Alfred Herbert (India) Ltd Management Discussions.

ALFA TRANSFORMERS LIMITED ANNUAL REPORT 2011-2012 MANAGEMENT DISCUSSION AND ANALYSIS Forward-Looking Statements: Statements in this Managements Discussion and Analysis describing the Companys objective, projections, estimates and expectations may be forward looking statements within the meaning of applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include global and Indian demand supply conditions, changes in the government regulations, tax regimes, economic developments within India and the countries within which the company conducts business and other factors such as litigation and labour relations. Forward-looking statements are based on certain assumptions and expectations of future events. The company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Companys actual results, performance or achievements could thus differ materially from those projected in any such forward-looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events. Industry Structure and Developments: The Transformer Industry in India has been in the forefront for over 50 years. We have a strong base over 500 transformer industries in India with an overall manufacturing capacity of 800,000 MVA per annum. The contribution towards domestic utilities is over 500,000 MVA, the rest are being exported to more than 50 countries covering USA, Europe, South Africa, Cyprus , Syria, Iraq and other Middle East and Far East countries all over the world. The present economic and business scenario alongwith rapid technological innovation are creating an increasingly competitive market environment, which has changed the operations of Transformers Industries. Power is a significant input to the economy and plays a critical role for a sustained economy growth. The transformer is major and indispensable machinery/ equipment for generation, transmission and distribution of electricity in the country. Today our industries are fully geared-up with proven technology and with enough capacity to undertake manufacturing wide range of power and distribution transformers and other special transformers in the field of welding, instrumentation, traction, mining, furnaces etc. About 95% of the transformers installed in the Indian Power Network are of indigenous origin. Energy efficient transformers with low loss and low- noise level are also made to meet international requirement. Besides, the Transformer industry in India is well versed and matured enough into reliable suppliers of all types of transformers and can meet the countrys demand for transformers for all voltage levels including 800 KV. The growth of Transformer Industry mainly depends on progress of power generation Industry. The power sector is growing at a reasonable pace and the reforms in the sector have started yielding results. In the international market transformers manufacturers are reportedly closing shop and relying more and more on imports from countries like India, which have the technological base, technical capability and economic advantage. The power sector appears poised for a strong growth in the near future in the domestic market. The restructuring of State Electricity Boards, passage of Electricity Bill and a thrust on development of the Transmission and Distribution segment have created a strong platform for development of Indian Transformer Industry. Also the transformer Industry is uniquely positioned to leverage in global market. Greater governmental focus on the power sector in the coming year should see a positive shift in growth of the company. It has worked hard in improving its strengths in the critical competitive environment. In the process, it has consolidated its presence in the market in India as well as overseas. Opportunities and Threats: A number of opportunities exist for Transformer Industry. The need of the hour is to take proactive steps both internal and external to the organization and Management of your Company is planning for the same. In the recent past, Indian economy has decisively moved to a higher growth trajectory marked by GDP growth of above 9% during the 2003- 2007. During the XI Plan Period (2007-2012) a growth target of 9% has been set by National Development Council, which requires commensurate infrastructure in power, roads ports etc. We are all aware that the demand for power has consistently outstripped the supply. In order to bridge this demand supply gap, Govt, of Indias National Electricity Policy stipulates Power For All by 2012 and aims to achieve a per capita consumption of 1,000 Kwh by the end of XIth Plan, by adding a capacity of over 1,00,000 MW. This requires massive investment of over Rs. 10,00,000 crore during this Plan period including establishment of requisite transmission and distribution system. A large number of opportunities in Power Sector is there in our Country. The Government of India has taken many policy initiatives in the recent past like:- a) Setting up of Central Electricity Regulatory Commission in 1998, b) The Electricity Act, 2003, c) The National Power Policy,2005, d) Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), e) Clean-up of State Electricity Board losses, f) Guidelines for private investment in transmission,2006.The demand for smaller size of Distribution Transformers like 16KVA to 100KVA has grown in a very big way particularly due to thrust given by Central & State Governments for the rural electrification under AREP schemes. However transformers ranging from 250KVA to 630KVA have not registered up ward trend but maintained the normal growth. The transformers at UHV level shall assume priority due to upcoming National grid and interlinking of trunk lines for inter-transfer of bulk power from surplus to deficit states. Company faces normal market competitions in all its business from Indian as well as international Companies. The rising input costs of major raw material like i.e CRGO, Copper and steel is the main threats for the business. Any adverse change in the government policy, abnormal fluctuation in the exchange rate are other threats for the company and which will have a impact on companys profitability. Past data shows that the fortunes of the transformer sector are closely linked with input costs i.e. copper, CRGO, steel and transformer oil. The input costs directly impact both