Ucal Fuel Systems Ltd

BSE: 500464 | NSE: UCALFUEL | ISIN: INE139B01016 
Market Cap: [Rs.Cr.] 275.71 | Face Value: [Rs.] 10
Industry: Auto Ancillaries

Management Discussions
MANAGEMENT DISCUSSION AND ANALYSIS REPORT

1. GENERAL OVERVIEW

The financial year 2013-2014 has been a challenging one for the auto and the autocomponent industry in India. The slowdown in the auto industry continued. High inflation,rising interest rates, low consumer sentiment, soaring fuel prices, weakening rupee anduncertain economic scenario were the major reasons for the downturn of the auto industryin 2013-2014. Except for the two-wheeler segment which had shown a moderate growth, allother segments in the auto industry had weakened in 2013-2014. Automakers and dealers hadresorted to high discounts to push their sales. Production cuts and lay-offs continued inthe auto sector with capacity utilization remaining at a low level. Under this backdropthe performance of the auto component industry was also not as expected. Flagging vehiclesales, increased capital costs, high interest rates, high input costs, currencyfluctuations and costlier imports had adversely affected the cost competitiveness of theauto component industry in 2013-2014.

The company is particularly worried about the rising input costs which has been verydifficult to control as it is based on several external factors. The company is trying tocontain its raw material costs on a war footing but any impactful decrease can be achievedonly with the active participation of the supplier and customer. The managementunderstands that the future of the company depends on offering innovative solutions to thecustomer at competitive prices and the management is taking efforts in this direction. TheManagement has started diversification into adjacent markets like defence and aerospace.With a stable government at the centre aiming to provide an environment conducive tomanufacturing and signs of economic revival with a high investor sentiment already visiblethe company is confident of a better financial year and an improved performance in2014-2015.

2. FUTURE BUSINESS STRATEGY

The company will continue its development efforts in the carburettor segment as it isfairly confident that the carburettor will continue to dominate the two wheeler businessdue to its cost competitiveness. Incorporating innovative features in the carburettor tomeet emission targets and fuel economy targets will take priority. At the same time thecompany's efforts in the fuel injection segment will also continue and the company isworking with certain OEM's in this area. Customer penetration will be carried on in anaggressive scale this financial year. All R&D efforts will be directed towardsachieving the company's long term vision of becoming an one stop shop for all enginemanagement requirements of the two wheeler industry. The company will continue to expandits developmental work relating to pumps especially the vacuum pump for which there is ahuge market. The company's indigenously developed vacuum pump has become highlycompetitive and the company plans to market it on an aggressive scale in the current yearalso.

The company plans to enter into the powertrain testing and engineering services segmentin collaboration with Orbital Australia PTY Limited (Orbital). The negotiations withOrbital are continuing. The company is also proposing to enter the defence sector thisyear through a collaboration with Jahagirdar Aero products (JAP). The collaboration willfirst focus on the domestic DRDO market for Unmanned Ariel Vehicle (UAV) hiring services,maintenance and consulting and then on the business of design, development, maintenance,consulting, hiring and trading in UAV segments. Both these new projects are likely to takeoff this year and is a part of the managements objective to harness adjacent technologycapabilities. Both these collaborations will result in bringing new technology andproducts. The company will continue its value engineering activities and address themarket needs by faster turnaround of products and its variants.

3. ANALYSIS OF SALES

The sale of carburettors and air suction valves was lower this financial year ascompared to that of the previous financial year due to a change in the demand pattern ofthe customers. However the sales of pumps increased this financial year as compared tothat of the previous financial year due to the introduction of new models. The multi pointfuel injection and fuel filter sales also witnessed a growth due to an increase in thesales of gasoline cars.

4. UCAL FUEL SYSTEMS LIMITED (UFSL) VIS--VIS INDUSTRY

The market share of the two-wheeler carburettor and air suction valve has declined ascompared to that of the financial year 2012-13 due to variation in the product mix of thecustomers. The market share in the pump segment has however increased compared to theprevious financial year. The management is fully aware that aggressive marketing andproduct diversification is the need of the hour and is taking steps in this direction.

