Fedders Electric & Engineering Ltd Management Discussions.

Pursuant to Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a Management Discussion and Analysis Report covering Segment-wise performance and outlook is given below:


The financial year 2016-17 has been a year marked with both excitement and challenges for the Indian economy. Some of the events that took place during the course of this year could very well turn out to be the defining moments for the World economy at large. Against the backdrop of robust macro-economic stability, the year was marked by two major domestic policy developments, the passage of the Constitutional amendment, paving the way for implementing the transformational Goods and Services Tax (GST), and the action to demonetise the two highest denomination notes of 500 and 1000—together comprising 86% of all the cash in circulation. The highlight was, of course, the transformational GST bill,which will create a common Indian market, improve tax compliance, boost investment and growth-and improve governance; the GST is also a bold new experiment in the governance of cooperative federalism. Demonetisation has had short-term costs in the form of inconvenience and hardships, especially those in the informal and cash-intensive sectors of the economy who have lost income and employment. These costs are transitory, and may be minimised in recorded Gross Domestic Product (GDP) because the national income accounts estimate informal activity on the basis of formal sector indicators, which have not suffered to the same extent. The benefits of lower interest rates and dampened price pressure may have cushioned the short-term macroeconomic impact. However, at the same time, demonetization has the potential to generate long-term benefits in terms of reduced corruption, greater digitalization of the economy, increased flows of financial savings and greater formalization of the economy, all of which could eventually lead to higher GDP growth, better tax compliance and greater tax revenues. The government has taken important steps over the past year. In addition, the government:

• Overhauled the bankruptcy laws so that the "exit" problem that pervades the Indian economy, with deleterious consequences highlighted in last years Survey-can be addressed effectively and expeditiously; and

• Codified the institutional arrangements on monetary policy with the Reserve Bank of India (RBI), to consolidate the gains from macro-economic stability by ensuring that inflation control will be less susceptible to the whims of individuals and the caprice of governments.

On the fiscal front, the position is expected to be much better with the Government expected to meet its fiscal deficit target at 3.5% of GDP and the current account deficit narrowing down further to about 1.1% of GDP. Inflation, though inching up in the last few months, also stayed below the RBIs target of 5%, leading to an accommodative monetary policy for most part of the year. Due to favourable indicators such as moderate levels of inflation, reduced Current Account Deficit (CAD), fiscal consolidation and transitory impact of demonetisation, the Country is currently characterised as a stable macroeconomic situation, the Government expects Indias GDP to expand data growth rate between 6.75-7.5 % during the financial year 2017-18.

The Indian rupee stayed relatively stable this year, trading in a range of 66-67 to USD for most part of the year before seeing a sharp appreciation during the close of the financial year.


The below par performance of global economy was reflected in a continued slowdown in growth in most emerging and developing economies, driven by weaker capital inflows and a subdued global trade. India, however, was one of the faster growing large economies in the world, with a currency that performed better than most other emerging market currencies.

On the global front, two key events have led to a lot of uncertainty and spurt in volatility across markets. In June 2016, UK voted to leave the European Union leading to an immediate ratings downgrade and financial market volatility. The financial markets have seemingly factored in this event but the impending round of trade negotiations between UK and the European Union, point to a tough road ahead. The November, 2016 US election outcome was also a major surprise and led to a lot of capital flight away from the emerging markets, including India, on the hopes of strong pro-US growth policy rollouts from the new Government. The challenges faced in the initial roll-out of some of this agenda by the new administration, point to a difficult and tumultuous road ahead which will have implications not just for the US economy but the entire global set-up.

Further, Foreign Direct Investment ("FDI") reform measures were implemented, allowing India to become one of the worlds largest recipients of FDI. India is not only among the worlds fastest growing major economies, but underpinned by a stable macro-economy with declining inflation and improving fiscal and external balances. It was also one of the few economies enacting major structural reforms.


Manufacturing has emerged as one of the high growth sectors in India. Prime Minister of India, Mr. Narendra Modi, had launched the Make in India program to place India on the World Map as a manufacturing hub and give global recognition to the Indian economy. India is expected to become the fifth largest manufacturing country in the world by the end of the year 2020. The Gross Value Added (GVA) at basic constant (2011-12) prices from the manufacturing sector in India grew 7.90% year-on-year in 2016-17, as per the 2nd provisional estimate of Annual National Income published by the Government of India. Under the Make in India initiative, the Government of India aims to increase the share of the Manufacturing Sector to the GDP to 25% by 2022, from 16%, and to create 100 million new jobs by 2022. Large scale Infrastructure expansion plans for 12th five year plan (FY-12-17) and raising per capita steel consumption in India promises unprecedented growth potential on Indian Manufacturing Industry during next 10 years.

