Scooters India Ltd Management Discussions

SCOOTERS INDIA LIMITED ANNUAL REPORT 2011-2012 MANAGEMENT DISCUSSION AND ANALYSIS (A) Mission, Vision & Objective Vision: To improve the performance of the company so as to be competitive and profitable through constantly improving existing products, adding new products and expanding customer base. Mission: To fulfill customers needs for economic and safe mode of road transport and quality engineering products through contemporary technologies. Objective: - To achieve 10% increase in production. - To achieve 5% decrease in cost. - Rationalization of Manpower. - To reduce energy input per unit of production. (B) MARKET SCENARIO (i) The total number of 3-wheelers produced and sold in the domestic market by manufacturers in India during the year 2011-12 as against 2010-11 is given below : Category Production Segment/Sub-segment Apr.10-Mar.11 Apr.11-Mar.12 Passenger Carrier 696,984 767,173 Goods Carrier 102,569 110,538 Total : 799,553 877,711 Sales Passenger Carrier 425,358 406,236 Goods Carrier 100,666 107,015 Total : 526,024 513,251 Note : Sales excludes Export of 269,968 Nos. in 2010-11 and 362,876 Nos. in 2011-12. Source-SIAM Scooters India Limited has been a pioneer in bringing out various models of 3-wheelers running on diesel, electric and CNG for application as both passengers and load carrier versions. Company has played an important role in popularization of 3-wheelers of larger capacity in the country. With focused efforts and approach, SIL has achieved highest ever sales of 17,569 nos. in 2011-12. This is an increase of 25% over the sales made in 2010- 11 whereas the domestic market of three wheelers has shown negative trend (-) 2.43% compared to previous year. This has also resulted in increasing the SIL market share from 2.67% in 2010-11 to 3.43% in 2011-12. The company continues to be the leader in larger capacity of vehicles i.e. passenger carrier (6+1) segment and goods carrier exceeding 1 ton of vehicles. The market share of company is 59.1% in 2011-12 (SIL sales 6,904 of vehicles out of 11,685 nos.) (ii) 3-Wheeler growth drivers in future are as under : - Rapid development of infrastructure and focus of both Central as well as State Govt. on infrastructure mainly on roads, the demand of 3-wheeler may see an upward trend in coming years. The demand driver for 3-wheeler are its affordability as an economical viable transport solution, however, the demand for 3-wheeler passenger carrier depends by availability of permits issued by Local RTOs. - Increased demand from semi-urban & rural areas for 3-wheelers because of its high product manoeuvrability and drivability. - Suitability of 3-wheelers for congested Indian roads and tropical conditions. - Self employment opportunity for a large no. of youths especially with the Govt. focus on various schemes for the unemployed youths. - 3-wheeler of smaller capacity are in great demand in load carrier segment because of increase in organised retail marketing across the country which requires faster and cheaper transportation. - 3-wheeler is a low cost transport solution to daily commuting passenger. Hence the market for 3-wheelers shall continue to be there because of higher cost of transportation in other modes of transport like taxi, contract carriages, buses etc. - 3-wheelers are also better earning opportunity for unemployed youths. With a minimum expenditure i.e. Rs. 45,000 - Rs. 50,000 (margin money) one can start earning Rs. 300 - Rs. 400 per day right from the day one of purchasing a new 3-wheeler. (C) Resources and Liquidity : In view of the continuing cash losses, the companys liquidity position was under strain. (D) Quality : Your company is an ISO 9001 : 2000 company. The company has taken several initiatives including manufacturing of no problem vehicle and up-gradation of its products to ensure that the best quality products are made available to its customers. Vehicle reliability has improved significantly which has generated goodwill leading to better sales. (E) Opportunities & Threats : E.1. Opportunities : - Growing automobile sector including three-wheelers. - Untapped markets-Rural, South, West & Exports - Developing hub and spoke transportation model. - Increasing allocation of funds for proverty alleviation under various Govt. Schemes like PMRY, SC/ST, NREGA etc. - Rapidly growing awareness about vehicular pollution leading to policy formulation for increase use of alternate fuel vehicles. - Options for technology infusion. - Rapidly growing network for CNG/LPG supply. E.2 Threats : - Increase in product substitution effect by rapidly growing 4 Wheel Small Commercial Vehicle. - Increased competition both from organized and unorganized players. - Strict enforcement of