Management discussion and analysis
Economy at a glance
Global economy: Global gross domestic product (GDP) grew 3.2% in 2012 against 3.9% in2011 after having encountered another bout of turbulence in what was always expected to bea slow and bumpy recovery. The key impediments were prolonged financial turmoil in theEurozone, instability in the US economy due to a fiscal cliff, disruption of global oilsupplies and slow investments in emerging markets.
Following the 2012 deterioration in global economic conditions, one expects a marginaleconomic rebound in 2013. Global GDP growth forecast stands at 3.5% in 2013 as trendssuggest that factors decelerating global commerce are expected to wane. This growthestimate is pivoted around the following preconditions:
Necessary policy measures are implemented in time to avoid further deteriorationin the financial issues in Europe
A smooth fiscal adjustment in the US
A rebound in the growth momentum of emerging economies
The World Bank however expects the world economy to grow by 2.4% in 2013.
Indias economic growth decelerated for the second year in succession in 2012-13.It declined from 6.2% in 2011-12 to 5% in 2012-13, the slowest economic growth in adecade. This decline was due to a sharper than expected deceleration in the servicessector, dismal performance by the agricultural and industrial sectors and unemploymentremaining appreciably above pre-crisis levels.
Indias industrial output declined, led mainly by a contraction in themanufacturing, mining and capital goods sectors. The dampened industrial sentiment waslargely due to various factors: sustained inflation, high interest rates, volatilecurrency fluctuation and policy logjam.
To strengthen industrial growth, the government announced important policy decisions:
Reduced interest rates by 125 basis points from 8.50% in October 2011 to 7.25%in May 2013
Revived the stressed infrastructure sector by fast-tracking largeinfrastructural projects and announcing SOPs for some infrastructure sub-sectors
Used buffer stocks to moderate food inflation
Introduced FDI in multi-brand retail, aviation, insurance and broadcastingsectors
Partially deregulated the oil and gas sector (diesel pricing) to reduce subsidyburden.
Current account deficit: India suffers from one of the highest current account deficitsamong large economies. The full-year current account deficit rose to 4.8% of GDP, or US$88billion, up from US$78 billion during the previous financial year.
Fiscal deficit: Indias fiscal deficit during fiscal 2012-13 was `4.9 trillion orequivalent to 4.9% of the countrys GDP. The higher revenue mop-up moderated this tolower-than-the revised estimate of 5.2% provided by the government in the federal budgetin February 2013.
Economic growth estimates for 2013-14
Economic Survey: The Indian economy is slated to grow between 6.1-6.7% in 2013-14
RBI projection: RBI projects baseline GDP growth of 5.7% in 2013-14
CRISIL estimate: The agency indicates that the Indian economy is expected to grow at6.0% in 2013-14 due to a consumption revival catalysed by an acceleration in the growth ofagricultural sector (predicated on a normal monsoon), lower interest rates and highergovernmental spending.
Economic impact on business
Telecom: The Indian telecom sector is passing through challenging times as telecomoperators are experiencing profit pressure. The policy logjam on spectrum pricing andallocation, cancellation of 2G licenses by the apex court and slow progress in broadbandrollout stalled network expansion and restricted an improvement in the tower occupancyratio. As a result, the replacement demand prevailed with a preference for reliable, quickrecharge and deep discharge capable batteries.
UPS: Indias economy was challenged by slow capital formation and investments,which impacted investments in technology and various e-governance projects and, in turn,affected demand growth for UPS batteries. The replacement potential in the countrysUPS sector continued to be encouraging due to a persistent power shortage and importsbecoming unviable owing to changing business dynamics in China and a depreciating Indianrupee.
Automotive: The fiscal 2012-13 was challenging for the Indian automobile industry. Thesector witnessed a sustained slowdown on account of higher interest rates, rising fuelprices, weak infrastructure growth, low consumer confidence and declining consumptiongrowth. The widening gap between the cost of petrol and diesel enhanced a preference fordiesel platforms.
