Usha International Ltd(merged)


BSE: 590012 | NSE: NA | ISIN: INE717B01019 
Market Cap: [Rs.Cr.] 85 | Face Value: [Rs.] 10
Industry: Trading

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Management Discussions

USHA INTERNATIONAL LIMITED ANNUAL REPORT 2006-2007 MANAGEMENT DISCUSSION AND ANALYSIS A. Product Categories: * Fans: In the financial year 2006-07, Usha International had a growth of over 19% in fans. The Company has strengthened its distribution network by adding more than 450 direct dealers / redistributors to its fold. Today, Usha fans are present in most of the towns with a population upwards of 20,000. In addition, the Company has launched a major initiative to mark its presence across all major large format stores in the country. In response to emerging customer needs, 15 new fan models were introduced into the market during 200607. Today, Usha has the widest range of fans across segments - ceiling, table, pedestal, wall, exhaust and others. Recognizing the potential of small towns and rural markets, the Company unveiled its economy range of fans in 2003. During 2006-07, both the product range and distribution network in this market segment has been expanded, promising the Company a stronger foothold. At the super-premium end of the market, the Company has an association with the Hunter Fan Company of USA, one of the largest ceiling fan companies in the world. Usha has successfully established this niche segment by targeting the hospitality industry and upmarket households. Looking at the strong growth in the infrastructure and housing sector, the Company's encouraging performance in this category is expected to continue. * Sewing Machines: In the sewing machine market, Usha dominates the organised sector. Usha's revenues in the category grew by 25%, well ahead of the industry average. Thanks to the regular introduction of new products, the Company has established its presence in different segments - straight stitch, semi zig- zag, automatic zig-zag, computerized embroidery machines, industrial and hi-speed industrial. Focussed initiatives in each category have resulted in growing the customer base. The traditional straight stitch segment has been strengthened with new offerings. Bandhan and Anand Deluxe, two coloured, low cost models have recently been introduced. The high margin automatic zig-zag segment has witnessed a healthy growth of 22% over the previous year. Active efforts to promote computerized embroidery machines are ongoing. Sales staff has been selected to undergo training, so as to satisfactorily service the specialised needs of customers in this category. Usha achieved impressive growth of 19% in the domestic industrial segment. A range of imported highspeed industrial machines has also been added to the existing range. During the coming year, plans have been firmed up to extend the initiatives currently underway. Two new models are being readied for launch in the computerised embroidery machine category. The range of high-speed industrial machines is soon to be expanded up to 20 models. Also on the anvil is the introduction of the next-gen Professional Series sewing machines, in collaboration with Janome of Japan. Sewing Schools: Usha has established a network of 455 sewing and design schools across the country. A curriculum upgrade and other initiatives are currently under process. This will give these schools a professional image and greater visibility. * Appliances: The Usha Lexus range includes kitchen appliances, room coolers, water heaters, heating products and electric irons. Usha is one of the few players with a marked presence across all major small appliance categories. Mixer grinders are an important product category and there has been good growth here. The Company has also launched a new mixer grinder model to cater to the premium segment. New product offerings have been introduced in other categories as well. This includes a new rice cooker and a range of steam irons, kettles and toasters. Usha has also launched three new models of room coolers with expanded tank capacities. Brand visibility is being enhanced through the introduction of Usha Lexus home appliances across large format stores and retail chains. In the coming year, the Company intends to consolidate and launch a slew of consumer friendly models in all core categories. * Engines and Pumpsets: The engines and pumpset industry is strongly impacted by agricultural trends in the country. During the financial year 2006-07, the industry witnessed growth owing to an above average monsoon, availability of institutional finance and a good kharif crop. Usha registered a growth of 40% in turnover in this category. Within the industry, sales of traditional, heavy-weight engines were low owing to the high material cost of pig iron. However, sales of light-weight diesel and kerosene pumpsets were good. This is a growing segment where Usha has established a presence. The Company has recorded growth in sales over the previous year in all the existing categories of diesel and kerosene engines and