MANAGEMENT DISCUSSION AND ANALYSIS REPORT - 2016

Industry and Company Trend

2015-16 witnessed positive developments with some of the OEMs commencing to do better over last year in their production and sales volumes.

Automobile industry annual production volumes were 239.61 lakh units for the year 2015-16 as compared to 233.58 lakh units for the year 2014-15 indicating a growth of 2.6% in volumes.

Automobile industry annual sales volumes were at 241.11 lakh units for the year 2015-16 as compared to 232.98 lakh units for the year 2014-15 indicating an overall growth of 3.5%.

The above growth was possible mainly due to higher production & sales volumes in the Commercial Vehicle Segment (Goods carrier in the M & HCV segment), Utility Vehicles and Scooters/ Scooterettes - all had a growth of over and above 10% when compared to corresponding brvious year. Also growth was seen in the Passenger Vehicle segments and Commercial Vehicle Segment (Passenger carrier in M & HCV segment and both Goods and Passenger Carrier in the LCV segment). The Three Wheeler segment and part of Two Wheeler segment (Motor Cycles and Mopeds) had a marginal drop.

During the year 2015-16, the Heavy commercial segment (mainly Goods carrier) exhibited signs of pick-up with a growth of 31%, both in production volumes and sales volumes as compared to the brvious year 2014-15. However the Light commercial segment has just started recovering and has registered a marginal growth of 2.8%.

Passenger car segment had a moderate growth of 6% in both production and sales volumes as compared to 2014-15.

Exports in Automobile sector for the year 2015-16 registered a marginal growth of 2% as compared to brvious year 2014-15.

Your company showed a marginal decline of 4% in sales during the year 2015-16, as compared to year 2014- 15, with a marginal growth of 2% in Export segment, and a negative growth of 4% in the domestic OE segment and 8% in the domestic Aftermarket segment.

Opportunities and threats

In view of the emerging trends in the world market, from drum brake linings to disc brakes for commercial vehicles, your company is continuing to give special focus on Commercial Vehicle Disc Pad development.

Entry of new Friction Material Manufacturers in organized sector had increased competitive brssures during last year, and the trend is continuing and also manufacturers, both in the organized as well as in the unorganized sector are continuing to offer low priced asbestos and non-asbestos linings for Medium & Heavy Commercial Vehicles, and this has affected your company's sales growth and margins.

In order to counter the above, Your Company has developed suitable products with new generation technology, and is in the process of re-entry with a major OEM and retrieving the lost share of business with another major OEM.

Also, as part of medium term strategy, Your Company is focusing on the two wheeler segment and Domestic Aftermarket segment

Risk and concerns

Investment in infrastructure, economic reforms and good monsoon are essential for sustaining growth of the Indian Economy.

The Indian Commercial Vehicle industry has strong correlation with the agricultural growth, infrastructure development and the mining industry and is cyclical. The Company's performance in Commercial Vehicles segment is linked to the above mentioned factors.

Competition has increased in the Friction Materials Industry due to entry of new players and expansion plans of existing ones. The Company is aware of the increasing competition and has been taking customer focused measures to remain competitive in the market place.

While the company continues to pursue cost reduction initiatives, increase in price of input materials could impact the company's profitability when they are not compensated by customers. Crude oil prices have been on the declining trend in the last financial year which helped the company in achieving significant reduction in expenditure for fuel. Reversal of this trend will impact the company by way of higher expenditure for fuel.

Internal Control System

The company continues to maintain a system of internal control including adequate monitoring procedures.

The internal auditors ensure operational control at various locations of the Company on a regular basis.

Any irregularity or significant issues are brought to the attention of the Audit Committee of the Board and Chairman/ Managing Director of the Company and countermeasures are taken for complying with the system.

Quality and Quality Management Systems

Your Company is continuing its focus on improvements to the quality systems at all levels through Total Employee Involvement with a view to provide higher customer satisfaction. Your Company continues to closely monitor and focus on various cost reduction and cost control initiatives to achieve planned targets during the year.

Human Resources / Industrial Relations

Industrial Relations in all our plants remain cordial. The Company continues to review and upgrade its HR and management policies to improve peformance. The total number of employees on roll as on 31st March 2016 in all the plants was 1,391.

Accounting Treatment

The Company has followed all the applicable Accounting Standards issued by the Institute of Chartered Accountants of India in the brparation of financial statements.

Cautionary statement:

Certain statements in the "Management Discussion and Analysis Report" may be forward looking and are as required by applicable laws and regulations. Many factors may affect the actual results, which could be different from what the Directors envisage in terms of the future performance and outlook.