Bemco Hydraulics Ltd Management Discussions.

Industry structure and development:-

We are a Hydraulic engineering company and we bring out information in brief that is relevant to our current business interest and our strategy to grow in this segment.

Main mother Industry on whom we are mainly depended on are, heavy engineering works, Aeronautics, defense, Railways, Automobile, forging, Sheet metal. Apart from these there are many global companies expanding their manufacturing facilities. There is upward trend in the business year by year for past couple of years.

India is a growing country and every business house can grow in its own eld provided, they add value to the investments of the buyers program. There is a business opportunity for all segments of business because our country has not reached to the saturation point unlike European and American countries.

In Bemco, we have given major focus on Automotive and Rail Industry not only for business in home country but also in the neighboring countries. We have been successful in securing business as anticipated and much is expected in the years to come.

We believe we are better placed in this segment of industry and are well secured.

Opportunities and Threats:

Opportunities -

We have different product verticals catering to the above segments therefore there are ample opportunities to explore the business prospects from different segments of Industry.

1. In the western countries, forging and foundry industry are reduced as a result Indian Industry is doing better in this segment with export business opportunities. We cater to this segment and we are recognized in this segment of business so much so that, we get substantial business from this segment.

2. Automobile: Every Indian vehicle manufacturer has Bemco machines and we are recognized in this segment of business. Apart from supplying conventional machines, we also supply customized machines to these companies.

3. Railways: Indian Railways is perhaps second largest in the globe and has many workshops spread across length and breath of the country. We supply Hydraulic wheel presses, spring testing machines and an Import substitute equipment by name - Hydraulic Re-railing equipment which Railways buy in good numbers.

4. Aviation and Defense: Bemco has developed few import substitutes wherein the business is steady and secured although the size of business is not signi cant. But we value this business as it is a feather in our cap and add brand value to the company. We are being seen as one among the reputed and reliable within industry.

Threats:

1. We are a Hydraulic Engineering Industry who design and develop custom built, application specific Hydraulic machines from concept level to commissioning. Our responsibility ends after putting the machine into production and then we get paid. Time frame for returns on the investment is to the tune of 6 to 8 months for each machine. Our investment on the work in progress is for a longer period of time as a result we carry a huge inventory at a huge interest cost.

2. We need to retain our entire workforce in good and bad times because all are specialized brains trained for our business module. Unlike software industry, we cannot adopt hire and re policy. We need to carry our work force at all times.

3. If government reduces import duty to promote imports, the domestic hydraulic industry would suffer competitiveness. This is highly unpredictable.

4. We largely depend on government orders. The decisions are normally taken after 180 days. Earnest money deposited is blocked for unknown period at a huge cost.

5. In case of disputes and arbitration, the decisions are delayed for unknown period of time and it is beyond our control. Our inventory gets blocked until dispute is resolved. Security deposits submitted as a surety remain with the government body for an extended period of time.

6. Bank interests are much higher when compared to the developed countries. Since realization on our investment is spread over 8 - 10 months, we lose major chunk of earnings in bank interest & government levies. At times, when dispute crop up, we end up paying interest and government levies and lose heavily.

7. We are better placed in selling large size machines because of our infrastructure and past track record than selling smaller capacity machines. It is often seen that, small entrepreneurs open a new business account with our existing buyers with smaller machines and expand their business tentacles to secure larger business. We really need to strike balance in between, although the business coming from smaller machines does not add much to the turnover. The only way to sustain in this segment is to make the machines more ef cient than before and make it incomparable with other products technologically. There is a need for constant innovation, developments and meet expenses without anticipating quicker returns.

8. With the increased globalization, the buyer and the user are more knowledgeable than any single manufacturer. There is need to infuse latest technology and produce energy ef cient intelligent machines. It is the time for change over to next generation technology to grow in this business. We need to either develop technology in-house or have technical collaboration with the experts of this eld.

9. At times, private entrepreneurs do not take delivery after the machine is ready due many reasons not concerned to us. In this period, we would be carrying huge inventory of capital goods which otherwise cannot be sold to anyone else than the one who placed order.

