MANAGEMENT DISCUSSION AND ANALYSIS ECOMONY OUTLOOK: In July 2013, India was teetering on the edge of macroeconomic crisis with double digit inflation, a high and rising current account deficit (CAD), and a falling rupee as investor sentiment turned sour in the aftermath of the Fed's taper decision to signal the end of its quantitative easing. India was grouped with Brazil, Indonesia, Turkey, and South Africa to constitute the Fragile (Famous) Five amongst the emerging market countries (EMs). Nearly 18 months on, the landscape has vastly changed. Macro-economic stability has returned, reforms are being undertaken, the external environment has moved in India's favour, and above all, a new Government has come into power with a relatively unencumbered political mandate for decisive economic change, a mandate that markets have enthusiastically embraced. The Indian stock market has increased in value by 33 percent since March (in dollar terms), amongst the highest in the EMs, benefitting from surging foreign capital inflows. India now rebrsents one of the sparks in the world economy and the only major country not to suffer a growth downgrade by the IMF. From Fragile Five to Near-Solitary Spark of the global economy is the Indian narrative of the last year. At the same time, the external environment has turned in India's favour. In this fiscal year, there has been a substantial reduction in the global prices of India's major commodity imports -petroleum, gold, coal, vegetables oils, fertilizers, and silver (that together constitute 51 percent of total imports and 12 percent of GDP). The reduction in prices has been substantial in some cases-40 percent in the case of oil, so that the average reduction weighted by GDP is about 1.8 percent of GDP (around 1.5 percent of GDP if India's exports of oil are also taken into account). It also noted the possibility of growth remaining on the lower side of the range for the following reasons: (i) lagged effects of reforms undertaken to restart the investment cycle; (ii) weak growth outlook in some Asian economies, particularly China that would debrss Indian exports; (iii) elevated levels of inflation that limit the scope of RBI to reduce policy rates; and (iv) expectation of below-normal monsoons. The prospect of economic reforms and a stronger-than-expected recovery in some major advanced economies, especially the United States, were expected to bolster the Indian recovery. THE GROWTH OUTLOOK Medium-term economic growth depends on ensuring macro-economic stability (which India is achieving) and on creating an enabling environment for the private sector to invest which the new Government has embarked upon reflected in the policy reforms enacted thus far and described earlier. Fundamentally, India's medium-term growth prospects are promising, and trend rate of growth of about 7-8 percent should be within reach. 'Make in India' initiative of the government coupled with the interest rate reduction cycle is expected to bring an economic revival and increase spending on infrastructure and related sectors. This will provide a huge opportunity for the industrial products. In addition, the government's emphasis on import substitution to reduce the import bill opens up sectors like railways and defense and it augurs well for the domestic Indian manufacturing companies The Indian Forging Industry has been steadily losing its export market to Chinese manufacturers as they enjoy a 15% export incentive on the FOB value, this has made Indian manufacturers non-competitive barring a few who enjoy large technological advantages for specific forged products over the Chinese manufacturers and maybe even over other global manufactures, though they too are losing domestic market share to Chinese imports. The Government through policy initiatives could level the playing field for the Indian Forging Industry. Indian Steel is approximately 10% more expensive than international ex-factory prices. This differential could be bridged by quick resolution of the mining issues being faced by the Iron Ore and Coke mining Industry, as well as resolving the land acquisition issues being faced by new entrants in steel manufacturing, a classical example is the Posco Steel Project planned in Orissa which is stuck for almost what seems like a decade. The industry at large is having year old and obsolete technology, which need improvement in order to sustain. The Die, mould and tool wear are major reasons for production downtime and increased costs in most industries. OPPORTUNITIES The Management of the company is all set to improvise by adopting few measures such as 1. Using strong base metals for making dies, with effective treatments to increase service life. 2. By carrying out Nitriding Gas Nitriding / Plasma Ion Nitriding are popular surface hardening treatments hardening the material up to 64 HRC. However Nitriding is a capital-intensive technique. 3. By carrying out PVD, CVD Treatments like PVD (Physical Vapour Deposition) and CVD (Chemical Vapour Deposition) are popular in the machine-tool industries in America and European countries. It ensures surface hardness of up to 90 HRC. 4. By using the alternate source of energy used in furnace for heating the material before it's been forged, in this new research and development company is able to achieve the target by saving in the cost, time and environment. As it is well established fact that the forging industry is capital intensive industry and need huge finance not only for setting up a new unit or upgrading but even for running the same. The company whole heartily supports to the proposal for lower rate interest loans as well as specific alteration in applicability or alienation of MAT provision of Income Tax Act. RISK AND CONCERNS Your Company is continuously evolving and improving systems and measures to take care of all the risk exigencies involved in our business in addition to specific risk which are to do with the company's business model. These risks include: a) Market Risk b) Currency Risk c) Interest Rate Risk d) Insolvency Risk INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY The Company has in place internal financial control systems, commensurate with the size and complexity of its operations to ensure proper recording of financial and operational information and compliance of various internal controls and other regulatory and statutory compliances. The internal auditor monitors and evaluates the efficacy and adequacy of internal control systems in the Company. Based on the report of the internal auditor, respective departments undertake corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions thereon are brsented to the Audit Committee of the Board. CAUTIONARY STATEMENT This management discussion and analysis contains forward looking statements that reflects our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in the forward looking statements as a result of many factors. For and on behalf of the Board of Directors Yuvraj Malhotra Chairman & Managing Director DIN:00225156 Navraj Malhotra Whole Time Director DIN: 00225183 Place: Mumbai Dated: 05/08/2015 |