SAFE HARBOUR STATEMENT
Statements in this Management Discussion and Analysis contains "forward lookingstatements" including, but without limitation, statements relating to theimplementation of strategic initiatives, and other statements relating to Dynamaticsfuture business developments and economic performance. While these forward lookingstatements indicate the Companys assessment and future expectations concerning thedevelopment of business, a number of risks, uncertainties and other unknown factors couldcause actual developments and results to differ materially from expectations. Thesefactors include, but are not limited to, general market, macro-economic, governmental andregulatory trends, movements in currency exchange and interest rates, competitivepressures, technological developments, changes in the financial conditions of thirdparties dealing with the Company, legislative developments, and other key factors thatcould affect the business and financial performance. Dynamatic undertakes no obligation topublicly revise any forward looking statements to reflect future / likely events orcircumstances.
A. BUSINESS OVERVIEW
Incorporated in 1973, Dynamatic Technologies Limited ("Dynamatic" or the"Company") is engaged in the designing and manufacture of highly engineeredproducts for the automotive, hydraulic, defence and aeronautic industries. The Company isone of the worlds largest manufacturers of hydraulic gear pumps and automotiveturbochargers.ItisalsoaglobalTierIsuppliertomajorglobal aerospace OEMs (original equipmentmanufacturers) such as Airbus, Boeing and Bell Helicopters.
Dynamatic operates in three segments: Automotive & Metallurgy, Hydraulics andAerospace & Defence.
The Automotive & Metallurgy division supplies engine, transmission, turbochargerand chassis parts to the leading global OEMs. It also manufactures high precision, complexmetallurgical ferrous castings for automobile engines and turbochargers. The divisionsupplies critical engine and transmission products to around 50% of the passenger carsmade in India.
The Dynamatic Hydraulics manufactures hydraulic gear pumps with aluminium or castiron body, motors, hand pumps, hitch control valves, rock shaft assemblies, lube and waterpumps and related products and complete hydraulic solutions for the Indian and overseasmarkets. The Company is Asias largest producer of hydraulic gear pumps and one ofthe largest globally. It has about 65% market share of the organised tractor market inIndia and supplies to all OEMs in India.
The Aerospace & Defence division is engaged in production of airframe structuresand precision aerospace components. Its products include wing and rear fuselages, aileronsand wing flaps and key airframe structures. The division also provides solutions forunmanned aerial systems & vehicles, monitoring & surveillance systems.
B. GLOBAL/WORLD ECONOMY
Overall view of world economic growth in 2015 is about the same as expected in 2014.Despite modest improvement in global economic growth versus 2014, significant risks anduncertainties remain that could temper growth in 2015. In the recent past there have beenincreasingly challenging for the global economy, leading to some significant adjustmentsin Global Economic Outlook. The changes are to a large extent the result of greatervolatility and uncertainty, and they present a higher risk for the global economy in 2015.The rapid decline in oil prices, quick adjustments in exchange rates (with the US dollarappreciating and weakening of most other currencies, notably the euro), and the newquantitative easing program of the ECB are just a few examples of the economic factors atplay. In addition, there is increased geopolitical uncertainty related to theRussia-Ukraine and Middle East conflicts, as well as increased concern about the economicand political future of the Euro Area and European Union.
As a result, the overall global real GDP growth average is projected to be 3.3% from3.4% as projected earlier reflects a combination of upsides and downsides. Downwardrevision are primarily due to a major GDP decline in Russia (from +0.8 to -3.5%) andmoderate declines in the Euro Area (1.6 to 1.4%), Japan (1.1 to 0.6%), and Brazil (1.5 to0.5%). Upward revisions include the United States (2.6 to 2.9%), Mexico (2.8 to 3.5%), andIndia (5.5 to 5.9%).
