Coventry Coil O Matic (Haryana) Ltd Management Discussions.

Overview

Coventry Coil-o-Matic (Haryana) Limited (CCHL) is one of Indias leading integrated spring solutions Company offering a comprehensive range of products and solutions catering to multiple industries. It is a leading manufacturer of Auto Suspension Springs as well as Power Brake Actuator Springs for Commercial Vehicles and is one of the leading market players in springs for other Industrial Applications. Business from the Auto Suspension Springs and Power Brake Actuator Springs accounted for more than 90% of the total turnover.

Macro-Economic Review Global .

The global econorpy witnessed a sluggish 3.1% growth owing to weak consumption, investment, trade and productivity. There was a rise of populism largely driven by events like Brexit, the US Presidential election and the referendum on reforms in Italy. However, the second half of 2016, witnessed some improvement, especially in the advanced economies. Growth picked up in the US as firms grew more confident about future demand. There was a resilient growth in the Euro area and United Kingdom on the back of strong domestic demand and resilient spending, respectively. Japans performance has also been on the upside with strong exports and investments related to the Tokyo 2020 Olympics. The growth in the emerging markets and developing economies (EMDEs)fell short of expectations. The EMDEs contribute to more than half of the global economic growth rate. Its subdued growth overshadowed the modest recovery in major developed countries.

Their deceleration was accompanied by a modest increase in commodity prices, subdued global trade, financial market volatility and weakening capital flows. Indias performance was better compared to its global peers, despite temporary challenges of demonetization. Brazil, on the other hand, remained mired in a deep recession. Activity remained weak in fuel and non-fuel commodity exporters more generally, while geopolitical factors held back growth in parts of the Middle East and Turkey. Going ahead, a resilient household spending and inventory building are expected to support growth in the United States. A positive turnaround is also expected in Europe and Japan owing to cyclical recovery in global manufacturing and trade. East and South Asia remain the worlds most dynamic regions, benefiting from robust domestic demand and supportive macroeconomic policies. The EMDEs are also expected to grow at a healthy 4.5%, with the major support coming from recovery in Russia and Brazil.

India

India has emerged amongst one of the fastest growing economies in the world with an annual GDP of 7.1 %. The growth was largely driven by a surge in public spending and increasing contribution from the industrial and service sectors. Based on new base year (2011-12), Index of Industrial Production (IIP) grew by 5.0% in FY 2016-17 compared to 3.4% in FY 2015-16, hence defying the negative impact of demonetisation.

The manufacturing sector, which has been the most volatile, grew by 4.9% in FY2017as against 3.0% growth in FY2016. Mining and Electricity grew by 5.3% and 5.8%, respectively in FY2017. The Consumer Price Index (CPI) inflation moderated from 5.4% in Apr 2016 to 3.8% in Mar 2017. The wholesale price index,(WPI) inflation increased from 0.8% in Apr 2016 to 5.7% in March 2017 owing to increase in fuel and manufactured goods prices. There is a further upside risk to the inflation owing to the possibilities of increasing global crude oil prices and firming up of global metals prices. Going ahead, 2018 is expected to witness an increase in government spending on infrastructure, pick up in private investment, good monsoon and surge in consumer spending. The implementation of Goods and Services Tax (GST) will further give the necessary boost to the economic growth.

Industry

The automotive sector continued its positive momentum during the year with demand picking up across all segments. The passenger vehicle sales crossed the three million milestones for the first time in 2016-17, growing by 9.23%, fastest in six years. This was largely on the back of demand for compact sports utility vehicles (SUVs). The overall sales growth remained at 6.81% during the same period. The growth of the auto industry is expected to continue in 2017 across all vehicle categories. . ,

India has-the worlds 12th largest number of high-net-worth individuals, along with a growing working population and an expanding middle-class that will drive the demand for automobiles and real-estate in the semi-urban and urban areas.

The app-cab aggregators are expanding their operations extensively, resulting in higher demand for passenger vehicles.