Engineering sector is an important component of the broader Manufacturing Sector and the share of engineering production in overall manufacturing output is quite significant. A broad analysis of industrial production, especially of Manufacturing Sector is effective in the context of engineering export analysis as manufacturing has over 75% weightage in Indias industrial production. The Indian Engineering sector has witnessed a remarkable growth over the last few years driven by increased investments in infrastructure and industrial production. India on its quest to become a global superpower has made significant strides towards the development of its engineering sector. Cumulative FDI inflows in to the engineering sector increased to USD 32.75 Billion in FY-17 from USD 8.9 billion in FY-10. The Governments increasing focus on attracting foreign investors in manufacturing & infrastructure is likely to boost FDI in the sector. During 2010-17, there has been a 20.45% rise in cumulative FDI flows in to the Indian engineering industry.

Month Wise Manufacturing Growth Rate for 2016-17 vis-a-vis 2015-16

The continued increase in Government spending on infrastructure such as railways (up by 26% in Financial Year 201617 from previous year) would provide impetus to the economic growth. Urbanization in India has become an important and irreversible process and an important determinant of national economic growth and poverty reduction. The process of urbanization is characterized by a dramatic increase in the number of large cities, although India may be said to be in the midst of transition from a predominantly rural to a quasi-urban society. In order to provide safe and sustainable transport in urban areas, upto 326 km of metro lines have been made operational in different cities, and more than 500 km of metro lines are at different stages of construction in 12 cities.

Wind energy is the largest source of renewable energy in India; it accounts for an estimated 64.77% of total installed capacity (24.7 Gigawatt ("GW"). There are plans to double wind power generation capacity to 20 GW by 2022. India added a record 5,400 megawatts (MW) of wind power in 2016-17, exceeding its 4,000 MW target of about 50,018 MW of installed renewable power across the country, over 55% is wind power.

Power Supply position in the country has generally improved during the year under review. The demand-supply gap in terms of energy has reduced to 0.7% from 2.2% during the corresponding period of the previous year. The generation from various renewable energy sources during the period under review was 65,945 BU, while the actual generation during the corresponding period of the previous year was 51,129 BU. Thus there was a growth of about 28.98% as compared to corresponding period of the previous year.

Transmission is an important element in the power delivery value chain. It facilitates evacuation of power from generating stations and its delivery to the load centres. The Inter-state power transfer enables efficient dispersal of power to deficit regions. This calls for continuous endeavour to strengthen the transmission system network, enhance the Inter-State power transmission system and augment the National Grid. T&D expenditure is set to increase on growth in power generation & privatisation of distribution. In FY-17, 25,583 ckm of transmission lines have been commissioned. This is 100.9% of the annual target of 23,384 ckm fixed for 2016-17. Investment for 7 new transmission systems that includes strengthening of national grid have been sanctioned.

Heating, Ventilation and Air Conditioning ("HVAC") systems are becoming one of the key building blocks in modern infrastructure. Rise in infrastructure, rapid urbanization and growth in commercial properties are some of the key factors fuelling the market for HVAC systems in India. With healthy growth anticipated in the real estate sector, the country is expected to witness strong infrastructure development, which would boost the market for HVAC systems over the next 5 (five) years.


The Companys strategy for long term growth has been to continually expand its addressable market by investing in newer geographies and newer industry verticals. Accordingly, the Companys business is broadly classified into following three segments:


The Steel Structures & Engineering business of the Company is equipped with highly experienced engineers and "State of the Art" manufacturing facilities with ultramodern plants and machineries for designing any prefabricated structure with latest design and technology. The Company provides onsite fabrication of steel structures, erection, installation, supply, prefabrication of structural steel components at the fabrication facilities for large industrial projects such as Power, Refineries, Steel, Fertilizer, Railways, Petrochemical projects, Pre-engineered structure for Metro Stations, Structural Sheds, Metro Depots and Special Spans in Steel Structure. The Company undertakes Turnkey Projects for designing, engineering, supplying and commissioning of complete Pre-Engineered Building Solutions.

During the year under review, the Company has been awarded with various orders by Delhi Metro Rail Corporation Ltd. and Larsen & Toubro etc. respectively for works relating to fabrication of steel structures and the same are being executed with full swing.

