Foseco India Ltd Management Discussions.


FOSECO is the Foundry Technologies Division of Vesuvius Group plc. engaged in supporting the development of global steel and foundry manufacturing processes with new technologies. It has manufacturing capabilities in all the major steel and foundry markets across the world and is a leader in the supply of consumables and solutions related to the foundry industry. FOSECO as the name stands originates from the term FOundry SErvices COmpany. Foundry Services was born of an idea that took shape in a small town of Birmingham in England in 1932. One of the most recognised brand names in the world, it has become an integral part of the foundry industry as a supplier of high quality consumable products to the various sectors. Fosecos primary customers are ferrous and non-ferrous foundries serving various end-markets from large bespoke castings to high-volume automotive pieces. Foseco is a world leader in products and services that serve the global foundry industry, improving casting quality and foundry efficiency. Foseco continuously focusses on technical service, market leading technology supported by above industry average investment in R&D to provide business enhancing solutions to its customers. It has manufacturing footprints close to all the main foundry markets in the world. It trains its engineers who are progressively integrated within the global network of experts. Local manufacturing, local expertise and leveraging global knowledge of the foundry processes positions Foseco in a special relationship with its customers. Helping them optimise their processes and product performances, it provides its customers, products and expertise to create best solutions and reap full benefits for success.


Foseco operates a profitable, flexible, cash generative and growth-building business model centred around

Relationships and local presence. It has built the brand equity of its products through reliability, technology and service over many decades. Foseco provides a comprehensive range of foundry technologies, equipment and consumable supplies backed by world-leading foundry process and product application expertise. Understanding the need of the customers and offering them solutions that are unique, puts Foseco on a different footing than its competitors. These are delivered to the customers by an international team of experts, passionate about consistently creating better castings through a partnership model with foundries. The value addition is made through improvements in process capability, casting yields, resource utilisation, efficiency and development of new business opportunities.

Fosecos Target Customer Segments

Foseco services the needs of the following industrial sectors:

Fosecos Key Strength

Solutions Offering: Our local and international team continuously work on developing new toolkits based on detailed knowledge of customers processes so as to offer innovative /customised solutions

Products Offering: Full range of high quality products and services

Innovation: Industry-leading technologies with a focus on continuous innovation

Technical Support: Access to Fosecos extensive application engineering resources

Proximity: Global presence


The Foundry Process

Foseco is a leading supplier of consumable products, solutions and associated services in the areas of foundry process, explained in the diagram below:

Casting quality as a driver for demand

Foseco products typically represent less than 5% of a foundrys production cost. However, it contributes significantly improving product quality and manufacturing efficiency, whilst reducing the environmental impact of the casting process and improving the ratio of finished castings to the amount of metal poured a key parameter of foundry efficiency. As castings become increasingly complicated (driven in the case of automotive casting by the need for lightness), they demand cleaner metal, better flow into the mould, and more consistent solidification. This supports the computer modelling, flow simulation and casting methoding capabilities that are central to the services provided by Foseco.

Business Strategy

Foseco India follows the strategy of "Solution Partnering" that is founded on its five core area of strength viz., Product

Technology, Application Expertise, Process Knowledge, Process Control and Customer Relationships. The Solutions offered help the customers improve their business perfomance wherever possible and reducing environmental impact by using environmentally friendly products that conserves natural resources. It continually works to improve its Solutions offerings to deliver the Greatest Value to its customers.

Product Technology: Foseco is the only supplier that offers products and services across the both Ferrous and Non Ferrous areas. This global proprietary consumable product technology consists of:

Process Knowledge: Fosecos engineers possess in-depth understanding of customers processes for manufacturing of casting from melting to post cast treatment.

Process Control: Fosecos range of sophisticated and State-of-the-Art Process Control equipments help ensure process management, measurement, consistency, improved productivity and reliability of cast components.

Customer Relationships: A conviction that customer partnerships, where expertise and knowledge are shared, result in the greatest performance improvements for its customers, is the cornerstone of Fosecos strategy.

Our offerings to various metal types are:-


Iron casting is split between grey and ductile iron with grey iron representing the majority of metal being cast. This is a cost-efficient and robust process to produce components that do not need to tolerate extreme mechanical stress. All iron casting requires filters and coatings but grey iron is not as reliant on feeding system utilisation due to its lower shrinkage on solidification. Conversely, ductile iron production requires more sophisticated products to cope with the high shrinkages of metal whilst solidifying.


Steel is used in castings for manufacturing components with very high mechanical performance. Steel castings is the most demanding casting process due to higher melting temperatures and greater tendency for shrinkage, thus the greater demand for products viz high perofmance feeders, high temperature resistant filter and robust coatings and technical expertise in this segment.

