Management Discussion and Analysis

Industrial Review:

The Indian Auto-Components industry has experienced healthy growth over the last few years. Some of the factors attributable to this include: a buoyant end-user market, improved consumer sentiment and return of adequate liquidity in the financial system. The auto-components industry accounts for almost seven per cent of India's Gross Domestic Product (GDP) and employs as many as 19 million people, both directly and indirectly.

The Auto Component industry grew by 10% during FY 15-16, however growth momentum slowed down from 3rd quarter of F.Y. 15-16 onwards. Demand for the Indian Auto Component industry can be broadly classified into Original Equipments sales (54% of revenues), aftermarket/replacement (17% of revenues) and exports (29% of revenues). Healthy growth in the domestic two wheeler market during 1st half of F.Y. 15-16 and M & HCV segment coupled with modest recovery in the domestic passenger vehicle demand resulted in 10% growth in auto component demand from the Original Equipments Manufacturing segment during F.Y. 15-16. Growth, however tapered from 3rd quarter of F.Y. 15-16 onwards following slowdown in the high volume 2 wheeler segment, especially in the motorcycle segment, and sluggish demand from the tractor (8% of OE led auto component demand) and LCV segments (5% of OE demand).

The Auto ancillaries are benefitting from steady decline in commodity prices, which has pushed their operating margin positively. Despite the slowdown in demand, operating margins for several players has continued to expand sequentially. Hence the favourable input costs helped industry to post moderate gain. Owing to subdued demand in the OE segment as well as robust export growth, the share of exports increased gradually from 24% in F.Y. 12-13 to 29% in F.Y. 15-16 primarily at the expense of OE demand share

Inspite of current scenario of uncertain socio - economic events, your Company has succeeded to retain the increased graph of excellent performance.

Futuristic Outlook:

While the last decade was brdominantly driven by domestic demand going forward, industry is geared up to meet both domestic and global demand. Considering this, Government of India has started working on the next phase of Automotive Mission Plan (AMP) i.e. AMP 2016-26 so as to address the unfinished agenda of AMP 2016 and target new initiatives keeping in mind the current and expected market dynamics. This will enable industry to plan and realize future potential thereby contributing more to the Indian economy. As per the recent Budget, the Government is giving thrust on building of roads and allowing private players in passenger transport segment; may result in smart growth in the demand from OE's in M & HCv as well as tractor segment.

The rapidly globalising world is opening up newer avenues for the transportation industry, especially while it makes a shift towards electric, electronic and hybrid cars, which are deemed more efficient, safe and reliable modes of transportation. Over the next decade, this will lead to newer verticals and opportunities for auto-component manufacturers, who would need to adapt to the change via systematic research and development. The Indian Auto-Components industry is set to become the third largest in the world by 2025. Indian Auto Component makers are well positioned to benefit from the globalisation of the sector as exports potential could be increased by up to four times to US$ 40 billion by 2020.

We expect the Auto Component industry's revenue growth to moderate during F.Y. 16-17, as the performance of automotive segments namely tractor, motorcycles and LCV segment continue to remain subdued. The OE demand to grow by 5%-6% in F.Y.16-17 which coupled with relatively better growth in aftermarket and export segment would translate into 8% revenue growth for overall industry. Some environmental factors like monsoons remain an important factor and it will have a bearing on industry's performance. Over the medium to long term, growth in the Auto Component industry will be higher than the underlying automotive industry growth given the increasing localization by OEMs, higher component content per vehicle and rising exports from India.

Concerns and Threats:

The Auto Component industry has been exposed to many risks of varying intensity. Three important concerns and threats Auto Component industry is facing are:-

• Regulatory & Infrastructure Bottleneck

• Low R&D spending and dependence on global suppliers for technology knowhow

• Rising imports from China

At the same time, increase in electricity charges all of a sudden, volatility in the prices of raw materials and other inputs, currency fluctuations, stiff competition by the entry of Multinational Companies and their home country partnership and just in time supplies are the major risks and challenges faced by the Company. It is forcing Company to plan operation more effectively and produce quality components at low costs.

Future Challenge:

Many interventions as envisaged under AMP 2016 have been implemented but some of the interventions have progressed slowly or could not be taken up. Further, several new issues have emerged that need immediate attention of both the government and the industry. The sluggish macro-economic factors during the last 3 years have led to a significant slowdown, which is amongst the worst that the Indian automotive industry has witnessed. This has impacted the pace of growth resulting in underachievement of some targets envisaged in AMP 2016. We need to focus on improving quality levels and basic shop floor practices to develop capability to keep pace with the international quality standards which are constantly moving upwards.

Some challenges need to be addressed by Auto Components industry along with the government, are as follows:-

• New and alternative vehicle technologies viz. Electric Vehicles, Hybrid, Hydrogen, Fuel Cells and others;

• Setting up a technology acquisition fund for acquiring latest technologies and making it available to the industry for commercial purposes;

• Regulations pertaining to automotive aftermarket to bring in minimum quality and qualification criteria for repair, service and spare parts;

• Regulatory framework for setting up of independent garages and repair establishments;

• Scheme for technology upgradation and R&D focused on increasing fuel efficiency, reducing emissions and improving vehicle safety.

Internal Control System and Adequacy:

The Company has an adequate Internal Audit System that promotes reliable financial reporting, safeguards assets, encourages adherence to fair management and ethical conduct. The strong Internal Control Systems have been designed in a way that, they not only brvent fraud and misuse of the Company's resources but also protect shareholders' interest. The Audit Committee of Board of Directors, on regular intervals and in co-ordination with Internal and Statutory Auditors, reviews the adequacy of Internal Control Systems within the Company.

Based upon the recommendations of the Audit Committee, an Annual Audit Plan (AAP) is brpared and which is reviewed periodically by the top management and the Audit Committee. The internal audit focuses on compliance as well as on robustness of various business processes. A feedback on non conformities along with recommendation for process improvements is directly provided to the top management of the Company. Compliance on audit findings and tracking of process improvements is carried out on regular basis.

Development in Human Resources:

The Company strives to develop the most superior workforce so that it can accomplish along with the individual employees, their work goals and services to its customers and stakeholders. Our fundamental belief in immense power of human potential and team work is epitomised in our 'WE' approach. To us, 'WE' rebrsents a strong collective energy. A transformational force that stimulates enterprise accelerates our constant pursuit of excellence and empowers our people to realise their full potential. The Company also believes human resources as the supporting pillars for the organization's success.

Development and Upgradation of Technology:

All the staff members working in manufacturing departments have been advised to take different projects to;

1. Reduce rejection and wastage in raw materials and consumables,

2. To reduce setting time, to have production time more,

3. To optimize production activities to reduce electrical energy per unit of production,

4. To work on packing to enhance brservation and safety,

5. To develop new items in shortest possible time to have early business,

This is ongoing process and projects are getting completed one by one and new projects are being undertaken. This has given increase in top as well as bottom line.

Global Approach:

The Company trusts its capabilities to capture every opportunity of business in the global arena. Your Company is globally positioned with business activities spanning 24 Countries around the globe. Exporting about 25% of its production, it enjoys strong brand equity among leading OEM's all over the world.

Forward Looking Statements:

Certain statements in the Management Discussion and Analysis Report describing the Company's objectives, projections, estimates, expectations or brdictions may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ from those exbrssed or implied therein. Important factors that could make a difference include raw material availability and prices thereof, cyclical demand and pricing in the Company's principal markets, changes in Government regulations and tax regime, economic developments within India and the countries in which the Company conducts business and other incidental factors.