MANAGEMENT DISCUSSION AND ANALYSIS

INDUSTRY STRUCTURE AND DEVELOPMENT OPPORTUNITIES, THREATS, RISKS, CONCERNS AND OUTLOOK:-

The Indian economy was relatively stable during the fiscal year 2015-16. The country's gross domestic product (GDP) grew by 7.4% compared to 7.2% growth in GDP in 2014-15.

From the demand angle, the growth in private final consumption expenditure at 7.6% in 2015-16 has been the major driver of growth. The exports and imports have declined during 2015-16, the former mainly on account of subdued global demand and the latter largely reflecting the decline in international petroleum prices.

The country's GDP is expected to grow by 7.7% during the year. Domestic consumption is expected to be the main driver of the likely acceleration in economic growth this year.

Forecast of a good monsoon after a gap of two years, consequent rise in agricultural output, healthy increases in MGNREGA wage rates, implementation of the 7th Pay Commission salary hikes and one rank one pension (OROP), benign inflation and an accommodative monetary policy stance of the RBI are expected to help increase discretionary spending and in turn improve the economic growth further during the year.

Plastic Business

The Plastic Business has achieved a volume growth of 3% and value growth of 5%. During the financial year 2015-16 it has achieved total turnover of Rs. 176,572 lacs as compared to Rs. 169,521 lacs in the brvious year.

The Furniture Business registered a top line growth of 2% in the last financial year. The year witnessed a progressive reduction in raw material prices which bottomed out in the last two quarters from the high point of the first quarter. Strong distribution and prudent pricing policies helped the Company to enhance the bottom line. The Company continues to enjoy the market leadership & holds the market share of approx. 32%, which is double over its closest competitor.

The Company has taken steps to invest in range of differentiated products in the Premium Monoblock and other range in the moulded vertical. The year gone by saw a stupendous growth of over 30% in the traded products sold through distribution mode. The growth was fueled by introduction of variety of furniture solutions in bedrooms/living/ OSS segment. The hybrid chair, combining metal and plastic, introduced in last three financial years showed a robust growth even in the current fiscal year. To strengthen our distribution, this year we have added more than 200 new towns and villages with an objective to penetrate the market so that we can reach to the nearest point to our customers.

The visibility equation of traded products has been accelerated with the help of 15 "Nilkamal Home Ideas" stores ranging from 4,000-8,000 sq.ft. in various 2/3 tier cities. Apart from the "Nilkamal Home Ideas" stores, the Company has also appointed more than 30 DODOs (dealer owned, dealer operated stores) across the geography. The Company has robust network of 40 plus depots, more than 1,000 channel partners and over 12,000 dealers on a pan India basis. To enhance product offering, this year Company has widen school furniture and SOHO (small office/home office) furniture range by adding more than 50 products in this segment. The Company has reinforced their market brsence by adding more Modern Trade outlets, E-commerce portals and Just dial to promote the sales of various value added products.

In the long run we remain bullish on the prospect of Furniture business. The growing middle class would need quality furniture from reliable manufacturers to meet their aspirants of modern living. The pan India penetration and the Company's strength of servicing customers at the arm's length through depots in major cities would definitely augment our leadership strength and help the division grow at the rate of 8%-10% in revenue terms.

The major threats would be the volatility of raw material prices, adverse currency fluctuation and non-adherence of statutes by more than 150 unorganised players who compete mainly on the strength of low quality products and unethical practices like evasion of taxes and other levies.

Mattress Business

During the financial year 2015-16 the Mattress business has achieved a turnover of Rs. 3,001 lacs. Towards the end of the financial year the Company has integrated Mattress vertical along with the Furniture business to leverage the benefits of a strong distribution network of 40 plus depots, 1,000 channel partners and approximately 12,000 retailers under the channel partner on a pan India basis. Of this nearly 30-40% already deal with Mattress and in a way would serve as one stop Furniture solution. It will also help the penetration to remote rural markets thus enhancing our ability to manage complex supply chain equations at a lower cost.

Post the integration decision we are already seeing traction northwards as regard the top line revenue growth in the Mattress vertical.

The Company has rationalized the prices of Mattress and enhanced the dealer engagement programs to further enhance the market share in South, West & East. In the current financial year the Company plans to enhance its range of rubberized coir, foam and spring Mattress which will serve the comfort, back support for the spine and wellness factors sought by our esteemed customers. Some of the unique products introduced in the last financial year like Spinefit, Cool Bond, Mckenzie, Ortho etc. have been apbrciated equally by the trade and customers at large. In the coming financial year the Company plans to enter the northern market.

The focus would also be on institutional sales in segments like hospital, hostels, hotels where the requirement is for high quality branded Mattress. The Company intends to spend in advertising and sales promotion to increase awareness as regards our Mattress vertical and to aid channel partners in achieving the objective of both top line growth and deeper penetration.

Unorganized players have a large share in regional markets. The prolification of regional players is also rampant because of the low entry barrier.

The literacy going up in all states has also helped in ensuring that "wellness theme" becoming an important factor in consumer's mind and is also helping the shift from unorganized sector to branded players.

Material Handling Business grew by 8% in value and 10% in volume terms during the year 2015-16. Nilkamal continues to hold the market leader position in the Material handling segment by continuing its focus on "direct selling", an ideology which has resulted in strengthening its already robust relationship with its vast industrial customer base.

Product solutions primarily help Industries & Business to:

a) Protect their products during storage, movement and transport,

b) Store their products efficiently, thereby saving space and

c) Improve their labour productivity during product movement and storage.