5. SWOT ANALYSIS

Strengths

• Disbursed location of manufacturing

• Excellent brand image

• High credibility with customers and suppliers

• Well equipped R&D facilities

• State of the art manufacturing facilities

• Only Indian organization holding the carburettor technology

• Highly conducive working environment

Weaknesses

• Weak on exports

• Slow rate of growth despite a growing market for the products

• Slow rate of diversification

• Failure to take advantage of the presence of Amtec and source to OEMs abroad

Opportunities

• Large presence of new markets

• Availability of adjacent technologies for future growth

• Large scope to increase after market sales

• Good footing in USA through Amtec

Threats

• Increase in cost of inputs without a corresponding increase in selling Prices

• High attrition rates

• Competition from foreign players because of inadequate protection to Indianindustry

6. RESEARCH AND DEVELOPMENT (R & D)

In alignment with the vision of the organization to be a Global Engineering Solutionprovider in power train system, the focus of R&D is to develop technology, products tomeet the existing and futuristic market and customer requirements. The company is aimingto be a creator of technology and ensure that the benefits of new technology is availableto the customers at the right time.

The new facilities at R&D include

• Up gradation of the oil pump, vacuum pump performance / durability test rigs.This is keeping in view the ability to test futuristic products.

• Up gradation of chassis dynamometer controller to be able to test the vehicle inthe driving cycle addressing the proposed emission norms.

• Addition of design software, which can communicate the product packagingrequirements in line with the customer compatible software.

Major automotive manufacturers have established their facilities in India and thecompany is geared-up to take on various developmental activities for them. Thesedevelopmental activities also include validation at product level and system level. Inthis context, the R&D is proposing to establish a test facility in collaboration withOrbital and also plans to use the existing facilities to validate the product and engine.This will pave way for developing new technologies, products as per the vision of theorganization as the R&D will be in direct touch with the OEMs. Owing to the increasingdemand in the CNG segment for commercial and light commercial vehicle, the R&D againin collaboration with Orbital is developing products for the direct injection technology.This will improve the competencies and the product development capability of the company.Considering the business potential in the aerospace market, the company is developing itscompetency in adjacent technology in terms of the power train and electronic enginemanagement system for the UAV. The R&D will continue to carry out evaluation of partsfrom alternate sources and change in material and standardization of parts. This activityis a part of the cost reduction exercise of the company.

The R&D department continues to enjoy the recognition from the Department ofScientific and Industrial Research, Ministry of Science and Technology. R&D engineerscontinue to publish papers in the National and International conferences. R&Dengineers are also encouraged to pursue research programmes including Doctorate.

7. MANUFACTURING CAPABILITIES, FACILITIES AND OPERATIONS

The company believes in the Prime Ministers vision of "zero defect and zeroeffect" manufacturing. The company has strengthened its die casting processes toreduce rejections. In order to eliminate one of the biggest causes of rejection in diecasting which is shrinkage in the parts, produced in higher tonnage capacity machines, anew processing technology was implemented. The company is also taking steps to phase outoutdated die casting machines and also to improve the capacity utilisation of its existingdie casting machines. In machining and assembly the process flow and machinery layout hasbeen followed, which allows "Single piece flow" in cellular manufacturingsystem, where the group of machines work in rhythm according to TAKT time, which is basedon customer pull. More or less, all the manufacturing lines for products likecarburettors/ secondary air valves have been redesigned to produce maximum number ofproducts per hour. In assembly process, for press fitting operations, pneumatic, Hydraulicpresses have been used. Alternate method of testing the products were introduced which istotally automatic, resulting in savings of consumables and labour. Quality continues to bea challenge mainly due to suppliers not adhering to standards. The company is educatingthe suppliers and also helping them in their processes.

The company's plant at the Mahindra SEZ has not taken off as expected as the plans forincreasing exports is not fructifying. The company is in the process of identifying someof the uneconomical centres of production and consolidating them in fewer places therebyreducing overhead costs. Capacity expansion was done by adding lines in Bawal plant formanufacture of pumps. Modification and upgradation of lines was done at the Puducherryplant to manufacture new models of carburettors

Extra efforts are being taken to sensitise the organisation on the need for zero effecton environment and ensuring that none of the activities affect adversely the environmentand the ecosystem.

8. HUMAN RESOURCES AND INDUSTRIAL RELATIONS

The company's labour and personnel policies are periodically reviewed to reflect thecurrent prevailing conditions. Industrial relations continue to be cordial with theworkmen and trade unions. An amicable wage settlement was reached at the Puducherry Plantwith the recognized union. All employee grievances have been addressed. The company hasensured an environment where the employees can contribute their fullest in a free and fairatmosphere.

Attrition continues and is a concern to the management as people leave after beingconsiderably trained in their respective areas. The company has taken various initiativesto contain attrition. Manpower requirement was filled by giving priority to internalsources through horizontal transfers and promotions.