Automotive replacement: The automotive replacement market demand remained strong,influenced by the following factors:
A considerable addition of vehicles to the existing population following a spurtin OE production over the recent past (post 2008-09 global economic meltdown)
Realignment in the focus of small players towards inverter batteries
Growing preference for branded products
An attractive value proposition offered by organised industry players
Industrial battery division
Commenced operations in 1991 to manufacture batteries for the telecom, UPS back-upsystems, railways and power utility sectors Manufacturing facility is ISO 9001 and ISO14001 accredited
Product portfolio offers capacities ranging from 4.5 Ah to 5,000 Ah under multiplebrands
(Telecom networks, data centres, power stations, oil and gas)
(Telecom networks, data centres, power stations, oil and gas, Indian Railways)
(Wireless telecom network, UPS applications)
03 Distribution network
Largely a B2B model 100 AQuA channel partners facilitate the reach for UPS batteriesacross the country
Key customers include Indus Towers, Viom Networks, ATC, Bharti Infratel, Bharti Airtel,Vodafone, Aircel, BSNL, Idea Cellular, Indian Railways, APC, Emerson, Numeric, Delta, DBPower and Schneider
05 Niche features
First to introduce VRLA batteries for telecom and rolling stock applications inIndia
Strategic supply partnership with leading telecom tower companies and operators
Well-balanced OE and replacement mix in UPS sector
Automotive battery division
Commenced operations in 2000 with technology from Johnson Controls Inc. USA
Manufacturing facility is QS 9000, ISO 14001 and TS 16949 accredited
Passenger cars: Amaron Pro, Amaron Flo, AmaronGo, Amaron Black and Amaron Fresh
Commercial vehicles: Amaron Hiway
Tractors: Amaron Harvest
Two-wheelers: Amaron Pro Bike RiderTM
Inverter: Amaron Current
PowerZoneTM (For all the above applications)
03 Distribution network
Amaron network comprises 287 franchised distributors, including 21,000plus retailers and 2,400 plus service hubs-second largest in the battery sector in India
PowerZone network comprises 1,100 plus retail outlets for semi-urban andrural presence
Major OEM customers: Ford, Maruti Suzuki, Hyundai, Honda, M&M, Tata, VolvoEicher, Daimler Benz, Tafe Tractors, Isuzu Motors among others
Major private label customers: Bosch, Lucas, Cummins and AC Delco Dominant playerin the aftermarket sector for four-wheeler and two-wheeler batteries
05 Niche features
First to introduce zero maintenance four-wheeler batteries
First to introduce VRLA two-wheeler batteries
First to provide extended warranties to consumers
First supplier of batteries to M&M for micro hybrid vehicles
Industrial Battery Division
Launched the Quick Recharge Series (QRS) batteries, primarily catering to therequirements of the telecom tower application; the product received a heartening response
Received the gold award for Excellence in SME (Subject Matter Expertise)Services from Indus Towers Limited
Received an award as the Most Preferred Battery Brand in the Telecomsegment by Frost & Sullivan
Received a 3-Star award in International Convention on Quality Circles
Key initiatives, 2012-13
Plant operated at 90% plus capacity utilisation
De-bottlenecked the assembly and formation areas, which increased production
Created separate grid casting lines for Medium and Large VRLA batteries, whichenhanced productivity
Completed more than 118 QCC projects at the shop-floor level, which improvedoperating efficiencies
Reduced cycle time in the formation area, which optimised energy consumption
Tightened process parameters and quality vigilance to operate within stringenttolerances, which reduced in-process rejections
Shifted the production of sub-300 Ah battery variants from the MVRLA to LVRLAassembly lines, which improved product quality
Established strong business relations with key telecom tower companies andoperators for end-to-end solutions for their stand-by power requirements (battery,logistics, installation, maintenance and disposal) which further strengthened businessrelations
Undertook activities to improve the Companys presence in the IT and ITeSsectors
Initiated training for marketing, engineering and service staff of the channelpartners for providing superior service to the UPS OEMs and users in replacement sector
Conducted an extensive survey of the Indian market for mapping emergingopportunity pockets for UPS batteries
Sectoral scenario and Amara Rajas competitive position
|Telecom business ||Amara Rajas position ||UPS business ||Amara Rajas position |
|Purchases are largely for replacement as new service roll-outs are minimal, thus making demand more stable and predictable. ||The Company has created a high quality product basket that meets the complete requirements of all telecom tower companies and emerged as the preferred vendor. ||Unreliable power supplies across India are increasing a reliance on standby power sources, namely UPS solutions. ||Maximising throughput, improving product quality, widening reach and enhancing the overall business quality. Quanta batteries emerged as the preferred brand in the UPS sector. We are also doubling capacities. |
|Huge power shortage and frequent power outages prevent complete battery recharge. ||Quick Recharge batteries are designed in keeping with this harsh operating environment. ||Imports have reduced due to the changing business environment in China and the depreciating Indian rupee. ||Fortifying the replacement market business by expanding our product range. |
|Soaring diesel prices and environmental concerns are driving the telecom tower companies to create Green Sites with batteries being the primary energy source. ||Spread awareness of the product capability in achieving the Green Sites goal. ||Economic slowdown has impacted the OEM demand, governments spend on e-governance programmes have reduced. ||Strategic focus on the BFSI and IT&ITeS sectors, thereby increasing the depth and spread of our reach. |
|Tower companies are moving from product vendors to solution providers for a superior value proposition. ||Offers complete solutions batteries, installation maintenance and disposal which enable it to forge alliances with leading telecom tower companies and operators. || || |
The telecom and UPS sectors are key users of the Companys LVRLA and MVRLAbatteries respectively, with attractive medium-term prospects.
Telecom: There are about 350,000 telecom towers in India with a majority more thanthree to five years old, a sizeable business opportunity. Besides, as the batteryoperating environment becomes increasingly harsh, the life-cycle of the battery isdeclining, adding to replacement demand.
For telecom tower companies, energy cost reduction is a priority in view of frequentpower outages and a spiraling diesel price.
India has about 350,000 telecom towers; about 70,000 towers are not connected tothe grid.
The telecom tower sector uses about 25 billion kWh energy per annum; abouttwo-thirds of Indian mobile towers face grid outages in excess of eight hours a day.
The telecom tower sector consumes more than 2.5 billion litres of dieselannually; in 2011, the Indian telecom industry had consumed an estimated 3.2 billionlitres of diesel and the amount could rise to six billion litres by 2020, according to astudy by Greenpeace India.
Telecom tower companies consume about 1.7% of the total diesel consumption inIndia; about 60% of the towers in India depend solely on diesel for power generation.