The Company has received 4 Nos. TS/ISO certifications from its United Registrar of Systems.

I) TS 16949 : 2009 for Management System. . .

II) ISO 9001 : 2008 for Management System.

III) ISO 14001 : 2004 for Environmental Management System, iv) ISO 18001 : 2007 for Health and Safety Management System.

Financial Performance:

Although there was a marginally decrease in the Turnover of your Company for the financial year 2016-17 but still the Company performed well during the year, it was extremely stressful due to increase in Labour costs coupled with increase in Legal fees. Added to this were huge Volume & Cash Discounts given to Customers for increasing its sales for now and also forthe future. .

The Net Sales of the Company decreased by about 4.75% amounting to Rs. 4741.45 lakhs for the 2016-17, but despite the increase in input costs, the Company could manage to keep the expenditure at Rs. 4891.02 and thereby improving the Operating Loss (before Interest, Depreciation and Taxes) of Rs. 102.97 lakhs as against an Operating Loss (PBIDT) of Rs. .174.73 lakhs during 2015-16, improving it by 41.07%. TheNet Loss (PAT) was at Rs. (140.48) lakhs compared with the Net Loss (PAT) of Rs. (222.49) lakhs for the previous year, resulting thereby an increase of 36.86% increase over the last year.

With new spring manufacturers coming into the Passenger Vehicle segment, thereby increasing huge competition, CCHL had to offer huge volume and cash Discounts to its Customers to retain and increase its Order Books. The Companys operations were under pressure to generate profits as this contributed to the Companys losses and put a lot of stress on its cash flow. Also with developing of new segment and to maintain quality and delivery schedules, there was high stress on internal efficiencies resulting in spurt in elevation of raw material and operational costs. Concerted efforts are being made to reduce and control the raw material and operational costs in the currentfiscal.

New Product Development: •

Because of high operational costs as explained above, CCHL was not able to adapt the new technology to increase its foray in the Front Suspension Springs for passenger cars and MUVs so as to further enable it to increase its presence in this segment again. However, with better control on its operational costs and reduction in raw material, the Company expects to start generating profits and be able to adapt the newer technology.

BUSINESS OUTLOOK AND OVERVIEW

Outlook

The future for automobile industry looks bright because of rising global automobile productionand consumption along with rapid urbanisation. The Indian Auto-component makers are well positioned to benefit from the globalisation and have the potential to achieve $40 billion of exports l?y 2020.

Automotive Mission Plan 2016-26

• Indian automotive industry to grow 3.5-4 times of the current value of USD 74 billion to USD 260 -300 billion by 2026

• India to be among top three automakers in the world along with China and US Auto Component to grow from the current levels of Rs120 billion to Rs 593.5 -732 billion

• Passenger vehicles likely to increase between 9.4 -13.4 million units from the current level of 3.2 million units which will generate 65 million jobs (both direct and indirect) by 2026

• BSV norms to be adopted by 2019 and BSVI norms to be implemented by 2023 for passenger vehicles. Risks

Risk management is an important aspect of CCHL operations. Dedicated measures are undertaken to mitigate CCHL from the unforeseen external and internal adversities. It strengthens business operations and keeps CCHL prepared to face any such challenges.

Human Resources .

CCHL considers employees to be the most important assets that can guide the Company to growth. Comprehensive and well-structured HR policies of CCHL ensure growth of employees at personal and professional levels. CCHL focuses on attaining the highest levels of employee involvement by increasing their participation in QC (quality control) circles, kaizen and suggestion schemes. CCHL also focuses on providing regular knowledge up-gradation and training to employees to enhance their work skills and contribute towards its growth. These trainings also inculcate leadership skills that enable CCHL to identify key management personnel. CCHL emphasises on integrating key function areas across different functions ensuring better synergy and-intra and inter-functional effectiveness. •

The Company assumes no responsibility in respect of forward looking statements herein which may undergo changes in future on the basis of subsequent development, information or events.