MANAGEMENT DISCUSSION AND ANALYSIS REPORT
I. Industry Structure and Development:
Domestic
World economy is passing through a difficult phase and India is no exception. The major
concerns were sluggish GDP growth, high inflation, depreciation of Indian Rupee, high
interest rates, high current account and fiscal deficit, multiple increases in fuel prices
and non-availability of electric power. The constant change in the Indian and global
economic landscape created uncertainty and risks to the growth momentum. Indian economy
continued to languish, recording sub 5.0% GDP growth for the second consecutive year.
However, economy witnessed some marginal improvement in the recent quarters -from
four-quarter low of 4.4%, GDP growth moved to 4.8% in the second half of the year 2013.
Average WPI inflation for 2013-14 stood at 5.9% as against 7.5% recorded in 2012-13
(Source: CRISIL). On the other hand, CPI inflation declined only marginally to 9.6% from
the previous year level of 10.2%.
Indian rupee has undergone significant transformation over the course of FY14. It has
largely mirrored the change in the external sector fundamentals of the country. The Indian
economy looked vulnerable on the external front, with the Current Account Deficit (CAD)
peaking at 4.6% of GDP. India had witnessed a significant capital flight in view of US
Federal Reserve hinting at tapering its monetary stimulus. The rupee plummeted from around
54.3 per USD in March 2013 to a low of 68 per USD in August 2013 - a depreciation of 25%.
RBI has initiated regulatory measures for improving the CAD by curbing imports - mainly
gold, offering significantly higher rates for the NRI deposits and promoting exports.
These measures helped in reducing the CAD to 1.7% of GDP for FY14 from the level of 4.8%
in FY13 (Source: CRISIL)
Availability of electric power continued to be a major concern throughout the year.
These unfavorable macroeconomic conditions coupled with increases in fuel prices and
higher interest rates had deep impact on the auto industry restricting the overall growth
to moderate 4.3%.Segment wise performance is given in the following table:
| Category |
FY 2013-14 Nos. |
FY 2012-13 Nos. |
Variance (in %) |
| Medium and Heavy Commercial Vehicles (M & HCV) |
2,24,440 |
2,88,213 |
-22 |
| Light Commercial Vehicles (LCV) |
4,85,354 |
5,85,025 |
-17 |
| Passenger Vehicles |
30,97,192 |
32,24,429 |
-4 |
| Two Wheelers |
1,68,89,419 |
1,57,53,563 |
7 |
(Source: SIAM)
Exports
During 2013, GDP in US declined to 1.9% as against 2.8% in 2012 (Source: FTR / IMF).
However, the US economy grew at a faster-than-anticipated pace in the second half of 2013,
led by buoyant domestic demand, robust inventory accumulation and strong export growth.
Europes economic recovery, which began in the second quarter of 2013, is expected to
continue spreading across countries and gaining strength. GDP growth was at -0.5% in 2013
as against -0.7% in 2012 (IMF).
The following table highlights the North American and European truck production figures
in vehicle units:
| Market |
Category |
2013 |
2012 |
Variance (in %) |
| North America |
Class 8 Trucks |
2,43,003 |
2,73,036 |
-11 |
| North America |
Class 4-7 Trucks |
1,52,826 |
1,42,742 |
7 |
| Europe |
Medium & Heavy trucks |
2,31,349 |
2,14,827 |
8 |
(Source: FTR & ACEA)
II. Business Outlook and Overview
Indian economic growth is likely to accelerate in the next fiscal in view of continued
thrust on economic reforms. The pick-up will be aided by implementation of stalled
projects, de-bottlenecking of the mining sector and a recovery in industry on higher
external demand. Finally, a normal monsoon year is expected, which will cushion growth and
help in taming inflation. In this background, it is expected that GDP will be at 5.4% for
2014-15, up from 4.6% for 2013-14 (IMF / RBI).
Auto component exports (USD 9.69 billion in FY 14) from India grew by 4.4% over last
year. Component exports have grown at a strong CAGR of 40% during the last three years led
by traction in supplies to Europe and America. Depreciation of Rupee turned India into a
favorable destination for sourcing auto components over China. This is likely to continue
in 2014, the trend getting stronger in the later part of 2014, a good signal for auto
component suppliers that are exporting to Europe.
