MANAGEMENT DISCUSSIONS AND ANALYSIS

Economic Review

Global Economy

Globally growth remained moderate at 3.4% in 2014-15, with uneven prospects across the main countries and regions. In comparison to last year, the outlook for advanced economies is improving, while growth in emerging market and developing economies was lower, primarily reflecting weaker prospects for some large emerging market economies and oil-exporting countries.

The U.S. recovery was stronger than expected, but economic performance in many other parts of the world falling short of expectations. Japan witnessed near zero growth due to weak consumption and falling residential demand. Euro zone showed signs of recovery with increasing consumption backed by lower oil prices and higher net exports.

The investment cycle in China has showed decline and high frequency indicators are pointing to further slowdown, China is expected to grow at the rate of 6.8% per annum in 2015. The gradual slowdown in China and the partly related decline in commodity prices weakened the growth momentum to some extent in commodity-exporting countries and others with close trade links to China.

Indian Economy

India saw a new government take control in the centre, which could be the stage for next generation of reforms, which are likely to put the Indian economy back into a high growth trajectory. India being a major oil importer saw its currency strengthen by close to 10 percent in real effective terms in last fiscal year. The economy grew at the rate of 7.4 % in FY2014-15 as against 6.9% in FY 2013-14. The key challenge to the economy continues to be inflation and hardening of interest rate, which is a challenge for new investments. However, Reserve Bank of India (RBI) in its monetary policy has taken some steps to bring down the interest rates. However, major infrastructure projects are still stalled and fresh investment in this sector has been few and far between.

Government of India has launched a mission of "Make in India", with a vision to make India a global hub for manufacturing. Indian economy has been riding the consumption story for last few years and a tactical shift to industrial growth would be key to achieving India's growth targets and build new demand.

Normal monsoons are key drivers of demand in the rural economy, some regions experienced unseasonal rainfall, which led to short term increase in food prices and decline in rural demand.

Industry Overview  

Auto Components Sector

The Indian auto component sector is expected to become $ 115 bn by 2021 on back of increased sale of automobiles and policy initiatives by the government. Electricals segment is expected to register highest CAGR among all the other segments during 2014-2019, due to the growing demand of electric start mechanism in two-wheeler segments and increasing penetration of electronic device to enhance fuel efficiency. Auto components industry has registered significant growth in volumes backed by increase sales by OEMs and evolving aftermarket segment, which is witnessing entry of organised player and consolidation. The turnover of the auto component industry is expected to be $38.3bn in 2014-15. and the individual players have invested in technology to meet the requirement of automobile sector, which has seen entry of several global names in last few years. Some Indian players have become global suppliers to leading OEM names across the globe.

Policy initiative of government of India -Automotive Mission Plan (AMP) 2006-2016 and Technology Up gradation and Development Scheme (TUDS) etc. are contributing significantly to the growth of Indian auto component industry.

However, increase in prices of input materials such as plastic and aluminium could deeply impact the margins of auto-component sector in general. Some of Indian auto-component players have obsolete technologies which needs technology up-gradation. The low-cost advantages associated with Indian auto component industry are anticipated to continue attracting new investors.

Exports - Auto Component Industry

Indian Auto Component Industry is a vital contributor to the GDP of the Indian Economy and contributes over USD 10 bn in exports which has been growing at the rate of 15% CAGR over past five years. Rupee has apbrciated by over 10% in last financial year, which lead to lower realization to auto component suppliers which were focused on exports. The exports are primarily done to countries in Europe, North America and Asia.

Indian auto component industry has adopted/licensed various technologies from partners across the globe primarily with players from Japan, South Korea, USA, and Europe. This has been an enabler for production of state of the art of the art technology, manufacturing processes and world class products. Free trade agreements have ensured access to raw materials as reasonable prices, which ensures that indigenous production is cost effective.

Growth Drivers of Auto Component Sector

1. GDP growth rate: Auto and Auto component space contributes ~ 7% to the entire GDP. Auto componentsector has generally witnessed growth rate which is twice the GDP growth rate. The overall economic scenario and sentiment about the future growth play a major impact on buying decision for vehicle user is likely to impact the purchase decisions of buyers of automobile.

2. Infrastructure spending: Indian infrastructure is likely to see increase in spending and new projects are likely to be taken up, which will drive demand for commercial and off-road application.