The United States will continue to register stronger growth than its peers, but theexpansionary phase will show signs of maturing, causing a moderation in profitability anda variety of cost pressures. European economies have more scope to recover, and therecently announced QE program may help improve business and consumer confidence, and theweakened euro could help offset negative effects from slower exports to emerging markets.However, Europes dysfunctional policy environment to accelerate growth throughinvestment and reforms could make the recovery look moderate compared to the UnitedStates. China will continue its "soft fall" growth trajectory, as alreadylimited government stimuli will have less effect despite recent monetary easing, andexpose the weakening of Chinas creditworthiness more clearly. Other major emergingmarkets will continue to grow, but their pace will vary depending on the net impact ofdeclining oil prices and exchange rate depreciations, as well as progress of their ownreform agendas. New geographies for growth, such as Africa and parts of Asia, offeropportunities to build sustainable growth models but they also bring challenges oneconomic, legal, and institutional fronts.
The Indian economy seems to have gained momentum since the NDA government has come intopower;
As per latest available data, the advanced estimates suggest a GDP growth of 7.4 percent in FY15 for India as compared to 6.9 per cent in FY14 making India one of the fastestgrowing economies in the world. However, sustained economic growth can be ensured only byaddressing structural constraints that arise due to low manufacturing base, delay inproject approvals and insufficient complementary investments, lack of infrastructure, andagricultural productions high dependence on the monsoon and high food inflation.
Improved economic growth during FY14-15 has been contributed by better performance inthe manufacturing and services sector. However concerns surrounding construction andmining still exist. Agriculture also suffered due to poor monsoon, but there are noindications of its spill over to next year. Concerns over Indias economicperformance grew when, for the first time in 25 years, India witnessed a sub-5 per centgrowth for the second consecutive year in FY14. However, since the NDA Government cameinto power, India is back on its growth trajectory due to better performance in manymacroeconomic indicators and reforms announced by the government.
As per Economic Survey 2014-15, the Indian agricultural sector is expected to registera growth of 1.1 per cent in FY15 as compared to 3.8 per cent in FY14 due to decline inproduction levels. Industry, on the other hand, is expected to perform better as comparedto FY14 due to the Make in India campaign launched by the Government totransform India into a manufacturing hub with a aim to facilitate investment, fosterinnovation, enhance skill development, protect intellectual property and build best inclass manufacturing infrastructure. Accordingly manufacturing in FY15 is expected to growat 6.7 per cent (5.3 per cent in FY14), power generation at 5.9 per cent (2.9 per cent inFY14), and mining at 1.7 per cent (5.5 per cent in FY14), Services sector comprising ofTrade, hotels, transport, communication and services related to broadcasting; financial,real estate and professional services, and public administration, defence and otherservices holds the maximum share in Indias GDP.
The Government of India and RBI are constantly introducing measures aimed at attractinginvestments like FDI in key sectors such as defence, railways and insurance; reforms inbanking sector, maintaining growth and improving the ease of doing business in India. Thepace of economic recovery during FY16 is expected to be better than the pace during FY15.However,it could depend on a variety of factors such as the performance of agriculture andindustry, inflation rate, and policy support. The Economic Survey of India 2015 outlines afew priority areas for the Government of India such as reviving investments, strengtheningmacro-economic stability, creating non-agriculture related jobs and developinginfrastructure and agriculture.
C. INDUSTRY OVERVIEW AND SEGMENT DISCUSSION: Hydraulics
Dynamatic hydraulics to a larger extent depends on Tractor OEMs orders which isseasonal. It is true that Indian agri-sector is an ever green sector which will keepgrowing consistently. It is time that mechanisation and sophistication would getintroduced in this sector and dependency on labour would reduce. The yield per hectare hasto increase to match with the demand of food grains in the country. This again suggestsfarmers will opt for higher HP tractors with sophistications. It is only in India thissector still remains not fully exploited and hence this offers sustained opportunity foryour Companys growth.
Dynamatic Hydraulics has an established capacity to produce 780000 sections ofgear pumps an year. It is prudent to keep exploring other sectors which are not seasonaland there by utilise the intrinsic skill and expertise the team has. Your company hascontinued to develop new products/valves, thereby has achieved sales of Rs.179 crores inthis year, and is contemplating to enter in to new product domains which will help inincreasing the turn over and exploit the talent the team possesses.
Your Company will focus on timely supplies of CI pumps in this year the production ofthese pumps has been planned to increase in a steady manner. The intention is to utilisethe experience and get in to the earth moving sector in a big way. We have developed pumpsand motors for the compactors and pavers for an European OEM. Trials are successful inIndia and the trials at the principals place in Germany are in progress.Preparations are made to supply CI pumps to back hoe loaders, excavators, and dumpers.This will necessitate making modifications to the existing design. The R&D team hasalready working in this direction.