The Department of Telecommunications has mandated all tower companies to reduce theirdependence on diesel and cut carbon emissions by operating at least 50% rural towers and20% urban towers on hybrid power (solar) by 2015.
Increased internet access through mobile phones has necessitated higher powerconsumption in towers, a need for large capacity batteries.
Spectrum re-farming (moving 2G services on the 1800 MHz from the existing 900 MHz)which is being debated among regulatory bodies, will call for redesigning of existingnetworks, mainly through the replacement of base stations, commonly known as telecomtowers set up new base stations and replace earlier sites on the 900MHz frequencyband. When this materialises, it could add to the opportunity potential in a big way.
Estimates suggest that telecom towers in India are expected to increase to 460,000 by2015.
UPS sector: The key sub-sectors in this UPS sector comprise BFSI (including ATMs), IT& ITeS, e-governance projects and e-commerce institutions.
BFSI: The recent RBI directive on inclusive banking which requires public sector banksto reach out to the unbanked population will see significant action building in ruralIndia, expected to translate into a sizeable demand for UPS batteries.
The Governments intent to issue banking licenses to NBFCs is expected to widenthe banking network to semi-urban and rural locations. Increasing penetration by banks(public and private), insurance companies and NBFCs from the urban cities to the vastnumber of Tier-II and III towns will only increase standby power demand as these areasface significant power shortage.
ATMs: Since the ATM concentration in India is primarily in metros and Tier-I cities,the population of 74 ATMs per million people is significantly lower than the globalaverage. This under-penetration is expected to change following the recent Governmentdirective (Union Budget, 2013-14) that every Indian public sector bank branch should havean ATM by March 2014; a large part of this addition is expected to come up in Tier-II andIII locations with batteries as a critical power source. The recent RBI permission tonon-banking financial institutions to set up their own White Label ATMs (WLAs) insemi-urban and rural areas is expected to create a sizeable battery opportunity as well.Independent research suggests that by 2017, the installed Indian base of ATM machines willgrow to 400,000 from about 100,000 in the third quarter of 2012.
IT and ITeS: India is one of the fastest-growing IT services markets in the world;three-fourths of large Indian enterprises plan to increase IT spending in 2013.
Indias information technology and business process outsourcing sector is expectedto expand 12-14% in fiscal 2014 to report US$84 - US$87 billion from exports. The Cabinetrecently approved the National Policy on Information Technology 2012, which aims toincrease IT and ITeS revenues from US$100 billion to US$300 billion by 2020 and expandexports from US$69 billion to US$200 billion by 2020.
Retail: Organised Indian retail is growing at a rate of 15% annually. Most Indian metrocities are moving towards organised retail (food, medicines, apparel, among others),attracting international players. Private spending in the Indian healthcare sector isabout 74% and increasing, with most players focusing on expansion.
Amara Rajas strategy
The Company is strengthening its industrial battery business through a broad-basedapproach.
Telecom business: The Company will continue to forge strategic alliances with telecomtower companies and operators to provide comprehensive back-up power solutions whileincreasing an awareness of Green Sites in the domestic space.
UPS business: The Company has undertaken a survey, identifying opportunity pocketsacross India. To cater to this opportunity, the Company will broadbase the product range,expand its channel partner base and provide extensive training to channel partners toincrease business volumes.
Solar power: The Company is establishing a meaningful presence in the solar batteryspace. The Indian solar industry grew from 18 MW in early 2010 to about 1,045 MW in 2013and a projected 2,500 MW in the next two years. The Phase II of Jawaharlal Nehru NationalSolar Mission (JNNSM) envisages the addition of 10,000 MW of utility scale and about 1,000MW in off-grid power. JNNSM plans 20,000 MW of grid-tied and 2,000 MW in off-grid power by2020. Each MW of off-grid power is likely to generate 2 million ampere-hour batterypotential with a periodic replacement opportunity. In addition, Phase II of the JNNSM willfocus on developing special schemes for the promotion of solar-powered telecom towerstargeting around 25,000 solar integrated telecom towers by 2017.
New geographies: The Company has drawn out a roadmap to explore opportunities in theIndian Ocean Rim following the changing global competitive scenario in the wake of Chinaaligning its business environment with global best-practices creating a levelplaying field for other global battery manufacturers.
Automotive battery Division
Achieved 20% volume growth in four-wheeler batteries and 37% in two-wheelerbatteries
Automotive plant won the 5S Sustenance award from CII Southernregion
Received Quality Award from Bosch India Limited
Received World Excellence Award under the category of warrantyimprovement from Ford, USA
Special prize for Good TPM Practices by ABK AOTS DOSOKAI
Received approvals from OEM suppliers - Honda Motorcycle and Scooter IndiaPrivate Limited (Honda Motors), Hero MotoCorp Limited, Bajaj Auto Limited and Mahindra& Mahindra Limited for motorcycle batteries.