Segment wise and Product wise performance:

We are doing well in each of the above segment namely railways and automobiles and therefore honored with repeat orders. We have experts of each and every eld who are responsible to give their best. The business is growing by word of mouth from one industry to another. We conceive new engineering concepts, develop, produce, test, prove said capabilities of the machine & then sell the rst machine. The rst machine speaks by itself and sells many more.

Bemco is always dedicated to its work responsibilities & enjoys crossing new mile stones of success in its under takings. Every employee gives his best to his part of responsibility and it is in the culture of this organization thereby we convert every individual of the organization into an asset of the company. This is the secret behind our success.

Out look

We are con dent and looking forward to a bright future and growth. We have planned for larger investments on the infrastructure development & induction of new technology.

Risk and Concerns:

In true sense, we have lesser risk factors in our business. We are into manufacture of custom built products & our investment begins only after securing the business and after contracts are supported with suf cient advance payment.

We are aiming for 50% of the business from Government sector wherein we get paid upon delivery and returns on our investment are well secured. We are successful in reaching to these bench marks.

As a result dead inventory is not created which would otherwise compel us for distress selling or depleting stocks. This is one of the key factors for our 60 years of presence in this eld of business in all circumstances of situation of industry prevailing in the country.

Our business is hardly affected by product or the technology becoming obsolete overnight unlike electronic and automobile industry. This process is very slow and as a requirement of industry, we are already having European technology partner to keep pace with time & technology in the relevant eld.

Concerns:

Our major concern is on the bank interest on capital goods, security deposits for a longer period of time for government contracts, late decisions of government mechanism & huge inventory costs while work in progress. There is much things expected from the government in this regard.

Performance Highlights:

The Gross revenue, during year under report has been achieved due to a buoyant trend in Indian industry.

- During past couple of years our Government has announced various policies for revival of the Indian Economy and the effect can be seen in the market place.

- The major Policy and move of our Government towards the Indigenization in all the government sectors like, Defense, Aviation, Indian Railways etc. has given boost and courage of the Indian Entrepreneur to plan and implement new projects.

- Now we feel the revival is taking place and we are happy to share the following to the members of the Company:

ESTIMATES FOR THE FINANCIAL YEAR 2020-21:

Estimates for the current and following financial year are based on the corrections taken place in the overall market and taking into account the in ow of new Orders and Enquiries.

In the current challenging ecomonic environment, we hope to grow in a consequently reasonable growth rate and hopefully be in position to slightly improve pro ts with softer raw materials and lower interest rates.

In addition to this, Bemco Hydraulics Ltd has contributed 65% in its subsidiary company Bemco Fluidtechnik LLP which is engaged in manufacturing of hydraulic pumps, valves, hydraulic motors, hydraulic equipment/power packs, and manifold blocks and many such items and have introduced new products in the current year and has a favorable response for the same. We hope for better sales and positive results for the current financial year.

To sum up, the outlook for the next year looks bright.

Internal Controls and their adequacy:

Bemco has put in place adequate internal financial control with reference to the financial statement, some of which are outlined below:

The Company has adopted Indian Accounting Standard ("Ind AS") with effect from 1st April, 2017. Accordingly, the financial statement for the year ended 31st March, 2019 of the company and its subsidiary are prepared with comparative data, in compliance with Ind AS. Your Company has adopted accounting policies which are in line with the Accounting Standard prescribed in the Companies (Accounting Standards) Rules, 2006 that continues to apply u/s 133 and other applicable provisions of the companies Act, 2013 read with rule 7 of the companies (Accounts) Rules, 2014. These are in accordance with generally accepted accounting principles in India. Changes in policies if any are approved in the audit committee in consultation with the auditors.

The policies to ensure uniform accounting treatment are prescribed to the subsidiaries of your company. The accounts of the subsidiary companies are audited and certi ed by their respective auditors for consolidation.

The company has proper and adequate system of internal audit and control which ensures that all the assets are safeguarded against loss from unauthorized use and that all transactions are authorized recorded and reported correctly.

The company continuously improves upon existing practices for each of its major functional areas with a view to strengthen the internal control system.

