USHA INTERNATIONAL LIMITED
ANNUAL REPORT 2006-2007
MANAGEMENT DISCUSSION AND ANALYSIS
A. Product Categories:
In the financial year 2006-07, Usha International had a growth of over 19%
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.
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
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
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
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
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.
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
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
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.
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
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
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
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
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
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
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
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:
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
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
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
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.
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
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
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
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
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
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
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.
The financial performance of the Company is given in the Directors' Report.
Segment-wise performance has been disclosed in the Balance Sheet.