MANAGEMENT DISCUSSION AND ANALYSIS 1. Overview of the Economy: The global economy stumbled in 2015, amid weak aggregate demand, falling commodity prices and increasing financial mar-ket volatility in major economies. The growth rates of gross fixed capital formation and aggregate demand continue to remain subdued. The Gross Domestic Product (GDP) advanced 7.6% in the year 2015-16. The improvement in global growth is also brdicated on easing of downward brssures on commodity prices, which should encourage new investments and lift growth, particularly in commodity dependent economies. The construction, engineering and the capital goods sectors account for a share of more than 60% of the end-use consumption partent of the steel wire ropes industry. Growth in these sectors is highly co-related to the growth in investment in the infrastructure activity of an economy. Wire ropes finds application in many of the engineering and construction related activities such as material handling, mining, ports and shipping, construction equipment (structural and cranes), construction of bridges, elevators and escalators etc. 2. Industry Structure and developments: While China continues to remain as the world's top producer of steel followed by the USA and Japan, the Indian steel industry remained the world's fourth-largest steel producer for the fifth year in a row. With not much gap in production, India is closing in on USA and is expected to surpass it soon with the ongoing expansions by the steel players in India. Production in India has been on a rise with a CAGR of 8.4% from FY10-FY15. India has set ambitious targets to go up from the brsent installed capacity of about 101 MTPA to as high as 300 MTPA by 2025. The per capita consumption of steel in India also continued to remain low as compared to other countries, indicating further potential growth of the domestic steel industry. In the medium term as well, the leading steel producers in India have lined up plans to increase their steel capacity in line with the expected increase in the domestic consumption of steel. However, with the current pace of expansion, the Indian steel industry over the next 3-4 years is only likely to add another 15 million tonnes of capacity, taking the domestic steel capacity at around 115 MN tonnes by FY 18. Wire ropes are a value-added product, formed from wire rods, which falls in the long steel category of steel products. Over the years, with significant improvement in the strength of wire ropes manufactured, the usage of these wire ropes has significantly increased in various diverse applications. 3. Our Business: Bharat Wire Ropes Limited is a wire rope and wires manufacturing Company established in the year 1986.The Company is engaged in manufacturing and sales of wire ropes, structural strands, slings and wires which find its application in general engineering, fishing, elevators, cranes, material handling, power transmission, suspension bridges, onshore / offshore oil exploration, ports and shipping, mining, defence, railways etc. The Company is also engaged in the business of trading of the steel related products. The Company's existing steel wire ropes manufacturing facility with an installed capacity of 12,000 MTPA is located at Atgaon, The Company also have a Pyrolysis plant with an installed capacity of 1,260 MTPA at Chalisgaon, Maharashtra for production of oil, which is used as fuel in the current manufacturing process. The Company is in the process of further enhancing its capacity to manufacture wire ropes, structural strands and slings by setting up a fully integrated manufacturing facility with an installed capacity of 66,000 MTPA at Chalisgaon, Maharashtra. The Company has around 29 years' of experience in wire rope business with an established client base which helps in con-tinued business. The Company believes that its strength lies in providing quality deliverables which enables us to withstand competition and develop long lasting relations with the customers and to secure repeated orders from the customers. Owing to the Company's timeliness and consistency in product quality as well as industry expertise, the Company has been awarded rate contracts by certain customers. This has helped the Company to nurture long-term relationships with our customers. 4. Opportunities and Threats: The value chain of the wire ropes industry covers manufacturing of wires through wire rods and further from wires to strands and ultimately wire ropes are produced from strands. Those players, who are brsent across the value chain, gain an advantage over other players in the market. However, there are hardly any players in the Indian market, which are brsent throughout the value chain. The value chain of the wire ropes industry can be best understood with the graph shown below. The major sectors that drive the demand for the wire-ropes industry includes the sectors such as Engineering & Construction, Oil & Gas, Mining and the Shipping & logistics industry. As per industry estimates, the engineering & construction segment accounts for more than 60% of the end-use consumption share of the wire ropes industry. This includes demand from elevator ropes, aerial haulage, structural systems, general engineering ropes etc. Further, the oil & gas industry accounts for a share of another 20% (demand from offshore activities), followed by the mining industry, which accounts for a share of