We have in this current year developed tandem pumps for most of the major tractor OEMs.The present day tractors are with steering control systems for the comfort of the driverand hence a separate pump for steering control has become necessary. Hence demand for suchtandem pumps has increased.
We have taken up Indigenisation Programme in defence sector and also in Railways. Thepumps being developed for the Tatra project will help us in entering in to this newmarket. The samples and initial batch of pumps made for DLW will establish us as a keysupplier to Indian railways.
Cylinder safety Relief valves cost effective but with quick response capability fortractor industry was the challenge in the last quarter. The efforts put in this directionhave yielded very favourable results now.
The pumps developed for Centurion project, supplied through TAFE, for tractors made inChina, Brazil and
Turkey will find us a new customer in Europe in the next financial year.
Dynamatic Hydraulic is also involved in manufacturing and supplying pumps forindustrial applications such power packs, SPM industry Material handling equipment, Roadconstruction equipment, Hydraulic presses, Furnaces, etc.,
Financial and Operational Performance
( Rs. in lacs)
|Year ended 31 March, 2015||Year ended 31 March, 2014||Change (%)|
Total revenue dropped by Rs.1,765 during FY2015 resulting decline of 6% over FY2014.Revenue from India showed a growth of 6%, primarily due to boom in Agri sector in thefirst half of the year . UK revenue decreased by 20% as falling crop prices impacted onagricultural demand as compared to FY14. Overall EBITDA margins in FY15 is 12%reporting a decline of 137 bps over FY14. Margins declined by 207 bps at India due to lowtractor demand in the second of the year and UK by 213 bps due to low demand inagriculture sector.
Automotive and Metallurgy
Automotive Industry continue to have sluggish growth in the last year .Excess capacityhas been built in with more players coming into Indian Market with multiple models ofvehicles being introduced.
Hyundai continue to maintain their position in the market and there has been a verygood growth at Daimler India and they continue to enhance their market share.
While there is an opportunity for strong growth, India continues to face challenges dueto high investment on production facilities, limited availability of electricity andskilled manpower, rising fuel costs and interest rates. The Company believes thatimproving labour productivity and flexibility as well as capital efficiency are the keyfactors in the automotive industry. Quality manpower, the ability to make infra structuralimprovements and raw material availability are also major determinants of marketpositioning. Access to the latest and most efficient technologies and techniques areexpected to endow leading players with a competitive advantage. The ability to utilizemanufacturing plants to optimum levels and understanding the implications of governmentpolicies are also essential for growth in Indias automotive industry.
JKM Automotive, the automotive division of the Company located in Chennai,possesses state-of-the-art manufacturing technology for supply of advanced automotivecomponents. It is the only company in Chennai which has the unique expertise in aluminiumand green sand ferrous foundries and manufactures high technology castings for automotiveOEMs. The Company caters to leading OEMs such as Hyundai, Fiat India, Tata Motors, Ford,John Deere, Cummins, Nissan and Honeywell on a single source basis.
The unique locational advantage offered by Chennai has enabled JKM Automotive toforge strong partnerships with all customers. With the advantage of backward integrationfrom ferrous foundry, the automotive unit is able to undertake effective supply chainmanagement.
Business Highlights and Market Positioning
JKM AutomotiveTM, India
Single Source: Produces high quality ferrous and non-ferrous critical engine andtransmission components on a single source basis for global automotive OEMs.Products cater to approximately 35% of Indias automobiles.
Innovative Supply Chain Management: Possesses state-of-the-art technologies tomanufacture high quality automotive components for Hyundai, Ford, TATA Motors, DaimlerIndia, Renault Nissan India and Honeywell on a single source basis. Diversifying thecustomer base by focusing on customers besides Hyundai to mitigate business risk.
Geographical Advantage: JKM Automotive has two manufacturing facilities locatedin Chennai, one of Indias prominent automotive hubs.
