MANAGEMENT DISCUSSION AND ANALYSIS REPORTWABCO INDIA LIMITED is the pioneer in the manufacture of automotive vehicle controlsystems in India. The Company has positioned itself as a "Total SolutionProvider" for the braking system requirements of the customers.
The company recorded all time high total revenue (revenue from operations and otherincome) of Rs. 1,057 crores during 2011-12 as against Rs. 898 crores in 2010-11,registering a growth of 17.7%. The Company has achieved this performance in spite of slowdown of the economy and lower growth in sectors like agriculture, industry and staticgrowth in services sector in 2011-12 as compared to 2010-11.
I. Industry Structure and Development:
India's real Gross Domestic Product (GDP) started decreasing from 1st quarter of2011-12 itself, GDP at 7.7% is likely to end at 6.8% for full year 2011-12. GDP growth forfull year 2010-11 was at 8.4%. Broad sector wise growth for 2009-10 to 2011-12 is givenbelow:-
Growth rate of real GDP (%)
| Sector | 2009-10 | 2010-11 | 2011-12 (Forecast) |
| Agriculture | 1.0 | 7.0 | 3.0 |
| Industry | 8.4 | 7.2 | 4.1 |
| Services | 10.4 | 9.3 | 9.0 |
| Real GDP | 8.4 | 8.4 | 6.8 |
Source :- CMIE
Deceleration in the manufacturing sector growth and decline in the mining sector outputcontributed to the fall in GDP growth in 2011-12. The commercial vehicle industryregistered a moderate performance in 2011-12 with a growth of 7% in Medium and HeavyCommercial Vehicles (MHCV) sales volume. This was a result of government focus oninfrastructure development, rapid urbanization, robust freight demand and improvedtransporter profitability.
The development of road infrastructure is a key factor that influences the growth ofthe Indian commercial vehicle industry. With the Government paving the way for increasedinvestment in the road and bridges sector, the total investment is set to be increasedsubstantially during 12th Five year plan as compared to 11th Five year plan. Year wisebreak up of proposed investment in Roads and Bridges sector during 12th Five year plan isgive below.
| | | | | | | In Rs. Billions |
| Sector | 11th Plan 2008-12 | 2012-13 | 2013-14 | 2014-15 | 2015-16 | 2016-17 | 12th Plan 2012-17 |
| Roads & Bridges | 2,787 | 1,022 | 1,176 | 1,336 | 1,515 | 1,715 | 6,764 |
| Total investment in Infra. Sector | 20,542 | 6,194 | 7,127 | 8,095 | 9,180 | 10,395 | 40,992 |
| Infrastructure Investment % of GDP | 7.55 | 9.00 | 9.50 | 9.90 | 10.30 | 10.70 | 9.95 |
Source: Planning Commission, SBI CAP Securities Research
Owing to the above growth drivers and enablers, the production of Medium and HeavyCommercial Vehicles (MHCV) in 2011-12 compared to 2010-11 has recorded growth of 11% asper data given below:
| Category | 2011-12 | 2010-11 | Growth |
| Medium and Heavy Commercial Vehicles Production | 3,83,277 | 3,45,818 | 11% |
(Source: SIAM)
Indian companies are gaining recognition as manufacturers of high quality automotivecomponents in the international market. Presence of global players like VOLVO, MAN,Navistar and Daimler will drive technology in our Market.
II. Business outlook and overview
Reserve Bank of India in its latest Monetary Policy Statement has projected a baselineGDP growth for 2012-13 at 7.3%. The rationale for this projection is that industry willperform better than in last year as leading indicators of industry suggest a turnaround inIIP (Index for Industrial Production) growth. The global outlook also looks slightlybetter than expected earlier. Overall the domestic growth outlook for 2012-13 looks alittle better than in 2011-12.
Commercial vehicle production is likely to rise by 9.7% in 2012-13. Better roadinfrastructure coupled with a robust demand for light commercial vehicles, owing to theincreasing acceptance of the hub-and-spoke model of transportation is expected to drivethe industry's production growth during the year.
III. Opportunities & Threats
The Company caters to requirements of commercial vehicle segment of the automotiveindustry. As the national highway network will be strengthened, the mode of transportationfor bulk commodities like steel products, cement and food grains will gradually shift fromrail to road. The share of road in the transport of all commodities is hence likely torise from 53% in 2009-10 to 58% in 2014-15. With improved road infrastructure, the demandfor faster vehicles that carry higher payloads is increasing.
Local market growth opportunities through increase in content per vehicle in the formof introducing new systems / technologies like Automated Manual Transmission (AMT),Automatic Slack Adjusters,
Clutch actuation systems, higher capacity compressors etc., will result in increasedbusiness opportunities.