about 10%. Within the oil & gas industry, while the offshore segment generates demand for the wires ropes industry, the anchoring and mooring activity also requires the usage of different types of wire ropes. The dominant threats faced by the Company are in the form of competition it faces in the industry it is involved in. In particular, the Company competes with other wire rope manufacturing companies, both in India and abroad, on the basis of a number of factors, including but not limited to quality, time of delivery and price. Fluctuations in the price, availability and quality of raw materials used in our manufacturing process, could have a material adverse effect on cost of sales or the Company's ability to meet customer demands. There can be no assurance that the Company will always be successful in its efforts to protect the business from the volatility of the market price of raw materials, and the business can be affected by dramatic movements in prices of raw materials. The Company may be required to keep pace with the rapidly changing technological environment, which will require increas-ing in investment in superior technology in order to compete efficiently, reduce competitiveness, and increasing the ability to develop new products and the consequential quality of the Company's products. The Company expects competition in the business and pricing terms to increase and such competitive brssures could also lead to increases in expenses such as adver-tising and sales promotion and marketing expenses. Further, the Company may be required to undertake effective marketing initiatives to deepen the brsence of our brand and differentiate it from competition. 5. Segment-wise or Product-wise performance: The Company manufactures wire ropes for various major sectors including but not limited to general engineering, fishing, elevators, cranes, material handling, power transmission, suspension bridges, onshore / offshore oil exploration, ports and shipping, mining, defense, railways etc. The Company believes that its ability to cater a wider customer base on account of its diversified product offering has enabled the Company to provide customization options to its valued customers. To further strengthen the Company's product mix, the efforts have been made to focus on niche sectors for providing wire ropes such as non-rotating ropes, suspension bridge ropes. The Company believes that its ability to provide a mix of high-value niche products along with being active in the volume segments has helped in balancing the Company's revenues. With the proposed capacity expansion by way of setting up of the Proposed Project, the Company envisages the strengthening of its ability to provide value-added products by having a greater range as well as capture a larger customer base with such increased range. Wide range of products manufactured by the Company can be understood with images shown below: 6. Business Strategy: I. Expansion of Company's brsence in the domestic markets: The Company seeks to expand and enhance its brsence in the existing business segments by identifying markets where it can provide cost effective, technically advanced products to its clients. The Company plans to cater to various customers from different geographical locations by following the direct market route for larger consumers and by utilizing zone-wise local distributors to serve the wide customer segment. The Company also plans to create awareness about its capabilities, its products and their quality by advertising in the relevant print media, participation in industrial trade exhibition and brsentations to large scale customers. The Company intends to focus on conducting technical workshops, seminars for customers/large scale end users to enhance their knowledge of rope applications and technical characteristics of ropes. The Company proposes to set-up branch offices in major cities where their major end-users are based to provide greater client-interfacing. For the purpose of catering to a large customer base, the Company proposes to increase its distribution network by identifying and appointing dealers across all major cities. Further, the Company aims to procure product approvals/registrations from/with all major engineering consultants and equipment suppliers. The Company also aims to build-up its sales force which will enable the Company to effectively market their products. In this regard, the Company will make efforts for formation of a core marketing and technical team for customer development, brand building and continuous market survey and establishment of an after sale service team for customer feed-back and customer satisfaction and attending customer complaints. II. Focus on development of international markets for the Company's Products: The Company plans to enhance its brsence in the international market by introducing a wider range of products that adhere to international standards. The Company's initial approach will be of offering products at competitive prices and then eventually offering high quality products at brmium prices. The Company serves the South African, African and the Middle Eastern markets through some of the local wire rope dealers. With increase in product range and improved quality of the products, the Company propose to make them the exclusive dealers and thereby enhancing the range of products provided to such exclusive dealers which will