revenues as well as operating performance. As in the past, the major portions of Companys sales were Export sales, any change in policies of the Government of the Countries wherein these Exports are made and the present global economic condition may affect the business of the Company. The impact of the present global economic condition has reflected in the financial position of current year. Outlook: In the present scenario of Transformer Industry (both India & abroad), the demand of AMDT Transformers increasing rapidly. Your Company has adopted the new technology of AMDT for manufacturing its Transformers of different capacities. As per the thrust and policy of Government of India to electrify all Villages by 2020, the demand of Energy Efficient Transformers is likely to grow exponentially in coming year. Some of the Electrical Utilities Companies in the Western India are regularly buying Energy Efficient Transformers i.e. AMTD Transformers. Recently, Government of India has constituted an Organization named as Bureau of Energy Efficiency who have issued a mandate that all Distribution Transformers to be purchased shall be of minimum of 3-Star Rating. Your company has already received following ratings from Bureau of Energy efficiency (BEE): 5 star rating for 16 KVA, 25KVA,63 KVA,100 KVA 4 Star rating for 16 KVA, 25KVA,63 KVA,100 KVA and 200 KVA 3 star rating for 25KVA (copper and wound core CRGO as per NHPC), 63 KVA (CRGO) and all other transformers are AMDT. Keeping-in-view the huge demand of AMDT transformers in the Western India and other parts of the Country, your Company has set-up its new Plant at Vodadara, which will full-fill the same. We hope to get a good number of orders in the coming years. Risks and Concerns: Risk includes interest rates and credit availability risk, Exchange rates risk, Freight rates risk, manufacturing risk etc. Risk is intrinsic to any business and is an essential ingredient to growth. Efficient management of risk is vital for any business organization in order to achieve its business goal. The industry in which your Company is a part, risk management assumes even more significance. Hence optimal risk management strategies are indispensable part of your companys business. Your company is exposed to foreign exchange risk due to imports of raw material mainly and export of finished goods. Hence the companys revenue and its profitability depend on Rupees Euro/Dollar convertibility factors. Government rules for duty (import duty on raw material & duty on export of finished products) also have greater impact on the business of the company. Apart from those other economic factors like subdued demand, political uncertainty, social upheavals and acts of God may affect the business of the company as also the industry at large. Internal Control Systems and Their Adequacy: The philosophy we have with regard to internal control systems and their adequacy has been formulation of effective systems and their strict implementation to ensure that assets and interest of the company are safeguarded; checks and balances are in place to determine the accuracy and reliability of accounting data. The Internal Audit, an independent appraisal function to examine and evaluate the adequacy and effectiveness of the internal controls system, appraises periodically about activities and audit findings to the audit committee, statutory auditors and the top management. The company has a well-established and comprehensive internal control structure to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition that transactions are authorized, recorded and reported correctly and that operations are conducted in an efficient and cost effective manner. The internal audit is carried out by an independent firm of Chartered Accountant to ensure adequacy of the internal control systems. The internal audit report is reviewed periodically by the Audit Committee to ensure that all policies and procedures are adhered to and all statutory obligations complied with. The internal control system is supplemented by extensive internal audits, regular reviews by management and welldocumented policies and guidelines to ensure reliability of financial and all other records to prepare financial statements and other data. The Audit Committee of the board consisting of four members, out of which three members are Independent and non-Executives directors. It investigates any matter relating to the internal control systems and reviews the Internal Audit. The Committee also reviews the quarterly and half-yearly financial report before they are submitted to the Board of Directors. Financial Condition: (Rs in Lakh) 2011-2012 2010-2011 Share Capital Authorized: 1200.00 1200.00 Issued, Subscribed & Paid-up 536.00 536.00 Reserve & Surplus: 1580.06 1819.53 Non-Current Liabilities 231.42 311.21 Current Liabilities 2103.10 1904.21 Fixed Assets 1859.02 1949.83 Other Non Current Asset 56.04 75.2 Current Asset 2535.52 2545.92 Results of operation: The performance of the company for the Financial Year 2011-12 has been reviewed. The company could able to achieved total sales of Rs.2053.3 lakhs, which includes Export Sales of Rs.16.35 lakhs and Domestic Sales of Rs.2002.73 lakhs and income from operation Rs. 57.87 lakhs The profit before tax and profit after tax has been decreased to (238.58)% and (434.20)% respectively. Human Resources: Your Company always gives importance to its human resources. In order to enhance the skills, knowledge, efficiencies of employees, it continues to place great emphasis on imparting required training to all the employees of the Company. Every area of work is taken care of with standard operating procedures, checklists, inspection schedules, and other related studies. Conclusion: The performance of the company is not satisfactory during this financial year in the challenging business environments. The non execution of export orders & non receipt of export receivable in time resulted in more funds requirement and increase in interest during the year. The company is now planning to reduce the working capital & term Loan Liabilities by disposing of Surplus Assets as to reduce the interest cost. The company is also planning to execute the pending export order from ECCO during next 2/3 months. The company is also hopeful to collect all receivable from ECCO in the near future