Aluminium /Non Ferrous

Aluminium casting is the fastest growing segment of the foundry market. It has captured a significant light vehicles market. Being molten below 700C, aluminium can be cast in iron moulds which can be reused. Foseco concentrates on supplying fluxes, filters and machines that refine the composition and cleanliness of the metal.


The Global Economy

The 2018 saw world economy strengthening in the beginning as the fear related to the global financial crisis subsided. The improved global economic situation provided an opportunity for countries to focus their policy towards longer-term issues such as low carbon economic growth, reducing inequalities, economic diversification and eliminating deep-rooted barriers that hinder development. However, the recent improvements in growth remain unevenly distributed across countries and regions and there are signs of stress in the world economy and that of major countries. The ongoing trade dispute between the United States and China has resulted in escalation of trade tariffs by several countries. The impending withdrawal of the United Kingdom (Brexit) from the European Union is expected to further keep the global economy on tenterhooks.

The slowdown in Chinese economy will have chain effect in many major economies with violent fluctuation in the prices of key raw-materials and input costs of manufacturing. Due to plans by the Organization of Petroleum Exporting Countries (OPEC) and its allies to limit production and reduce supply of oil to keep the price under control, the markets are expected to tighten as growth stays strong. The result of these factors will be felt during the coming period and may affect the foundry industry.

Indian Economy – Opportunities and Threats

India has emerged as the fastest growing major economy in the world and is expected to be one of the top three economic powers of the world over the next decade, backed by its strong domestic consumption. Indias GDP is estimated to have increased by 6.6 per cent in 2017-18 and is expected to grow 7.3 per cent in 2018-19. During the first half of 2018-19, GDP

(at constant 2011-12 prices) grew by 7.6 per cent. India has retained its position as the third largest startup base in the world leading with technology startups, according to a report by NASSCOM.

With the improvement in the economic scenario, there have been rise in investments in various sectors of the economy.

Some of the important recent developments in Indian economy viz., Increase in exports from India by 15.48% year-on-year to touch USD 351.99 billion in April-November 2018, the Nikkei India Manufacturing Purchasing Managers Index (PMI) stood at 53.2 in December 2018, showing expansion in the sector, rise in income tax collection, increase in Indias Foreign Direct Investment (FDI), making it the 2nd highest ranked emerging market for FDI, bode well for the country. The most important reforms such as GST, the inflation-targeting monetary policy framework of the Reserve Bank of India, the

Insolvency and Bankruptcy Code, make it easier to do business in India.

On the flip side, the recent imbroglio in the Non Banking Financial Companies (NBFC) segment following the default of a systemically important NBFC over its short term debt repayment, the drag from higher crude prices resulting in fall in the foreign exchange reserves and depreciation of the rupee will keep the financial liquidity tighter going into 2019, while political uncertainty remained high with the upcoming elections in India. This will affect the foundry industry for a greater part of this year.

Foundry Industry scenario – Future Outlook

The casting production is considered as one of influencing the development of world economy. The state main factors of art and foresight of worlds casting production led the progress in foundry engineering in the last few years. The last map of the greatest casting producers. India emerged as the 2nd largest decade brought significant producer of castings in the world behind China. The Indian foundry industry manufactures metal cast components for applications in Auto, Tractor, Railways, Machine tools, Sanitary, Pipe Fittings, Defence, Aerospace, Earth Moving, Textile, Cement, Electrical, Power machinery, Pumps

/ Valves, Wind turbine generators etc. Foundry Industry has reported a turnover of approximately USD 19 billion, with exports of approximately USD 2.5 billion. However, Grey Iron Castings have the major share i.e. approximately 68% of the total castings produced. Out of nearly 5000 units, 90% of the units are in the small and micro-scale enterprises. In the backdrop of several disruptive and exciting changes, which may affect the foundry industry adversely but also may throw new opportunities to be grabbed. The key to survive and thrive will be to foresee the changes and be resilient to adapt quickly to such changes. The growing trade wars and concerns for clean environment, shifting to E-Vehicle mobility by 2030, restriction on use of some particular fuels, digitization in financial , other transactions and other services will have to be factored in while planning for the future. ICRA has reported that global prices of non-ferrous metals which have witnessed a correction due to global macroeconomic concerns in the last three months is unlikely to go down further, on the back of ongoing trade wars. The demand supply fundamentals, however, would not justify such a correction, as the global market of these metals are currently in deficit.

The biggest challenge is posed by rupee depreciation which is increasing the cost of imported capital goods, inputs and various services used by exporters that is paid in foreign currency. The trends in non-deliverable forward (NDF) market indicate that further fall in rupee is not ruled out particularly as Indias external debt is increasing. Buyers of casting products from the Middle East and certain parts of Asia are demanding sizeable reduction in prices, on account of rupee depreciation, which is making it difficult to sustain healthy margins.