Addresses Three Segments: Applies highly efficient production systems and processes tomanufacture automotive components for highway, off-highway and technology orientedapplications. There is a strong engagement with GETRAG Ford tor supply of varioustransmission assemblies with end customer VOLVO and FORD for Global requirements. Thecurrent product has been successfully stabilized and JKM has been awarded with three moreBusiness in the same category of Huge volumes.
JKM AutomotiveTM has been audited by Borgwarner and BMW Germany forproduction and supply of compressor Housings and Differential casing. There s a naturaladvantage as the specialization in compressor housing at JKM dates back to over 10 yearsand the potential to develop the same for Borgwarner is very high.
Green Energy: Utilizes green energy through the Companys wind farm, whichgenerated 14 million units of during the year. This resulted in 87% annual savings inpower and enabled the facility to considerably reduce its carbon footprint.
Quality Management Systems: JKM AutomotiveTM facilities are certifiedwith the highest quality and safety standards specified by the automotive industryincluding TS 16949.
JKM Ferrotech Limited, India
The major operational highlights of the subsidiary during FY2015 may be listed asfollows:
Overall sales grew by 13 %
Export sales were up by 33% and this was largely by Lanchester Housing toDaimler Germany.
Domestic sales remained flat however there was significant increase in salesfrom Addison, Daimler India and Foundation Brakes Systems.
Initiated discussions with BMW Germany, BorgWarner USA for Diff-cases andTurbocharger parts respectively.
Online core Conveyor installed for inspection and core dressing.
Magnetic Crack check machine installed and exhaust manifolds are checked priorto dispatch
To control emission, installation of Wet scrubber done in horizontal MeltingFurnace.
New tumblast machine installed to improve productivity.
Production in Erla is characterised by the manufacture of turbine housings, exhaustmanifolds and other major engine components.
Produces 90% for the automotive industry.
Following many prototypes, 3 stainless steel series orders attained.
Developed an improved casting station for steel castings.
Erlas projects in steel castings are focused on the European market.
The focal point for the partial automation in the core manufacturing and processoptimisation is to improve productivity and quality.
Conversion of core boxes from synthetic materials to steel core boxes forquality improvement.
Negotiations with the turbine manufacturer Continental for new projects weresuccessful.
Development projects "ferritic steel for turbines" has beensuccessfully completed.
Customer audits of Mitsubishi, Schlote and Modine have been successfullyimplemented.
Has special know-how in the manufacture of turbine housings in D5S and stainlesssteel along with the necessary core production.
Has quality, environmental and energy management systems according to ISO / TS16 949: 2009,
ISO 14 001:2008 and ISO 50 001:2011
Major customers include IHI Charging Systems International, Bosch Mahle TurboSystems GmbH & Co. KG, BorgWarner Turbo Systems GmbH, Audi AG, Volkswagen AG, DaimlerChrysler AG, BMW Group, AGCO Fendt GmbH and Joseph Vgele AG.
Dynametal, India - Aluminium Casting (including Metallurgy)
Uses advanced metallurgical technologies to produce high quality non-ferrous alloys andcastings for industrial, automotive and aerospace applications at its modern foundry inChennai
Facility equipped with electric furnaces, which makes it highly eco-friendly with theinfrastructure created and controlled in-house
( Rs. in lacs)
|Year ended 31 March, 2015||Year ended 31 March, 2014||Change (%)|
Total revenue increased by Rs.1,711 during FY2015, increase of 2% over FY2014. Revenuefrom India showed a decline of 10% as recovery in the Auto sector in India remainssluggish and Germany revenue slightly increased by 4%. Overall EBITDA margins were 4.9 %for FY2015 that is slightly more by 45 bps over FY2014 mainly on account of cost control.
Strategy and Outlook
The Company is focusing on multiple areas to drive higher growth and profitability inthe Automotive business. Over the years, the Company developed capabilities to manufactureperformance critical components for the automotive industry such as turbochargers andexhaust manifolds. Turbochargers increase the fuel efficiency of the engine and decreasecarbon emissions. Increasing focus on fuel efficiency and environmental safety globallypresents significant opportunities for this business.
Steel casting is another strategic focus area for the Company. Engine downsizing andchanged burning process for higher fuel efficiency have increased the operatingtemperature of petrol engines. This has led to increased demand for steel castings due totheir ability to withstand higher temperatures. Dynamatic is closely working with itscustomers to understand their specific requirement for steel castings to be able toprovide them best in class products.
