Panasonic Appliances India Company Ltd Management Discussions

OVERVIEW OF ECONOMY

The Indian economic landscape reflected signs of slow recovery as an offshoot of proactive measures taken by the Government in addition to correction in commodity prices. Increased inflows from FIIs together with decreasing crude prices helped in stabilizing foreign exchange reserves, containing inflation and narrowing the current account deficit. The Reserve Bank of India which had tightened the monetary policy to create a buffer against external shocks, contain demand pressures, and manage volatility in the rupee also undertook a reversal with reduction of rates during the year to encourage growth. During the year, India’s GDP growth forecast was revised upwards to 5.6% from 5.4% in contrast to the contracting global forecast. Economic growth rose to 5.2% as against 4.7% last year as a result of the improving macro-economic situation. However, meeting the fiscal deficit target continued to remain a challenge.

During the year under review, the Indian Rupee saw a range bound stabilization against the dollar. A range of investor friendly measures reflected the new government’s pro-reform agenda and has stimulated a burgeoning investor confidence. However, the slow pace of reforms, high interest rates, lack of impetus for infrastructure projects, and tightening of fiscal policies adversely impacted the capital goods sector. Industrial production and output was also sluggish. Investments in the manufacturing industry continued to be affected by growing rates of interests and slow project implementation which resulted in lower capacity utilization.

Your Company’s performance for the year 2014-15 has to be viewed in the context of the aforesaid economic and market environment.

Business Review

The operating environment for the manufacturing industry was no different from that of the macro economy. During the year under review Your Company was able to record a profit of Rs. 41.44 lakhs making it the first profit to be recorded for a financial year ending since 2011-2012. Your Company was able to marginally increase its gross sales which stood at Rs. 208.33 Crores as against Rs.176.48 Crores in the previous year. The Company recorded a profit of Rs. 41.44 lakhs as against a loss of Rs. 343. 11 lakhs incurred in the previous year as a result of continuous efforts by the Management to reduce finance costs and operating cost coupled with increase in sales.

The Company through various cost reduction measures as well as strategic initiatives was able to significantly reduce the amount of losses. A more unified approach to sourcing and a combined effort from the Management enabled the Company to achieve significant material cost reduction. Uncertain economic situation, a volatile domestic currency, high cost of borrowing, high level of inflation etc., were some of the major impediments for the growth of the economy and your Company during 2014-15. Your Company adopted various financial strategies and several marketing schemes during the year.

Your Company was able to increase the export sales considerably during 2014-15. The Company leveraged its expertise and experience to expand presence in its existing markets. Exports witnessed a healthy growth through enhanced focus on subcontinent markets. The Company reported an all-time high growth in export orders and initiated export to several countries including Philippines, USA, Mexico etc. Focused market development activities resulted in opening up untapped export potential. In an effort to expand its product range and add value to the customers’ business, your Company introduced the ‘Ultimate super wet grinder’ in November 2014.

In addition to strengthening its international presence, your Company also strengthened and stabilized the domestic market in addition to expanding its existing network of distributors, dealers and retail touch points and made inroads into new markets by innovative brand awareness campaigns.

Your company has ongoing significant turnaround and growth strategies under execution and continues its efforts to expand its product portfolio. Recent introductions of the ‘Ultimate super wet grinder’, big capacity cookers and Spectra range of rice cookers in addition to the range of imported small kitchen appliances are some of the major measures undertaken to increase market penetration.

Outlook on Opportunities, Threats, Risks and Concern

In 2014-15, the Indian economy regained its position as one among the fastest growing economies due to measures taken to control inflation, decline in price of oil, reversal of monetary policy, and other commodities as well as initial set of reforms by the newly elected government. The Indian kitchen appliance industry is steadily moving upwards. Your Company had initiated several steps for improving sale of its products. This together with the several cost reduction measures adopted by the Company should help in augmenting performance results for the current year.

The low economic growth appears to have bottomed out and the market foresees a steady increase in economic activity in the year 2015. Against the backdrop of the Government’s determination to bring in reforms, the medium term to long term growth prospects look positive. The economy is expected to grow at a higher rate in 2015 than in 2014. The long term prospects for the economy are optimistic.

