HOGANAS INDIA LIMITED
ANNUAL REPORT 2007
MANAGEMENT DISCUSSION AND ANALYSIS
Domestic Market witnessed varying growth rates.
In the first six months, Automotive industry, witnessed a healthy growth
because of automotive component exports and addition of capacities by major
customers. However during the later part of the year Automotive industry
market suffered due to lower demand influenced by two wheeler industry.
Investments in infrastructure projects in Roads, Ports, Energy, Pipelines
and growth in Cement and Steel industries enhanced the demand for iron
powders by this group by 17-18%.
Growth in Foundry was estimated at 64% whereas surface coating applications
increased demand for such applications by 30%. The Company's efforts were
addressed to equipment manufacturers and customers to provide cost
effective solution for cutting and surface coating applications.
Hoganas India had to keep pace with the market trend and concurrently had
to defend itself against competition from Chinese and European suppliers.
Global competitors are looking at opportunity to establish base in Indian
market by supplying powders to major key customers, at penetrating prices
to gain market share.
Global political developments with Iran largely resulted in embargo on
Banking transactions and forced slow down of supply until payments for
earlier receivables were in pipeline. The resulting adverse impact on
volume was made up by increased supplies to affiliate companies in Sweden,
USA & Japan.
Market Developments through customer and end customer co-operation.
What we did so far ?
* Reached out to almost all end customers in India.
* Developed P/M Components as partnership projects.
* Supported few new P/M Component investement projects.
* Arranged P/M Equipment manufacturers' Interactions with P/M industries.
What do we Do ?
* Participate at new product design stage and VA/VE programs.
* Bring P/M Component Manufacturers, end users and P/M Equipment
* Promote Education / Seminars / Workshops.
* Provide P/M blanks for prototype parts.
* Keep watch on new technologies and alternate technologies.
In the Automotive Sector, the number of end customers served has increased
manifold and now includes over 20 OEM's catering to Domestic as also Global
markets. The Company is in close touch with such customers who, after their
independent evaluation, choose P/M Process as first choice for component
manufacture to achieve lowest total cost. This necessitates Company's
active support to P/M Component Manufacturers (existing & new aspirants) to
launch in many cases for the first time in the country, new components like
Injector clamp , Cam Lobes , Tonner Wheel , Sensor Rings etc. As at end of
the year,six new investors for P/M Component Manufacturing were actively
supported. On need basis, Company plays a key role in developing tri-
partite understanding and cross organizational sharing of technical
Positioning to support customers
IISC Bangalore will be developing SMC Applications for ISRO, whereas SMC
Component development for Crompton Greaves has reached prototype sample
stage, for which Specialty Sintered will make 60 sets.
In the case of Somaloy Motor applications, in the following cases
prototypes have been developed, samples submitted for trials and results
* Stator for Axial flux motor for Lucas TVS.
* Stator for 9.5 Nm, 3.5 kg, 200 W, BLDC bicycle Motor for Crompton
* Outer & Inner Yoke for moving Magnet type linear motor compressor as part
of Pulse Tube Cryo cooler research program of IISC funded by ISRO.
A case study
Your Company's contribution resulted in 15 % cost reduction in Mahindra &
Mahindra's diesel engine. A team involving OEM Designers, Engineers,
Component Manufacturers as well as Metallurgist partnered to convert
integral Cam Shafts used in Mahindra & Mahindra's diesel engines to P/M
during 2007. In just 10 months they delivered a 15% overall cost reduction
for Mahindra & Mahindra's 2.6 L diesel engine. Specialty Sintered Products
Pvt. Ltd was the Component Manufacturer. The engineers & metallurgists came
from ALF Engineering of India & your Company.
To reduce cost & time of supplies of group products to customers, new
warehouse was started in Wagholi, Pune in June 2007. Till end of year total
of 689 MT of products with Net Sales value of MINK 118 was dispatched. But
for this change, valuable time would have been used up for moving products
from Mumbai to Ahmednagar and then to customers primarily located near and
around Pune. With this initiative customers have been successful in
reducing their inventory levels.
Process improvement is a part of the Company's Continuous Improvement
Program. During the year the following major improvements were accomplished
* Efficient Demand management: has increased power input in furnace for
increasing the productivity. As a result capability of charging no. of
heats on normal working day has increased from 10 to 12.
* Your Company has taken several steps to reduce undersize content in
oversize fraction by improving screening efficiencies & Technology
upgradation through use of Russell screening equipment.
* Quality of atomizing water has been improved by modification in water
settling practices resulting in cleaner water & improved sand filter
* Productivity increase achieved in dryer by replacing old low rating
heater by higher ratings elements.
Customer complaint Record
In the year 2007 only six customer complaints were received. Majority of
these complaints related to rusting of powder more due to logistics
(transportation, storage etc.) factors. There is no other major concern
regarding Quality. Typical count is 0.33 per thousand MT in the year 2007.
Integration of three quality systems with concurrent audit.
In 2007 Company successfully integrated ISO/TS 16949, ISO 14001, OHSAS
18001 quality systems and is now amongst a select group of such companies.
Benefits of combined audits
Combined audits for the ISO/TS 16949, ISO 14001 & OHSAS 18001 reinforce the
concept of an integrated management system. Ratherthan auditing quality
planning, environmental planning, or health & safety system planning,
auditors would evaluate a holistic process of product & process planning.
Combined audits also provide for more efficient audits. Instead of
separately analyzing quality system control, environmental operational
controls & health & safety controls for a given process, auditors evaluate
the process once, including all controls (quality, environmental, & health
and safety) relating to that process. There is less duplication of effort,
both during the audit planning phase & the audit execution phase.