Training programmes for workers before actually deploying them to work in machinescontinues to take precedence to avoid quality problems and ensure safety. Several newinitiatives were taken to enhance productivity, reduce cost and improve work-life balance.The "Know Your Product-Process and Customers" programme was launched with a viewto enhance the knowledge of workers/staff across the organization on the products, processand customer. This was designed to cover all critical functions. Besides this severalother technical/behavioural/attitudinal training programmes were organized. A company-widemonthly communication exercise was undertaken in the wake of the sluggish businessscenario to sensitize the employees about the business conditions and the need forachieving increased productivity and reduced expenditure.

There is a concern about the growing employee cost and this is being addressed.Rationalisation of the white collar employees and white collar productivity continues tobe a focus area. Rationalisation of contract labour is also proving to be a challenge. Thecompany plans to concentrate its efforts in this area in the current financial year. Theperformance appraisal system has been further streamlined. While there has been nocomplaint of sexual harassment, the human resource department is in the process of settingup a mechanism for prevention and redressel of sexual harassment of women workers at workplace.

9. CORPORATE SOCIAL RESPONSIBILITY

The company has been engaged in CSR long before it became mandatory. The company hasregularly been donating a portion of its profits to The Culture and Heritage Trust ofKaruveli and has been funding the infrastructure development of the National College atTiruchirapalli which is run by the Academy of Higher Education. The Culture and HeritageTrust of Karuveli sponsors education of the underprivileged especially girls. The Trusthas also been actively engaged in the conservation of heritage buildings and in improvingplaces of public interest in Karuveli. The Trust which has till now been working only inthe village of Karuveli will expand its scope of operations beyond Karuveli as publicparticipation to the projects of the trust has not been very forthcoming. The Trusthowever will continue its efforts to educate the people of Karuveli village about the needfor skill development and a clean environment as both its projects to teach computerskills and build toilets for every household did not materialize due to lack ofcooperation from the local population. However the development work on introduction ofnewer crops and plantations will continue at Karuveli.

Aligning itself with Prime Minister's call to build toilets in schools, the companywith the help of the Trust and of the Academy of Higher Education will identify schoolsand educational institutions where this will be implemented during this financial year.

The development of infrastructure for National College which caters to the rural andunderprivileged population has been the most important focus of the company in the recentyears. This infrastructure development has happened at a fast pace and the college hasmade an impact on the student community and the local population with its improvedinfrastructure. A State of art library, new classrooms, girls and boys hostels and theindoor stadium have all started functioning. The outdoor stadium will start functioningfrom this year onwards. Development of education and linking it with employment willcontinue to be the company's main focus. Towards this end the company plans to start skilldevelopment programmes in collaboration with National College during this financial year.The company has set up a CSR committee under the chairmanship of an independent directorto monitor the CSR Schemes and their implementation.

10.CONTROL SYSTEMS AND ADEQUACY

The company has an internal control system commensurate with its size and nature ofbusiness to safeguard the assets of the company. The internal auditors cover a wide areaof operations and this is being continuously improved under the guidance of the auditcommittee. Internal audit is conducted on a quarterly basis by a team of internal auditorsand the reports together with the action taken reports are reviewed by the audit committeeperiodically. A system of management audit is proposed to be introduced from thisfinancial year to ensure higher levels of productivity and efficiency and to keep theorganisation ahead and competitive Mr.V.Kalyanaraman had been appointed cost auditor ofthe company for the financial year 2013-2014 and the cost audit report will be filedwithin the stipulated period of 180 days from the close of the financial year. The companyhas completed the reimplementation of oracle across the organization. This has improvedthe transparency of operations and has enabled speedy and accurate data collection andanalysis..

11. CAUTIONARY STATEMENT

The information and opinion expressed in this report describing the company'sobjectives, projections, estimates, future business developments, and expectations couldcontain certain "forward-looking statements" within the meaning of theapplicable laws and regulations. Actual results could differ materially from thoseexpressed or implied in this report. Important factors that could make a difference to thecompany's operations include, among others, economic conditions affecting demand/supply,price conditions in the domestic and overseas markets in which the company operates,changes in the government regulations, tax laws and other incidental factors.

   
Futures & Options Quote
Future Data Not present
Key Information

Key Executives:

Jayakar Krishnamurthy , Chairman & Managing Director

V Sumantran , Director

S Natrajan , Director

M S Ananth , Director


Company Head Office / Quarters:

Raheja Towers 177 Anna Salai,
Delta Wing-Unit 705,
Chennai,
Tamil Nadu-600002
Phone : Tamil Nadu-91-044-42208111 / Tamil Nadu-
Fax : Tamil Nadu-91-044-28605020 / Tamil Nadu-
E-mail : investor@ucalfuel.co.in
Web : http://www.ucalfuel.com

Registrars:

Integrated Enterprises (I) Ltd
Kences Tower,2nd Floor No 1,Ramakrishna Street,Chennai - 600 017

 
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