Hilton Metal Forging Ltd Management Discussions.

(MDA)

GLOBAL ECONOMY

Early 2018, the globe witnessed fastest and most synchronised growth since 2008/09 global financial crisis. Since then, the deepening of the trade conflict between the US and China, and challenges in Europe and slow-growing emerging markets have transformed sentiment among businesses and policymakers.

However, slower growth in 2019 in each of the crucial markets of the US, China and the Eurozone is to be expected. The US benefited from a one-off tax cut in 2018. The Chinese government continues to cool its economy very gradually, while the Eurozone is correcting after a couple of years of above trend growth in 2016-17. That these three economies have cooled simultaneously has been alarming, but fundamentals remain relatively strong. One point of caution: if conditions deteriorated suddenly, central banks would find it difficult to deliver the sort of boost they were able to supply in 2008/09. For businesses, some solid operating conditions are undercut with appreciable downside risk.

The global economy enjoyed a mini-boom between the end of 2016 and early 2018, when growth picked up in most major economies. This phase is now over, and in 2019 one can expect the G7 economies to return to growth rates close to their long-run averages. In the US, the boost from fiscal stimulus is likely to fade, higher interest rates may dampen consumer spending and a strong dollar could continue to drag on net exports. Moderate growth from an estimated 2.8% in 2018 is expected to remain around 2.3% in 2019. In the Euro zone uncertainty relating to global trade tensions and Brexit will take a toll, while the European Central Bank is likely to offer less support to growth as its quantitative easing policy ends. Growth in China is also expected to slow relative to 2018. Although the government will try to ensure that the slowdown is minimal, the impact of US tariffs and the need to control debt levels are likely to result in at least a modest deceleration in growth in 2019. Emerging market currencies could come under periodic pressure from a strong US dollar, but this effect is likely to lessen later in the year, when we believe it will become more evident that the US economy is slowing.

INDIAN ECONOMY

International Monetary Fund (IMF) has pared Indias growth forecast for the just-concluded fiscal and the next two years, citing softer recent growth and weaker global outlook, but expects the country to retain its place as the fastest growing major economy.

According to IMF estimates, Indias economy grew 7.1% in FY19 and is expected to accelerate to 7.3% growth this fiscal and to 7.5% in FY21. All the estimates are 0.2 percentage points less than its previous assessment in January. The IMF numbers are higher than those of the Reserve Bank of India, which had last week cut its growth forecast to 7.2% for this fiscal and 7.4% for FY21.

In its flagship World Economic Outlook (WEO) released on recently in Washington, IMF said the reduction in Indias estimate is on account of the "the recent revision to the national account statistics that indicated somewhat softer underlying momentum". It has suggested reforms to hiring and dismissal regulations to help incentives job creation and absorb the countrys large demographic dividend.

According to Indias official estimates, Indian economy grew 7% in FY19, slowest in the last five years. IMF expects growth to recover in the current fiscal and the next. "In India, growth is projected to pick up to 7.3% in 2019 and 7.5% in 2020, supported by the continued recovery of investment and robust consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy," the WEO noted.

Over the medium term, the multilateral institution expects growth to stabilise at just under 7.75%, based on continued implementation of structural reforms and easing of infrastructure bottlenecks. It expects inflation to remain below the Reserve Bank of Indias threshold of 4% in the current fiscal at 3.9% and marginally exceed at 4.2% next year. Current account deficit is seen at around 2.5% of GDR

"The outlook for many countries is very challenging, with considerable uncertain shortterm, especially as advanced economy growth rates converge toward their modest long-term potential," IMFs economic counsellor Gita Gopinath said. Global growth is forecast to slow to 3.3% in 2019 from 3.6% in 2018 with a downside risk due to trade tensions and chaotic Brexit. China is forecast to grow 6.3% in 2019 and 6.1% in 2020.

$3-TRILLION ECONOMY

Could India end the current fiscal a $3trillion economy? According to IMFs October 2018 data, FY20 GDP is seen at $2,958 trillion, adjusting for revisions it should be slightly short. However, Indias own assessment presented in the budget sees GDP at Rs 210 trillion, which translates to slightly more than $3 trillion.

