Harita Seating Systems Ltd Management Discussions.

The Company provides complete seating solutions for driver and cabin seating for commercial vehicles, tractors and construction equipment, as well as passenger seats for buses across all segments and has established itself as a leader in these segments in the country for seating systems.

INDUSTRY STRUCTURE AND DEVELOPMENTS

In 2015-16, the economy is expected to grow at 7.4% (revised series) as against 7.3% (revised series) previous year.

The following table highlights the segment wise industry sales figures in vehicle units for the year 2015-16.

Category 2015-16 2014-15 Growth / (decline) %
Nos. Nos.
Medium and
Heavy Commercial
Vehicles (M & H CV) 3,37,565 2,63,407 28.2
Light Commercial
Vehicles (LCV) 4,49,828 4,38,480 2.6
Buses - M & H CV 56,176 48,817 15.1
Tractors 5,70,791 6,12,876 (6.9)

[ Source: SIAM, CRISIL ]

The Company registered sales at Rs.30,781.08 lakhs in 2015-16 as against Rs.27,375.54 lakhs in 2014-15. During the year, efficiency in supply chain was improved through inter-plant coordination; horizontal deployment of lean and other improvement initiatives was done across all plants. These initiatives, along with the implementation of various other cost reduction projects across functions have enabled the Company to post a profit before tax before exceptional income of Rs.2,398.18 lakhs in 2015-16.

OPPORTUNITIES AND THREATS

The Company has initiated product development activities to maintain the leadership position in the tractor segment in the domestic market. The Company continues to strengthen its position in export markets and has won significant new orders from overseas customer. The supplies are scheduled in 2016-17. As a leader in the bus passenger seats with a wide range of seats, the Company has further strengthened its position with new product launches in North India. The market has well responded to these new launches and the Company is gaining market share in this region.

A significant competitive threat is the entry of overseas competition and the Indian bus body builders getting into seat manufacturing. The Company continues to invest in strengthening the design and testing capabilities to retain the market leadership status.

The declining Tractor industry is a concern to the Company owing to the large share of domestic sales. The Company is taking steps to retain the sales growth by expanding customer base.

PRODUCT-WISE PERFORMANCE

The Company posted a growth of 12% in the overall sales. The Companys sales in the exports, commercial vehicle segment and bus passenger seats grew by 53%, 17% and 24% respectively.

BUSINESS OUTLOOK AND OVERVIEW

Indian economy is expected to grow at 7.7%-8% in 2016-17. The M&HCV segment is expected to grow at 15% and LCV segment is expected to remain flat. Bus segment is also expected to grow at 12% in 2016-17. The tractor segment is expected to further decline in the year 2016-17.

RISKS AND CONCERNS

The low recovery in rural economy was due to poor monsoon, nominal growth in crop prices, and declined Rabi output. The Indian commercial vehicle industry has strong correlation with the agricultural growth, infrastructure development and the mining industry and is cyclical. The Companys presence in all the segments of auto industry will largely mitigate the segment specific risks.

The Company plans to develop additional products to maintain its growth plans. The Company has also put in place initiatives to improve product quality to support the growth plans.

The Rupee depreciated significantly in the last year as against the US dollar. There may not be a major recovery in 2016-17 nor a further substantial depreciation. The Company is taking suitable forex cover to mitigate the risk in foreign exchange fluctuations.

RISK MANAGEMENT POLICY

The Board has established a Risk Management Policy which formalizes the Companys approach to overview and manage material business risks. The policy is implemented through a top down and bottom up approach identifying, assessing, monitoring and managing key risks across the Companys business units.

Risks and effectiveness of their management are internally reviewed and reported regularly to the Board. The management has reported to the board that the Companys risk management and internal compliance and control system are operating efficiently and effectively in all material respects.

The board is satisfied that there are adequate systems and procedures in place to identify, assess, monitor and manage risks. The Companys Audit Committee also reviews reports by members of the management team and recommends suitable action. Risk Minimisation Policy has been approved by the board.

OPERATIONS REVIEW

a. Manufacturing:

The Company has continued its focus on having best manufacturing processes and facilities, it has also imparted training to key employees in an effort to reskill people and upgrade the manufacturing processes, apart from improvements in the facility by means of automation.

Further improvements of Lean Manufacturing/ Flow Management initiatives will help the Company in containing manufacturing costs.

The transfer of Nalagarh unit of the Company at Himachal Pradesh has been completed on 30th September 2015 as agreed. Profit on sale of this 2 Wheeler business is Rs. 447.44 lakhs which is shown as an exceptional profit.

For the half year ended 30th September 2015 (i.e., till date of business transfer), the Nalagarh unit generated a revenue of Rs. 7.49 Cr which is less than 3% of the total revenue of the Company for the period under review.

