MANAGEMENT DISCUSSION & ANALYSIS Economic Review Global Economy The global economic growth rate remained stable at 3.4% in 2014, as per IMF's April 2015 World Economic Outlook. The US economy exhibited a strong recovery due to higher consumer demand supported by an improvement in the employment rate. In the advanced economies in general, inflation remained low due to weak economic activity and soft commodity prices. Hence, accommodative monetary policy remained essential in many advanced economies such as in Japan and in the Euro Zone. Emerging economies witnessed a continued weakness in growth and expanded by 4.6% in 2014 as against 5.0% in 2013. IMF brdicts the global economic growth to remain virtually unchanged at 3.5% in 2015 India Economy India started the year FY15 with a new majority Government at the centre. Consequently, policies and reform measures aimed at increased budgetary allocation for infrastructure, higher FDI limits in critical sectors and greater ease to do business enhanced global investor's interest in India. With a fall in commodity prices globally, India witnessed a significant decline in inflation. The Wholesale Price Index (WPI) fell from approximately 6.0% at the start of FY15 to -2.3% in March 2015, making it the fifth consecutive month of a decline in WPI. IIP expanded by 2.8% in FY15 as against a decline of -0.1% in FY14. However, persistent weakness in consumption and a slower than expected recovery in the capital goods sector continues to impact industrial production. Capital formation has been a major problem for the economy with a slowdown in investments by both the private sector and the government. The Indian economy expanded by 7.4% in FY15 compared to a growth of 6.9% in FY14. In terms of economic activity, most sectors of the economy improved in FY15; 'agriculture, forestry and fishing', 'mining and quarrying' and 'public administration defence and other services' have been the exceptions. With inflation largely under control, RBI reduced the Repo rate twice in Q4 FY15. The dual effect of lower than expected inflation and weak IIP numbers in March are likely to lead to cuts in interest rates to revive consumer demand and spur investments .The government's strategic reforms focused on reviving the infrastructure sector and increasing exports in particular,are expected to lead to a further rise in economic growth in FY16. Automobile Industry The Indian automotive sector is undergoing a slow recovery from a period of prolonged contraction owing to weak domestic demand. As per SIAM, the sector registered a growth rate of 7.2% in sales volume in FY15 driven by a recovery in passenger vehicles(PV) and medium & heavy commercial vehicles (M&HCV) and the continued growth in two wheelers. Growth in automobile production volume stood at 8.7% in FY15. PV volume grew by 3.9% during FY15 compared to 4.8% in FY14. CV sales grew by 16% in FY15 as a result of a pick-up in investments in infrastructure as well as in the manufacturing space and also as a result of renewal of mining activities. The three wheeler segment grew by 10.8% in FY15 compared to a decline of (10.9) % in FY14. Exports grew by 15% in FY15 (Source: SIAM). Export demand continues to stay robust on the back of growing demand from the US, Sri Lanka, Bangladesh and parts of Africa. Backed by a revival in the India economy, demand in the automobile industry in India is expected to improve further. The fall in crude prices, inflation and cost of borrowing would further enhance the growth prospects over the coming years. The growth in the automobile sector is expected to continue through FY16. The major share of this growth is expected to come from the commercial vehicle segment with an anticipated growth rate of 10-13%. Low vehicle penetration With only 18 out of 1,000 people owning a vehicle, the vehicle penetration in India is amongst the lowest in the world; it stands at 809 in US, 519 in the UK and 101 in China. Clearly, there is huge potential for growth of the automobile sector in India. Growing Income level As per a report by McKinsey, the middle income group in India is expected to be 583 million in size by 2025 which would be 40% of the total population. The income group brings with it increased automobile demand which also augurs well for the automotive parts industry in India. Huge potential of rural market Rising rural income, helped by minimum support prices and employment guarantee schemes such as MANREGA, has enhanced the purchasing power of the rural population. However, below than normal monsoons in the brvious year adversely affected crop production dampening rural demand for automobiles. Indian Auto Component Industry The Auto component industry can broadly be classified in to organized and unorganized sectors wherein the organized sector largely caters to the OEMs and the unorganized sector caters to aftermarket. The estimated size of the Indian auto component industry is Rs. 2.1 trillion; the domestic OEM segment contributes more than 50% of the total revenue (Source: ICRA). The industry reported a production volume growth of 8.7% in FY15. The automobile industry is facing cost brssures due to increasing input cost. However, the recent fall in global commodity prices has provided support to the industry and has supported margins. Government initiatives aimed at making India a manufacturing hub further brightens growth prospects for the industry. With increasing focus on technology, the demand for India-made auto components has risen over the years. Total exports in the year FY14 stood at US$10.2 billion. According to ACMA, the Indian auto component industry is expected to grow to US$ 115 billion by 2020-21, of which exports would be US$30 billion. International Auto Component Industry Internationally, the automobile industry of major economies is at various stages of a recovery from the prolonged overhang of the global slowdown. Sales volumes in the US reached record levels driven by a strong economic revival. Europe's car sector also has been showing signs of growth over the last year, with 2014 new passenger car registrations up 5.7%, according to the European Automobile Manufacturers' Association. The automotive industry in Asia continues to face headwinds. As China's labor becomes more expensive, some of the