MANAGEMENT DISCUSSION AND ANALYSIS

Overview

It is significant to note that a very small portion of world's water is fresh, and roughly one-third of it is inaccessible, the rest being very unevenly distributed. The available supplies are increasingly getting contaminated with wastes and pollution from industry, agriculture, and households.

Over the years, increasing population, growing industrialization, expanding agriculture, and rising standards of living have pushed up the demand for water. Efforts have been made to collect water by building dams and reservoirs and creating ground water structures such as wells. However, there is a growing realization that there are limits to 'finding more water' and in the long run, we need to know the amount of water we can reasonably expect to tap and also learn to use it more efficiently.

With the objective of conserving water, minimizing wastage, and ensuring that it is distributed equally, both across and within the states, through integrated water resources development and management, the Government of India has formulated National Water Mission with distinctive objectives so as to increase the water use efficiency by 20% by 2017.

Micro irrigation has emerged as the front runner solution which offers a benefit in terms of apbrciable reduction in volume of water used as well as results in higher agricultural productivity. Use of fertigation further enhances the productivity and offers a dual advantage of fertilizer saving and non-pollution of ground water as well as surface runoff water.

Industry Structure and Developments

The demand for water by the Agriculture Sector will grow rapidly on account of growing needs of agriculture and horticulture produce and raw materials for various industries. Simultaneously, the demand for water for other sectors, including drinking water, industrial water, etc. would also grow rapidly, thus impacting the share of water allotted to the Agriculture Sector. It is generally estimated that the share of water for Agriculture Sector will fall from current 84% to 69% by the year 2025. In this scenario, the demand for Micro Irrigation Systems is bound to grow at a very fast rate and demand will continue to outpace supply.

Adoption of micro irrigation was accelerated through Central Government's assistance and many of the developed States have recognised the impact of micro irrigation, resulting in significant State assistance to the farmers. Normally, around 50 per cent financial assistance is provided to farmers for adopting micro irrigation system by the State and Central Governments. In order to further accelerate the adoption of micro irrigation by farmers, some of the States extend further assistance which can reduce the cost of system by as much as 70-80 per cent.

The Indian micro irrigation system industry, which comprises of segments such as drip irrigation and sprinkler irrigation, has grown significantly over the last few years due to increase in the demand for agricultural food products. The micro irrigation system industry in India is highly fragmented with nearly 200 companies. There is a fierce competition in the market, with a large number of organized and unorganized players engaged in the manufacturing and installation of micro irrigation systems.

Your Company is brsently a major supplier of micro irrigation systems (MIS) in India. Our strong brand name, expertise in agronomy services, and widesbrad network have contributed to our growth.

Opportunities and Outlook

The long-term outlook of the micro irrigation industry is robust. Though we have had several specific schemes to promote micro irrigation, the recently announced Pradhan Mantri Krishi Sinchai Yojana (PMKSY) aims to address the issue in a holistic manner. PMKSY is conceived to achieve convergence of investments to address the problem of irrigation at large - Expanding irrigated area (Har Khet Ko Paani), Efficient distribution water from the sources, Improving water-use efficiency through brcision irrigation and other water saving technologies (More Crop Per Drop), and Promoting water conservation practices. It brings all concerned ministries & departments engaged in creation/ distribution/use of water under a common platform to have a combrhensive and holistic view of the entire "water cycle". The total fund earmarked for this scheme is Rs. 50,000 crores for a period of five years (F16 to F20). However, continuous droughts in Maharashtra, Gujarat, Karnataka and Madhya Pradesh, which are major markets for micro irrigation, have dampened the demand for micro irrigation systems to some extent, which in turn has affected our industry. It is expected that a good monsoon this year will help boost the pent-up demand for micro irrigation and with a stable government at the Centre and in major States, we envisage that it will contribute to the growth of micro irrigation industry with consistent policies for subsidies.

Operations and Financial Performance

During the year 2015-16, your Company achieved Sales Turnover of Rs. 204.78 crores as compared to Rs. 169.19 crores in the brceding year reflecting a growth of 21%. The major factors contributing to this improvement in performance were: Focus on profitable businesses and markets, Penetration in newer markets, Deployment of cost control measures, and Effective working capital management.