A new assembly facility was created in Chennai for manufacture of Commercial Vehicle driver seats and bus passenger seats for catering to the requirements of major customers of the Company located in and around Chennai and commenced its activities on 1st September 2015.

b. Quality:

The Company has taken steps to improve further, the quality of its products. The Final Product Audit (FPA) initiative taken by the Company has brought appreciation from customers. The quality system at the factories aims at achieving total customer satisfaction through its focus on improving product quality. Consistently, the Company has been achieving improved Quality levels at the customer-end, both in their line and warranty quality.

The Companys plants are certified for TS 16949. In addition, the Quality laboratory at the Company is certified by National Accreditation Board for Testing and Calibration Laboratories (NABL) for conformance to ISO/IEC 17025.

100% employee participation in the Companys improvement programmes like suggestion schemes, quality control circle projects, supervisory improvement team projects, cross functional team projects and task force team projects continued successfully for the 15th year in succession.

c. Focus on Vendor Development:

The Company continued its vendor development initiative through Visionary Small and Medium Enterprise programme.

d. Financial performance:

The financial and operational performance of the Company for the year 2015-16, as compared to the previous year 2014-15, is as follows:

Particulars Year ended 31st March 2016 Year ended 31st March 2015
Rs. in lakhs % Rs. in lakhs %
Income:
Sales 30,781.08 96.93 27,375.54 97.70
Other Income 973.75 3.07 643.71 2.30
Total Income 31,754.83 100.00 28,019.25 100.00
Less: Expenditure
Raw materials and components consumed 22,040.22 69.41 20,824.24 74.32
Changes in inventories of finished goods and work-in-process (4.44) (0.01) (119.92) (0.43)
Staff cost 3,577.01 11.26 2,997.85 10.70
Stores and tools consumed 75.03 0.24 32.40 0.12
Power and fuel 233.83 0.74 257.21 0.92
Repairs and maintenance 494.50 1.56 441.13 1.57
Carriage outward & Packing expenses 647.58 2.04 589.02 2.10
Other expenses 1,706.21 5.37 1,304.72 4.66
Finance costs 147.95 0.47 470.99 1.68
Depreciation and amortization expenses 438.76 1.38 407.78 1.46
Total expenditure 29,356.65 92.45 27,205.42 97.10
Profit before exceptional items and tax 2,398.18 7.55 813.83 2.90
Add: Exceptional Item (2W business transfer profit) 447.44 1.41
Profit before tax 2,845.62 8.96 813.83 2.90
Less: Provision for taxation
- Current tax 420.00 1.32 100.00 0.36
- Deferred tax (292.52) (0.92) (4.80) (0.02)
- Tax relating to earlier years 186.43 0.59 9.36 0.03
Profit after tax 2,531.71 7.97 709.27 2.53
EBITDA / Turnover % 10.81 6.04
Profit before tax / Turnover % 8.96 2.90
Return on capital employed % 47.03 15.71
Return on net worth % 43.18 15.39
Earnings per share in Rs. 32.59 9.13

INTERNAL CONTROLS AND THEIR ADEQUACY

The Company has a proper and adequate internal control system to ensure that all the assets of the Company are safeguarded and protected against any loss and that all the transactions are properly authorized and recorded. Information provided to management is reliable and timely and statutory obligations are adhered to.

INTERNAL FINANCIAL CONTROL

The Company has an established internal financial control framework including internal controls over financial reporting, operating controls and anti-fraud framework. The framework is reviewed regularly by the management and tested by internal audit team and presented to the audit committee. Based on the periodical testing, the framework is strengthened, from time to time, to ensure adequacy and effectiveness of Internal Financial Controls.

HUMAN RESOURCE DEVELOPMENT

The Company has achieved a good financial performance, through the concerted and goal-aligned efforts by employees across the hierarchy. The Company places on record its deep appreciation for the exemplary contribution of the employees at all levels.

The Company continued to induct fresh talent. The Company has upgraded the training needs identification based on the role requirements and gaps in this identification are closed by providing training to improve employee competencies. The Companys industrial relations continue to be cordial.

As of 31st March 2016, the Company had 336 employees on its rolls.

CAUTIONARY STATEMENT

Statements in the management discussion and analysis report describing the Companys objectives, projections, estimates, expectations may be forward looking statements within the meaning of applicable Securities Laws and Regulations. Actual results could differ materially from those expressed and implied. Important factors that could make a difference to the Companys operations include, among other things, economic conditions affecting the demand, supply and price conditions in the markets in which the Company operates, changes in government regulations, tax laws and other statutes and incidental factors.