3. Falling Fuel prices: Fiscal year 2014-15 witnessed fall in fuel prices by almost 50% leading to increase in demand of new vehicles.

4. Interest Rate: Due to inflation RBI has not been able to bring down interest rates, in line with market expectation auto Component industry has to invest in developing and creating capacity to meet the future expectation of global and domestic markets. With new models being introduced, shortening of investment cycle and fresh investment in technology, manufacturing, sales and service network, is required. Much anticipated reduction in interest rate regime will eventually enable the growth of this sector.

5. Monsoon: A normal monsoon and lack of unseasonal rain is key driver to rural demand. Auto sector is likely to see increase in sales of 2 Wheelers and off road application (tractors) with near normal monsoon, which is brdicted for this year by Indian metrological department.

Business Operation Review

Switch Division

Minda Industries limited is the largest manufacturer of automotive switches in India. It provides end to end solution in switches, right from product development to production and aftermarket sales. The switches produced by the company are world class, which are widely used in two wheelers, three wheelers and off-road vehicles. Sales to OEM form the largest revenue segment, followed by aftermarket and exports. The vision of the company is to continuously encourage innovation and position itself as a technology leader and brferred supplier of 2W, 3W switches, Off-Road switches and Handle Bar System across the globe. End to end solution ensures that final product is innovative, state of the art technology, reliable, and cost effective.

Presently six plants are operating across India catering to marquee OEM customers like Bajaj, Yamaha, Suzuki, Hero Motorcorp, HMSI, TVS, New Holland, Eicher, Mahindra, TAFE, Royal Enfield etc. by the MIL's Switch Division. It has more than 100 patents and 129 design registrations. The switch division holds a lion's share of the company's turnover, contributing to 58% of the aggregate sales of Minda Industries Limited (standalone). The company, being a leader in this product segment is increasing its product portfolio and enhancing feature(s). Export constitutes to 7.1% of the sales of this business division.

Lighting Division

Lighting Division of the company caters to the four wheelers, two wheelers, three wheelers, and off road vehicles with focus on OEMs. A major part of the sales is derived from offering lighting products to distinguished OEM clients who includes Maruti Suzuki, Tata Motors, M&M, GMIL and Volkswagen among others. Lighting Division contributes to 22% of the company's sales. Of this, OEM sales constitute 85%, while exports offer 7% and replacement market gives a modest 8%.

Acoustic Division

Minda Industries Limited is among the leaders in India and globally second largest supplier of horns. This division has a strong thrust on design, product development and produces Automobile Horns for optimum sound performance & high durability. It has manufacturing units at Manesar and Pantnagar which are fully automatic/ semi-automatic set up with a world class lab facility and quality control processes. With a 43% market share, the company is the most brferred supplier of horns to Indian OEMs. Export constitutes 20% of overall sales of horn from its horn division.

Minda industries acquired Clarton Horns, Spain, a leading manufacturer of automotive electronic horns having customer base all major OEMs in Europe. The company has been working with Clarton Horns to realize synergies in European and other markets. Cost synergies have resulted in enhanced margins at the European entity level. The company is also exploring options to introduce electronic horns in India.

Battery Division

The Battery Division of the company is being hived off to Joint venture Company, Panasonic Minda Storage Batteries India Pvt. Ltd, with Panasonic holding 60% stake in the new entity and Minda Industries will hold 40% stake. The new joint venture company will address the growing market of lead acid storage batteries for two & four wheeler vehicles and UPS in India with leveraging knowhow and technology owned by Panasonic as well as customer bases of both companies. The planned capacity is 2mn units by FY2017-18.

In the fiscal year 2014-15, it manufactured batteries for 2W under the brand 'Ultimo for VRLA & Power Plus for Flooded batteries, currently the company is focused in the aftermarket segment.

Fuel Cap Division

Fuel Cap Division of the company is manufacturing fuel tank cap for 4 wheelers. OEMs have heavily depended on imported products which are gradually changing with certain OEMs opting for localizing the product. Fuel Cap Division is likely to see improved sales and margins backed by OEM demand and import substitution. Certain OEM are gradually replacing their imported fuel tank cap with the product of UNO MINDA.