Key initiatives, 2012-13
Operated the plant at 90% plus capacity utilisation
Intelligent production planning helped in address peak demand
Undertook more than 50 shop-floor projects for improving plant productivity,product quality and cost optimisation
o Constraints in plate preparation were resolved through pasting equipment improvementso Added balancing equipment in the formation area to improve production volumes
Undertook low-cost automation projects, which improved manpower productivity by5%
Undertook process optimisation projects, which reduced waste generation by about10%
Optimised power consumption in the lead melting and formations areas
o Commissioned higher capacities and high raise lead melting pots in the grid castingareas
Streamlined manufacturing practices, which helped reduce in-process rejects byabout 50 bps
Introduced four models for the aftermarket and private label sectors
Operated the plant at 76% capacity utilisation (a fourth of the capacityreserved for the OE business)
Improved plate making productivity while leveraging the partners superiorpaste-mixing formula
Undertook low-cost automation in the finishing area, which helped reallocatemanpower
Implemented low-cost automation projects across the assembly line; 32 projectswere successfully executed
Optimised conversion costs by minimising wastage across the assembly line andreducing in-process rejections
Marketed batteries to Marutis Dzire and Swift diesel platforms andHyundais EON platform.
Undertook ground-level promotions (mechanic and trade-level) to enhance brandrecall
Plugged gaps in the product basket; the Companys product for everyapplication enhanced channel loyalty
Aggressively marketed PowerZoneTM batteries into semi-urban marketsby adding more than 200 channel partners, which resulted in strong sales volumes
Sectoral scenario and Amara Rajas competitive position
|OEM business ||Amara Rajas position ||Aftermarket business ||Amara Rajas position |
| ||Four-wheeler || ||Four-wheeler |
|Car production in India fell for the first time in a decade 3.19% in 2012-13. ||Sales volumes grew 15%, despite sectoral de-growth. Increased market share in the four-wheeler OEM business from 26% in 2011-12 to 28% in 2012-13. ||Battery demand depends on annual vehicle addition to the Indian roads and replacement cycle. ||Increased capacities to 6.00 million units per annum. |
| || ||Demand is likely to sustain momentum in 2013-14. ||Replacement market volumes grew at 20% plus in 2012-13. |
| || ||Reduction in battery life due to the frequent start- stop function is adding to replacement demand. ||Undertaking a major capacity expansion to 8.25 million units per annum -- looking to the future |
|Significant shift towards diesel passenger car variants to optimise operating costs. ||Increased sales volume to the diesel platforms. || ||Widening the distribution network pan-India. Focus on ground-level visibility initiatives. |
| ||Two-wheeler ||Two-wheeler || |
|Size of Indian two-wheeler market at about 16 million units a year. ||Developed products and secured approvals from Honda Motors. ||Aftermarket demand is expected to grow significantly: ||Pioneer of VRLA batteries in India |
| || || ||Replacement market volumes grew at 37% plus in 2012-13 |
|Two-wheeler production in India grew 1.73% in 2012-13. ||Advanced discussions with major OEMs for supplies. || Increasing preference for electric-start vehicles necessitating immediate replacement. || |
| ||Augmenting capacities. || Increasing prefernce VRLA batteries based on growing OEM preference. ||Undertaking a major capacity expansion to 8.4 million units per annum looking to the future |
| || ||The business is primarily driven by the trade channel comprising battery shop owners, mechanics and auto electricians. ||Amaron has secured the preferred brand status with trade channels. |
Passenger cars: Growth in an aspiring young population, improving incomes, rapidurbanisation and accelerated sub-urban development will make comfortable mobility animportant aspect. A revival of investment-friendly policies and the resumption of consumerconfidence will accelerate economic activity and automobile production growth. As anextension, the industrys volume is expected to improve from 3 million plus units to5 million units mid-decade and a projected 9 million units by 2020, making India the thirdlargest car market behind China and the US.
Commercial vehicles and tractors: The Indian government targeted a US$1 trillioninvestment in infrastructure for Twelfth Plan (2012-17). These investments will accelerateconstruction and improve road infrastructure leading to freight generation and commercialvehicle demand. In view of the governments renewed thrust on agricultural growth andorganised retail, the demand for small commercial vehicles and mini-trucks is expected toincrease multifold, catalysing the demand for batteries. Besides, increasing thrust onfarm mechanisation and the growing use of tractors beyond agricultural purposes (ininfrastructure and construction industry) are expected to catalyse tractor demand.
Two-wheelers: India is the second largest two-wheeler manufacturer in the world, yetthe market penetration rate is only 92 vehicles per 1,000 people, which is expected toincrease significantly over the coming years for the following factors:
The incremental addition to the Indian youth is estimated to be ~ 41 million inthe next five years which should accelerate demand
The earning age of the average Indian has declined significantly
The penetration of IT & ITeS services to Tier-II and III towns provided theyouth with more money and aspirations
The replacement cycle is said to have reduced from ~ seven years (2001) to ~ five years(2011). As per industry estimates, around 50% of the sales is made to first-time buyersand only 30% to repeat customers the replacement market provides a huge growthopportunity.
Macro factors: Rising incomes, growing middle-class and easy credit access are drivingdemand growth:
Personal (nominal) disposable income is expected to rise annually by 8.2% overFY11-17
Rising middle-class population is expected to touch 550 million by 2025 from 50million in 2010
Favourable demographics with a growing presence of youth
Easier credit access increases the offtake of passenger, two-wheelers andcommercial vehicles; the auto finance industry grew at an average annual rate of 13% inFY08-12
Amara Rajas strategy
Amara Raja expects to outperform the industry average through the following measures:
Increase sales to OEMs by securing approvals for new platforms of passenger cars
Commence supplies to two-wheeler OEMs
Increase ground-level activities across pan-India to widen brand penetration inthe aftermarket
New vertical: The Company has drawn out a strategic blueprint to establish its presencein the Home UPS (HUPS) sector.
