Omax Autos Ltd Management Discussions.

Your Directors have pleasure in presenting the Management Discussion and Analysis Report for the financial year ended on 31st March, 2018.

A. INDUSTRY STRUCTURE AND DEVELOPMENTS

The Indian auto-components industry can be broadly classified into the organized and unorganized sectors. The organized sector caters to the OEMs and consists of high-value precision components while the un-organized sector consists of low-valued products and caters mostly to the aftermarket customers.

The auto-component industry by and large depends upon the automotive industry. Its growth is broadly synonymous with the growth of automotive industry. Indian Automotive industry has been one of the largest automotive industries in the world. Most of the major car manufactures are present and manufacture in India; the Indian Auto Component Industry has become an attractive supplier base for global markets.

Over the last decade, the automotive components industry has registered a CAGR of 14 per cent while exports have also grown at a CAGR of 14 per cent. The growth of global OEM sourcing from India & the increased indigenisation of global OEMs is turning the country into a preferable designing and manufacturing base. The Indian auto-components industry is expected to register a turnover of US$ 100 billion by 2020, backed by strong exports ranging between US$ 80- US$ 100 billion by 2026. The auto-components industry accounts for almost seven per cent of Indias Gross Domestic Product (GDP) and employs as many as 19 million people. India is expected to become the 4th largest automobiles producer globally by 2020 after China, US & Japan and is expected to become the 3rd largest in the world by 2025.

In 2017-18, the industry produced over 29.07 Million Vehicles including passenger vehicles, commercial vehicles, three wheelers and two wheelers as against 25.33 Million Vehicles for the previous year, registering a healthy growth rate of 14.77 percent. In two-wheeler segment, in which the Company predominantly operates, sales registered a growth at 14.80 percent.

In 2017-18, overall automobile exports increased by 16.12 percent. Two and Three Wheelers Segments registered a growth of 20.29 percent and 40.13 percent respectively, while Passenger Vehicles and Commercial Vehicles declined by (-)1.51 percent and (-) 10.53 percent respectively in 2017-18 over the same period last year.

B. OPPORTUNITIES AND THREATS

Optimization of fuel-driven combustion engines and cost efficiency programs are good opportunities for the automobile market. Emerging markets will be the main growth drivers for a long time to come, and hence fuel efficient cars are the need of the hour.

Making strategic alliances can be a smart strategy for Automobile companies. By using specialized capabilities & partnering with other companies, they can differentiate their offerings. Three powerful forces are rolling the auto industry. Shift in consumer demand, expanded regulatory requirements for safety and fuel economy and the increased availability of data and information. Also with the increase in nuclear families, there has been an increase in demand of two-wheelers & compact cars and this will grow further.

Entering new markets like Asian & BRIC nations will result in upsurge in demand of vehicles. After these markets, other markets are likely to emerge soon. Given the increase in electronic content, OEMs need to collaborate with suppliers and experts outside the traditional auto industry. Accomplishing this will require changes in the way OEMs function. OEMs will be looking to their top suppliers to co-invest in new global platforms & this will be the driving force in the future.

Presence of such a large number of players in the Automobile industry results into extensive competition, every Company eating into others share leaving little scope for new players. At least for the passenger segment, fluctuations in the fuel prices remain the determining factor for its growth. Also the government regulations relating to the use of alternative fuels like CNG, Shell gas etc. is also affecting the inventories.

Macroeconomic uncertainty, recession, un-employment etc. are the economic factors which will daunt the automobile industry for a long period of time. Due to the fact that mature markets are already overcrowded, industry is shifting towards emerging markets by building facilities, R & D centers in these markets. But the ROI out of these decisions is yet to be justified.

C. SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE

The Company operates in single segment of sheet metal components and parts.

India has overtaken China to emerge as the worlds biggest market for two-wheelers. Rising incomes, growing infrastructure in rural areas, increase in women commuters have driven the growth. Two wheelers make about 79% of the total vehicle market, based on number of units produced. 2W market in India recorded a healthy growth of 5.83% in 2017-18.

Demand from 2W OEMs, the Company witnessed a marginal growth in turnover. Major factors for low growth are mainly due to high input costs.

The business from CV OEMs has shown considerable growth in the previous year. During 2017-18, the turnover was Rs. 244 Crores as against Rs. 201 Crores in the previous year. The turnover is expected to grow healthily in 2018-19 as well.

As regards Demand of components from passenger car manufacturer witnessed marginal growth in turnover. Sales of these components registered a turnover of Rs. 113 Crores in 2017-18 as against Rs. 104 Crores in the previous year.

Indian Railway is a promising customer for our Company. The Company was able to increase the turnover from Rs. 76 Crores in 2016-17 to Rs. 144 Crores in 2017-18. Most of the growth has come from few products such as Retention Tanks, End walls and Long Hood. The Company is looking at new products for coming years.

D. OUTLOOK

The automobile sector, which saw a revival last year after two years of turbulence, is set to continue the momentum this year with demand picking up across all the segments. The growth of the auto industry is expected to continue in 2018-19 across all vehicle categories-commercial and passenger vehicles, as well as two and three-wheelers. Improving economic growth, robust demand from rural and semi-urban markets and lower cost of ownership have driven sales in previous year. The positive sentiment is driven primarily by the rural and semi- urban demand for two-wheelers and cars, driven on the back of reasonably good monsoons. Pay commission revision will also infuse a huge disposable income to over 1 crore employees. Aggressive expansion plan of cab aggregators will continue giving an impetus to the industry.