The Company is also engaged in the fabrication of steel structures of wind towers at its manufacturing facility at Bharuch, Gujarat and it has achieved a manufacturing capacity of 13,000 M.T. The Company has achieved a breakthrough by way of addition of "Siemens-Gamesa Renewable Energy" as its global customer. The Company expanded its operations and entered into contracts with "Siemens-Gamesa" & "INOX Wind" which are top notch in the Wind Industry of India. The manufacturing facility at Bharuch, Gujarat has been certified with"EN-3834-2", to cater export opportunity for wind tower requirements in Europe. The Company has also taken steps to modernize its infrastructure for production of Wind Towers in accordance with the international standards for the industry by, inter-alia, installing Dehumidifier for enhancing painting application process quality.

During the period under review, the Steel Structures & Engineering segment of the Company registered the Revenue of 1,053.22 Crores which represents 77.65% of total revenue generated by the Company.



The Power Project Division of the Company ("Power Division"), inter-alia, functions in Domestic and International markets for execution of projects for Power Transmission & Distribution and setting up of Sub-stations as an EPC Contractor. The Company has assembled unrivalled skills in the Power Sector and is eligible and qualified in Power Grid Corporation of India Limited ("PGCIL") and other Utilities to execute the transmission lines and sub-stations upto 800 KV Level AC and DC supply. During the period under review, the Company performed relentlessly for completion of the distribution projects awarded by various state utilities. The Company also actively participated in bidding process to garner various Power Projects in its best interest.

The Power Division has been actively bidding/executing for the GIS projects for various utilities upto 400 KV Level. The Company has also taken up the special assignments to reduce the power losses by the specialized High Temperature Low Sag conductor replacement in all Centre and State utilities. The Power Division is also contemplating to execute the underground cabling and GIS upto 33 KV Levels for better quality and uninterrupted power supply in all urban areas and major cities covered under "Power Distribution Scheme" of the "Smart City and State Financing Schemes". The Company has been shortlisted as the lowest bidder with respect to the project for setting up of 220/33 KV GIS substation at Uttarakhand at a project cost of 72.00 Crores.

During the year, the Company has been awarded with prestigious orders aggregating to 368.00 Crores by state utilities of Chhattisgarh and Madhya Pradesh respectively under Deen Dayal Upadhyaya Gram Jyoti Yojana ("DDUGJY").

The Company also has an expertise in design, supply, erection, testing & commissioning of 25KV single phase, 50 Hz, Traction Overhead Equipment, Switching Stations, Booster Transformer Stations and LT Supply Transformer Stations including foundations, structures and ancillary equipment. The Company has completed various Sub-sectioning post, feeding posts and Sub-sectioning and paralleling posts for Indian Railways. During the period under review, the Company has successfully completed several key projects for designing, drawing, supplying, erection, testing & commissioning of Overhead Electrification Lines awarded by Indian Railways.

During the year, the Company has been assigned with the work of Overhead Electrification and General Electricals by Rail Vikas Nigam Ltd. aggregating to 94.00 Crores.


Wind and Solar Power were the largest contributors among the renewable energy technologies in terms of capacity addition in FY 2016-17. A total of 5,413 MW of wind energy capacity was added, the highest-ever in Indias history. Solar power capacity addition stood at 5,526 MW, also the highest ever in India. The thermal power sector in India is already feeling the pinch of increased generation capacity in the renewable energy sector. Last year, the Central Electricity Authority reported that thermal power plants were operating at a plant load factor of just 50% due to the increased power generation from renewable energy projects. A record 10 GW of solar power capacity is expected to be added in calendar year 2017, and 6 GW of wind energy capacity is expected to be added in FY 2017-18.

The Company is engaged in the supply of various Solar products including crystalline PV modules, home & street lights as well as provide turnkey EPC services for setting up solar PV plants suitable for residential, industrial & commercial and utility scale MW grid feed application.

During the period under review, the Power Projects segment of the Company registered the Revenue of 255.17 Crores which represents 18.81% of total revenue generated by the Company.


International Projects Division of the Company has established itself in the fields of Power, Water, Hospitality, Infrastructure, Education, Oil & Gas respectively.

The Company is engaged in the participation of various tenders and execution of international projects on turnkey basis related to Power Transmission, Distribution, Sub-stations, Renewable Energy, Water, Hospitality, Infrastructure, Education, Oil & Gas sector under various funding agencies.

