National Fittings Ltd Management Discussions

TRENDS & DEVELOPMENT

Company will take steps to increase the selling price for the products and proposes to utilize the balance capacity for manufacturing of components for the pump, valve and automotive segments of the market.

SIGNIFICANT CHANGES

There are no key changes (more than 25% than in previous financial year) in debtor, inventory turnovers ratios, current ratio and debt equity ratio.

Operating profit margin and net profit margin were decreased by 100% due to increase in input costs and total withdrawal of export incentive by Government of India. Hence the interest coverage ratio also marginally changed.

As indicated above Return on Net Worth was also got affected compared to previous year.

Ratios are detailed in Note 2.30 of the Notes to the Financial Statements.

RISK MANAGEMENT

Potential risks for the company and steps to handle them have been reviewed regularly. Following are few risks and methods to be adopted to handle them.

1) Market Risk

The Company is facing continued competition from Chinese manufacturers for its products in the export market.

Companys products are well accepted in the domestic market and any decrease in exports due to Chinese competition will be offset by increase in domestic market. Manufacturing components of casting for the domestic market will increase the potential to utilize the unused capacity and also profitability.

2) Manpower

Non-availability of qualified labor force remains as a challenge to increase production. More of the operations are being mechanized to reduce labor.

Proposal to increase production of components to pump, valve and automotive segments will require less labor than the present product line.

Company maintains good relationship with labor and provides acceptable infrastructure and facilities.

3) Raw Material

Increase in input costs due to abnormal price increase in raw-materials will impact margin. Company is taking steps to improve productivity without increase in the cost of operation.

4) Exchange Risk

Foreign currency to rupee exchange rate will continue to be beneficial to the Company during the current year. Steps are being taken to select export markets where prices are better due to nonacceptance of products from China.

Company will increase its sale of exports marginally and concentrate more on domestic market sale to reduce the impact of exchange rate volatilities.