European automobile companies are shifting production back to Europe. Sales in Indonesia have been impacted by erosion in the purchasing power due to high inflation. Demand in the region is likely to remain weak through 2015 but start to recover in 2016. Key growth drivers for Auto Component Industry Growth in Automotive sector: After a prolonged phase of contracting demand, the automotive sector in India is gaining traction with increased demand of passenger vehicles and a gradual recovery in the commercial vehicle demand. Replacement market: With rising new sales and ageing of vehicles, the replacement market in India continues to remain strong. Also the new generation is more focused towards branded products and value quality service. Hence the growth prospects for the organised auto component industry remain strong. Export: India is fast transitioning from a focus on low cost manufacturing to high end products which use advanced technologies. This has led to increased demand for Indian auto components in the global OEM market. Operational Highlights Capacity Expansion: During the year, the Company set up a new plant in Czech Republic under Minda KTSN, Germany. The Plant would manufacture Ashtray, Storage Box, Cup Holders, and other sub-assemblies (air vent). Minda Furukawa Electric Private Limited has setup two new plants, one in Noida and second in Chennai. Associations: Minda Management Services Limited, a subsidiary of the Company has entered into a 50:50 joint venture with the US-based Vehicle Access Systems Technology LLC(VAST) for vehicle access components and systems targeted at auto manufacturers. The joint venture entity, Minda VAST Access Systems Private Limited (Minda VAST), will have operations in Pune and Delhi-NCR. VAST, a global supplier of security/access control products for the motor vehicle industry,will provide support to the JV for the locksets, steering column locks, latches, strikers, socket bows, handles, immobilisers, passive entry, start systems, ignition switches, hinges and power access. New products added: During the year the Company added the following: • MCL- Magnetic module lock set (mainly for scooters) Minda VAST- Electric steering column lock identifier, Passive entry, Door handle, Latches MASL- Control cables, CDI, Filters, Wiper blades, Ingnition coil, Regulator Rectifier Research and Development With a state-of-the-art centralized R&D facility and a dedicated cell for new technologies, the Company has built a long track record of market-first products. The Company also has a tie-up with brmier technical institutes like IITs and NITs for innovative products and has filed 31 patent applications and 5 registered patents. Financial Overview (Consolidated) Total Income: Total operating income was Rs. 19,706 million in FY15 up by 23.6% over Rs. 15,939 million in FY14. Sales from domestic operations increased by 23% and those from international operations increased by 25%. Safety Security & Restraint Systems sales increased by 18.5% and Driver Information & Telematics System sales increased by 54.1% while the Interior Systems remained flat. EBITDA: EBITDA growth during the year has been 33.4%, up from Rs. 2,082 million in FY15 from Rs. 1,561 million in FY14. EBITDA Margin for the year FY15 stood at 10.6% as against 9.8% in FY14. Margin expansion was on account of effective cost control measures. Net Profit: Net Profit was higher by 12.8% at Rs.895 million in FY15 compared to Rs.793 million in FY14. Balance sheet Analysis (Consolidated) Shareholders Fund The authorized share capital of the Company is Rs. 642 million comprised of Rs. 450 million equities divided into Rs. 225 million equity shares of Rs. 2 each and Rs. 192 million divided into 240 thousand 0.001% Cumulative Redeemable Preference Shares of Rs. 800 each. The paid up share capital as of 31 March 2015 was Rs. 606 million. As of 31 March 2015, Minda Corporation has reserves and surplus of Rs. 4,059 million. The total Net worth increased from Rs. 3,894 million at the end of FY14 to Rs. 4,666 million at the end of FY15. Leverage Profile As of March 31, 2015, the Company had Total Debt of Rs. 4,451 million and Cash and Cash Equivalents of Rs. 441 million amounting to Net Debt of Rs. 4,010 million. Total Debt consisted of Rs. 2,644 million of short term borrowings and Rs. 1,807 million of long term borrowings. Dividend For FY15, the Board recommended a final dividend of 10% which takes the total dividend for the year to 20%. Dividend payout increased from Rs. 42 million in FY14 to Rs 84 million in FY15. With the global economy gradually reviving and India also producing more to cater to an improving domestic and international automobile demand, the prospects for the automobile components industry seem bright. India's auto component industry, with a low cost advantage, is likely to be able to garner a greater share of the global industry. Minda Corporation, known for its technologically advanced products and a broad product offering, is well poised to capitalize on an improving demand both on the domestic as well as global front. Human Resources Minda Corporation firmly believes that its employees are the key assets of the Company. They are enablers who help in the success and expansion of the Company. The Company exercises due care in training all fresh recruits each year to ensure a sense of collective responsibility in achieving the Company's goals. Once the best talent has been recruited and trained, retaining and motivating them to grow with the Company is important to ensure inclusive growth. Minda believes that the achievement of its objectives largely depends on the ability to innovate continuously, connect closely with the customer, and create and deliver unmatched customer value. During the year under review, Minda maintained cordial relationship with all its employees. There was no loss to production across any of the manufacturing facilities due to industrial unrest. The Directors would like to acknowledge and apbrciate the contribution of all employees towards the performance of the Company. As of 31 March 2015, the Company employed more than 11,200 employees. Statutory Compliance The Company Secretary, as compliance officer, ensures compliance of the SEBI regulations and provisions of the Listing Agreement. The Chief Financial