New Government Initiatives

The Government of Indias Automotive Mission Plan (AMP) 2006–2016 has come a long way in ensuring growth for the sector. Indian Automobile industry is expected to achieve a turnover of $300 billion by the year 2026 and will grow at a rate of CAGR 15 per cent from its current revenue of $74 billion. The Government has come out with Automotive Mission

Plan (AMP) 2016-26 which will help the automotive industry to grow and will benefit Indian economy in the following ways:-

• Contribution of auto industry in the countrys GDP will rise to over 12 per cent

• Around 65 million incremental number of direct and indirect jobs will be created

• End of life Policy will be implemented for old vehicles

The rapidly growing economy is opening up newer avenues for the transportation industry, especially while it makes a shift towards electric, electronic and hybrid cars, which are deemed more efficient, safe and reliable modes of transportation.

Over the next decade, this will lead to newer verticals and opportunities for auto-component manufacturers, who would need to adapt to the change via systematic research and development. Even if these plans achieve 75-80%, it will augur well for the Indian Foundry Industry. Owing to the increase in demand from the automotive sector, driven by rising production of commercial and passenger vehicles, two and three wheelers across the globe, the demand for iron and aluminium castings could grow 35-40% by 2019-20 from the current levels.


Financial Performance

Foseco registered good sales in a difficult and volatile business environment. Table 1: Abridged Profit and Loss Account (In Lakhs)

Particulars 2018 2017
Total Revenue 36216 37869
Operating Expenses 30734 32483
EBITDA 5482 5386
Depreciation 454 534
PBIT 5028 4852
Finance Charges 21 35
PBT 5007 4817
Tax 1804 1660
PAT 3203 3157

As per Table 1 above, during the year under review your Company witnessed a drop in sales by 4.4% in Revenue. However, the figures of 2017 and 2018 years above are not comparable due to different treatment of excise duty and

Goods and Service Tax (GST) in the sales numbers of 2017. During the period upto 30 June 2017, excise duty was charged which is included in Sales. Post GST implementation from 1 July 2017, the sales figure is net of GST recovered. Excluding this adjustment, the sales in the year 2018 grew by 2% over 2017. The Sales growth was softer than previous years due to recovery of raw material prices in an adverse competitive environment, drive for collection of outstandings in a weak liquidity situation of major foundries and slowdown in the automotive sector towards the end of 2018. Steps taken to prevent erosion of profitability resulted in the ProfitAfter Tax rising by 3.9% over the year 2017. The Company generated 6688 Lakhs cash from its operations in 2018 as against 7938 Lakhs in 2017.

Table 2: Key Financial Ratios

Particulars 2018 2017
PBIT/ Total Revenue 13.39% 13.35%
PAT/ Total Revenue 8.53% 8.69%
ROCE 30.95% 32.70%
RONW 20.00% 21.50%
Debt Equity Ratio -- 0.01
Current Ratio 2.55 2.58
Debtors Turnover 4.34 4.10
Inventory Turnover 11.41 15.21

Disclosure of Accounting Treatment – Adoption of Indian Accounting Standards (Ind-AS)

The Company has followed the treatment laid down in the Accounting Standards prescribed by the Institute of Chartered

Accountants of India, in the preparation of financial statements. There are no audit qualifications in the Companys financial statements for the year under review.

The Indian Accounting Standards (Ind-AS) became applicable to the Company from 1 January 2018 and accordingly, the transition was carried out, from the Accounting Principles generally accepted in India as specified under Section 133 of the

Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014 (previous GAAP) to Ind-AS 101 "First time adoption of Indian Accounting Standards".

The reconciliation and descriptions of the effect of the transition from Indian GAAP to Ind-AS have been provided in the notes forming part of separate financial statements.

Health, Safety and Environment (HSE)

Foseco strives to achieve the highest standards of HSE practices, having adopted an Integrated (Quality, Health, Safety and Environment) Management System (IMS) accredited to ISO 9001:2008, ISO 14001:2004 and OHSAS 18001-2007. The Company has well established HSE standards and monitoring process for each of its operations. Every employee is required to conduct safety audits and suggest safety improvement opportunities. These improvement opportunities are reviewed by HSE team members and wherever feasible these are implemented in the safety culture journey. It also runs continuous improvement programs for employees health and environment. This initiative had resulted in 2333 safety improvement opportunities identified and implemented at the manufacturing sites during the year 2018 against 1937 improvement opportunities in 2017. To increase HSE awareness amongst employees, Foseco regularly conducts internal competition and participates in competitions organised by trade bodies.

Quality and Reliability

Reliability in quality and delivery is vital to Fosecos customers as they use its products in critical areas of their processes. Reliability therefore is a primary commitment of Foseco, which it strives to deliver through best-in-class quality management in its production sites. Its quality systemsdefinethe commitments and responsibilities which apply to all aspects of the business. A new "Turbo Q" quality initiative launched a few years ago has been instrumental in continuous improvement of quality standards and processes.