INDUSTRY OVERVIEW

The global metal forging market size was valued at USD 78.60 billion in 2018 and is expected to witness a CAGR of 7.6% from 2019 to 2025. Aerospace industry is one of the key growth drivers boosting the product demand. Increasing production of aircraft coupled with growing passenger traffic are projected to assist the growth.

Several changes and innovations have been observed in the metal forgings industry. The use of materials such as aluminum and titanium is becoming more common in medical device and aerospace industries as their inclusion helps decrease weight and achieve performance optimization. Titanium is anticipated to witness significant demand on account of increasing production of aircraft components using forging process.

Factors such as adoption of new materials including high performance and special alloys and R&D for new manufacturing methods are expected to boost the growth of this sector. In addition, methods such as precision die forging are helpful in producing complex parts. Closer dimensional tolerances and detailed geometric features of precision die forging make it suitable for manufacturing critical components of aircraft.

Construction industry requires different types of machinery and equipment, which consists of forged parts such as rollers, levers, and shafts. Construction equipment manufacturers procure different types of forged components in assemblies. Growth in construction industry is a major factor driving the demand for construction equipment, thereby fueling the utilization of forged parts.

Segment Overview

Diverse Usage Of Forgings In Oil & Gas And Aerospace Sector To Power The Forging Market In The Years To Come

"Automotive sector relies on the forged metal elements for the making of high-pressure valves, valve bodies, flanges, and fittings. Hence, the development of forging market is directly related to the development of the automotive industry," In addition to this, forgings find its diverse usage in oil & gas and aerospace sector. This is likely to tower the forging market in the years to come. On the other hand, accessibility of optional metal forming procedure might hinder the forging market in the years to come.

Various product launches by the market players is also one of the major reasons responsible for the development of the forging market. For example, in June 2017, MTI (Metal Technology) managed to launch production-readiness on a state-of- the-art & new forging line at its manufacturing plant in Albany, Ore.

Sharp Development In The Automotive Industry In China And India To Positively Affect The Forging Market In Asia Pacific

The forging market is divided as open die, rolled rings, and impression die based on product section. Impression die ruled the global forging market with more than 60% share in the global forging market in 2015. On the other hand, rolled ring die division is likely to see quickest CAGR growth in the years to come due to its increasing requirement in aviation, automotive, and oil & gas sector, consequently driving the forging market. Aerospace sector ruled the requirement in North America for rolled rings forging market. Asia Pacific in 2015 grabbed the forging market and is inclined to attain limelight in the years to come. Sharp development in the automotive industry in China and India is claimed to positively affect the forging market in this area. India is believed as the most important region for forging market. Some of the major reasons such as tie-ups with the potent automakers and government programs for outsourcing their forged elements add to the development of forging market in this area.

As per the analysts at Zion Market Research, the global forging market was capitalized at USD 57.42 Billion in 2015 and is anticipated to cross USD 86.90 Billion in 2021, developing at a CAGR of 7.2% from 2016 to 2021.

Improving economic conditions: The growth of this market is associated with the economic and market conditions across the globe. Forging companies have developed lean, resilient, flexible, and adaptable operations to sustain the market competition. There is significant growth in end user industries such as aerospace, oil & gas, shipbuilding, construction equipment, and others. This has created high demand for closed die forged components among low cost manufacturing countries such as China and India. The impact of this factor is high in developed countries and is expected to have an impact on the markets in the developing countries in the near future.

Innovation in equipment and process: There has been an increase in demand for complex and innovative products in the fast developing end user market. Equipment suppliers have focused on developing new products with automated closed die forging process. These new machines have the capability to forge extra-large nickel- and titanium-based alloy parts for commercial aerospace applications. The impact of automation on the growth of the global impression die forging market is moderate in the present scenario, but is expected to increase during the forecast period.

Growth in end user industries: The key end user industries in the market include oil & gas, aerospace, shipbuilding, defense, and others. Increase in investments in these industries is expected to propel the demand for forged components. For instance, heavy investment in the oil & gas sector is expected to boost the demand for forged products such as drill heads and gas lift mandrels.