pumpsets. A range of air-cooled Usha engines was introduced during the year. These engines serve as prime movers for concrete mixers and find application in the construction industry. The Company's initiative is timely as this segment is currently witnessing a growth phase. Sales in the genset category have moved up and this includes repeat orders from institutional clients including large multinationals. The Company intends to continue its brand-building exercises through participation in rural fairs and melas. At the same time, authorized service centres are being set up in select areas to provide standardised facilities and quality service to rural customers. * Electrical Motors and Pumps: The use of electrical pumpsets is increasing, both in domestic and agricultural applications. This is owing to a drop in water table levels and a rapidly growing population. With an overall growth of 21% in turnover, Usha's performance in this category continues to be positive. In 2006-07, the Company successfully promoted its range of oil-filled submersible pumps in the market. Usha submersible pumps have been specially designed to withstand wide voltage fluctuations. Sales have doubled over the previous year in this category. In the mini-monoblock range, a host of new models have also been added recently. In coming times, a new range of single-phase electrical monoblock pumps and an economy range of mini-monoblock pumps are scheduled for launch. Good sales are expected from both the mini-monoblock and oil-filled submersible range of products. * Water Coolers & Dispensers: Safe drinking water is becoming an increasingly scarce commodity. The market for water coolers/water dispensers is on the upswing, and is poised for further growth. Usha offers a wide range of fully stainless steel as well as partial stainless steel models. It thereby caters to both the domestic and commercial market segments. The Shriram range of water dispensers was launched during the year 2005. Today's customers are increasingly hygiene conscious and demanding. This augers well for the water dispenser market, which has grown 25% during 2006-07. Usha's entry in this segment can be expected to positively impact the Company's bottomline in coming times. A new range of eco-friendly table top water dispenser models are currently being developed for launch. The Company expects to capitalise from its strong presence in the institutional and commercial market segments in the water coolers and dispensers product category. * Auto Components: In the auto component business during the financial year 2006-07 the Company paralleled industry trends and registered a growth of 8% in sales over the previous year. Component sales in sub-categories including bi- wheelers, stationery diesel engines, bearings and filters have done well. During the year, the focus was to grow the distribution network. The company now has representation in every state with the addition of many second-line dealers. Brand awareness campaigns through dedicated van promotions were undertaken in rural and semi-rural markets. This has had a positive impact in growing the brand's presence in the stationery diesel engine and bi-wheeler component segments. The Company intends to continue its focus by expanding its presence in rural markets. Distribution reach and promotional thrust will both be given added emphasis in the coming year. During the coming year, motorcycle tubes, electrical switches and bulbs have been identified for introduction. All India distribution of NGK products - which enjoy a worldwide market share of 45% in the spark plug category - is also being pursued. In fuel injection equipment, P-type nozzles are scheduled for launch. In addition, the marketing of auto component imported from China will also be undertaken in a phased manner. B. Exports: During the current year, the export of diesel engines, fuel injection parts, etc. have shown substantial growth over the previous year. Fan exports to several overseas markets have increased. However, owing to continued disturbances in Iraq, the overall quantum of fan exports was lower than the previous year. The Company received and successfully executed an order for stand fans from Wal-Mart of USA, the world's largest retail chain. Action has been initiated to offer Wal-Mart a much wider range of models in the next season. In the coming year, the Company intends to expand its presence in select export markets. The office at Sri Lanka is operational and similar options in other countries are under active consideration. The export of industrial sewing machines is on the upswing with an entry into new markets and repeat orders from established customers in Sri Lanka and Kuwait. The Company's turnover from chemical exports grew to over Rs. 12 crores during 2006-07. This marks a 40% increase in the segment, as compared to the previous year. C. Retail: Company Showrooms: The company has, over the years, established a network of 57 exclusive company showrooms across the country. Apart from showcasing the complete product range, these