the pollution norms and Passenger Vehicle permits. - Increased customer expectations. - Rising interest and fuel cost could dampen demand for companys products. - Volatility in Raw Materials prices/input and difficulty in passing on cost increase. (F) Future Outlook : i) Challenges faced by the Company : - The need for consistency in quality demands for enhanced investment in R & D and upgradation of plant & machinery. Existing over-lived plant & machinery is a cause of concern. - Manpower cost in the company is still high and so is the average age profile of the employees. While your company needs to reduce its manpower cost at the same time it also needs to infuse fresh blood. - Retention of young officers who joined in the last couple of years is difficult as private/ other PSUs are offering substantially higher remuneration. Young executives are regularly leaving for greener pastures. - Though 3-Wheeler as an industry continue to grow but increase in competition and availability of 4-Wheelers in 1.0 ton and sub 1.0 ton category is expected to aggravate the extremely competitive scenario and impact the volumes & margins. - Strict regulatory laws concerning pollution and their strict implementation by banning sale of diesel vehicles in certain states shall act as deterrent for company growth. - SIL has lesser presence in small 3-wheeler segment which has strong market preference. In this segment contribution is lower and competition is higher as established players viz. Piaggio, Mahindra etc. dominate the market. - Employees aspiration for effecting revision in salary and wages and increase in retirement age from 58 to 60 years. (ii) Strategic Road Map : Although there has been negative growth in three wheeler segment of Auto sector in India, the performance of your company has improved considerably in comparison to the previous year. Monthly production of vehicles has shown significant improvement. Your company is evaluting various new product development options to cater to various market segments with a view to higher production and sales. (iii) Status Before BIFR On 18th February, 2010, BIFR has declared the Company as sick industrial company in terms of the provisions of section 3 (1) (o) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) on reference being made after full erosion of the Networth of the Company, as per annual accounts for the year ended at 31st March, 2009. Last meeting of BIFR was held on 16th July, 2012, and the next meeting is scheduled on 3rd October, 2012. The Business Plan for revival of SIL is under consideration of GOI. INDUSTRIAL RELATIONS : During the year under review, that is 1.4.2011 to 31.3.2012, the industrial relations in the Company continued to be under stress mainly due to non fulfillment of employees aspirations. The aspiration of employees regarding Wage Revision and retirement age could not be fulfilled due to Companys financial health. VIGILANCE : Vigilance Group continues to function with particular emphasis on the aspects of preventive and corrective vigilance. Strict vigil was exercised over various activities as part of Preventive Vigilance measures and suggestions were made to Management for system improvement. Company also observed Vigilance Awareness Week from 31.10.2011 to 05.11.2011. HUMAN RESOURCE DEVELOPMENT : Employees of the Company are the most important constituent and Company understands that without their motivation and development Company can not progress. The Company has been analyzing developmental needs in technical and managerial areas and provides requisite training and exposure to the employees at all levels in the area on Professional Excellence through Motivation, Advance Engine Combustion & Diagnostics, Competence Building for Effective Management, Healthcare Services, Part Programming for CNC Machines, Leadership Strategies for Building Excellence, Quest for Excellence Imperatives for India PSUs, Health, Safety, Environment Protection through Legal Reforms & technological Innovations, Building & Leading Effective Teams, Safety Engineering & Management, Value Based Management, Legal framework for Cost Audit Compliances, Cost Accounting Record Rule 2011 & Cost Audit Report Rules 2011, Finance for Non-finance Executives, International Commercial Practices, Energy Conservation, House Keeping etc. HINDI IMPLEMENTATION : Official Language implementation Committee monitors and reviews the progress of implementation of the Annual Programme issued by Department of Offical Language, Ministry of Home Affairs, Government of India. Hindi Divas is commemorated every year by observing offical language week in the month of September. Various competitions are organized for employees and winners are felicitated on Republic Day.