MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIALCONDITIONS
Comments are set out in the following paragraphs.
1. The Engineering Business has been further restructured this year (dealt with laterin this section) which has helped in bringing focus on the existing portfolio at a timewhen global recessionary conditions demand a very high degree of responsiveness tochanging market dynamics.
2. In the Precision Tools Division, the process of continuous upgradation of technologycontinued; albeit slowly; thus helping us to improve quality and prepare to introduce arange of new products. There was a substantial fall in demand witnessed during quarters 3and 4 of 2008–2009, (during which quarters the turnover declined by nearly 30%); inspite of this, the division continued to focus on expanding customer base thereby managingto post same level of turnover as last year. Going forward, focus will remain on HighPerformance Tools through dedicated Application Selling teams. We shall continue to reviewcosts, rationalize the product line, introduce a range of new products, outsourcenon–critical functions and improve supply–chain management.
3. The Motors Division at Hosur continued to face a very challenging situation as lowcost Chinese motors had made manufacturing of motors unviable. Several measures have beenand continue to be taken to restructure the operations. The process of restructuring ofthe Coding Business started in full earnest by focusing on improving the market share inthe various product lines. As a result, the revenue from this business grew by 15% YoY,despite the overall market size shrinking significantly on account of the ManufacturingSectors like Automotive, Heavy and Light Engineering being hit by the recession. However,the low margin on Continuous Inkjet Printers and substantially higher level of workingcapital dented the profitability. The performance and viability of the Coding Businesswill be closely monitored in the coming fiscal.
4. The Turbine business saw major change in the business model as we moved from beingan agent of a leading US based company to being a Value Added Reseller. The new businessmodel is expected to not only deploy greater degree of technology but will alsosignificantly increase the turnover and profitability. However, due to the long businesscycles for both Turbines and Blower businesses, the full impact of this will be felt inthe next financial year.
5. In a business portfolio restructuring exercise, the Business Automation Divisionundertaking was sold to Forbes Technosys Ltd., a subsidiary of the Company where it has asynergistic fit. This move is expected to bring greater focus to the business.
6. The Measuring Instruments business, which had not been gaining enough traction hasnow been discontinued.
7. Overall, the performance of Engineering Division suffered due to the unprecedenteddownturn in the global demand that equally affected Indian economy and our business lines.However, no effort was spared in converting the adverse situation into an opportunity liketrimming the working capital requirements, which initiative alone freed up more than Rs.13 crores of cash. Other initiatives included installation of Integrated Management Systemfor operations, renewed product development efforts and bringing focus back on harnessingemerging technologies. These efforts will result in substantial growth to both the topline and bottom line in the next fiscal and going forward.
3.2 LOGISTICS SOLUTIONS AND SHIPPING RELATED ACTIVITY:
Our Container Freight Stations at Veshvi (near JNPT, Mumbai) and Mundra entered theirsecond year of operations during the fiscal year gone by. The overall capacity utilizationat Veshvi was around 40% with major support from NYK, a Japanese Main Line Operator.Volumes from NYK dropped after the global economic recession set in September, 2008.Mundra continued to be underutilized due to low throughput through the Port. Turningaround the Mundra CFS is high on the agenda and continues to engage management attention.
In the logistics space, we have focused on the Project/Heavy Lift market segment; inwhich we were able to consolidate and increase our market share. The services that wereoffered initially were confined to CHA operations and local freight forwarding. By the endof the year, we had started offering clients end to end freight forwardingsolutions, right from the source (local or global), up to the final destination. This notonly allowed the customer the luxury of a ‘single window’ operation, but alsoincreased our visibility and accountability, in the business arena. With the currentglobal economic scenario as a backdrop, service providers who are able to offer valueadded freight forwarding solutions, will be a very sought after entity, during theoncoming months. Your Company is exploring tie–ups with leading foreign players toget into Warehouse Management, which should be concluded in FY 2009–2010.
Our liner and tramp agency businesses, both service oriented businesses, were, andcontinue to be impacted by the global economic meltdown as, both, volumes of shipments andrates have fallen.
3.3 UPMARKET BRANDS:
After a review, the Company has decided to exit the business, as it has no strategicfit; it has practically closed down operations with the remaining bit to be wound up byend of September. It is currently exploring options to sub–license the brand forwhich it still holds the license.
The Company has a number of assets in the form of real estate in Mumbai, Chennai,Kolkata and Delhi. Regular efforts are being made to create value from them and engagethem gainfully in order to get long–term benefits.
At the same time, Branch offices at different locations are being consolidated in orderto improve efficiency as well as minimize costs. In Chennai, operations are alreadyconsolidated whilst Kolkata will take place soon.
3.5 FINANCE AND CORPORATE:
The results for the year, apart from the effects of the global economic meltdown, wereadversely affected due to the impairment of investments in Forbes Edumetry Ltd andEdumetry Inc. U.S.A., closure costs of Upmarket Brands Division (both one time) andcontinued losses at Mundra CFS and Motor manufacturing; excluding the losses from these,the Company would have been near breakeven.
3.6 OUTLOOK FOR FUTURE AND POST BALANCE SHEET EVENTS:
1. The restructuring of the business portfolio including exiting business verticals,segments and investing in selectively chosen ones will continue into 2009–2010; thisis expected to lay the foundation and shape the organization into a focussed one for thefuture. The Company, despite the downturn, decided to continue its investment in SAP, anERP which will be rolled out enterprise wide and enable availability of information on areal–time basis for effective decision making.
2. After the close of the Financial Year, the Company has acquired further 29,33,176shares of Next Gen Publishing Limited (Next Gen) from Bauer Consumer Media Ltd, U.K whichhas decided to opt out of Next Gen. With this acquisition, the total shareholding of theCompany in Next Gen has increased to 78,41,416 shares (65.35% of Next Gen’s sharecapital) making it a subsidiary of the Company.
3. Fractional holdings in Gokak Textiles Ltd. and PT Gokak Indonesia have been disposedoff, since balance sheet date, by the Company and its subsidiary, Forbes Finance Ltd.