Indias increasing power deficit (about 10-12% average) is the critical factordriving the growth of the HUPS industry. The conservative estimate of Indian HUPS marketis at approximately `16 billion (by revenue). The size of the battery market, in revenueterm, for HUPS is estimated at about `62 billion. The estimated average battery life isaround 21/2 to 3 years, providing enormous replacement potential.
This market is likely to report double-digit growth in the medium to long-term due to asteady demand from the domestic, small office home office (SOHO), small and mediumenterprises (SMEs), commercial and other sectors.
While untapped rural and semi-urban markets hold a big potential, considering thefrequent and long-duration power outages, the urban market continue to provide an equalopportunity due to a persisting power demand-supply gap.
Superior product quality, widening reach and a diminishing price gap between theorganised and unorganised players are increasing a preference for branded products.
While Amara Rajas product development team is working to create a novel solutionfor this market, its marketing team seeded the market with outsourced products through itschannel partners in select pockets. This strategy has helped in a number of ways:
It provided the channel partners with the entire range of power solutions,enhancing footfalls
It provided valuable insights into this business space, which provided a strongreference for product development
The Companys presence deterred regional players from making a strongpresence in this market
It created a ready market for the Companys own products
New geographies: The Company is looking to establish a footprint in other nations inthe Indian Ocean Rim. It has identified certain high-potential markets, where it islooking to forge strategic alliances with channel partners for marketing its products.
Supply chain management
At Amara Raja, supply chain management is a critical business function that nurturesconfidence across business stakeholders shop-floor team (ensures machines willcontinue running), finance team (maintains optimum inventory), marketing team (materialreaches the field on time), OEMs (batteries reach just-in-time consistently) and dealers(shelves remain stacked with products). To add to this complexity, competent supply chainmanagement aggregates inputs from multiple sources within India and globally at theTirupati plant and transports the end product to pan-Indian consumption centers.
Raw material sourcing: Lead and lead alloys represent the most critical components inbattery manufacture in value terms (followed by separators and plastic components,cumulatively constituting more than 65% of the manufacturing cost).
The Company maintains a prudent balance between imported lead (~45%) and lead sourcedfrom domestic producers (~ 55%), about 37% is procured from secondary smelters. TheCompany maintains procurement synergies with its joint venture partner Johnson ControlsInc. USA, enhancing procurement efficiency.
During 2012-13, the Company strengthened its material sourcing capability at a minimalcost. It secured supply agreements for the entire volume of key inputs in line with itsbusiness plan. In the current year, the team is developing vendors for seamless materialprocurement for its expanding capacities scheduled to commence production in 2013-14.
Logistics: The team ensures the products reach with speed in a cost-effective manner,handling 65 inbound and outbound vehicles a day, delivering products to more than 245locations across India.
Road transport: The Company transported key input and finished products throughcommercial vehicles. In 2012-13, the Company faced a significant challenge in optimisinglogistic costs following rising diesel prices. In 2012-13, the team undertook a number ofinitiatives to strengthen its logistics backbone. The team expanded its businessrelationships from transportation brokers to vehicle owners, which enhanced vehicleavailability. It forged relationships with the best regional transporters to ensure thatmaterial always reached destinations on time. The team institutionalised an appraisalsystem that rewarded transporters for superior performance. The Company automated itsdocument management system, which reduced vehicle waiting time to a quarter of theretrospective levels. The Company optimised its load factor per vehicle following whichthe logistics cost per unit of the finished product declined.
Shipping: The Company shifted its focus from dealing with customs house agents toestablishing business relationships directly with shipping lines. This entailed ananalysis of key routes used for exports, the best liner for each such route and optimisedshipping costs. Following the Star certification, the Company leveraged its export/importbenefits from the Government for an unhindered material movement through ports and costoptimisation.
In 2013-14, the Company will strengthen the logistics network for its upcomingfacilities.
Amara Rajas quality passion is reflected in its ability to offer the longestwarranty products, affirmed by its growing market share.
The Company institutionalised its Continuous Improvement (CI) and Lean Implementationprogrammes spearheaded by a dedicated apex-level team as well as multiple cross-functionalshop-floor teams. It used various tools like TPM, QCC, Visual Management, 5S andIndustrial Engineering (IE) studies to raise quality benchmarks. It benchmarkedoperational practices and process parameters with the plants of Johnson Controls Inc. toachieve global productivity and quality.
2012-13 in retrospect
The Company continued to improve resource utilisation and minimise in-processrejections. A number of shop-floors teams implemented low-cost automation projects andprocedural improvements. Close to 200 such projects were successfully implemented at theautomotive and industrial battery plants, which are expected to improve efficiencies andproduct quality significantly.
Recognition for quality
Received the gold award for Excellence in SME (Subject Matter Expertise)Services from Indus Towers Limited
BOSCH India recognised Amara Raja for excellent work in warranty improvementwith a Quality award.
Received award for World Excellence under the Warranty Improvement category fromFord, USA.
Participated in the international convention on Quality Circles and won the3-star award; two of the Companys teams participated in the 26th National level QCCircle competitions and won awards in the Par Excellence category.
Amara Rajas edifice of dominance is built on the cornerstone of tireless effortsby its workforce - its human capital. This comprised a rich mix of experienceand energy, the average age of the 3,467 strong workforce is 31 years as on March 31,2013.
