Management Discussion and Analysis
(a) Industry Structure and Developments
The Company s core business operations are classified into the following categories:
agriculture, construction, automotive, energy, mining and more specifically the on-off
highway power transmission sector. Indian gear producers for these markets and industries
can be classified on the basis of being an original equipment supplier or a replacement
market supplier or a combination of both. Currently, leading manufacturers in these
industries source their gear requirements through their captive in-house facilities, if
any, or from suppliers approved by them. Fairfield Atlas Ltd., is one such approved and
preferred supplier to OEM s in the markets mentioned above. The demand for the Company s
products is a derived demand and hence is dependent upon growth rate of its OEM customers.
The Company can provide its customers with a localized solution for manufacturing and
product support. The auto sector operates in a growing competitive environment and hence
has to constantly adapt to changing market conditions. Consequently, the Company s
business to this sector varies with the demand from this important sector. However, the
forecast or expectation of a favourable monsoon this year will positively impact
agricultural activity and bodes well for business to the tractor industry. The Company
being a preferred supplier to key players in this market can expect growth in business in
this sector. With continued emphasis by the Government on infrastructure development the
construction industry will remain an attractive market. This trend plays to the
capabilities and market strength of the Company.
(b) Opportunities and Threats
The Company is a part of the Oerlikon Group. Along with its associate in India viz.
Graziano Trasmissioni (I) Pvt.Ltd., it forms the transmission segment drive system.
Operational synergies between the two companies present opportunities to ensure steady
growth for the company going ahead. With the proposed commissioning of the expanded heat
treatment facilities and investment in machineries and other infrastructure facilities the
company will be able to supply wider range of components both for domestic and export
business. Being an integral part of the Oerlikon Drive System Segment the company has
opportunities to expand its global business. The emerging revival of the US economy
particularly the housing sector and the capex initiatives taken by the Company have
provided opportunities for increased business generally and particularly for niche
markets. The company is continuously evaluating opportunities for extending its customer
base through new product development or new applications. The Company however faces
challenges and competitions from other suppliers to OEMs
(c) Segment-Wise Performance
The company has determined it business segments as on-highway (select applications),
agriculture, mining, energy, specialty industrial and construction related transmission
gears. As indicated above, the company will evaluate and make strategic investment that
provide growth opportunities in market segments that will yield appropriate returns on
investment.
(d) Outlook
The outlook for the current financial year seems to be encouraging. With the emerging
revival of the US economy particularly the housing sector the prospects for the export
business of the company appear bright. The expansion has made significant headway despite
tough ground conditions. With the proposed commissioning of the extended heat treatment
facilities by the end of the first quarter and the installation of heavy equipment and
machinery along with other infrastructural facilities in the expansion phase the company
is poised to provide a wider range of components both for its export and domestic
business. According to Oerlikon business plan, India is considered a key market for the
Segment Drive Systems and based on a clear growth strategy and planned investments the
business outlook for the Drive systems appear promising.
Demand schedules from the company s customers in the Tractor and Construction industry
have registered a healthy growth and hence the business outlook for the company from these
customers for the current financial year appear positive. The Company is making every
effort to reap the benefits of its investment in the expanded facilities so as to give it
an upward momentum in sales.
(e) Internal Control System
The Company fosters a strong internal control culture in the overall Governance
process. The Internal Control mechanism provides reasonable assurance of recording
transactions in all material aspects and provides a framework for safe guarding the
company s assets. The ERP system further enhances the effectiveness of the internal
control systems.
In addition to statutory audit, the financial and operating controls are reviewed by
the Internal Auditors. The Internal Audit Plan is developed at the beginning of the
financial year in consultation with the Statutory Auditors and Audit Committee.
The Company has appointed a reputed and experienced firm of Chartered Accountants to
conduct the Internal Audit and their Report is reviewed by the Audit Committee for
ascertaining the adequacy of internal control. The company s cost records are subject to
Cost Audit as prescribed by the Government. Compliance with various laws and regulations
pertaining to the company are also monitored by placing compliance reports at every Audit
Committee meeting.
(f) Human Resources / Industrial Relations
Industrial relations continued to be cordial and harmonious throughout the year. As
current wage settlement will expire in June this year, preliminary negotiations between
the management and workers representatives have already commenced. With a view to enhance
the business skills of the employees and to help them in their career aspiration various
training programmes and seminars were conducted in the course of the year for building
skills and developing competencies of the employees and nurturing their talents. These
programmes were conducted for employees at all levels in the organization and with the
help and guidance of professionals in the field. A number of programmes like games,
drawing competitions and family get together were organized to help improve employee
bonding and manage stress at work.
The Company has a strength of 569 permanent employees as on 31st March, 2013.
(g) Risks and Concerns
Since a bulk of the company s revenues are derived from export business the company s
revenues are vulnerable to fluctuations in the value of foreign currencies especially the
US Dollar. On the domestic side, rise in prices of petroleum products, power cost and cost
of inputs can hamper profit margins of the Company. General inflationary trends in the
economy coupled with Government policies can impact overall demand. High Interest Rates
and inflation have dampened mood of buyers and economic vagaries may compound the problems
further.
DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE FINANCIAL
INFORMATION
In these challenging times, the company has achieved income of Rs 23,228.88 lakhs which
is 8.31% less as compared to March 2012. Even though there is decrease in income for the
year under review by 8.31% company continues with its productivity efficiency improvements
which have resulted in savings through continued focus on cost controls, process
efficiencies and product innovations that met customer expectations in all areas thereby
enabling the Company to maintain profitable growth in the current economic scenario and
achieve profit for the year before exceptional items and taxation amounting to Rs 4,377.36
lakhs which is higher by 1.43% of sales as compared to March 2012.
BORROWINGS
Borrowings include external commercial borrowing amounting of US$ 70.00 lakhs (Rs
3,569.15 lakhs) (PY US$ 80.00 lakhs (Rs 3,961.75 lakhs)) and Vehicle loan of Rs 49.43
lakhs (PY Rs 48.80 lakhs). During the year company reduced its loan by US$ 10 lakhs
through repayment of loan and strengthening the credit profile of your Company. The
Company s total Debt to Equity Ratio is 0.32 as at 31st March, 2013 as compared to 0.47 as
on 31st March 2012.
FIXED ASSETS
The tangible assets (net of depreciation and including capital work in progress)
increased from Rs 6,054.61 lakhs as at March 31, 2012 to Rs 8,085.23 lakhs as at March
31,2013. The increase is mainly towards plant and machinery to enhance the plant capacity
to meet the additional demand from the existing and potential customers.
As the demand for the products manufactured by the company is increasing, the company
to meet the increased demand is in the process of expanding its present Heat treatment
plant. The expected date of completion of expansion is July 2013. This will help your
company to meet the increasing demand significantly. The said Heat Treatment plant is
expected to commence its production by July 2013, at the existing 100% EOU unit
INVENTORIES
Inventories stood at Rs 3,169.99 lakhs as compared to Rs 3,696.85 lakhs as at March 31,
2012. As compared to previous year inventory has gone down by Rs 526.86 lakhs which is
approximately 14% of total inventory as on March 31, 2012. As there is an decrease in
Sales, related purchases of raw material, work in progress and stores and spares amounting
to Rs 523.71 lakhs has decreased Even though inventory has gone down, inventory holding
days has gone up to 113 days as compared to 105 days as on March 31, 2012. The said
holding days has increased as on account of increase in purchases during the last quarter
Jan 2013 to March 2013 by Rs 1,193.47 lakhs.
TRADE PAYABLES
As compared to previous year Trade payables as on March 31, 2013 has decreased by Rs
291.32 lakhs. As sales are decreased during the period under review, there is decrease in
credit purchase of raw material, job work charges. Hence there is decrease in Trade
payables. Although the Trade payables has decreased as at March 31, 2013, Trade payable
outstanding in number of days has increased to 95 days as compared to 83 days as on March
31, 2012 as credit purchases of raw material has increased by Rs 1,193.47 in last quarter
of year and for which payments have not been made before March 31, 2013.
TRADE RECEIVABLES
Trade Receivables (net of allowance for doubtful debts) are Rs 6,760.58 lakhs as at
March 31, 2013, as compared to Rs 6,718.01 lakhs as at March 31, 2012. The allowances for
doubtful debts are Rs 6.55 lakhs as at March 31, 2013 against Rs 4.60 lakhs as at March
31, 2012. Although the amount of Trade receivables has decreased as on March 31, 2013, the
Trade receivables outstanding in number of days has increased to 110 days from 99 days as
on March 31, 2012 as sales are increased in the last quarter of the year by Rs 1,461.43
lakhs and for which payments have not been received till March 31,2013.
RESULTS OF OPERATIONS
Rs. in lakhs
| Expenditure |
FY-2012-2013 |
FY-2011-2012 |
| Cost of Goods Sold |
10,955.37 |
12,641.59 |
| Employee benefits |
2,108.65 |
1,925.94 |
| Finance Costs |
292.74 |
316.39 |
| Depreciation and amortisation |
847.56 |
841.34 |
| Other expenses |
4,647.20 |
5,173.03 |
Cost of Goods Sold (COGS) :
Cost of goods sold in terms of net revenue has gone down by 2.67% as compared to March
31, 2012 on account of strengthening of US Dollar. As a part of cost control policy
company continues to procure raw material and components of Assemblies from domestic
market barring few which are customer specific.
Employee benefits:
The total employee cost has gone up by Rs 182.71 lakhs due to annual increase in wages
and salaries of workers and staff.
Finance costs:
As revised Schedule VI requires exchange differences arising on foreign currency
borrowing to be adjusted as interest cost, the same has gone down by Rs 46.77 lakhs and
interest on loan and bill discounting has gone up by Rs 23.11 lakhs as compared to March
2012.
Depreciation and amortisation:
Depreciation has gone up by Rs 6.22 lakhs, mainly on account of addition to Plant &
Machinery during the current year.
Other expenses:
As compared to March 2012 other expenses amounting to Rs 525.83 lakhs has gone down by
10.16%. However as compared to sales the expenses are 21% of sales and which are in line
with previous year March 2012.
Certain statements in the Management Discussion and Analysis describing the Company s
objectives, projections, estimates, expectations or predictions may be forward looking
statements within the meaning of applicable securities laws and regulations. Actual
results could differ from those expressed or implied. Important factors that could make a
difference to the Company s operations include raw material availability and prices.
Cyclical demand and pricing in the Company s principal markets, changes in Government
regulations, tax regimes, economic developments within India and the countries in which
the Company conducts business and other incidental factors.
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