Lab Extension & New Lab Equipment
During the year 2007 Company's Laboratory space was augmented to
accommodate new equipments such as Linear sampling Device, Soxtec Avanti
2050, Induction Furnace (for Lab use not for production) and Air Jet Sieve
Analyzer. This has immensely helped in reducing the variation by homogenous
sampling through LSD. Also other miscellaneous equipments were added to
facilitate chemical testing.
Working Capital Management:
The following performance evaluation indices use year end data from Company
Balance Sheet and Profit & Loss Account for the year to show business cycle
Particulars 2007 2006
Inventory days 93.50 150.66
(Inventories / per day material)
Receivable days 36.13 44.80
(Sundry, Debtors / Sales + Other
Income per day)
Current Liabilities days
(includes creditors for 135.89 74.18
(Current Liabilities / per day cash
1. Your Company participated in Group's Employee Attitude Survey and as in
previous year HIL was amongst the leaders scoring 55.7%, followed by Korea
52.1% & Brazil 51.7%
2. Workers wage settlement covering 3 years period from April 1, 2007 was
signed on 30th August 2007. Salient features were
* Continuation of Gain Sharing Model which interalia is based on quality
standards for Plant I, Production of Plant I & II, dispatches ex Nagar
plant & savings in power consumption.
* Eliminating different treatment for payment of incentive based on PBT for
blue & white collar employees.
* Superannuation contribution base now includes DA.
* Minimum health standard provision.
3. Other HR Initiatives include;
* Use of 'Chak De' Movie to promote team spirit
* Overseas Training
* Service Awards
* Employee Referral system to fill up vacancies
* Early Optional Retirement Scheme
Consequently employee productivity (volume & value) has shown remarkable
Amongst the Hoganas Group Companies your Company has been in the forefront
in use of Information Technology,
The Company has been successfully operating a customized indigenous ERP
since 2001, which has proved its competence & capability over the last
three years wherein Company's Volume, Net Sales & Profits have doubled. The
ERP system covers all functions from transaction level to reporting. The
ERP system is supported by utilities which permit analysis, groupings,
classification of data in multi dimension with historical data covering 7
years which instantly appears on users screen.
During the year following Plant-Centric improvements were made.
Company process for Supply & Logistics function compared with global
practices within Hoganas Group.
Touch Screen- A 'Touch Screen System 'commissioned in August 2007 is fully
integrated with the Company's ERP system and on recording of details of
material received it creates a seamless flow of transactions end to end.
The Project was completed in 50 days.
BALE system - Bill Approval & Ledger Entry. Eliminates movement of PO and
Invoice copies across functions. With this program, all transaction details
at various stages appear on the payment voucher. The system was reviewed by
Ernst & Young to-test it for compliance with COSO
Iron Base, a Hoganas Group developed software has been installed. The
system enables information searches by production lots, product, input
material characteristics, date & time, recipe combinations, production
outside specification in a variety of permutations & combinations.
Eurotherm Data collection system was configured & commissioned to make use
of paperless graphic recorder. The standard recorder comes equipped for FTP
transfer and is also fitted with Bridge' (Remote viewing) software. The
operator interface consists of a touch-sensitive screen, showing either
process variable values in one of a number of formats, or showing
configuration or operational details for use in setting up the recorder.
Your Company has taken several steps to contribute towards Environment
Protection. They cover maintaining Unity Power factor, Reduction of LDO
fuel consumption per MT of raw powder, use of energy efficient screw
Annexure B' to the Directors' Report provides greater details.
In the modernization & renovation of the Corporate Office, Environment
friendly air conditioning, ventilation & lighting aspects have been
Risk Management (Operational Risks, Legal Risks, Financial Risks)
A beginning was made in assessing Company's risk in handling cash
transactions under Guidelines issued by Hoganas AB. The review was done by
an independent agency & corrective action taken as appropriate.
Outlook & Future plans for 2008:
Year 2008, till date has witnessed several unforeseen and unanticipated
events. Inflation, swings in exchange rates, crude oil prices reaching new
heights, slow down in industrial production, statutory curbs on steel &
cement prices, scrap prices continuing to remain volatile and automotive
sector coming under stress because of cost escalation.
As in previous year the gains on volume are being overshadowed by cost
increases. Under the circumstances your Directors are exercising all
possible steps to reduce cost, control working capital and continue to
service the customers by technical support, timely deliveries, improving
logistics by setting up an additional warehouse in Chennai and also plan
capacity expansions for growth.
Your Company plans to take full advantage of prototype centre being set up
in Sweden for rapid promotion of P/M based products for end use customers &
customers from India.
The future plans also include developing new powders & blends to support
increasing process capability needs of end users.
Recognizing the fact that current curriculum of Institutes teaching
Metallurgy do not provide training in specialized fields, your Company
plans to set up P/M & SMC schools and give Application Engineering support
for emerging SCO applications.
Scheme under section 391, 393 of the Companies Act
A Scheme of Arrangement was presented to the Hon'ble Bombay High Court for
approval to convene meetings of affected shareholders under the Scheme. As
per directions of the Hon'ble High Court, a meeting of the concerned
members of the Company was convened on 14 November 2007. In accordance with
the relevant provisions of the Companies Act, 1956 the Scheme of
Arrangement was duly approved by the members, who attended the meeting
personally, or through representation and/or by proxy. Further as per the
applicable provisions of Act and Rules, the Company has filed its Petition
before the Hon'ble Bombay High Court for the approval of the Scheme. The
Petition is being contested by 2 shareholders, who together hold 160 shares
on grounds that the Scheme will squeeze out minority shareholders. The
hearing on the Petition is in progress and the next hearing is scheduled
for June 6th 2008.
On receipt of the Court order, the Company will communicate the outcome to
all the shareholders.