Foseco India Limited has state of the art manufacturing facilities in Pune and Puducherry. It also imports products from its group manufacturing locations in other parts of the world. Foseco operates in a cellular manufacturing structure. Each cell is "a factory within a factory" and has end-to-end responsibility of the entire supply chain process – from purchase to manufacturing process to despatch. This workflow ensures that the entire cell team is responsible for safety, quality, production, cost and product delivery. Foseco is progressively using operational excellence tools to standardise its processes and activities and ensure efficient systems to delight customers. With the Lean philosophy, Foseco is becoming more flexible to take new challenges in customer satisfaction. These initiatives are very well backed by innovative engineering practices and solutions.

Human Resources

Human Resources is Fosecos greatest strength and a foundation for long-term success. In July 2018, Vesuvius Group unveiled new set of values CORE (Courage, Ownership, Respect and Energy) which were simultaneously introduced to all employees in India. In order to reinforce the Values among employees, painting and writing competitions based on CORE Values were organized. The team worked on a few big projects like Success Factors which includes major HR activities like Annual Performance Management and Compensation Review. Engagement initiatives saw a new high with monthly engagement initiative ‘Masti Time 2.0. The quarterly newsletter, ‘FOSECONNECT being a delightful read every quarter and ‘Foseco Family Day 2018 was celebrated to connect employees and their family members together. Employees also bonded together over fitness activities like trekking and cycling in and around Pune. Numerous technical competency building programmes were conducted for Sales & Marketing teams along with measuring the returns based on Jack Phillips model. Training programmes on 8D-PPS were also arranged for the people of Foseco India. A Sales, Marketing & Technology conclave was organized for the Managers of customer facing functions. ‘FISH! Philosophy programmes were conducted for the field Sales staff and dealers. Another employee welfare initiative Project MUSKAAN gives Foseco employees an outlet for their thoughts and feelings, maintaining delicate work-life balance, engaging with the society, etc.

Building of managerial and technical competencies is an area of constant focus. ‘Foseco University, the e-Learning platform continued to provide impetus to the organisations drive to build competencies of its customer and market facing functions. Every year, Foseco earns customer recognition for its services.

Corporate Social Responsibility Initiatives

CSR has always been an area of special attention and interest for the Company which has joined hands with Rotary Club of

Khadki, Rotary Club of Poona Downtown and Rotary Club of East Charitable Trust aiming to implement socially beneficial projects. Foseco India has completed several projects in the field of Education, Healthcare, Women Empowerment and Environment. The Company has constructed science laboratories and donated e-Learning kits in several schools and colleges in and around Pune. In the field of healthcare, it has donated medicines, hospital beds, equipment and appliances required in the operation theatre in hospitals. The Company has organized blood donation camps and anemia detection camps in various schools and colleges in association with the Rotary Clubs. It is also associated with Jehangir Hospital for detecting juvenile diabetics in young boys and girls and supporting their families by distributing medicine and diabetics kits for the treatment of diabetes. In the financial year ended 31 December 2018, the Company could not spend the entire amount earmarked for spending on CSR projects and programmes, as some of these projects were under the early stage of implementation requiring laying down of clear road map. All the projects are under active consideration of the Board of Directors of the Company, who are confident of meeting the CSR obligations as enunciated in the CSR Policy of the

Company by implementing these projects, which will result in healthy CSR spend during the year 2019.

Information Technology

Fosecos IT systems are on SAP Business One. The SAP Business One ERP has been seamlessly integrated with the

Vesuvius manufacturing application, HALO and the Purchase Requisition System. The IT processes of the Company are accredited to ISO 9001:2008.

Internal Control Systems and Their Adequacy

Foseco adopts a rigorous system of Internal Control and Risk Management to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition and that transactions are authorised, recorded and reported quickly. In addition, the Company has a well-structured system of risk assessment and risk reporting. The Companys internal controls are supplemented by an extensive program of internal audits, review by management and documented policies, guidelines and procedures. The internal controls are designed to ensure that financial and other records are reliable for preparing financial information and other data and for maintaining accountability of assets. During the year, due care has been exercised by the Company with respect to all the requirements of the Company Law and Listing Regulations.

Cautionary Statement

Statements in the Management Discussion and Analysis Report describing the Companys objectives, projections, estimates and expectations may be ‘forward looking statements within the meaning of applicable securities laws and regulations. Actual results might differ materially from those expressed or implied. Important developments that could affect the Companys operations include economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws, and other factors such as litigation and industrial relations.

For and on behalf of the Board of Directors
Ravi Moti Kirpalani
DIN: 02613688
Place: Pune
Date: 25 January 2019