Easun Reyrolle Ltd Management Discussions.

EASUN REYOLLE LIMITED ANNUAL REPORT 2011-2012 MANAGEMENT DISCUSSION AND ANALYSIS Macro Economic Picture (India and Global) During the past couple of years, the Electrical Industry in India has been showing some signs of a lull, though the long term outlook remains optimistic and bright. With weakened investment climate and tightened capital market, the growth of electrical industry has further slowed down during the year under review. The Industrial growth slowed significantly in 2011-2012 on account of weakened domestic demand and lower GDP growth, accompanied by high interest rates, worldwide recession, and consequently a subdued investment climate. Surplus capacities in several sectors resulted in low utilization and resulted in severe margins pressure. Delays in achieving financial closure of various infrastructure projects and continued poor financial position of most of the electrical utilities in India has impacted the performance of electrical industry resulting in carrying higher receivables working capital and higher interest expense, cost overruns in project operations. Globally, the scenario is more or less the same with subdued growth, tight money conditions and uncertain economic scenario. Performance analysis of the company: Your company has achieved a modest growth in India, in spite of various economic factors as detailed above and maintained its market share in most of its business verticals. It continued to keep pace in the technological development of its product line which will lead to reducing its dependence on third party products and improving its margins. While the EBIDTA has grown substantially (33%), substantial long term borrowings towards capital investments have resulted in higher interest costs, affecting the pre-tax profits; lower tax implication has resulted in a marginal increase at the PAT level. During the year under review, your company has completed construction of a world class facility at Harohalli (Bangalore) as a Global manufacturing base to address the needs of the new products to be introduced from its German subsidiary and also facilitating the backward integration of its manufacturing process in India. The Harohalli Factory has commenced commercial production effective from 1stJuly, 2012. Another milestone achieved is receipt of a large order (Rs. 167 crores) from Madhya Pradesh Electricity Distribution Companies. ERL Phase Power Technologies Ltd, Canada, has shown an impressive growth in sales (47%) during the year and also for the first time achieved positive bottom line. It has completed the development of a range of Protection relays aimed at the transmission segment on a state-of-the-art platform and these products have been introduced to the North and Latin American markets during the year. They are expected to be introduced into the Indian and the global markets from the first quarter of the next financial year. The German Subsidiary, Switchcraft Europe GmbH has made significant progress in developing new range of Switchgear products. The Company has introduced the Ring Main Units into various global markets successfully and is looking to achieve significant business volumes in the financial year 2012-13. The company has successfully completed all critical tests for the 24kv Switchgear market as required, and is in the process of completion of tests for the 36kv Switchgear market. This Product is a leader in its segment and the company has high hopes of achieving significant breakthrough in the market. ERL MINT has more than doubled its business volumes during the year and has moved into the profit zone. It has a large number of offers under active consideration from its customers and is hopeful of achieving a substantial growth in top line and in profits during the financial year 2012-13. Availability of number of new technology products at overseas markets in the near future underscores the potential for substantial business growth in the coming years. While the Indian economy and the power sector in particular are currently showing lack luster growth, your company will be focusing on improving internal efficiencies, reduction of debtors and reducing the input costs and expenses, as well as safeguarding market share in various business segments. Commencement of commercial operations of global manufacturing facilities is expected to bring a substantial impact in this direction. While EBIDTA margins will improve as a result of various initiatives underway, it has to be borne in mind that the company will have to bear the additional interest and depreciation costs from the current financial year. However, these will be offset by the growth in the business volumes - both in India and internationally. Preparation of Financial Statements in consonance with revised Schedule VI of the Companies Act, 1956 Company has prepared and presented the Financial Statements for the year under review in accordance with the revised Schedule VI of the Companies Act, 1956, as notified by the Ministry of Corporate Affairs. Accordingly, previous years figures have been regrouped / re-stated wherever necessary to conform to the classification in the current year. Subsidiary Companies and Consolidated Financial Statements There has been no material change in the nature of the business of the subsidiaries. In accordance with the Statement of Accounting Standard on Consolidated Financial Statements (AS 21) issued by the Institute of Chartered Accountants of India, Financial Statements of Companys subsidiaries have been considered in the accompanying Consolidated Financial Statements of the Company. As per guidance given in the circular issued by Ministry of Corporate Affairs, the Board of Directors has consented for sending annual financial accounts of the company without attaching the Balance Sheets of the subsidiary companies. Shareholders who wish to have a copy of the full report and accounts of the subsidiary companies will be provided on receipt of a written request from them. The above documents will also be available for inspection by any shareholder at the registered office of the Company as well as registered office of the subsidiary company, on any working day during the business hours. Human Resource Development During the year under review, your Company continued to have cordial relations with all employees at all the units. The Company recognizes the importance of human capital and strives to enrich professional and technical skills within the organization. Your Directors recognize the teams valuable contribution and place on record their appreciation for the employees across the organization. Employee strength as on 31st March 2012 was 398 as compared to 432 in the previous year.