Officer and the Chief Executive Officer and Managing Director together act as the Compliance Officers for the brvention of insider trading. With a view to cover the risk of compliance with various rules and regulations of the Companies Act, and the Listing Agreement. The Company has appointed Internal Auditors to ensure reporting of any potential non-compliance. Compliance certificates are obtained from various managerial personnel to ensure compliance with provision of various statues. Internal Control Systems The Company follows a strong system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition and that transaction are authorized, recorded and reported quickly. It reviews the adequacy of internal control systems from time-to-time. The internal control is well-designed to ensure that financial and other records are reliable for brparing financial information and other data, and for maintaining accountability towards assets. The Audit Committees of the group companies review on a continuous basis the internal audit reports of companies operating in domestic markets and those incorporated in Europe and operating primarily in the overseas markets. The committee also meets periodically to review the findings of internal and statutory auditors' reports and advise the management on corrective policies and controls to be adopted by the Company, consistent with the organizational requirements. A CEO and CFO Certificate, forming part of the Corporate Governance Report, confirms the existence and effectiveness of internal controls and reiterates their responsibilities to report deficiencies to the Audit Committee and rectify the same. The Company has appointed M/S TR Chadha & Co. as their internal auditors and submits periodical reports to the Audit Committee. Risk Management Geo-Economic Risks Minda has a global brsence and most of the subsidiaries are located in Europe and Asia. Over the last year, the automobile demand in Europe has improved. The Company has reported a growth in exports, but any slowdown and unexpected regulatory changes in the region could impact the business of the Company. Mitigation: The Company has no control over risks affecting the world economy. However, the Company is working towards diversifying its business across different geographies to hedge the risk. Exchange Rate Risk The Company has manufacturing plants and operations across the world and is actively engaged in sale of products to customers' globally. Therefore, Minda's revenues and profitability is sensitive to fluctuations in foreign currency exchange rates and in particular, exposed to fluctuations in Euro and the different Asian currencies. Changes in foreign currency exchange rates may have an impact on the pricing of the Company's products and materials, financial condition and results of operations. Mitigation: The Company closely monitors currency risk and establishes appropriate positions in forward contracts to mitigate the risk. Technology Challenges The group companies specialize in products such as lockset, wiring harness components and automotive wires. Any changes in technology may make the existing products of the Company obsolete and thus have an adverse impact on the business. Mitigation: The Company maintains a continuous focus on R&D to compete with other players in the market. During the year, Minda entered into a collaboration with VAST, a global alliance of STRATTEC, ADAC Automotive USA and WITTE Automotive Germany which has enabled an expansion of the customer base and provided access to new technologies. Raw Material and Supply Risk The procurement of raw materials and components used for manufacturing the products from external sources is a risk for the Company. Mitigation: The Company keeps a watch on the movement of commodity prices, and maintains the inventory for the operation cycle. Sharp increase in the commodity prices globally may have an adverse effect on the manufacturing cost and margin of the Company. Commodity Risks Commodity prices are a function of the global demand and supply of the respective commodities. Any major increase in prices, will increase the production cost and thereby the prices of components. It may hamper the revenue of the Company. Mitigation: As the commodity prices are not in the control of the Company, it always endeavor to have back to back arrangement for change in commodity price risk. Corporate Social Responsibility In continuation to the legacy of a responsible corporate citizenship, the CSR activities being undertaken at the group are derived from the triple bottom line model of People, Planet and Profit. At the corporate level, the Group has formed the CSR Committee and a CSR Team at the execution level. Different aspects of sustainable development such as Environment & Resource Protection, Health & Safety, Water & Energy Conservation and Waste Management are given due emphasis. The Company considers its human capital to be an integral part of the inclusive growth agenda and carries out various employee benefit activities, schemes and policies. The Company established the Spark Minda Foundation, a 100% subsidiary of the Company, to carry out the CSR activities of the Group. The annual report on Corporate Social Responsibility activities as required under Sections 134 and 135 of the Companies Act, 2013, read with Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 and Rule 9 of the Companies (Accounts) Rules, 2014 is provided in the [Annexure forming part of this Report]. During the year, the Company spent Rs. 28.78 lacs on CSR activities as per the CSR policy of the Board. Community Developments Projects Aakarshan is a vocational training program in which children and youth from under privileged societies are trained on basic computer, cutting, tailoring and spoken English and the project is executed in collaboration with the village Panchayat. This training has been imparted to more than 500 boys and girls in FY15 at Greater Noida, Pune, Chennai and Pantnagar. Health and Sanitation Projects The Company has done an assessment in schools and observed that a huge dropout of children takes place due to lack of sanitation. The toilet construction project was started in 2013 and this also supports "Swachh Bharat" and "Swachh Vidyalay Abhiyaan" by the Government of India. |