In the aftermarket side, so far, the Company has commissioned 179 authorized servicecenters at strategic locations across the country, to provide quicker and better serviceon air brake aggregates. Further, to improve availability of quality service in ruralareas, the Company also commissioned 145 certified workshops. These initiatives wouldresult in improved service practices, availability of genuine parts and generateadditional revenue for the Company.
The unit located at Mahindra World City, a Special Economic Zone caters to the needs ofWABCO plants globally. With the revival of global economy expected in the near future,business opportunities for this unit will increase. In line with this, the company hasgone on an expansion of this unit, construction has been completed and manufacturingactivity has commenced during April 2012.
The Company's competitors are active and continue to supply to key customers.
IV. Risks and concerns
The cyclical nature of the Indian commercial vehicle industry (Company's major customersegment) might affect the demand. In 2012-13, operating expenses are likely to rise withthe expected increase in prices of key raw materials, Energy cost & scarcity of powerin state.
The trend in prices of key raw materials is as follows:-
• Steel prices have increased by 5% in 2011-12 compared to 2010-11 in spite ofincreased steel production by 7.9% for the period April 2011 - November 2011. Fall inIndian rupee against US Dollar by 13.5% in 2011-12 has impacted on the key raw materialsimports - Iron ore and coal in turn steel price. The increase in Iron ore price by 67% inMid-December 2011 and coal by 43% in open market expects to increase the steel price in Q1and Q2 of 2012 as the inventory is low compared to demand.
• Domestic aluminum prices increased by 10% in 2011-12 compared to 2010-11. Theimpact of drop in LME index did not have effect on aluminum price due to fall in rupeeagainst dollar. The steep rise in price of furnace oil during 2011-12 by 38% compared to2010-11 has impacted in the aluminum price. Average aluminum prices are expected to be6-8% higher in 2012-13, as compared to 2011-12 levels.
• Average rubber prices are expected to be 12-15% higher in 2012-13, as comparedto 2011-12 levels due to continuous increase in synthetic rubber prices.
Commercial Vehicles manufacturers are likely to pass on these additional costs tocustomers. However, the sensitivity of transporters' profitability to the increase invehicle cost would determine the extent of the cost actually passed on to the endcustomer.
Since, major growth is expected from Exports as well as from new systems; new productlaunch at the right time will be the focus area. Suitable measures have been factored inthe company's operating plan. The OEM customers across the world would continue theirpressure on price reduction from their suppliers. The Company plans to mitigate this riskthrough cost reduction initiatives such as value engineering and global sourcing.
V. Internal control system and their adequacy
The Company has a proper and adequate system of internal controls to ensure that allassets are safeguarded and protected against loss from unauthorized use or dispositionthereof. All transactions are authorized, recorded and reported correctly. The internalcontrols are checked by internal auditors. The observations made by them, managementaction and time frame are reviewed by the audit committee of the Board of Directors.Concerns if any are reported to the Board.
VI. Operations review
A. Manufacturing
During the year under review, as part of expansion and to set up a plant near the majorcustomers, the company has purchased land and production shed at Pant Nagar in the Stateof Uttrakhand. This unit has started manufacturing activity and commercial invoice wasraised during March 2012. The company proposes to start the construction of its plant nearLucknow in the State of Uttar Pradesh during 2012-13. The company expects to commencecommercial production during February / March 2013. The Company's manufacturing facilitiesfollow the best practices such as Total Quality Management (TQM), Total ProductiveMaintenance (TPM) and Lean Manufacturing and has best-in-class practices for safety, workenvironment, water and energy conservation. These initiatives are deployed company wide toachieve significant improvement in productivity and reduction in manufacturing cost.Continuous improvement actions are implemented to improve manufacturing quality andproductivity in all the manufacturing locations.
During the year under review, the company obtained the national award for excellence incost management from the Institute of Cost Accountants of India. Other awards won by thecompany include Excellence in Quality and Excellence in Innovation and Technology awardsand INNOVENDOR award from TATA Motors Limited. The company also has bagged Silver awardfrom ACMA for technology in 2011.
B. Quality
The quality system at the factory aims at achieving total customer satisfaction throughits focus on improving product quality to World standards. This is achieved through totalemployee involvement and continuous improvement culture. Rigorous usage of poka-yokes,utilization of statistical tools for process optimization and control also contributetowards improving the product quality.
The standardization of the quality procedures is aligned with QS 9000 / TS 16949requirements. WABCO INDIA LIMITED is certified for TS 16949.
TQM is a way of life at WABCO INDIA LIMITED. 100% participation in employee involvementhas been successful for the past 12 consecutive years.