The exports market presents a key growth avenue for the Company. Dynamatic has startedexporting performance critical castings to major global OEMs, as a tier II supplier fromits foundries in India. The Company is striving to increase sales of performance criticalcastings through this channel to drive higher profitability.
While there is an opportunity for growth, India continues to face challenges due tohigh investment required in production facilities; scarcity of electricity and skilledmanpower and rising fuel costs and interest rates. The Company believes improvement inlabour productivity and flexibility as well as capital efficiency is one of the keysuccess factors in the automotive industry.
Skilled manpower, the ability to drive infrastructural improvements and optimumutilisation levels, raw material availability, access to the latest technologies andtechniques and understanding of the Government policy framework may be considered as othersignificant drivers of a strong market position
Aerospace & Defence
The Aerospace & Defence division is engaged in production of airframe structuresand precision aerospace components. Its products include wing and rear fuselages, aileronsand wing flaps and key airframe structures. The division also provides solutions forunmanned aerial systems & vehicles, monitoring & surveillance systems, restrictedentry systems and perimeter security. Further, the Company assembles Flap Track Beams forthe Airbus single aisle A-320 family of aircrafts on a single source basis and is thefirst private sector company in India to manufacture a functional aero-structure of amajor commercial jet.
As air travel demand is increasing, aircraft equipment continues to improve, withenhancements powered by innovations in jet engine fuel efficiency, navigation technology,and materials science. These improvements, especially in fuel efficiency, are drivingdemand for aircraft replacement, thus advancing the obsolescence of certain previousgeneration aircraft. Fuel costs, as a percentage of total operating costs for airlineshave risen from an average of 13.6% in 2001 to 31% expected in 2013. Therefore, theinvestments in next generation fuel efficient aircraft, which promises to deliver at leastan estimated 15% better fuel burn rate, become very attractive for airline operators.
Defence Industry Defence Procurement
Since the introduction of the offset clause, the Ministry of Defence (MoD) hasconcluded 16 offset contracts worth $4.3 billion with various vendors. According to thecurrent pace of modernisation, offset business worth $24 billion may be expected to flowinto the sectors of defence, civil aerospace, and internal security in the next decade.
Defence Industry Projects
P-8A Poseidon: The P-8A Poseidon is a long-range antisubmarine warfare,anti-surface warfare, intelligence, surveillance and reconnaissance aircraft capable ofbroad area, maritime and littoral operations.
A derivative of the next-generation 737-800, the P-8A combines superior performance andreliability with an advanced mission system that can ensure maximum inter-operability inthe future battle space. The P-8A is being developed for the US Navy by a Boeing-ledindustry team that consists of CFM International, Northrop Grumman, Raytheon, GE Aviation,BAE Systems and Spirit AeroSystems.
The US Navy plans to purchase 117 P-8As to replace its fleet of P-3C aircraft. InJanuary 2011, Boeing received a $1.6 billion contract for low-rate initial production ofthe first six aircraft, spares, logistics and training devices. In November 2011, Boeingreceived a $1.7 billion LRIP award for seven additional P-8As. In September 2012, Boeingreceived a $1.9 billion contract for 11 aircraft, bringing the total aircrafts to 24.
On January 1, 2009, Boeing signed a contract with the government of India to provideeight P-8I long-range, maritime, reconnaissance and anti-submarine warfare aircraft to theIndian Navy. The P-8I is a derivative of the P-8A designed specifically for the IndianNavy. The first test aircraft began formal flight testing of US Navy at Boeing field inlate 2009 and travelled to Naval Air Station Patuxent River, Md., on April 10, 2010, forcompletion of flight test. Six P-8A test aircrafts are currently under flight testing.
P-8A, Boeings first production, made its initial flight on July 7, 2011 and wasofficially delivered to the Navy on March 4, 2012. Boeing completed the last of its LRIP-1deliveries in January 2013.