However, the major concerns would be inadequate power availability, high inflation,
high current account and fiscal deficit.
The movement of rupee depends on capital flows in managing high levels of imports and
exports in the global market. The Company, therefore, believes that rupee is not likely to
appreciate significantly. While short-term spikes could happen, the currency will stay at
a level that keeps exports supported, allows for replenishment of foreign exchange
reserves and keeps the rupee safeguarded from vulnerableness because of global volatility.
Implementation of key structural reforms with emphasis on growth could revive the
economy and provide the industries with the much-needed stimulus for growth.
In exports, the Company expects the overall demand in NAFTA and EU region is to be
buoyant based on current indications.
III. Opportunities & Threats
The Company supplies aluminium castings either as cast or in machined condition for
commercial vehicles, passenger cars and two wheeler segments of the automotive industry.
In the medium to long term, the projected growth of domestic auto industry, ambitious
export plans of the Indian OEMs and increase in sourcing of components by Global OEMs are
likely to benefit the Company.
In view of stringent emission norms and fuel economy regulations, the thrust for
light-weighting is bound to increase leading to higher content of aluminum in all vehicle
types. This factor will provide for increased growth opportunities, since the Company is
already a preferred source for aluminium castings to major customers in India and abroad.
The Company has developed magnesium die castings and has completed tests and trials.
The responses from prospective customers are encouraging. Magnesium being lighter in
weight than aluminum is expected to find several applications for light-weighting in the
years to come.
Our country is emerging as one of the major manufacturing hub because of availability
of well-educated engineers and managers, skilled workforce and good supply base. The
Company is well placed to leverage these emerging opportunities in India and abroad.
Several Indian die casting companies and OEMs are either setting up new capacities or
expanding existing capacities resulting in increased competition and consequent price
pressure which could affect the margins.
Excess capacity in the market makes it extremely difficult to seek price increases to
compensate the effects of inflation. However, the Companys supply contracts provide for
periodic price adjustments indexed to the international prices of aluminum and this should
offer some protection against volatility of commodity prices.
IV. Risks and concerns
Economy
Going forward, Indias economic outlook remains challenging. Downside risks still
persist, reflecting global headwinds and political uncertainty. The outcome of general
elections could swing the medium term growth outlook either way.
US tapering can slow down the flow of money into Indian market and can put pressure on
the Indian currency which will be a dampener to Indian market and economy.
Failure of monsoon would trigger further inflation and increase of interest rates.
Hardening of interest rates and fuel prices will have adverse impact on sales of the
automobiles in domestic industry. It will have negative impact on margins of the Company,
owing to volume reduction and increased interest and energy cost.
Industry specific
The Company caters to the requirements of the automotive industry. The revenue of the
Company is derived from M & HCVs (50%), followed by Car Industry (30%) and two wheeler
industry (20%).
The Indian commercial vehicle industry has strong correlation with the agricultural
growth, infrastructure development and the mining industry and is cyclical. The Companys
presence in all the segments of auto industry will largely mitigate the segment specific
risks.
Competition has increased significantly in the Indian market due to entry of new
players and expansion plans of existing ones. The Company is aware of the increasing
competition and is taking customer focussed measures to remain competitive in the market
place.
The shortfall in the supply of power from the Government had forced the Company to
resort to captive power generation using diesel generators and purchase of power from
third parties at higher rates. The Government had also come out with regulations on
Renewable Power Obligation, that is expected to increase the overall power cost. The power
situation remains a concern with no major power generation capacity likely to get added to
the system during the year. This may have an impact by way of higher costs and lower
margins. However, the Company has made arrangements for ensuring the availability of
captive power.
Sourcing
While the Company continues to pursue cost reduction initiatives, increase in price of
input materials could impact the Companys profitability when they are not compensated by
customers.
Forex
With significant exports, imports of raw material and capital goods and foreign
currency liabilities, the Company is always exposed to currency fluctuations. However, the
Company has a well-defined forex hedging policy to mitigate the risks.
Contractual
The stipulation and requirements of the automobile industry demands high quality
products. Quality is, therefore a key factor to be monitored closely. Although every
reasonable precaution is taken, in rare cases, defects that escape may lead to incurring
expenses for rework / product recall. Appropriate recall and product liability insurance
in line with standard industry practice have been taken to minimize the risks.