Employees have completed more than 208 projects by applying statistical tools throughQC Circles in 2011-12. The average number of suggestions implemented per employee is 61 in2011-12 which is close to international benchmark.
C. Cost management
The Company continues its rigorous focus on its costs through an effective costdeployment system. Value engineering and global sourcing projects are being pursued forcost reduction and also to insulate from cost escalation. Cost reduction workshops areconducted periodically to identify cost reduction opportunities on various product groups.Some of the strategies for cost reduction include material change, process change, sourcechange etc. Commodity sourcing from prime producers and price negotiation with customershelps in managing the cost effectively and efficiently.
D. Information Technology
The Company uses ERP system that integrates all business processes across the Companyas well as customers and suppliers. During the year, the Company has focused on furtherleveraging the ERP system. Special emphasis on automation of repetitive activities throughthe usage of IT was done across several functions.
VII. Human Resource Development
The Company focuses on attracting the best talent and enjoys a good brand image acrossleading educational institutions and job seekers. The Company blends successfully midcareer recruitment with internally grown talent through talent management process. Areward and recognition system is in place to provide fast track growth for high potentialemployees. Career development workshops are undertaken to identify such high potential.
Executives are sponsored to overseas and inland universities for developing theircapabilities to handle new technologies and management practices. Customised managementdevelopment programs have been developed with reputed educational institutions to hone theleadership skills of the senior executives.
The Company continues to maintain its impeccable record on industrial relations.
As of 31st March 2012, the Company had 1,161 employees on its rolls.
VIII. Environment & Safety
Safety management is integrated with the overall Safety Health and Environment (SHE)management system. During the year under review, the unit at Mahindra world City has beencertified for Integrated Management System viz., ISO 14001 and OHSAS 18001. The Companyhas also obtained "Best Safety Drive" award from ACMA.
The Company is committed to energy conservation. During the year the followingimplemented projects have gained momentum:
• Replacement of High bay lights to CFL/LED lamp wherever suitable to maintain theluminous level.
• Introducing efficient coolant in new grinding machines thereby resulting ofreduced power consumption.
• Removal of chip conveyor from machinery where minimum chips is generated frommachine. This results in reduced power consumption.
IX. Community development and social responsibility
As a corporate citizen, the Company believes in its social responsibility and communitydevelopment activities. Activities to be undertaken in this regard will be identified andaction will be taken thereof.
X. Financial statement
| Particulars | Year ended 31st March 2012 | Year ended 31st March 2011 |
| Rs. in lakhs | % | Rs. in lakhs | % |
| Sales (net) | 1,00,497.08 | 95.0 | 86,574.79 | 96.4 |
| Other Operating income | 4,087.18 | 3.8 | 2,676.87 | 3.0 |
| Other income | 1,205.90 | 1.2 | 535.95 | 0.6 |
| Total income | 1,05,770.14 | 100.0 | 89,787.61 | 100.0 |
| Raw materials consumed | 57,928.44 | 54.7 | 50,817.77 | 56.6 |
| Changes in inventories of Finished goods and WIP | (892.74) | (0.8) | (1,321.89) | (1.4) |
| Staff cost | 9,428.80 | 8.9 | 7,119.49 | 7.9 |
| Stores & tools consumed | 5,091.37 | 4.8 | 3,555.41 | 4.0 |
| Power & fuel | 1,435.17 | 1.4 | 1,430.63 | 1.6 |
| Repairs & maintenance | 902.39 | 0.8 | 808.69 | 0.9 |
| Other expenses | 8,480.08 | 8.0 | 6,777.43 | 7.5 |
| Finance costs | 11.88 | 0.0 | 20.47 | 0.0 |
| Depreciation | 1,583.72 | 1.5 | 1,442.45 | 1.6 |
| Total expenditure | 84,147.11 | 79.5 | 70,650.45 | 78.7 |
| Profit before tax | 21,823.03 | 20.5 | 19,137.16 | 21.3 |
| Provision for taxation | 8,283.07 | 5.9 | 6,393.98 | 7.1 |
| Profit after tax | 15,339.98 | 14.8 | 12,743.18 | 14.2 |
XI. Cautionary statement
Statements in the management discussion and analysis report describing the Company'sobjectives, projections, estimates and expectations may be "forward lookingstatements" within the meaning of applicable securities laws and regulations. Actualresults could differ materially from those expressed or implied. Important factors thatcould make a difference to the Company's operations include, among others, economicconditions affecting demand / supply and price conditions in the domestic and overseasmarkets in which the Company operates, changes in the Government regulations, tax laws andother statutes and incidental factors.