CH-47 Chinook: The Indian Air Force chose the Boeing Chinook over Russian Mi-26helicopters under a tender process for the delivery of 15 heavy-lift helicopters onDecember 5, 2012. The value of the future contract will be determined following contractnegotiations with Boeing, which are currently underway. Boeing is pursuing a multiyear $4billion order from the US Army for 177 more CH-47F Chinook helicopters. The five-year dealincludes an option for the US Army to buy 38 additional Chinooks, a multi-mission,twin-engine transport helicopter. This order would eventually bring the US ArmysCH-47F total procurement close to its target of 464 aircraft, including 24 for replacementof peacetime attrition aircrafts. The deliveries are expected to begin in 2015.
Sukhoi 30MKI Fighter Bomber for Hindustan Aeronautics: The Sukhoi 30MKI, which isone of the finest multi-role aircrafts in the world, combines a robust Russian airframewith state-of-the-art western avionics and locally developed computers. The addition ofthis aircraft has given the Indian Air Force a strong lead in offensive capability whichis unrivalled in Asia. The Government of India plans to more than double the number ofRussian made Sukhoi 30MKI fighter aircraft in the Indian Air Force fleet to 230 by 2015.
Hindustan Aeronautics Limited (HAL) has mastered the manufacturing of the wing and tailparts of the aircraft and has started producing the Fuselage. The manufacturing of theengine is the most challenging aspect of indigenisation and is expected to be undertakensoon.
Despite the negative sentiments due to the Eurozone crisis and worries aboutChinas growth stalling, the Aerospace market has defied expectations of recentslowdown. The mega deals of recent years have resulted in large production backlogs foraircraft manufacturers. Airbus is expected to set up a fourth A320 plant in the US whileBoeing is increasing production by 30% to reduce its backlog.
The civil aerospace industry has progressed to the production and delivery mode. Thesingle-aisle market is the worlds fastest-growing sector in the civil aerospaceindustry. Boeing predicted that a large majority of new jet sales during the next 20 years(around 69%) would be of single-aisle aircrafts such as the Boeing 737 and the AirbusA320, which normally seat around 150 passengers. The demand from emerging markets in Asiaand the low cost carriers in Europe and North America is expected to drive these futuresales.
Rapidly expanding Indian carriers, including many new discount airlines, have orderedclose to $40 billion worth of large jets over the past two years. Airbus has received 295orders from Indian customers, while Boeing has secured 138 orders. The value ofBoeings order book, which is close to $20 billion at list prices, is close toAirbus approximately $22 billion in Indian orders. The growth potential of theIndian aviation sector has led global manufacturers to recognise that India would continueto be one of the fastest growing aviation markets in the world. With the average growthrate for next 10 years estimated at 12.2%, the number of new aircrafts required by Indiancarriers places the country as the fifth largest in the world.
Airbus-built aircrafts have become a key element in the operations of Indian airlines.Starting with the delivery of an A300 to Indian Airlines in 1960, the fleet of Indiancarriers now includes both single-aisle and wide-body aircrafts. It is poised to expandwith future introductions for other Airlines like Indigo.
In recognition of the countrys strategic importance, Airbus has pledged to play along term role in the development of the Indian aviation sector. Apart from establishingan engineering center and a full-fledged flight training center, Airbus also worksdirectly with Indian companies in the design and manufacture of aero-structures andselectively encourages its major tier-one partners to do so. Airbus continues to pursueother potential areas of cooperation with India, including air traffic control and safetymanagement.
Boeing is continually exploring new business and investment opportunities and potentialpartnership businesses in India. In
Vijai Kapur , Chairman
S Krishnaswamy , Director
Govind Mirchandani , Director
Malavika Jayaram , Director
Company Head Office / Quarters:
Phone : Karnataka-91-80-28394933/34/35 Extn 254 / Karnataka-
Fax : Karnataka-91-80-28395328 / Karnataka-
E-mail : email@example.com
Web : http://www.dynamatics.com
Karvy Computershare Pvt Ltd
Plot No 17-24 ,Vittal Rao Nagar ,Madhapur ,Hyderabad-500081
|Scheme Name||No. of Shares|
|HDFC Prudence Fund - (G)||1,85,045|
|HDFC Infrastructure Fund (G)||1,20,000|
|SBI Magnum Multiplier Plus 93 (G)||48,228|
|L&T Business Cycles Fund (G)||37,300|
|DSP BR Opportunities Fund (G)||27,872|