All our Made in India Offerings tie in extremely Well for All development initiatives of the Government like "Make in India", "Swachh Bharat Abhiyan" and Infrastructure.

Our re-organized Pan India brsence with 40+ Regional Sales Office and Sales Force strength of 300+, supported by 39 warehouses sbrad across India and our focus on Improved Asset Utilisation and productivity continue to benefit the Company and are seen as game changers for our well satisfied customers.

The Company continued to invest in ensuring customized solutions to the growing requirements of customers.

The E-commerce industry recognize us for providing customized handling, storage and movement solutions to match its quicker than the quick throughput needs owing their stupendous growth.

All our three ventures Nilkamal Crates & Bins Ajman, Nilkamal Bito Storage Systems Private Limited and Cambro Nilkamal Private Limited continue have shown robust double digit growth.

All ongoing developmental initiatives of Government and implementation of GST will further help to propel future growth of our business.

The Debrciation of Indian Currency resulting in increase in raw material prices, in spite of lowest crude prices remains a major concern for sustaining profitability and sales growth in the short and medium term.

Lifestyle Furniture, Furnishing and Accessories Business

@home -has 15 large format stores and one Go to Market (GTM) Store, sbrad across 12 cities, covering a retail space of over 2.46 Lacs sq.ft. and continues to be a trusted brand among the consumers .

In the financial year 2015-16 @home achieved Rs. 23,805 lacs of revenue compared to brvious year Rs. 21,750 lacs with a YOY growth of 9%. In spite of continuous price cut from E commerce players @home managed to have a double digit growth in Customer Footfalls at our outlets.

During the year, sales through E-commerce channel saw an upward trend, compared to brvious year. The strategy was to exploit the E-commerce portals and have partnership with them to increase visibility of our product offerings and services. This we achieved and it resulted in a remarkable growth of 310 % in terms of revenue.

Presently @home is one of the highly trusted key partners, for various reputed & established online market players.

It has achieved 13% growth in household category over year on year by standardizing the entire assortment, pricing and planogramming.

We started an outsourced captive unit for furniture to innovate more in terms of product offering and for better inventory management. @home continues to focus into the Solid Wood furniture segment. As part of furniture category expansion we have forayed into Modular Kitchen and Customized Wardrobe.

For optimizing profitability in retail area and product portfolio, we conceptualized BIW (business information warehouse) to exercise extensive data analytics and improve decision making.

During the year the Company has closed one store situated at Mumbai. Further, effective steps have been taken for closure of operation of 3 stores situated at Mumbai, Cochin & Hyderabad.

The focus for the financial year 2016-17 is to get the best out of the new categories, Modular Kitchen and Customized Wardrobe. In E-commerce channel the focus will be to increase our brand reach geographically.

We are in process to partner with digital Payment/Wallet companies to further improve customer experience both in Online and Offline Channel.

Growing competition from online players in term of range and pricing remains an area of concern. However, @home is brpared for the future challenges and further explores the untapped growth opportunity witnessed in the E-commerce business.

Financial Review Operating Profit

The Company registered operating Profit of Rs. 22,376 lacs against Rs. 14,381 lacs in the brvious year, an increase of 56% over the brvious year.

The operating margin for the year was 12% as compared to 8% in the brvious year. The operating margin of plastic business stood at 14% compared to 9% in brvious year.

Interest

Due to better working capital management & lower cost of fund, financial cost has been reduced by 40% i.e. from Rs. 2,954 lacs to Rs. 1,785 lacs.

Net Profit

The Company has made net profit after tax of Rs. 10,389 lacs as against Rs. 4,246 lacs, an increase by 145%.

Dividend

The Company has paid a total interim dividend of Rs. 7 per equity share (70%) for the current year. The total outflow amounts to Rs. 1,141 lacs including dividend distribution tax.

Capital Employed

The total capital employed stood at Rs. 68,999 lacs against Rs. 69,946 lacs of brvious year. The total debt to equity stands at 0.18 times against 0.42 times of the brvious financial year.

Internal Control System and their Adequacy

Over the years, formal and independent evaluation of internal controls by Internal Audit and timely remediation of deficiencies by management have resulted in strong framework for Internal Controls, commensurate with the size and complexity of the business.

The internal control framework essentially has two elements:

(1) Policies, procedures and guidelines designed to achieve efficiency and effectiveness in operations and compliance with laws and regulations;

(2) An assurance function provided by Internal Audit (In house department and external agencies).

The Company have documented risk control matrices mapping various processes which would be continuously reviewed and monitored for changes warranted due to business needs.

The Internal Audit department continuously monitors the efficiency of the internal controls/ compliance with documented Risk control matrices with the objective of providing the Audit Committee and the Board of Directors, an independent, objective and reasonable assurance of the adequacy and effectiveness of the organisation's risk management and Internal Financial controls in addition to obtaining certification from external agencies.

Human Resources and Industrial Relations

Your Company's industrial relations continued to be harmonious during the year under review. The employee strength of your Company is currently 3,012.

Cautionary Statement

The Management Discussions and Analysis Statement made above are on the basis of available data as well as certain assumptions as to the economic conditions, various factors affecting raw material prices, selling prices, trend and consumer demand and brference, governing and applicable laws and other economic and political factors. The Management cannot guarantee the accuracy of the assumptions and projected performance of the Company in future. It is therefore, cautioned that the actual results may differ from those exbrssed and implied therein.