The demand of commercial vehicles will be driven by replacement market, construction and mining, increasing freight movement and moderation in fuel prices and firm freight rates, while increased government focus on infra sector will drive the demand for specialised heavy goods vehicles such as construction trucks, mining tippers etc. However, in short term the demand may take time to stabilize due to change in tonnage norms.

With the growth of the automotive industry, the auto component industry is also expected to grow healthily in coming years. The Indian automobile market is estimated to become the third largest in the world by 2026 and will account for more than 5 per cent of the global vehicle sales. The auto components sector has been observing robust growth and turnover is anticipated to reach US$ 115 billion by FY21 from US$ 35.1 billion in FY14. Indias exports of auto components could account for as much as 26 per cent of the market by 2021. Favourable government policies such as Auto Policy 2002, Automotive Mission Plan 2006-2016, National Automotive Testing and R&D Infrastructure Projects (NATRiPs), have helped the Indian auto components industry in achieving a considerable growth. India is emerging as a global hub for auto component sourcing. A cost-effective manufacturing base keeps costs lower by 10-25 per cent relative to operations in Europe and Latin America. Relative to competitors, India is geographically closer to key automotive markets like the Middle East and Europe. Indian auto-component makers are well positioned to derive benefit from the globalization of the sector as exports potential could be increased manifold in the coming years.

The industrys long-term growth prospects in India will continue to be healthy. The management of the Company is optimistic about the outlook of the Company in medium to long term. With reduction in costs and increasing operational efficiency, the Company is expected to perform reasonably well in 2018-19.

E. RISKS AND CONCERNS

The Company is an automotive component manufacturer; hence, its business is largely dependent on the health of the automotive sectors. The health of automotive sector and auto component sector is dependent on various factors viz. general economy of the country, global economy, disposable income with consumers, interest rate, fuel prices, finance options, regulatory norms, input costs etc. Negative trends in any of the above factors may hamper the business prospects of the industry and the Company as well.

The Companys customer base is not very broad. The management is putting its best efforts to widen its customer base. As a significant part of Companys turnover comes from very limited customers, any significant business risks to these customers can have consequent impact on the Company. Lack of business presence in some key locations may be a concern in future. The Company has majority business presence in North India. However, OEMs might shift their manufacturing base to other parts of India, due to strategic reasons. It may not be always feasible for the Company to shift its manufacturing base to other locations. Hence, the Company carries the risk of low geographical presence.

The Company being an auto component manufacturer, it uses Steel and Cast iron as major raw materials. Prices of these raw materials used in manufacturing auto components have become increasingly volatile in recent years. The auto component manufacturers typically have low bargaining power and find it difficult to pass on the price increases to the price-sensitive customers. An increase in the price of these input materials could severely impact the profitability of the Company.

The Company is largely into the business of manufacture of automotive components. This sector has always been very competitive. Lack of diversification into new business segments may also have impact on the future prospects of the Company.

The Company currently has a sound product base catering to the demand of the customers. Considering the fact that technologies are changing very fast and new products and technologies are being developed rapidly, the Company will also face the risk of new product development or new technology development. The business of the Company may hamper if Company fails to keep pace with the new product or technology requirements of its customers.

F. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

For the purposes of effective internal financial control, the Company has adopted various policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to the Companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information.

In respect of adequacy of internal financial controls with reference to the Financial Statements, the Company has, inter alia, established various control systems which have been already reported in the last Annual Report. There have not been any significant changes in such control systems. The control systems are reviewed by the management regularly. The same are also reviewed by the Statutory Auditors and Internal Auditors from time to time. The Company has also adopted various policies and procedures to safeguard the interest of the Company. These policies and procedures are reviewed from time to time. There has also been proper reporting mechanism implemented in the organization for reporting any deviation from the policies and procedures. Compliance audit is also conducted from time to time by external agencies on various areas of operations.

G. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The financial performance of the Company during the year under reference was not upto the expectations. The Company managed to clock a marginal increase in turnover compared to previous year and similarly marginal increase in PBT to Rs. 0.57 Crores compared to Rs. 0.15 Crores for the previous year. Operationally also Company had a reasonable year during 2017-18. There was no major setback for the Company during 2017-18. There were few IR issues in some of the plants during the year. As part of consolidation program, the Company has closed down fully/partially some of its plants. Overall, the operational performance of the Company was reasonably satisfactory during 2017-18.

H. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED.

The Company recognizes the importance of human values and ensures that proper encouragement both moral and financial is extended to employees to motivate them. The human resources received commensurate attention during the year considering the growth of the organization and the need arising therefrom. There were few IR issues in some of the plants which hampered the operation to some extent. Otherwise, the Company had generally cordial relationship with its human resources.

The Company has initiated many programs on up-skilling / training its manpower. As an ongoing exercise, the Company has continued to look at, identify, create and execute seamlessly, initiatives which enhance productivity and efficiency. The Company continues to invest in people through various initiatives which enable the work force to meet the production requirements and challenges related thereto and to infuse positive enthusiasm towards the organization. The Companys strength of employees stood at 1442 as on 31st March, 2018.

Cautionary Statement

The statements in the "Management Discussion and Analysis Report" section describes an optimistic approach of the management regarding the Companys visions, strategies, objectives, projections, estimates, expectations and predictions. These may be "forward looking statements" within the meaning of legal framework. However, the annual performance can differ significantly from those expressed or implied, depending upon the market conditions, economic and climatic conditions, Government policies and other incidental factors.