Rexnord Electronics & Controls Ltd Management Discussions.

ANNEXURE - G

ECONOMIC OVERVIEW

Indias Gross Domestic Product (GDP) grew by 6.8% in 2018-19, as per the data released by the Central Statistics Of ce (CSO). The growth is at a 5-year low after 2013-14 when the economy grew by 6.4%. However, India still continues to be the worlds fastest growing major economy.

The World Bank projects Indias GDP to grow by an average of 7.5% in 2019-20 and 2020-21, with investment picking up and consumption remaining strong.

INDUSTRY OVERVIEW

Demand for Electrical Industrial Durables (EIDs) is likely to remain strong with rising disposable incomes and higher market penetration. However, the sector is also witnessing increased competitive intensity with the entry of new players and portfolio expansion by existing players. With rising incomes and aspirations, premiumisation is the buzzword in industrial durables, with premium category products growing faster than overall industry growth rate. Consumers are increasingly seeking better designed and technologically superior products for both comfort and convenience.

The domestic fan market is estimated at 50 million fans per year with volumes growing around 6-7%. Fan is a high market penetration category. Rising urban penetration with increased electrification, higher disposable incomes, faster shift to the organised sector, and the urban replacement cycle getting shorter due to premiumisation are the key growth drivers for the market. Demand for premium fans with better output has been on the rise.

OPPORTUNITIES AND THREATS

Key opportunities:

1. Favourable Macro Economic levers: With focus of Government on electrification and commitment to improve infrastructure and housing and implementation of GST, electrical space is self-assured of growth in time to come.

2. Demography: Emerging middle-class people aspiring for better and improved standard of living, Company is expecting good growth in the future.

3. Distribution: Having pan-India dealer network, Rexnord is in an advantageous position for better growth. On such a wider base of distribution, Company can leverage it to introduce more new products and enter new geographies.

4. Product portfolio: Having wide product portfolio, Rexnord has access to both Consumer and Professional customer category giving superior opportunity to succeed.

THREATS

The biggest challenge facing the Domestic market for Rexnord in India is to have the per capita consumption standards in India at par with the average Global standards. The Government at the centre has however rekindled hope in the Industry by announcing various Infrastructure projects and strengthening the Make in India Movement which will help the Industry move in the right direction.

OUTLOOK

The Indian Refrigeration spares and electrical fans industry is projected to witness a growth of 9%, 11% respectively in FY20. Besides an improvement in consumer demand, factors like rising disposable income, evolving lifestyle habits and reduction in GST rates for everyday essential goods are likely to contribute towards market expansion. Considerable opportunities in Indias overall retail segment coupled with the demographic dividend and rising Internet penetration is anticipated to propel the growth in the sector. Further, rural and urban electrification and rise in rural incomes (including through Governmental support schemes) is expected to expand the market for this sector.

RISKS AND CONCERNS

Risks, challenges and volatility are part and parcel of any industry and always the point of concerns for the management of the Company. Your Company has subdued it through well planned strategies and actions. Your Company is continuously evolving and improving systems and measures to take care of all the risk exigencies involved in the business. All inherent risks are identified, measured, monitored and regularly reported to the management. The management decides measures required to overcome these risks and ensures implementation of proper risk mitigation plans. The risk report and mitigation plans are presented to the Board of Directors periodically

COMPETITION

Your company does everything in its legal capacity to combat competition from direct competitors domestically and overseas. There is presence of direct importers of the same products however that hasnt affected the companys growth aspect because we clearly maintain a quality competitive advantage which places our product in the top quality bracket thereby eliminating any chances of stiff competition.

Your company has always capitalized on its reach and presence in the Indian market. The following strategies have been adopted in order to suppress competition faced from imported products:

1) We have gradually aimed at widening our product base in order to include high profit making products and there thereby increase the turnover of the company.

2) We have also planned in investing in advanced technology in order to produce and provide Low cost and high efficiency products.

3) We also set customer satisfaction in the highest platform by providing customized products to suit the ever-changing needs of the industry and our customers thereby proving an edge over the cheaper competition.

4) The technical competence of our engineers is the key success factor for your organization. Our comprehensive understanding of customers business and his processes, deep know-how of key equipment and applications help us in designing and providing efficient and sustainable solutions far beyond a mere supply of products to our customers.