Increasing input costs: The impression die forging market operates under highly challenging market conditions due to volatile material prices and decreasing profit margins. Small- and medium-sized organizations that face difficulty in dealing with surge in prices of crude oil and metal, operate in this segment. However, dearth of skilled manpower could limit the market growth

Company overview:

In order to meet the competitive challenges of the future and achieve its vision, HMFL must fortify itself in several critical areas: technology development and application; energy and the environment; and human resources.

Specific areas in which technological issues need to be addressed include materials, die design and modeling, lubrication, process modeling and optimization software, process controls and sensors, real-time preventative maintenance, and primary and secondary processing equipment.

HMFL have 16 ton Hammer as one of the forging machinery is capable of producing a piece of 750 KG forging. The said hammer is very ideal for different kind of Railway wheels. To strengthen the quality we will be installing state of art heat treatment plant for which sufficient place is available at same location

Beside the above HMFL has taken measures to:

Tooling-Increase die life by at least 2 times that of current levels. Reduce per-part die system costs by at least 50%. Produce tooling within 24 hours from time of order.

Energy-Reduce the total forging process energy input by 20% while cutting the per-piece energy cost by some amount.

Material utilization-Achieve a minimum overall reduction in raw material consumption of 10 to15%. Reduce the scrap rate (increase material utilization).

Productivity-lmprove per-employee productivity by 20%. Reduce per-piece labor costs by 30%. Achieve average forging facility up-times at maximum.

Quality-Reduce rejected or returned work to less than 25 parts per million. Achieve 8 sigma process control.

Environment-Generate no harmful gas combustion products; completely eliminate aerosol emissions within forging plants; and recycle all fluids necessary to forging operations.

Internal Control Systems and their adequacy:

The Company has in place internal financial control systems, commensurate with the size and complexity of its operations to ensure proper recording of financial and operational information and compliance of various internal controls and other regulatory and statutory compliances. The internal auditor monitors and evaluates the efficacy and adequacy of internal control systems in the Company. Based on the report of the internal auditor, respective departments undertake corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions thereon are presented to the Audit Committee of the Board for their perusal.

Financial Performance (Rs. In Lakhs)
Particulars Year Ended March 2018 Year Ended March 2017
Total revenue 10133.36 9630.75
Less: Operating Expenses & Provision 9392.68 8957.46
Profit before Interest, Depreciation & Taxes 740.68 673.29
Less: Depreciation 256.51 276.10
Less: Interest & finance Charges 335.89 308.72
Profit before Tax 148.28 88.47
Less: Provision for Taxation -6.77 61.26
Profit After Tax 155.05 27.21
Other Comprehensive Income 0.13 15.89
Total Comprehensive Income for the Year 0.13 43.10
Balance Brought forward 799.59 772.38
Balance Available for Appropriation 954.75 799.59
Appropriation :
Proposed Dividend for the Financial year - -
Corporate Dividend Tax - -
Transferred to General Reserves - -
Surplus retained in Profit & Loss account 954.75 799.59

During the year under review, the total revenue of the company was Rs10133.36 Lacs as compared to Rs. 9360.75 Lacs during the previous year amounting to an increase of 4.46 %, the PAT was Rs. 155.05 as compared to last year of Rs.27.21 Lacs Companys performance for the year under the review year was improved considerably.

11. Human Resource Management

The company believes that human resource is the most important assets of the organization. During the year under review, your company continued its efforts to improve HR related processes, practices and system to align these to the organizational objectives. Over the years, Company has maintained consistency in its efforts in training and developing its human recourses with a view to face competition.

There was satisfactory co-operation between the management and the workers in working towards the overall objectives of the company.

12. Women Centric Initiatives:

The Company is committed to provide healthy environment to all employees of HFML and does not tolerate any discrimination and/or harassment in any form. The Company has in place a stringent policy in place, to address issues pertaining to female employees and to provide a safe environment for them.

13. Cautionary Statements:

Statements made in the Management Discussion & Analysis describing the Companys objectives, projections, estimates, expectations may be "Forward-looking statements" within the meaning of applicable securities, laws & regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand supply and price conditions in the domestic & overseas markets in which the Company operates, changes in the government regulations, tax laws & other statutes & other incidental factors.

For and on behalf of the Board of Directors
Sd/-
Yuvraj Malhotra
Place: Mumbai Chairman & Managing Director
Dated: 11-08-2019 DIN:00225156