The Companys endeavour is not only to enhance its workforce in simple numbers,but also to ensure that the competencies are enhanced in line with the changing businessneeds. Different teams collaborate with each other to create the optimal working culture,inculcate industry-best practices and foster an ethically motivated working culture.
|Description ||Numbers ||Percentage to total |
|Permanent employees with disabilities ||2 ||0.06 |
|Employees from weaker sections (BC,SC,ST&OST) ||1,668 ||48.11 |
|Permanent women employees ||276 ||7.96 |
|Other employees not included in any of the above ||1,521 ||43.87 |
|Total number of employees on the payroll of the Company ||3,467 ||100.00 |
|Employees hired on temporary/contractual/casual basis ||1,831 || |
A comprehensive regional study of the socio-economic environment, increasingcompetition and other integral aspects of the day to day working of the frontlineworkforce was conducted. Based on the study, the Company has initiated several specificand focused actions for its frontline workforce to ensure the achievement of the PeopleStrategy. The Company also undertook comprehensive compensation benchmarking studies andother people related measures to ensure that they adopted appropriate people relateddecisions in the areas of engagement, performance and development.
The in-house exclusive talent acquisition cell focused on inducting talented personnelto complement the Companys agenda of expanding its operations. The CompanysNava Prathibha programme inducts and retains fresh talent through a structuredinduction programme comprising customised training sessions namely Amara Raja TraineeScheme (ARTS), Amara Raja Graduate Trainee and Technician Trainee Programme (ARGTP) andAmara Raja Graduate Engineer Trainee/Management Trainee Programme (ARGMP).
The Companys intranet-based e-induction enables on-boarding of new recruitswithin 72 hours of their joining. The programme comprises training modules regarding thefunctioning of the Company, the core purpose and values espoused at Amara Raja, its CSRand people development activities. The modules are structured to provide information onthe culture, products, processes and important milestones of the Company. These modulesare interspersed with quizzes and interactive content to ensure a faster alignment withthe Company.
Learning and development
At Amara Raja, members from diverse cultures, educational backgrounds and experiencelevels converge for the realisation of a singular goal contribute in a meaningfulway to accelerate the Companys growth. In line with this, the Companyinstitutionalised multi-hierarchical team training drills.
Amara Rajas Learning & Development Calendar (ARLDC) captures thedevelopmental needs of the employees across all levels, identified through performanceappraisals, TQM and TPM initiatives. In 2012-13, specific in-house programmes wereanchored to build technical expertise and soft skills. Additionally, employees werenominated for participating in specialised learning and development workshops/seminarsorganised by external institutions.
In 2012-13, the Company introduced a unique capability building programme GuruSikshana to train potential trainers within the Company, in diverse fields. TheCompany provided 9,128 and 1,677 man-hours of training to existing employees and newrecruits, respectively.
In 2012-13, the Company introduced the T-Gauge tool to measure trainingeffectiveness. This online software is based on the world-renowned DonaldKirkpatricks Four-Level Training Evaluation Model. The HR team continued itsCompany-wide awareness and training programme to acquaint people with the T-Gauge model,its utilisation and outcomes.
The Company conducted a Pulse Survey covering 20% of the total employee population, togauge the impact of the changes mediated by the action plans. These action plans werebased on the comprehensive annual survey (AR Speak) comprising 20 dimensions. Encouragingimprovements were seen in the scores of dimensions-communication, rewards and recognitionand role-clarity. This reflects the positive impact of the action plans implemented basedon previous years survey. The leadership team will continue to track the progress ofthis initiative.
The employees intranet portal was revamped with new look and content. The newportal People Connect enables the employees across locations to get up-to-dateinformation on important events, milestones and policies. The portals activediscussion board enables people to stay connected at all times and share information.Saahaayya Kendra, a feature which enables employees to post their queries toHR Shared Services.
To monitor lead and lag indicators, the Company has developed various metrics for eachSBU/Business vertical. This enabled the leaders to measure the return on human capitalinvestments in an effective manner and make appropriate decisions. Many of these metricswere integrated with the SAP HR module. Along with HR-excellence deployment, HR-analyticswill help the Company emerge as a preferred employer.
Group communication meet
During the year, the Company conducted a communication meet where the core purpose,vision and values of the Company were explained to employees. Dr. Ramachandra N Galla,Chairman, Mr. Jayadev Galla, Vice Chairman and Managing Director and the senior managementaddressed employees. The event was webcast across all locations. A question-answer sessionprovided an opportunity for everyone to interact directly with the apex leadership team.
The Amara Raja Way
Amara Raja continued its journey of institutionalising its five values(Innovation, Excellence, Entrepreneurship, Experiences and Responsibility). Aninnovatively-designed five-colour uniform representing each value was distributed amongemployees. A booklet containing the value definition, pen stand and book markers wereissued for easy recall of the value definition. The Amara Raja Way will be taken forwardvia similar activities in 2013-14.
At Amara Raja, IT integrates operations and processes across plants, corporate officesand regional offices, providing real-time data for informed decision-making. The centralinfrastructure and in-house team at Tirupati addresses the growing information andcommunication technology requirements despite challenges posed by the remote nature oflocations.