These initiatives enabled your Company to achieve improved profitability, and growth in revenue, despite some uncertainties owing to the late announcement of policy in some important markets. Relentless efforts in product and process improvement, and quality not only contributed to improved efficiencies, but also enabled your company to improve farmers' productivity further.

During the year under review, your Company has almost doubled the performance in Pumps and Polyhouse businesses. In pumps, this has come through improvement in product range and quality, expansion of channel network, and improvement in customer care services. During the year, the Company has also introduced Open Well Sub-mersible Pumps, Monoblock Pumps, and Direct Online Starters.

As regards the Poly house business, your Company has grown in several States and has installed some Hi-tech Poly houses for specific applications. With a strong team in place, we expect to see some further growth in this business through a continuous focus on cost reduction and process improvement.

Risks, Concerns and Threats

The Micro Irrigation industry's growth is majorly dependent on the government policies and release of subsidies etc. in the short term. Growth in industry will further need a large pool of trained personnel and a dedicated dealer network with deep penetration in newer markets of the country. Further, the uneven distribution of rainfall in the country, consecutive drought like situation in the brvious years and fluctuations in the polymer prices are constant threats faced by the industry. Low cost quality competition is another concern area for the industry.

Seasonality is a major problem for all irrigation Companies as bulk of the major business is derived in non-monsoon months. However, with the well-sbrad operations in western, southern and northern States where monsoon months vary, your Company's operations are balanced to a certain extent.

Continuous healthy growth of agriculture, ambitious mega micro irrigation projects of few States and the increasing demand for micro irrigation systems in the other markets will provide ample opportunities for growth of the business.

Internal Control Systems

Your Company has adequate internal control procedures commensurate with its size and nature of business. The internal control system in the Company is designed to further the interests of all stakeholders and it is supplemented by extensive internal audits, regular reviews by management through external consultants, and well-documented policies and guidelines to ensure reliability and speedy compilation of financial statements, safeguard the assets and interests of the Company and also to ensure compliance with laws and regulations. The internal control framework comprises of elements like entry level controls, Risk Control Matrix, management testing programs and a strong emphasis on integrity and ethics as a part of work culture. The Company continuously upgrades these systems in line with the best accounting practices. The Audit Committee of Board of Directors periodically reviews the audit plans, observations and the recommendations of internal and external auditors with reference to significant risk areas and adequacy of internal controls.

Based on management's assessment and testing of controls, it is concluded that the Company has proper internal financial controls which are considered adequate and are operating effectively.

Human Resources

Your Company has a robust process for crafting the HR strategy which is aligned with the business strategy. Based on this, key levers or areas of focus to make EPC a great work place are worked upon and execution of the same has taken place in your Company to achieve the goal.

Human resource initiatives such as skill level upgradation, recruitment grid, formation of cross functional teams for business innovation, appropriate reward and recognition systems and productivity improvement are the key focus areas for development of the employees of the Company. The measures for safety, training, welfare and development of employees receive highest priority.

Your Company wants its sales employees to not just sell the product but also talk the language of crops with the farmer customer. In line with this objective and also based on the approach of imparting training to the employees based on the training needs identified for them, crop related trainings, agronomy based capability building, and other skill building programs (across EPC) were actively carried out in 2015-16.

The Company periodically conducts Samwaad - Employee Engagement Survey and Vicharmanthan. These diagnostic tools acts as powerful medium to understand employees' expectations, feedbacks, suggestions and ideas for overall improvement in the working of the Company. Your company has actively worked upon the suggestions given by employees and has implemented various such suggestions for the betterment of the Company.

Your Company's Human Resource vertical, through its ever evolving employee-friendly policies and processes, has kept the morale of the employees high.

As we look ahead, we are confident that our strong, positive people philosophy and practices will make us a brferred destination for talent in the industry.

As on 31st March, 2016, the total number of employees of your Company was 438.

Cautionary Note

This report contains forward-looking statements based on certain assumptions and expectations of future events. Actual performance, results or achievements and risks and opportunities may differ from those exbrssed or implied in any such forward-looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events.