outlets provide customers an opportunity to attend product demos, and have their after-sales concerns attended to. A new identity for Company showrooms has been developed, which reflects evolving trends in the retail sector. Large Format Stores: To address emerging opportunities in the retail space, the Company has set up a dedicated Large Format Stores (LFS) department. With specific inputs for key accounts, teams have been positioned at the divisional level to conduct business and ensure maximum visibility for the brand at such outlets. These initiatives are expected to deliver benefits in this segment in coming times. The company has commenced supplies of appliances, fans and other products to almost all large format stores. D. Information Technology & ERP: The Company's business operations are conducted using an ERP system with an advanced IT network. During the course of the last year, the ERP system was upgraded to the latest version of mySAP ERP-2005. New functionalities have been introduced to enhance the system capacity and capability to ensure a better response time. Significant improvements have also been carried in numerous business processes mapped in the ERP system, so as to ensure better operation and control. Supplier Relation Management (SRM) software has been integrated within the ERP system to enable online interaction with large vendors over the Internet. The Customer Relationship Management (CRM) module is currently under implementation and this shall provide an interface with dealers. Safety and security of information assets is accorded top priority. The Company has a defined and comprehensive IT security policy, which is monitored and adhered to, so as to ensure that its business operations are not compromised. E. Human Resources: At Usha International, a transparent and supportive environment serves as a catalyst to attract and nurture talent. The Company has undertaken the 'R to R' challenge - Recruitment to Retention - to align HR to business objectives. Training programs and developmental initiatives are regularly undertaken so as to facilitate this process. The Performance Management System is being redesigned to facilitate optimum performance through a cyclical process of setting goals, measurement criteria, feedback mechanisms, as well as competency enhancement and reward systems. Development and retention of managerial talent poses a challenge for all companies in India today. This fact, coupled with the growth objectives of the Company, presents an opportunity to redesign HR and the organizational processes. F. After Sales Service: Usha International is committed to provide high standards of customer satisfaction. A service-centric approach is integral to delivering on this commitment. The Company's network of Authorized Service Centres has been expanded to a total of 68, in addition to a large network of servicing dealers across the country. During the year, a number of customer-friendly service practices have been implemented. For added convenience, Usha Service Centres are now open all seven days of the week. Satisfaction surveys conducted by independent auditors on defined performance parameters are a regular feature. In addition, a faster response on spare parts supply is now possible, thanks to the upgraded logistic management system. Service engineers have also been trained to attend to the concerns of customers and to satisfactorily deal with customer complaints. G. ISO Certification: The quest for quality is an area of focus at Usha International. Procedures have been defined and documented to address all aspects of marketing operations. Usha's Quality Management System emphasizes continual improvement, both at the operational and functional levels. The Company made an early move by upgrading to the new IS09001: 2000 standards in 2002. In April 2006, the Company's manufacturing facility at Faridabad was certified IS09001: 2000 compliance by M/s DNV In order to facilitate implementation of the new standards, more than 60 internal auditors from within the organization have undergone quality certification courses conducted by recognised bodies. Quarterly audits across locations help in gap-identification, process definitions and remedial measures. The Company has earned full compliance credit in the surveillance audits conducted by M/s DNV. H. SWOT Analysis for the Company: Strengths: 1. Strong distribution network: Usha International Ltd. has a strong distribution network, with a presence across all metros, class I and II towns, as well as potential class III, IV and V towns. Achieving distribution depth and productivity are defined responsibilities of the sales team. 2. High market share: Usha has a dominant market share and a high brand recall in most of its product categories. The brand is associated with quality, trust and reliability as well as modernity for the 'core' Usha customer. 