include mining, port, forestry, oil and gas, structural strands / ropes and other general engineering ropes. Our other target markets are USA, Canada, Brazil, South-East Asia, Singapore, Middle East, Russia, Africa, Europe and Australia. The Company proposes to create a separate marketing team at its Head Office to co-ordinate with their local rebrsentatives, to be appointed, in all major strategic locations in the international markets in which the Company intend to sell its products. For servicing the South East Asian countries, Australia and Vietnam, the Company proposes to set up a warehouse and sales office in Singapore, which owing to its infrastructure facilities in respect of ports, would serve as a suitable export hub. The Company also intends to enter the Russian and European markets by establishing a network of dealers. III. Strengthening of product portfolio and developing capabilities to manufacture a wider range of products: Company's endeavor to constantly improve quality of wire ropes as well as increase the range of wire ropes to cater to its customers 'requirements both within its own product framework. At the Company's Proposed Project, the Company intends to manufacture wires independently, thereby eliminating the dependency on the limited types of wires available in the market and enabling the Company to manufacture and offer an increased range of wire rope products, including but not limited to marketing high performance crane ropes for ports, large diameter spiral strands for structures and bridges, elevator ropes, high performance mining ropes, long-life-cycle fishing ropes, onshore and offshore ropes and special ropes for construction sector. Our product range will cover all types of ropes from 6 mm to 125mm, tensile grade up to 2160, plasticated, compacted, galvanized and black. The Company believes that this will enhance visibility of its brand and have a substantial increase in the profitability in future. IV. Meeting Quality Standards and developing customer focus: Company's driving force has always been the quality of its products, as the same would enable the Company for long standing relationship with its customers. Company's technically qualified persons are determined to achieve the objective of zero defects and zero rejection. To complement the efforts of technical team, the Proposed Project will be equipped with testing facilities to ensure that all our products are thoroughly tested prior to dispatch from our factory. Company's testing and development laboratory will play an integral role in making improvements in design and quality of its products and development of special products. Company believes these high quality tools will achieve various technical parameters for physical and chemical properties of different types and sizes of wire rope products. Further, the Company proposes to enhance its efficiency by introducing advanced machinery and reducing its dependency on manual labour thereby capital-izing Company's method of production. For servicing the Company's growing need for a standard grade of wire rods, the Company proposes to establish formal tie-ups under rate contracts with reputed wire rod manufacturers. This will enable the Company to achieve Company's aim of providing quality products on a continuous basis. 7. Risk and Concerns: Risk management is embedded in the Company's operating framework. The Company believes that managing risks helps in maximizing returns. The Company's approach to addressing business risks is combrhensive and includes identification of Risks, periodic review of such risks and measures for mitigating such risks. 8. Internal Control System and their adequacy: The system of internal control should maximize effectiveness and efficiency by including activities that are tailored to the nature, size and complexity of the entity. Management Personnel should communicate internal controls through frequent contact with accounting personnel. The performance of basic activity-level control procedures, such as determining that all shipments are billed, that invoices are initiated only after shipments are made and that bank accounts are reconciled timely, should docu-mented in the accounting records for periodic management inspection. The Company's management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Char-tered Accountants of India (ICAI). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to Company's policies, the safeguarding of its assets, the brvention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely brparation of reliable financial information, as required under the act. 9. Financial Performance: The Financial statements of Bharat Wire Ropes Limited are brpared in Compliance with the Companies Act, 2013 signifi-cant accounting policies used for the financial statements are disclosed in the notes to financial statement. The revenue of the Company for the financial year 2015-2016 was in line with brvious year however there has been a marginal dip on account of reduction of prices of final products due to reduction in raw material prices. 10. Human Resource: The Human Resource (HR) function of the Company is focused around providing its 319 employees of the Company a mean- ingful and compelling environment. An environment which gives today's diverse multigenerational and mobile workforce the confidence to realize their potential and provide world class solution. |