The Company has assigned internal audit function to a rm of Chartered accountants. Regular internal audit and checks are carried out to ensure that the responsibilities are discharged effectively. All major ndings and suggestions arising out of internal audit are reported and reviewed by the Audit Committee. The management ensures implementation of these suggestions and reviews them periodically.

Human Resources:

Your company believes that human talent is its fundamental strength. The Company nurtures competencies and skills through learning and development programmes and recognizes talent, and rewards it through performance management system. During 2019-20, the focus from an organization development perspective was to implement strong processes and controls to continuously improve ef ciencies and improve organization capabilities.

The process of realigning the organization along functional lines in various areas of business like business acquisition, business execution and technology adoption continued through 2015-16. On the operational side of business, management changes were undertaken to create more focus and greater accountability.

Your company has enjoyed cordial relations with its employees, worker and staff employees are paid in accordance with the wage agreement established with trade unions.

The Employee strength of the company as on 31 March, 2020 was 295.

Compliance Certi icate From CEO & CFO

Pursuant to regulation 17(8) of SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015.

A. We have reviewed financial statement and cash ow statement for the year and that to the best of our knowledge and belief:

1. These statement do not contain any materially untrue statement or omit any material fact or contain statement that might be misleading.

2. These statement together present a true and fair view of the listed entitys affairs and are in compliance with existing accounting standards, applicable laws and regulations.

B. To the best of our knowledge and belief, no transaction entered into by the listed entity during the year which is fraudulent, illegal or violative of the listed entitys code of conduct.

C. We accept responsibility for establishing and maintaining internal control for financial reporting and that we have evaluated the effectiveness of internal control system of the listed entity pertaining to financial reporting and we have disclosed to the auditors and the audit committee, de ciency in design and operations of such internal controls, if any, of which we are aware and the steps we have taken or have propose to take rectify these de ciencies.

D. We have indicated to the auditors and the audit committee

1. Signi cant changes in the internal control over financial reporting during the year.

2. Signi cant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and

3. Instances of signi cant fraud of which we have become aware and the involvement therein, if any, of the management or any employee having the signi cant role in the listed entitys internal control system over financial reporting.

Certificate of Non-Disqualiaication of Directors

(Pursuant to Regulation 34(3) and Schedule V Para C clause (10)(i) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015)

To,

The Members of

Bemco Hydraulics Limited

Udyambag, Industrial Estate, Belgaum-590008

I have examined the relevant registers, records, forms, returns and disclosures received from the Directors of Bemco Hydraulics Limited having CIN L51101KA1957PLC001283 and having registered of ce at Udyambag, Industrial Estate,Belgaum-590008 (hereinafter referred to as the Company), produced before me by the Company for the purpose of issuing this Certi cate, in accordance with Regulation 34(3) read with Schedule V Para-C Sub clause 10(i) of the Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.

In my opinion and to the best of my information and according to the veri cations (including Directors Identi cation Number (DIN) status at the portal www.mca.gov.in) as considered necessary and explanations furnished to me by the Company & its of cers, I hereby certify that none of the Directors on the Board of the Company as stated below for the Financial Year ending on 31 March, 2020 have been debarred or disquali ed from being appointed or continuing as Directors of companies by the Securities and Exchange Board of India, Ministry of Corporate Affairs, or any such other Statutory Authority.

SL NO. NAME OF DIRECTOR DIN DATE OF APPOINTMENT IN COMPANY
1. ANIRUDH MOHTA 00065302 18/08/1994
2. MADAN MOHAN MOHTA 00068884 23/03/1991
3. URMILA DEVI MOHTA 00068906 30/05/1992
4. RAMESH MANICKCHAND SHAH 00068653 05/01/1988
5 NAWAL KISHORE DAGA 00142170 17/04/1998
6. DILIP PREMRAJ CHINDAK 00644673 29/01/2004

Ensuring the eligibility of for the appointment / continuity of every Director on the Board is the responsibility of the management of the Company. My responsibility is to express an opinion on these based on our veri cation. This certi cate is neither an assurance as to the future viability of the Company nor of the ef ciency or effectiveness with which the management has conducted the affairs of the Company.

Date - 10/06/2020 Signature
Place- BELGAUM S.R. DESHPANDE
UDIN: F003077B000332989 Membership No.: 3077
CP No.: 1865