h m t machine tools ltd Management discussions

HMT MACHINE TOOLS LIMITED ANNUAL REPORT 2010-2011 MANAGEMENT DISCUSSION AND ANALYSIS A Industry Structure and Development The Indian machine tool industry consists of about 750 manufacturing units of which approximately 400 units fall under the organised category. Further, ten major Indian companies constitute almost 70 per cent of the total production. While the large organised players cater to Indias heavy and medium industries, the small scale sector meets the demand of ancillary and other units. The machine tools industry can be broadly classified into metal-cutting and metal-forming tools, based on the type of operation. Metal cutting accounts for 87 per cent of the total output of machine tools in India. Key metal cutting tools include turning centres, machining centres and grinding centres, which account for nearly two-thirds of the total metal-cutting production. Metal forming is dominated by presses, which account for 51 per cent share. Based on technology, machine tools can be classified into CNC (Computerised Numerically Controlled) and conventional tools. CNC machine tools, which are highly productive and cost effective, comprise nearly 70 per cent of machine tools. Of these, CNC turning centres, machining centres and grinding centres are the biggest segments, accounting for nearly 81 per cent of the total machine tools production in India. During 2010-11, countrys consumption of machine tools was Rs.9029 Cr. out of which contribution from domestic production is around Rs.2416 Cr., the gap of Rs.6613 Cr. is addressed by imports which is around 73% of total consumption. The increasing domestic demand which is not currently met by domestic production indicates the vast business potential available within the country for machine tools. B Strength and Weakness Strengths: * Strong brand image. * Large basket of products - conventional, CNC and special purpose machines. * Huge infrastructure for in house manufacturing of critical components. * Proven experience in offering component-oriented Special Purpose Machines built to international standards * Highly qualified, experienced engineers and technicians to meet the high technology needs of users. * Wide range of quality machine tools established indigenously through renowned collaborations and CNC machine tools established through in-house R&D. * Focus group for strategic segments * Well equipped sales and service network spread throughout length and breadth of the country. Weakness: * Inadequate number of engineers in key departments like Design & developments , Project Engineering, Application Engineering, Sales Engineering etc., * Time taken to commercialize new products is high. * Too wide product range, limited CNC products, low market potential of conventional machines. * High overheads and manpower costs. * Low employee morale due to very low salary structure not in line with industry norms. * Old plant and machinery resulting in low productivity levels with quality problems. * Ageing employee profile not in keeping with industry standards. C Opportunities and Threats Opportunities: * Huge investment envisaged in strategic sectors will fuel demand for Machine Tools. * Market potential available for state-of-the-art Machines presently being met by imports. * Growth in power, nuclear power, Aerospace and Wind Energy sectors will fuel huge demand for Machine Tools. * High potential available for Exports * The Gap between domestic consumption and production provides potential for increasing domestic production. * Over Rs.3500 Cr. investment intentions in various user sectors will enhance demand for Machine tools. * Impetus being given for growth in manufacturing sector. * Global hub for manufacturing components Threats: * Inland competitors strengthening their capabilities through technical tie-up with overseas majors * Severe competition from reputed overseas players * Low duty structures have made imported machines extremely competitive for domestic buyers. * Influx of second hand / reconditioned imported machines at cheaper prices. * Decline in demand for conventional machines due to technology shift and obsolescence. Trend in shift from stand alone machines to manufacturing systems. * Increased competition even from small/ medium scale manufacturers * Customers choice of technology. User preference for supply from source as per collaborators recommendation. * Increased input costs, increase in exchange parity, power shortage resulting in erosion of profitability. * Import of machines tools from China/ Taiwan/ Korea D Segment wise or Product wise Performance Segment wise Performance: Segment wise sales for the year 2010-11 of the Company is as under- Sector Val. Rs. Lakhs Auto & Auto Ancillary 3465 Railways 583 Defence 2970 Agricultural Machinery 939 Mining & Metals 1047 Industrial Machinery 300 Industrial Intermediates 2154 Power 2554 Consumer Durables 134 Others 4944 Total 19090 E Outlook Demand for machine tools accrues from the manufacturers of primary goods and intermediate goods. The primary user industries includes the automotive sector, capital goods sector and consumer durables sector. Prominent users of machine tools in the intermediate goods sector includes the auto components, the ball and roller bearings and electronic components. Most segments of the Indian automotive, capital goods, consumer durable, as well as intermediate goods sectors recorded a good growth in turnover during 2010-2011. This growth in various sectors presents a positive outlook for improving the companys business during 2011-12. F Risks and Concerns * Shortage of working capital * Attrition of experienced professionals and skilled manpower in key areas * Low order flow from private sector (less advances) and no advances for orders received from government and defence sectors * Salaries not in line with the industry standards * Unable to induct professionals and skilled manpower due to low pay scales * Low morale among employees due to low pay scales * Imports of machine tools both new and second hand machines especially from countries like China, Korea, Taiwan etc * High cost of inputs such as CNC system, Bearings, accessories etc. due to high duties and taxes. G Internal Control System and Their Adequacy The Company has in place adequate systems of Internal Control commensurate with its size and nature of its operations. The salient features of internal control system are: * Clear delegation of power with authority limits for incurring capital and revenue expenditure. * Well laid down corporate policies for accounting, reporting and Corporate Governance. * Safeguarding assets against unauthorized use or losses or disposition, and ensuring that the transactions are authorized, recorded and reported correctly. * Process for formulating and reviewing annual and long term business plans have been laid down. * Detailed Annual budget giving further break up of monthly targets under various heads. * Compliance with laws and regulations. The Internal Audit Department of the Company along with external firms appointed for carrying out internal audits of Units/Divisions reviews, evaluates and appraises the various systems, procedures/policies laid down by the Company and suggests meaningful and useful improvements. Internal Audit Department coordinates with the Units/ Divisions of the Company for ensuring coverage of all areas of operations in order to bring a transparency in the whole spectrum of the Company. H Financial Performance The Turnover of the Company during the year 201011 is Rs.190.90 Cr. as compared to Rs.193.86 Cr. of the previous year. During the year, the Company incurred a loss of Rs.93.06 Cr. as against a Net Loss of Rs.45.80 Cr. incurred during the previous year. The borrowings of the Company as on 31.03.2011 is Rs.126.75 Crores. I Human Resources The manpower strength of the Company as on 31.03.2011 is 3652 . Training and Retraining as per the sanctioned Revival plan of the Company was provided to the employees during the year. The Company is making its best efforts to retain the skilled and professionally qualified personnel despite the constraints faced in implementing the revised pay scales (1997) in the Company. J Corporate Social Responsibility HMT Group has set up Hospitals, Schools and Playgrounds at various Manufacturing Units for the benefit of employees and the local community.