Auto Gas Division

The Auto Gas Division of the company manufactures LPG/CNG kits and components for OEMs as well as for aftermarkets. The  OEMs client profile includes MSIL, TAFE, TML and M&M. It  also supplies kits & components to Honda Power for Industrial Genset.

Financial Performance  

Net Operational Income

The Company, on a consolidated basis, mopped up net operational income of Rs. 222,662 Lacs in FY 2014-15, up by ~ 30% against net operational income of Rs. 170,612 Lacs posted in the fiscal year FY2013-14. Export Overseas business constitutes~7% of overall sales at the consolidated level.

Operating Expenses

The Company, on a consolidated basis, incurred operating  expenses of Rs. 2,18,077 Lacs in FY 2015, up 28% against FY  2013-14 corresponding operating expenses of Rs. 1,71,156 Lacs. The rise was primarily on account of improved sales and cost optimization.

Net Profit

The Consolidated net profit was Rs. 6,797. Lacs in FY 2014-15, as against Rs. 718 Lacs in FY 2013-14 which has been achieved by cost rationalization and operating leverage.

Segmental Profitability

The Company has one business segment 'Auto Components including auto Electrical Parts and its accessories' as primary segment. The secondary segment is geographical, which is

Internal Control Systems

The Company has a proper and effective system of internal controls for financial reporting of various transactions, efficiency of operations, safeguarding of assets and compliance with applicable statute and regulations. It has a structured system of audit which is an ongoing basis to review the adequacy of internal control systems. The internal control is well-designed to ensure that financial and other records are reliable for brparing financial information and other data.

The Company also has an exhaustive budgetary monitoring control system in place. Actual performance is evaluated with reference to budgeted performance by the management review committee as on-going basis. The discrepancies of actual performance with the budgets are analysed on a regular basis and possible remedial actions are suggested by the management review committee, in consultation with the audit review committee.

The internal audit is being carried out by the internal team as well as by M/s. Protiviti Consulting, internal Auditors of the Company. Their reports are being reviewed in the audit committee meeting and the counter measures, if any, to strengthen the internal controls are also taken in this regard. Further, the suggestions made by internal audit committees are reviewed and considered by audit committees on a quarterly basis for improvement of internal controls and systems within the Group.

Further the suggestions made by the Internal Audit Committee is brsented to the Board. The Board reviews and approves the same from time to time. The action taken report(s) are also reviewed by the audit committee members as well as the Board members.

Human Resources

Minda Industries is committed to maintain harmonious industrial relationship with its employees. We also believe that employee participation and contributions are key enablers for success and growth of the company.

"Pathshala" is the evolved concept of the company for the employees under which, training programs are organized for skill enhancement in various spheres of work.

The Company imparts training to all fresh recruits, to ensure  that they join hands with the Company and work in sync to achieve Company's goal and scale to new heights. Recruiting, retaining and motivating the best talent in the industry, ensure their development is one of the foremost challenges in today's business environment.

The Company focuses on grooming the existing talent base as well as new talent, to enable them to take positions of greater responsibility within the Company. All the new recruits are trained to become socially, professionally and culturally integrated. The Company also follows a robust performance management system to encourage all the employees achieve their targets and perform their responsibilities.

The UNO MINDA group companies have a strong thrust on quality which is achieved through activities like kaizen and quality circle. 5S is being done at all level to improve the productivity and efficiency of the employees. All employees are made aware of and have access to the central database of HR policies covering all aspects of welfare, benefits and administration.

Outlook

Indian auto component industry is one of the few sectors in the economy that has a distinct global competitive advantage in terms of cost and quality. UNO MINDA is focused on end on end product solutions to the OEMs, right from product development to manufacturing reliable products at the state of the art manufacturing facilities delivered to OEMs and aftermarket at cost effective price in both in India and abroad.UNO MINDA is clearly positioned as technology leader in various product line, backed by strong R&D and Joined Ventures with leading technology partners in the respective product lines. Innovation and constant up gradation of products with enhanced features would be key to our business strategy.

Indian Automotive market is seeing increased participation of global automotive players and shortening of product life cycle which is throwing up big opportunity for Indian OEMs to become global player in true sense and India becoming a global hub for automotive components. UNO MINDA would seize the opportunity by investing in technology, processes and people to achieve its goal to become renowned automotive component player across the globe.