The Company has expanded internationally by bagging various projects in countries like Nigeria, Bangladesh, Myanmar etc. During the year under review, the Company executed various international projects with respect to Rehabilitation and Reinforcement of 330/132 KV and 132/33 KV Transmission Substations at Nigeria and Construction of railway bridges along with approach Rail Lines at Bangladesh.

The Company has signed MOU with HH Sheikh Ahmed Bin Obaid Al Maktoum on 15th August, 2016 for 250 MW Roof Top Solar Project at the project cost of USD 181 Million for various locations in Dubai and the Letter of Intent (LOI) has been issued in favour of the Company.


The key trends in the Heating, Ventilation and Air Conditioning ("HVAC") industry are energy savings and precision system control which has led to the use of adjustable frequency drives in HVAC systems today. The HVAC system is designed to reduce energy consumption while maintaining the interior conditions at a comfortable level to keep occupants healthy & productive.

One of the Companys key objectives is to become a leading organization for manufacturing of World Class HVAC Equipments like Air Handling Units, Fan Coil Units, Air Distribution Products etc. and ensuring healthy environment. The Company pursues energy efficiency aggressively and implements more environmental friendly solutions in the HVAC sector. The Companys environmental control systems division primarily provides the HVAC Equipment to Defence, Railways, Telecom and other specialized application segments, which includes designing, manufacture and supply of Air Handling Units, Fan Coil Units, Air Distribution products, Ventilation Units, etc. used mainly in Commercial Space, Shopping Malls, Buildings, Theaters, Auditoriums, Schools, Universities, Libraries, Temples, Hospitals, IT Industry, Airport, Hotels, etc. Fedders Electric is the only Indian Company which has provided Air Conditioning solution for Main Battle Tank.

During the year under review, the Company executed orders for Air Conditioning System for Rail Coaches and also manufactured and supplied special Marine Air Conditioning system to Hindustan Shipyard. During the period under review, the Environment Control Systems segment of the Company registered the Revenue of 47.94 Crores which represents 3.54% of total revenue generated by the Company.


One of the positive development, in the recent months, has been the firming up of commodity prices, specially in steel, that is optimistic for the manufacturing sector. The sectors with high growth potential like Construction & Infrastructure (8%), Manufacturing Sectors (16%) and Energy & Other Sector (4%) which account for about one fourth of Indias GDP will be the key growth drivers for the Indian Steel Industry. Large scale Infrastructure expansion plans for 12th five year plan (FY-12-17) and raising per capita steel consumption in India promises unprecedented growth potential on Indian Manufacturing Industry during the next 10 years.

As an integral part of Urbanisation, more than 550 km of Metro Rail projects and 381 km of regional rapid transport systems are under planning and consideration.The Ministry is also in the process of forming a new Metro Policy to promote construction of Metro lines under different financing and administrative models. Accordingly, the Company has plans to facilitate in execution of such projects as an integral part urbanisation.

The Indian manufacturing sector, for the last two to three years, has been facing challenges despite the continuous effort of the Government to boost manufacturing and generate employment through Make in India and Skill India initiatives, along with reforms for improving the ease of doing business. However, the situation is not only linked to the government policies but is also attributed to increased global uncertainty, impacting the manufacturing sector. Further, the subdued demand scenario has kept the domestic and foreign players from making any fresh investments. Volatility in commodity prices and general uncertainty has impacted business environment across the globe and recovery pace in both mature and emerging markets.

Wind energy is estimated to contribute 175 GW, followed by solar power at 100 GW by 2022. However, after soaring to a record 5,400 MW of installed capacity set up in 2016-17, the Indian wind industry is heading for a sharp nose dive in the current financial year. The wind industry is trapped in the transition in the way wind energy tariffs are determined. The Union Government came out with tariff-based competitive bidding, auctioning 1,000 MW of capacity and due to increase in competition, the tariff fell to a low of 3.46 per kWhr, adversely affecting the performance of the wind turbine manufacturers.

Higher demand for energy has led to increasing capacity additions for power generation that, in turn, boosted demand for power generation & transmission. Indias power demand is expected to rise upto 1,905 TWh by FY-22. To meet the rising electricity demand, the Central Government plans to expedite market opportunity of USD 14.94 billion for power transmission. Private sector companies are being encouraged to participate in rail projects, which were largely in the public domain. The Cabinet approved participative models for rail-connectivity & capacity augmented projects, which allows private ownership of some railway lines. The Government proposes to complete electrification of 4000 km of track in the next 3 years.

There are enormous investment opportunities for private players across the entire power sector value chain consisting of generation, transmission, and distribution, and in various infrastructure projects. Therefore, the entry of more private players into the power sector has resulted in increased competition.

