules and statues of the land, and ensures compliance at all levels and across all divisions and departments. The Company regularly undertakes internal audit which is under the review of its Audit Committee. Any concerns raised are addressed and resolutions found. The Company has well-defined MIS systems that ensure all expenses are within the budgetary allocations, and any mismatch is immediately flagged off for attention and corrective measures.

SIGNIFICANT DEVELOPMENT IN HUMAN RESOURCES:

In line with the philosophy of creating value for all our stakeholders, the Company had undertaken development initiatives for its employees. Keeping the consumers engaged and ensuring their loyalty to the brand is getting tougher for organisations. Today only "new products" cannot win the consumer  hearts, what we need is continuous engagement with the customers. And for any organisation the key employees playing this crucial role is the Sales team. Kokuyo Camlin has also been undertaking various interventions for development of our sales teams. While last year saw development initiatives in imparting "Selling Skills" training, this year the focus has been on "Product Training".

The organisation has taken various other endeavors also, towards employee development and enhancing business skills. The year 2015-16 also saw "Project Parivartan" aimed at enhancing the quality consciousness for our Vasai & Taloja factories. The employee development initiatives are gaining increased momentum with each passing year.

At one end, management is investing in upskilling the employees and at the same time, to sustain in the long run and to fulfill our stakeholder's expectations, is continuously working towards a performance oriented culture. HR also organised various engagement activities to boost employee morale and increase interdepartmental bonding. The organisation believes that employees shall be the key to the success of Kokuyo Camlin and would undertake all efforts for their development. Overall the talent management system in the organisation is shaping up to be more robust and to be closely aligned to the business objectives.

The new financial year also looks promising with new projects underway for the HR function.  As on 31st March, 2016, the total numbers of employees were 1232.

Cautionary Statement:

Statements in the Management Discussion and Analysis Report describing the Company's projections, estimates and expectations may be interbrted as "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 economic conditions affecting demand/ supply, price conditions in the domestic  and international markets in which the Company operates, changes in government regulations, tax laws and other statutes. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements on the basis of any subsequent development, information or events.