Dunlop India Ltd Management Discussions

Manufacturing operations in Plants at Sahaganj in West Bengal and at Ambattur in Chennai continue to be under suspension of operations . However dialogue with Unions of both plants and respective government authorities is taking positive shape . In case the results of these discussions turn out to be fruitful , both plants of the company may come into operations . In case both the factories start production , views of the management is given hereunder : In terms of Clause 49 (V) of the Listing Agreement with the Stock Exchanges, a Report on Management Discussion & Analysis is attached to this Annual Report.

1. Tyre Industry Structure & Development

Although in general Tyre industry has seen a lesser growth in the year 2013-2014. Tyre industry is strongly linked to Automobile sector which in turn is driven by agriculture and infrastructural activity that takes place in the region. In 2013-14, there was sluggish demand for automobile industry in this part of world. This was the main reason for lesser growth of the industry.

2. Opportunities and Threats

Over 20% fall in rubber prices has been the biggest plus for the sector. The fall in rubber prices and revival of replacement demand have been driving the rally. Rubber accounts for 55% of raw material cost of tyre makers.

Rubber prices have fallen 27% from Rs 195 per kg to Rs 153 per kg since the end of July on sluggish demand. Additionally, China has withdrawn its plan to procure 2,00,000 tonnes rubber for building a reserve stock.

If the government increases import duty to motivate domestic rubber growers, it may cause an uptick in prices.

The replacement market will continue to be strong over the next couple of years as almost 90 lakh automobiles were added between 2009-10 and 2011-12.

Agencies, in its latest study on Indian Tyre Industry, scaled down their earlier estimates for total tyre volume growth for 2013-14 to 2-4% due to the higher than anticipated weakness in the passenger car and Truck & Bus (T&B) segments. The tonnage growth is likely to be a shade weaker as the larger T&B OEM tyre segment posts declines. This muted volume growth in the tyre industry comes after two consecutive years of weak demand during 2011-12 and 2012-13 respectively.

While the demand outlook for 2013-14 continues to be modest, operating margins are expected to post a ~190-200 bps expansion during 2013-14 supported by a softer raw material scenario and higher export realizations. Companies which can tweak their product mix, by increasingly focusing on the relatively high margin on T&B and export segments are likely to post relatively healthier margins. The operating margin however would remain vulnerable to raw material price trends and competitive pressures.

3. Outlook

The future is expected to see many strategic alliances among the domestic and global players to enable them to have access to latest technology and expand their distribution network. A better distribution will also ensure easy availability. The introduction of newer auto models will significantly have a bearing on the tyres demand. The tyre companies will also be looking for tie-ups with the OEM’s for better stability and long-term relationship. The government’s emphasis on improving the road infrastructure will facilitate the road transport sector that in turn will brighten the prospects of the tyre industry in the coming years.

While the demand outlook of tyres appears favourable, the pressure on margins will continue unless the cost issues are addressed. Most tyre companies are planning capacity expansion sespecially in the truck radial segment and this development will fuel competition in this segment and the tyre industry in general. The growth of the tyre industry will also depend upon the expansions in the automobile industry and the efforts made by the Government to improve the road infrastructure.

The Audit Committee and the Board of Directors have been informed of the major business and operational risks identified by the Company and steps proposed to be taken to mitigate the same. The Company also has a comprehensive risk analysis and management system, wherein all risk factors are identified and proper action taken to mitigate such risks.

4. Economic Risk

The business is substantially affected by the prevailing economic conditions in India. In Centre, with the ushering in of New Government, the Industry is expecting that some measures will be taken by this Government which will be Pro-industry and at the same time various fiscal discipline being introduced by RBI will curb the inflation to a moderate level. We anticipate growth in Automobile sector in due course of time.

5. Segment-wise/product-wise performance and discussion on the financial performance with respect to operational performance.

Your company has incorporated standard preventive maintenance practices in the plants to enable uninterrupted production of all the products - truck, OTR and industrial products. However due to industrial relations related issues, there had been no production during the year under review.

The financial performance of your company in respect to its operational performance is being shown separately.

6. Internal Control System and their adequacy

The Company has adequate internal control in all areas of its operation through internal and external auditors. The system ensures that all transactions are authorized, recorded and reported correctly. The systems and procedures are reviewed continuously to ensure timely preparation of financial information and safeguarding the assets of the Company.

7. Human Resources & Industrial Relations

Both the factories of the company have been put under suspension of operations and their is no change in the present status.

8. CAUTIONARY STATEMENT

The Management Discussion & Analysis report gives description of company’s major objectives, expectations or anticipations which are essentially forward looking within the meaning of applicable securities, laws and regulations. Actual result may differ materially from the expectations. Important factors that could influence the company’s operations include global and domestic supply and demand condition affecting the selling prices of products, input availability and prices, changes in Government regulations/tax laws, economic developments within the country and factors such as litigation and industry.