The HVAC market in India is forecast to reach USD 3.97 billion by 2019. Growth in retail, hospitality and commercial sectors is significantly boosting the demand for such systems in the country, as these sectors involve large-scale application of HVAC systems in organized retail outlets, shopping complexes, hotels etc. Moreover, with anticipated growth in FDI, several international players are expected to enter and start operations in the Indian retail market. Driven by strong FDI inflow from multinational food processing companies, the retail market in India is projected to reach USD 726.62 billion by 2019, which is expected to further fuel the countrys HVAC market.

By virtue of the Companys presence in the International and Domestic Markets, the Company is exposed to the risk of unpredictable volatility of Indian Currency with respect to US Dollar and other hard currencies coupled with increasing interest rates and unstable political situation in few countries of our operation in Africa Sub-continent. New/Amended Laws, Policies, Regulations, Standards etc. as notified by the Statutory Authorities from time to time are subject to varying interpretations and may pose risk or opportunity to the existing business operations of the Company. Their application in practice may evolve over time, as new guidance is provided by regulatory and governing bodies.

Risk management at Fedders Electric is an enterprise-wide function and a holistic approach has been adopted based on Enterprise Risk Management ("ERM") Framework. The framework encompasses practices relating to identification, assessment, monitoring and mitigation of various risks towards achievement of business objectives. The ERM is aimed at dealing with uncertainty and to minimize adverse risk impact on business objectives and enables the Company to leverage business opportunities effectively. The Company relentlessly endeavours not only to minimize risks but convert them into business opportunities that allow it to maximize returns for shareholders from diverse situations. The Company has aligned risk management process with every part of the critical business processes to ensure that the processes are designed & operated effectively towards the achievement of business objectives.

Risks are identified & assessed across all key business functions in a holistic manner.


The Companys philosophy towards internal controls is based on the principle of healthy growth with a proactive approach to risk management. The Company has a proper and adequate system of Internal Control to ensure all the assets are safeguarded and protected against loss from unauthorized use or disposition and the transactions are authorized, recorded and reported correctly. The Internal Control is supplemented by an extensive program of Internal Audits, review by management and procedures. It is designed to ensure that the financial and other records are reliable for preparing financial statements, other data and for maintaining accountability of assets. The Company ensures adherence to all statutes.


The Financial Performance with respect to operational performance of the Company is discussed in the Directors Report which forms part of the Annual Report.


People management is the backbone of your Company and it is regarded as one of the important resources for the success of Fedders. Over the years, your Company has strengthened its HR processes to ensure continual development and growth of its employees. HR processes are fine-tuned and updated to attract and recruit talent into the Company.

The Company strongly believes in enhancing the value of its people asset consistently. The Human Resource agenda continues to support the business in achieving sustainable and responsible growth by building the right capabilities in the organisation. It continues to focus on progressive employee relations policies, creating an inclusive work culture and a strong talent pipeline.

The Company has well documented and updated policies in place to prevent any kind of discrimination and harassment, including sexual harassment. The Whistle Blower Policy plays an important role as a watchdog.

Human Resource Development practices in your Company are guided by the principles of relevance, consistency and fairness based on the premise that what is done is as critical as how it is done. Taken together, these initiatives and processes have made a significant impact on talent attraction, retention and commitment. Your Company continues to maintain its record on industrial relations without any interruption in work and it continues to enjoy cordial relationships with the work force across all units and operations.

The Company currently has adequate man power and personnel to conduct the business without any complication or hindrances. The Company recognizes the importance and contribution of the employees. The overall human and industrial relations have remained peaceful and composed during the period under review. As on 31st March, 2017, the total number of employees on the Companys payroll stood at 560.


During the year, the Company has adopted Accounting Standards notified by the Central Government of India under the Companies (Accounting Standards) Rules, 2006 (as amended from time to time) and/or by the Institute of Chartered Accountants of India in the preparation of financial statements and has not adopted a treatment different from that prescribed in any Accounting Standard.


Certain statements made in the Management Discussion and Analysis Report relating to the Companys objectives, projections, outlook, expectations, estimates and others may constitute forward looking statements within the meaning of applicable laws and regulations. Actual results may differ from such expectations, projections and so on whether express or implied. Several factors could make significant difference to the Companys operations. These include climatic conditions and economic conditions affecting demand and supply, Government regulations and taxation, natural calamities and other statutes over which the Company does not have any direct control.