3. Extensive product range: The Company offers a wide range of products in each of the categories it is present in. 4. Large customer base: A large satisfied customer base of Usha products can be found across the country. They have been loyal to the brand across generations. It is possible to offer a wide range of branded products from Usha International to this large base of customers throughout their lifetime. 5. Committed team: Smooth business operations, thanks to a highly committed and capable human resource base. 6. Sound IT capabilities: The Company took steps 5 years ago to install SAP This has given the company the advantage of real time data analysis, faster response time, lower costs and greater accuracy. Last year, the system was upgraded to the latest version of my SAP ERP-2005 which further enhances the system capacity and capability. Weaknesses: 1. Material costs and price concerns: The rise in prices and the volatile cost of raw materials (copper, aluminium, pig iron and polymers) puts pressure on the Company's margins and profitability as it is not possible to easily pass on these cost increases to the customer. 2. Global operations: Export markets are competitive and expansion of global operations is difficult as the company does not have global competitiveness. Opportunities: 1. Strong economic performance: A growth rate of 8%-9% and rising income levels are expected to result in greater demand for consumer durables. 2. Upswing in construction activity: Growth in construction, housing and hospitality sectors will add to the demand for fans. However, tile recent increase in interest rates for home loans might pose a threat and limit this uptrend. 3. Potential for home appliances: The present level of penetration of home appliances in India is very low. As incomes rise and the standard of living goes up, this category has a strong potential for growth. 4. Opportunities in retail: Changes in the retail scenario, the growth of shopping malls and large format stores opens up new opportunities. This however poses new challenges as well - channel conflict and competition from private labels. 5. Potential of reaching rural India: Given the Company's extensive product range and distribution strength, it is in a position to capture emerging demand from small towns and rural areas. 6. Favourable government policies: The government's emphasis on rural development and support for under-privileged sections provides opportunities for promoting the sale of products like pumpsets and sewing machines. Threats: 1. Competition from SSIS players: In most product categories, there is intense competition from the very large small-scale industry, as well as from low-cost manufacturers. This restricts the company's margins. 2. Talent retention: Attracting and retaining talent is becoming difficult and poses a threat for future growth. 3. Impact of macro factors on exports: Government policies with respect to export incentives, as well as the strengthening of the rupee will have an adverse effect on the Company's exports, which accounts for 9% of the turnover. 4. Low price imports from China: The price of imports from China are a threat to the company. The government's policies on regional and free trade agreements could result in opening the door to more imports at far lower costs, resulting in unequal competition. Imports from China could upset the existing price structure and pose a challenge to the Company. I. Internal Control Systems and their Adequacy: The Company has defined internal controls and review systems which are closely monitored by a team of internal auditors under the supervision of the Audit Committee of the Board of Directors. As a result, efficiency of operations, reliability of financial reports in line with prescribed policies, and compliance with applicable laws and regulations are reasonably assured. Audits are conducted at regular intervals by the Company's Internal Audit team of qualified personnel, and also by external firms of Chartered Accountants. Corrective actions arising out of the observations of the Auditors are taken to plug inefficiencies and to eliminate chance of recurrence. The operating policies and procedures of the Company are in line with best practices and have enabled the Company to receive ISO certification. A Risk Assessment and Minimization Committee has been constituted to identify probable risks. The Committee meets at regular intervals to recommend steps to mitigate the impact of those risks. J. Others: The financial performance of the Company is given in the Directors' Report. Segment-wise performance has been disclosed in the Balance Sheet.

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Key Information

Key Executives:

Siddharth Shriram , Chairman 

Sunil Wadhwa , Managing Director 

Chhaya Shriram , Whole-time Director 

A K Jain , Director 


Company Head Office / Quarters:
19 Kasturba Gandhi Marg,
,
New Delhi,
New Delhi-110001
Phone : 91-011-23318114
Fax : 91-011-23318118/23318119
E-mail : kb_singh@ushainternational.com
Web : http://www.ushainternational.com
Registrars:
Mas Services Limited
T-34 2nd Floor
Okhla Industrial Are
Phase II
New Delhi - 110020

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