For kitchen appliances sector, the overall consumer sentiment continues to remain muted influenced by factors such as weaker consumer confidence, lesser growth in rural markets and decreasing disposable incomes.

The global economy is slowly recovering, with consumer sentiment showing signs of improvement in larger markets and advanced economies. Confidence amongst consumers is increasing, particularly with a stable government at the centre and is generating the much needed boost to investor sentiment and reviving the private investment cycle in particular. The Company is working to increase its manufactured product portfolio keeping in view the changing market aspirations. The strong foundation of the Company coupled with the reputation it has to manufacture High Quality products and deliver services which meet customer expectations is your Company’s major strength. The fact that your company has a wide network of after sales service centers across the country, with reduced competition from Chinese players and with the kitchen appliances market in India growing at a steady pace, there is a lot of opportunity to increase the sales of the products of your company.

Your Company still continues to retain its dominant position in the Electric Cooker segment and is looking to increase its market share with NextGen automatic cookers in a variety of colours and capacities. Your Company also showed a steady growth in Mixie sales especially in the International Market.

Products’ Quality continues to be the strength of the Company and with a shift happening among customers in their preference from low quality to high quality branded products, your Company stands to gain.

The negative sentiment prevailing in the economy, slow down in employment affecting income level of people and an increasing competition due to entry of new players-foreign as well as regional in the kitchen appliances segment are a matter of concern. The inflationary trend in India which is likely to have a negative effect on the disposable income of individuals can also affect the Company’s margins/turnover. The unprecedented and prolonged economic slowdown in the national economy which is only slowly recovering and weak consumer sentiment continue to remain challenges for your Company growth among the rest. Your Company will keep a constant watch over these developments and take such remedial measures as may be necessary.

Risk Management

Risk Management refers to a series of measures to recognize, confirm, evaluate and prioritize risks and establishing measures to respond to such risks in advance, to prevent the occurrence of or reduce such risks, or to minimize the damage caused when such risks occur. Your Company follows the risk management policy globally adopted by all Panasonic companies where it is committed to ensuring the achievement of its business plans by adequately promoting risk management and appropriately responding to risks that could impede the accomplishment of its business goals, with the aim of achieving a sustainable and steady growth of business. The Company has laid down procedures to inform Board members about risk assessment and minimization procedures. These procedures are periodically reviewed to ensure that the executive management is controlling risks through a properly defined framework. Major risks identified by the businesses and functions are systematically addressed through mitigating actions on a continuing basis. The Company’s risk management policy is backed by strong internal control systems.

Internal Control Systems and adequacy

Your Company has a proper and adequate system of internal controls to ensure that its assets are safeguarded and protected against loss and from unauthorized use and to ensure that transactions are authorized, recorded, and reported correctly. The internal control systems are commensurate with the nature of business and the size and complexity of operations. The internal control systems are supplemented by internal audits by an external auditor and periodic reviews by management. The adequacy of the internal control systems are regularly tested by the Statutory as well as Internal Auditors. The systems and procedures are constantly upgraded to suit the requirements.

Human Resources

Human Resource Management, work place safety and employee welfare have always been given utmost importance in your Company. The Company will continue to strengthen employer-employee relationship by providing a conducive working environment and offering a competitive compensation package. Imparting adequate HR training programmes and specialized trainings to the employees of the Company is an ongoing exercise. The workforce management strategy was executed optimally to deliver a sustained utilization rate throughout the year helping business grow while maintaining employee costs at the desired level. The industrial relations in your Company continued to be cordial. The Company has 280 permanent employees as on March 31, 2015. Attrition rate stood at 4.3%.

Disclaimer Clause

Statements in the Management Discussion and Analysis Report describing the Company’s objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could affect or influence Company’s operations include global and domestic supply and demand conditions affecting selling prices of finished goods, input availability and prices, changes in government regulations, tax laws, economic developments within the country and other factors such as litigation and industrial relations.