Just-in-time delivery is another important contractual obligation. Robust quality and
project management systems are in place to avoid delay in deliveries due to quality issues
or project implementation for minimizing risks.
Capacity utilization
The Company continuously steps up capacities to meet the projected demand of customers.
The Company closely monitors the progress of customer projects/volumes and redeploys the
assets, wherever possible, to minimize the risk of under-utilization of capacities.
V. Internal control systems and their adequacy
The Company has effective and adequate internal control systems covering all areas of
operations. The internal control system provides for well documented policies /
guidelines, authorisations and approval procedures. The internal control system stipulates
a reasonable assurance with regard to maintaining of proper accounting controls,
safeguarding and protecting assets from any loss and compliance of statutes.
The Company, through its own Internal Audit Department, carries out periodic audits at
all locations and functions based on the plan approved by the Audit Committee. The
observations, arising out of audit, are periodically reviewed and compliance ensured. The
summary of the Internal Audit observations and the status on implementation of corrective
actions are reported to the Audit Committee of directors for their review.
VI. Operations Review
A. Manufacturing
The Company has been using the philosophies of Total Quality Management (TQM) as the
foundation of its management. The Company implemented the best practices of Total
Productivity Management (TPM) and Lean Manufacturing in its manufacturing facilities. It
also has in place best-in-class practices for safety, pollution control, work environment,
water and energy conservation.
Continuous improvement projects are implemented to improve manufacturing quality and
productivity in all the manufacturing locations. The Companys journey of achieving
manufacturing excellence was recognized and rewarded by the following agencies / customers
during 2013-14.
• TPM excellence award (category A) from Japanese Institute of Plant Maintenance
(JIPM) for the factory at Hosur;
• Support in localization of complex machined aluminium casting from ZF;
• Excellence in New product development support from Cummins;
• Excellence in New product support from WABCO; and
• 4+ star quality rating by Hyundai.
B. Quality
Achieving customer delight by consistently providing products of excellent quality is
the prime motto of the Company. This is achieved through state of art technology,
training, effective quality system, continuous improvement and total employee involvement.
Poka-yokes, process audits, use of statistical tools for process optimization and online
process controls also contribute towards improving and achieving consistency in product
quality. The quality system is certified for ISO/ TS 16949 requirements.
TQM is a way of life in the Company. 100% employee involvement has been successfully
achieved for the 14th consecutive year.
Employees have completed 577 projects by applying statistical tools through Quality
Control Circles (QCC) in 2013-14. The average number of suggestions implemented per
employee in 2013 -14 was 45.
C. Cost Management
Total cost management is a continuous journey and the Company manages the same through
deployment of costs to users. A full time task force is working on projects focussed on
reducing process scrap and operational efficiency. TPM and lean initiatives are deployed
Company-wide to achieve reduction in manufacturing cost.
D. Information Technology
The Company uses ERP system (SAP) that integrates all business processes across the
Company. Suppliers and customers are also integrated into the system for better planning
and execution. During the year, several dashboards were added to improve the productivity,
quality and reduce the cost of operations. Projects were also implemented to further
enhance the Information Security.
VII. Human Resource Development
Human Resource Development is focused and aligned to business needs towards improved
performance and business results. The key focus areas of HR are - Employee engagement,
Recruitment, Performance & compensation management, Competency based development,
Career & succession planning and Organization building.
The Company focuses on attracting the best talent and enjoys a good brand image across
leading educational institutions and industry. The Company blends successfully mid-career
recruitment with internally grown talent.
Our engineers and executives are sponsored for structured program in both Indian and
foreign institutions for developing competencies in the area of new technology and modern
management practices. Industry experts are also hired for coaching our Executives and
Engineers.
Career development workshops are conducted to identify high potential employees. A
reward and recognition system is in place to motivate and also provide fast track growth
for the high potential employees.
Customised management development programs have been developed with reputed educational
institutions to hone the leadership skills of the senior executives.
An excellent industrial relations environment continued to prevail at all the
manufacturing units of the Company during the year.
As of 31st March 2014, the Company had 4832 employees on its rolls.
VIII. Environment & Safety
The Company is fully committed to the ultimate goal of employee safety. Safety
management is integrated with the overall Environment, Health and Safety (EHS).