5) The Company is regularly investing in modernization and up gradation of its production facilities that poised the Company to take maximum advantage of demand of its products.

6) The Company aims at improving its cost management by providing focus on better cost management, reducing inefficiency, improving supply chain and improving productivity so that it can continue to improve its operating performance.

EXPORTS

The previous financial year was steady in terms of exports with a consistent performance and gradual reach in our export customer base. Your company aims at creating more overseas opportunities thereby increasing its distribution network. The primary agenda still remains to be a global player by maintaining excellent quality standards at very affordable prices. Your Company will continue to develop new products and expand the portfolio to get increased share with our customers in focus sectors. Your Company will also aim at increasing brand awareness by participating in Trade Shows and trough intensified advertisement at a global level.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations. The internal audit functions of the company are carried out by a firm of Chartered Accountants. The scope and authority of the Internal Audit function is defined by the Audit Committee. The Internal Auditors reports to the Chairman of the Audit Committee of the Board. The Internal Auditors monitors and evaluates the efficiency and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies of the Company. Based on the report of internal auditors, the Company undertakes corrective action in their respective areas and thereby strengthens the controls. Significant audit observations and recommendations along with corrective actions thereon are presented to the Audit Committee of the Board.

The Company has documented its internal financial controls considering the essential components of various critical processes, physical and operational. This includes its design, implementation and maintenance, along with periodical internal review of operational effectiveness and sustenance, which are commensurate with the nature of its business and the size and complexity of its operations.

This ensures orderly and efficient conduct of its business, including adherence to the Companys policies, safeguarding of its assets, prevention of errors, accuracy and completeness of the accounting records and the timely preparation of reliable financial information. The internal financial controls with reference to the financial statements were adequate and operating effectively.

FINANCIAL AND OPERATIONAL PERFORMANCE:

On Standalone Basis: Your Company achieved a Total Revenue of Rs 6348.68 lakhs as against Rs 5864.46 lakhs in the previous Year. The total expenditure during the Year under review was Rs 5797.71 lakhs as against Rs 5380.42 lakhs in the previous Year. The Profit before tax was Rs 550.97 lakhs as against Rs 484.04 lakhs in the previous year and the Net Profit after tax was Rs 395.81 lakhs as against Rs 344.14 lakhs in the previous Year.

On Consolidated Basis: Your Company achieved a Total Revenue of Rs 6345.35 lakhs as against Rs 5864.46 lakhs in the previous Year. The total expenditure during the Year under review was Rs 5798.48 lakhs as against Rs 5381.08 lakhs in the previous Year. The Profit before tax was Rs 546.87 lakhs as against Rs 483.38 lakhs in the previous and the Net Profit after tax was Rs 391.71 lakhs as against Rs 343.48 lakhs in the previous Year.

SEGMENTWISE PORFORMANCE:

Since the Company operates in only one Segment, hence segmentwise performance is not applicable

HUMAN RESOURCES:

Capability development is one of the five key pillars of the Companys longterm business strategy. It intends to drive this through a strategic focus on on- boarding the right talent, optimising performance, and developing leadership at all levels. It has a culture based on integrity, transparency and empathy.

Your Companys goal is to create a motivating and satisfying working environment, where employees are able to contribute more. It uses a range of tools to measure employee satisfaction on a regular basis. It also believes that a rewarding performance can be a key factor in attracting and retaining capable and talented employees. Your Company is committed to an equal and diverse workforce which is re ected in recruitment, training, career development and promotion practices. Through this, it ensures that all the employees have equal access to opportunities, regardless of their gender, age, racial/ethnic background, religion or social status.

DETAILS OF SIGNIFICANT CHANGES

(i.e. change of 25% or more as compared to immediately previous financial years):

There is no significant change vis-a-vis the previous financial year.

RETURN ON NETWORTH:

The return on networth of the Company has improved in the current year to 11.95% from 11.71% in the previous year.

CAUTIONARY STATEMENT:

Statement in the Management Discussion and Analysis describing the Companys objectives, expectations, estimates 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 due to external factors. Important factors that could influence the Companys 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 incidental factors. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements, on the basis, of any subsequent developments, events or information.