2012-13 in retrospect
Complete in-house support and SAP enhancement met specific requirements
Improved Business Intelligence software which provides business insight to thesenior and middle management personnel
Increased bandwidth at major locations
Leveraged barcoding technology at the distribution centers for effectiveinventory management
Roadmap for 2013-14
The Company will complete the Advanced Planning & Optimisation module of SAP toimprove production planning, optimise plant utilisation and enhance operationalefficiency. The Company is working on a software for Amaron Franchisees, enhancing aninsight into secondary sales analytics. The Companys IT team is poised to addressICT requirements for greenfield projects. The Company is evaluating a software to providecustomised information on its export-import functions.
Amara Raja believes that business efficiency, management effectiveness and assetsafeguarding can be sustained through adequate internal control and processstandardisation. At the Company, internal control is exercised through the followinginitiatives:
Accurate recording of transactions with multi-layered checks
Consistent accounting policies and practices; compliance with prescribedaccounting standards
Control reviews of long-term plans, annual budgets with mid-course correction
Critical operational and security controls in the ERP platform
Documented policies and guidelines
Initiatives in line with statutory requirements
Constant monitoring by internal control personnel
Audits and reviews by independent professionals
Interactions between independent auditors, management and audit committee onscope, observations and outcomes of audits and reviews
A better understanding of the numbers
A. Analysis of the Statement of Profit and Loss
Rs in Million
|Parameters ||2012-13 ||2011-12 ||Change (%) |
|INCOME || || || |
|Sales (net of excise duty) ||29,614 ||23,645 ||25.24 |
|Other income ||465 ||280 ||66.07 |
|Total ||30,079 ||23,925 ||25.72 |
|EXPENDITURE || || || |
|Material cost ||19,950 ||16,070 ||24.14 |
|Employee expenses ||1,266 ||1,003 ||26.22 |
|Other expenses || || || |
|- Manufacturing expenses ||1,443 ||916 ||57.53 |
|- Selling expenses ||1,655 ||1,591 ||4.02 |
|- Administration expenses ||699 ||559 ||25.04 |
|- Sundry expenses ||85 ||110 ||(22.73) |
|Depreciation and amortisation ||661 ||465 ||42.15 |
|Finance cost ||10 ||25 ||(60.00) |
|Total ||25,769 ||20,739 ||24.25 |
|Profit before exceptional items ||4,310 ||3,186 ||35.28 |
|Exceptional expenses (net) ||(92) ||- || |
|Profit before tax ||4,218 ||3,186 ||32.39 |
|Income and Deferred tax ||1,351 ||1,035 ||30.53 |
|Profit after tax ||2,867 ||2,151 ||33.29 |
|Earning per share (EPS) ` ||16.78 ||12.59 ||33.28 |
Ratios as a percentage of sales:
|Parameters ||2012-13 ||2011-12 ||Change (%) |
|Material cost ||67.37 ||67.96 ||(0.59) |
|Employee expenses ||4.28 ||4.24 ||0.04 |
|Other expenses ||13.11 ||13.43 ||(0.32) |
|Depreciation and amortisation ||2.23 ||1.97 ||0.26 |
|Finance cost ||0.03 ||0.11 ||(0.07) |
|Profit before tax ||14.24 ||13.47 ||0.77 |
|Profit after tax ||9.68 ||9.10 ||0.58 |
A 25% revenue growth was driven by increased volumes across business verticals 20% in automotive four-wheeler batteries, 37% in automotive two-wheeler batteries, 18% intelecom and 10% in the UPS sector. Automotive batteries accounted for about 60% ofrevenues. The revenue from automotive batteries included trading sales of Amaronand PowerZoneTM branded Home UPS and tubular inverter batteries worth `2,585million in 2012-13, compared to `881 million in 2011-12.
Passenger car aftermarket battery prices were increased twice by 3.5% each in December2012 and March 2013 to cover inflation and lead prices. Income from the sale of servicesgrew significantly due to the Companys service matrix alternation from marketing tosolutions.
The 66% increase in Other Income from `280 million in 2011-12 to `465 million in2012-13 was the result of an increase in interest income, dividends and cashdiscounts. Other income comprised `197 million of operating income and `268 million ofnon-operating income.
There was an increase in material costs owing to increased volumes, enhanced trading,rupee depreciation against the US$ and increase in lead prices (Q4/2012-13). Material costas a percentage of net sales was 67.4% in 2012-13 compared with 68.0% in 2011-12.
The people cost increased on account of an increase in annual compensation, marginalheadcount addition and the annualised effect of the cost of the previous year. Thisincluded remuneration equal to 5% of profit before tax (`235 million for 2012-13 comparedwith `174 million for 2011-12) to Mr. Jayadev Galla, Vice Chairman and Managing Director,and `24 million (PY - nil) to Mr. Ravi Bhamidipati, Executive Director.
Other expenses comprised manufacturing, administrative and selling expenses.Manufacturing costs increased substantially due to enhanced production volumes andincrease in power costs from `540 million in 2011-12 to `987 million in 2012-13. The unitpower cost (cost per kwh) increased by about 45% from `4.69 to `6.82 on account of ashortage in power availability, higher grid power tariff and power sourcing through openaccess.
Administrative expenses grew due to an increase in rentals, commission to non-executivechairman (3% of profit before tax) and a higher CSR contribution (2% of profit beforetax).
The Companys finance cost declined substantially from `24.47 million in 2011-12to `9.98 million in 2012-13.