The Company has been certified under Integrated Management System (IMS) combining ISO
14000 and OHSAS 18001 systems and procedures.
IX. Corporate Social Responsibility (CSR)
The Board at its meeting held on 29th October 2013, constituted a Corporate Social
Responsibility Committee with Mr Venu Srinivasan, chairman and managing director as the
Chairman of the Committee and Dr Lakshmi Venu, director - strategy and Vice Admiral P J
Jacob (Retd.), director as its members.
CSR activities have already been textured into the Companys value system through
Srinivasan Services Trust (SST), established by the group companies in 1996 with the
vision of building self-reliant rural community.
SST over 18 years of service, has played a pivotal role in changing lives of people in
rural India by creating self-reliant communities that are models of sustainable
development.
At present, SST is working in 2,501 villages spread across Tamil Nadu, Karnataka,
Maharashtra, Himachal Pradesh and Andhra Pradesh. Its major focus areas are: Economic
development, Health care, Quality education, Environment and Infrastructure. Its
significant achievements are:
• Through partnership with the community helped to form over 5,300 Self Help
Groups (SHG).
• 100% enrolment in schools. 0% drop outs. 93% students pursue higher studies and
over 60,145 adult women were made literate.
• Illiteracy amongst women reduced from 47% to 12%.
• 1,75,205 hectares under afforestation.
• 12,938 hectares covered for soil and water conservation.
• Proper solid and liquid waste management practices adopted in 1,418 villages.
• SHG members have a group savings of Rs.25.57 Cr.
• Over 1,47,136 of the families living in these villages have a monthly income of
around Rs.15,000/- per family.
• 1,296 villages have access to safe drinking water.
• Enriching 2,501 villages across 5 states. Creating the most effective synergies
for socio economic development in India.
X. Financial / Operational performance
The financial and operational performance for the year 2013-2014 as compared to the
previous year is furnished in the following table.
| Particulars |
Year ended 31st March 2014 |
Year ended 31st March 2014 |
|
Rs. in Crores |
% |
Rs. in Crores |
% |
| Sales |
1,196.76 |
97.10 |
1018.56 |
96.39 |
| Other income |
35.78 |
2.90 |
38.12 |
3.61 |
| Total Revenue |
1,232.54 |
100.00 |
1056.68 |
100.00 |
| Cost of materials consumed |
596.10 |
48.36 |
525.07 |
49.69 |
| Change in inventories of finished goods, work-in-process and stock-in-trade |
(1.62) |
(0.13) |
(7.15) |
(0.68) |
| Employee benefit expense |
155.20 |
12.59 |
132.93 |
12.58 |
| Stores and tools consumed |
85.82 |
6.96 |
74.31 |
7.03 |
| Power and fuel |
66.39 |
5.39 |
59.02 |
5.59 |
| Repairs and maintenance |
38.74 |
3.14 |
29.01 |
2.75 |
| Other expenses |
148.09 |
12.02 |
115.62 |
10.94 |
| Finance Costs |
35.65 |
2.89 |
44.32 |
4.19 |
| Depreciation |
53.21 |
4.32 |
51.25 |
4.85 |
| Total Expenditure |
1,177.58 |
95.54 |
1024.38 |
96.94 |
| Profit before exceptional items and tax |
54.96 |
4.46 |
32.30 |
3.06 |
| Exceptional Item - Income |
5.83 |
0.47 |
– |
– |
| Profit before tax |
60.79 |
4.93 |
32.30 |
3.06 |
| Provision for taxation |
|
|
|
|
| Income tax |
5.50 |
0.45 |
– |
– |
| Deferred tax |
1.63 |
0.13 |
(3.12) |
(0.30) |
| Profit after tax |
53.66 |
4.35 |
35.42 |
3.35 |
XI Cautionary statement
Statements in the management discussion and analysis report describing the Companys
objectives, projections, estimates and expectations may be "forward looking
statements" within the meaning of applicable securities laws and regulations. Actual
results could differ materially from those expressed or implied. Important factors that
could make a difference to the Companys operations include, among others, economic
conditions affecting demand/supply and price conditions in the domestic and overseas
market in which the Company operates, changes in the government regulations, tax laws and
other statutes and incidental factors.
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