lumax automotive systems ltd Management discussions

MANAGEMENT DISCUSSION AND ANALYSIS

The report contains forward-looking statements, identified by words like ‘plans’, ‘expects’, ‘will’, ‘anticipates’, believes’, ‘intends’, ‘projects’, ‘estimates’ and so on. All statements that address expectations or projections about the future, but not limited to the Company’s strategy for growth, product development, market position, expenditures and financial results, are forward looking statements.

Industry Structure and Developments:

The Indian auto component industry is one of the country’s rising industries with tremendous growth prospects. From a low-key supplier providing components exclusively to the domestic market, the industry has emerged as one of the key auto components centres in Asia and is today seen as a significant player in the global automotive supply chain. India is now a supplier of a range of high-value and critical automobile components to global auto makers such as General Motors, Toyota, Ford and Volkswagen, amongst others. The industry currently accounts for almost seven per cent of India’s gross domestic product (GDP) and employs about 19 million people, both directly and indirectly. The ever-increasing development in infrastructure, big domestic market, increasing purchasing power and stable government framework have made India a favourable destination for investment, as per the vision of Automotive Mission Plan (AMP)2006-2016. The year 2013-14 was undoubtedly one of the most challenging ones for the automobile industry. Both, vehicle and auto component sales saw a decline during the fiscal year that ended in March, 2014. According to the auto component industry’s performance review for the fiscal 2013-14, the industry recorded a decline of 2 per cent, with overall turnover standing at Rs. 2,11,765 crores (USD 35.13 billion) against last year’s 2,16,000 crores. (Source Automotive Component Manufacturing Association of India (ACMA)). The compound annual growth rate (CAGR) for the industry has been 14 per cent for the last six years. However, the auto component industry expects a growth of 4-6 per cent in the 2014-15 fiscal, if the vehicle sales continue to grow like they have in the last couple of months.

Opportunities & Threats

a) Opportunities

The Indian auto component industry is expected to register a turnover of US$ 66 billion by FY 15-16 with the likelihood to touch US$ 115 billion by FY 20-21, as per the estimates of Automotive Component Manufacturers Association of India (ACMA). In addition, industry exports are projected to reach US$ 12 billion by FY 15-16 and add up to US$ 30 billion by FY 20-21. Exports in the sector grew by 4.4 per cent to touch US$ 9.69 billion in 2013, as per data provided by ACMA. The cumulative foreign direct investment (FDI) inflows into the Indian automobile industry during the period April 2000 - May 2014 was recorded at US$ 9,885.21 million, as per data published by the Department of Industrial Policy and Promotion (DIPP), Government of India.

b) Threats

The industry inspected a continuous year-on-year decline in terms of investment. While in 2010-11 almost USD 2 billion were invested, in 2011-12, it was in the range of USD 1.6-1.9 billion. It further dropped to USD 1.26-1.75 billion in 2012-13, whereas in 2013-14, an investment of around USD 0.5-0.7 billion was witnessed in the sector. The reason behind this was moderation in vehicle sales and depressed market sentiments. Although The Government of India has made many supportive policies for the development of Auto industries but there are some threats viz. high cost of capital investment, infrastructure challenges, availability of skilled manpower, deregulation of diesel prices, increase in the cost of raw material, consistent fuel hikes are important threats factors which could be hindering in the overall development of the Auto industries and these factors are also imposable on your company.

Future Outlook

The rapidly globalising world is opening new avenues for the transportation industry, generating the need for more efficient, safe and reliable modes of transportation, which is subsequently adding to the auto component industry’s growing opportunities. According to a report by the Confederation of Indian Industry (CII), the Indian auto component industry is set to become the third largest in the world by 2025. Also, by that time, newer verticals and opportunities for component manufacturers will open up as the automobile market will shift towards electric, electronic and hybrid cars, and newer technologies will have to be adopted via systematic research and development. By 2020, it has been estimated that nearly 90 per cent of vehicles on the road will be wired. While the connected car market is expected to touch US$ 600 billion, the automotive component industry is predicted to reach US$ 113 billion.

Risk & Concerns

The cash crunch caused due to inflationary concerns and high fiscal deficit is likely to continue and cause a slowdown in industrial and infrastructure growth. There is a greater need for collaboration between the component manufacturers, OEMs, machine tool supplies and the raw material industry. The component industry needs to consciously consider diversifying into adjacent markets including defence, aerospace, railways etc. to tide over the industry’s cyclicity and minimise risk,

Internal control systems and their adequacy

The company has a system of internal controls in place to ensure that all the transactions are properly recorded and authorized. The internal control system is supplemented by documentary policies and procedures. The same is further supplemented by a program of audits by the internal auditors who periodically present their observations to the audit committee. The systems and procedures followed by the company give reasonable assurance for the security of its assets and protect against losses from unauthorized use or disposition and that the transactions are properly authorized, recorded and reported.

Risk Management

The Company has sought advice from reputed consultants to assess its current risk management practices to ensure "best-in-class" risk management practices in accordance with new Clause 49 of the Listing Agreement.

The consulting firm has studied and mapped Lumax’s processes across planning, marketing, production, quality, purchasing, legal, accounts and stores and submitted its recommendations to the management.

Environment, Health and Safety

We pay utmost attention to safety of our employees, related communities and environment at large. We are an environment conscious company. Most of our units are accredited with ISO/ TS 16949 certification. We have been developing products that help in improving environment.

Human Resources

We consider our human resource to be our most important assets. We have developed a culture where a sense of belongingness and ownership of work are the key motivating factors. We continuously make efforts to upgrade the skills of our employees through training and development programs. Our endeavour is to provide world class training to create a world-class work force.

Segment-Wise Performance

The company operates only in the Automobile Component Segment and hence segment-wise reporting is not applicable to the company.

Cautionary Statement

Certain statements in this report on "Management Discussion and Analysis" are forward looking statements and which have been issued as required by applicable Securities Laws and Regulations. There are several factors which would be beyond the control of Management and as such, may affect the actual results which could be different from that envisaged.