Cost of depreciation and amortisation included `75.52 million towards the impairment inthe value of industrial land in Uttarakhand and an additional depreciation of `50.49million due to a revision in the estimated useful life of certain assets.
Profits and profitability
EBIDTA grew 30.48% from `3,570 million in 2011-12 to `4,658 million in 2012-13. The netprofit for the year jumped 33.29% from `2,151 million in 2011-12 to `2,867 million in2012-13. As a result, earning per share climbed from `12.59 to `16.78 over the sameperiod.
EBIDTA margin grew by 63 bps from 15.10% in 2011-12 to 15.73% in 2012-13. Thisimprovement was due to better sales realisation in the industrial battery business, lowerlead consumption base, costs rationalisation and optimisation measures, which more thancountered the considerable rupee depreciation against the US$, higher power cost andescalating logistics costs consequent to rising fuel prices
In 2012-13, OEM business margins reduced considerably, which impacted margins growth.
The return on assets increased by 1,398 bps from 45.76% in 2011-12 to 59.74% in 2012-13
B. Analysis of the Balance Sheet
Rs in Million
|Parameters ||2012-13 ||2011-12 ||Change (%) |
|SOURCES OF FUNDS || || || |
|Shareholders' funds ||10,598 ||8,235 ||28.69 |
|Non-current liabilities ||1,345 ||1,150 ||16.96 |
|Current liabilities ||5,762 ||4,130 ||39.52 |
|Total ||17,705 ||13,515 ||31.00 |
|APPLICATION OF FUNDS || || || |
|Non-current assets || || || |
|Fixed assets ||4,618 ||3,861 ||19.61 |
|Investments ||161 ||161 || |
|Others ||357 ||98 ||264.29 |
|Current assets ||12,569 ||9,395 ||33.78 |
|Total ||17,705 ||13,515 ||31.00 |
There was no change in the equity share capital paid up capital stood at `170.81million in 2012-13 (170,812,500 shares of `1 each). The Company has sub-divided the equityshares of face value of `2 each to `1 each on September 26, 2012.
There was a 29% increase in reserves and surplus from `8,064 million in 2011-12 to`10,427 million in 2012-13 following a 33% higher retained earnings (from `1,776 millionin 2011-12 to `2,363 million in 2012-13). As a result, the book value per share of `1 eachincreased from `48.21 in 2011-12 to `62.05 in 2012-13. Return on networth grew 117 bps --from 29.28% in 2011-12 to 30.45% in 2012-13.
The Company was free of interest-bearing debt and net cash surplus as at March 31,2013. The non-interest bearing debt stood at `881 million.
The debt-equity ratio, without adjusting for free cash, improved from 0.10 as on March31, 2012 to 0.08 as on March 31, 2013.
Gross block (excluding capital work-in-progress) increased from `6,213 million as onMarch 31, 2012 to `6,803 million as on March 31, 2013 with net addition of `590 millionduring the year under review. Capital work-in-progress increased considerably from `311million in 2011-12 to `1,025 million in 2012-13, primarily on account of an ongoinggreenfield Medium VRLA capacity expansion project.
Inventories increased 10% from `2,666 million as on March 31, 2012 to `2,929 million ason March 31, 2013. This jump was largely owing to a higher stock of traded goods (Home UPSand Tubular Inverter Batteries) of `369 million (PY `45 million) ahead of the peak summerseason.
The 19% increase in trade receivables from `3,197 million as on March 31, 2012 to`3,807 million as on March 31, 2013 was in line with an increase in business volumes.
Cash and bank balances jumped 79% from `2,292 million as on March 31, 2012 to `4,108million as on March 31, 2013 owing to higher profits, improved working capital managementand retained earnings. A sum of `3,652 million was parked in fixed deposits with banks.
Trade payables increased from `876 million as on March 31, 2012 to `1,363 million as onMarch 31, 2013 in line with the increased operational scale and the ability to work onbetter credit terms.
The trade working capital as a percentage of net sales improved by 295 bps from 21.09%in 2011-12 to 18.14% in 2012-13.
Cash outflow on account of dividend and corporate dividend tax will be `430.45 millionand `73.15 million respectively in line with the Companys dividend distributionpolicy of 15% dividend payout.
CRISIL has recently upgraded the Companys rating from AA/Stable toAA+/Stable for long-term borrowings and reaffirmed the rating ofA1+ for short-term borrowings, reflecting the robust financial strength.
C. Analysis of the Cash Flow Statement
Rs in Million
|Parameters ||2012-13 ||2011-12 |
|Profit from operations (after tax) ||3,448 ||2,865 |
|Change in working capital ||(93) ||120 |
|Net cash flow from operating activities ||3,355 ||2,985 |
|Investment in fixed assets ||(1,464) ||(814) |
|Cash flow from investing activities ||259 ||72 |
|Cash flow from financing activities ||(350) ||(418) |
|Net cash inflow ||1,800 ||1,825 |
Net cash inflow from operations, after adjusting for net change in working capital,improved from `2,985 million in 2011-12 to `3,355 million in 2012-13. This reflectedimproved liquidity despite a challenging external business environment.
In 2012-13, the Company invested `1,464 million in fixed assets addition, whichincluded an investment in the ongoing greenfield capacity expansion of the Medium VRLAproduct line.
Cash inflow from investing activity represented interest and dividend income ondeployment of surplus cash. Surplus cash was invested profitably in liquid funds and fixeddeposits with banks.