Stone India Ltd Management Discussions

1. Industry Structure and Developments

The global economy experienced many challenges in the fiscal year 2016 with weak growth and divergent monetary policies in economies of the many countries. There was slowdown in China as well as significant drop in the commodity prices. However, the Indian economy continued to make moderate progress during the year with improvement in key macroeconomic parameters. The Indian economy with the benefit of lower crude oil and commodity prices could keep twin deficits of fiscal and current account under control.

Further, with Indian Governments determination to improve the infrastructure in the country as a whole, Government is gradually increasing productive investments on road, railways and defense sectors in this fiscal.

The operating ratio of Indian Railways also improved to 90% compared to 94% of the earlier year. The total freight tonnage carried by Railways in the financial year under review is 1107 Metric Tonnes compared to 1095 Tonnes in 2014-15. The meagre growth in Freight traffic is due to gradual erosion of freight traffic of Railways to the Road Sector.

The Companys order booking for the year was Rs 107.15 crores in the year under review compared to earlier order booking figure of Rs 124.70 crore in the year 2014-15.

The Companys sales figure for the year was Rs 100.79 crores in the year under review compared to earlier sales figure of Rs 85.05 crores in the year 2014-15.

The company continued to focus more on Metro Railway Segment and also for Bio-Toilets for the stationary application. Both these sectors contributed a sales of Rs 15.84 crores in this financial year under review.

In the new product category of Railway Sectors, orders were booked for supply of 4.5 KW ERRUs,25 KW ERRUs, Fault Diagnostic Control Systems as well as for Air Spring Control Equipment. Special focus has been given to maximize the Spares sales of all categories of Railway products.

For the year under review, the company had further consolidated its Export business for export of Railway equipment to Vietnam, China. Malaysia and Sudan. Further, some token exports of Bio Toilets were made to Mynamar.

2. Opportunities and Threats 2.1 Opportunities

Your company emphasized to book orders for new products as well as wanted to consolidate and maximize the order booking for the Spares of all conventional products of the company.

During the year, company has been able to book good orders for all the products. Overall there has been a growth of Spares orders to the tune of 24.39%compared to the last year. The prices of all conventional Railway products improved over 2014-15 level except for Pantographs, Pantograph spares and Air Brakes. For other products the marginal price increases were obtained.

2.2 Threats

As reported last year, the prices for Pantographs for all types of application i.e. Pantographs for Freight Locomotives, Passenger Locomotives as well as for EMU sectors decreased further due to uneven competition in the market. Bulk production of Pantographs were undertaken in companys Nalagarh Unit to offset this price loss to a certain extent.

As reported earlier, the Slack Adjuster business for OEM had become zero for the newly manufactured wagons as Railways have switched on to BMBS system for the newly manufactured wagons.

Diesel Locomotive Works Varanasi and Chittaranjan Locomotive Works have switched on to the advanced computer controlled Brake Systems in totality and this has affected the business of Panel Mounted Brake System to a great extent. However, Company is trying to keep this business alive by booking orders for conventional Panel Mounted Brake system orders for Nalagarh Unit for supply to Diesel Modernisation Works, Patiala.

Compared to the last year we booked more orders for Air Brakes for Wagons in the current year under review but prices remained unattractive as Air Brakes Industry has a high capacity compared to the demand.

3. Segmentwise or Productwise Performance

For the financial year 2015-16, the following are the performance figures for our main products.

3.1 Railway Products

a) Train Lighting Alternators

The market share has been retained to the level of 11 to 12 % for both 4.5 KW Alternators as well as for 25 KW. Prices for both varieties were stable and efforts are being made to increase the prices further in the year 2016-17.

b) Critical Loco Brake Valves

The market share was retained at 50%. Price increases obtained to the level of 3 to 4 %.

c) Air Brakes for Wagon and Coaches

Market Share for Freight Wagon was low around 7 to 8% and market share for Coach Air Brakes maintained around 10%.As prices for Wagon Air Brakes were low we have not done bulk order booking.

d) Pantographs

Market Share maintained around 65% for Freight and EMU application Pantographs. Though prices were low company has been able to book orders based on Nalagarh supplies which will reduce the loss of margin to certain extent. No fresh orders were booked for High Speed Pantographs as prices were totally unremunerative.

e) Slack Adjusters

Market Share maintained at 50 to 55%.Price level increased to about 5% at Zonal Railways.

f) Panel Mounted Brake System for Locomotives

Market Share maintained at 50%. Nominal price increase of about 3% was achieved for Diesel Locomotive Brake System Panel but there was no increase of prices for Electric Locomotive Brake System Panel.

g) Rolling Stock Spares Business

A defined focus had been accorded to this business by constituting a "Spares Group" headed by a senior Marketing personnel supported by a team of personnel from Manufacturing and Materials Management to increase the turnover substantially for this group. The prices of Pantograph spares have become too competitive but for the rest of the spares reasonable price increases were obtained.

h) Air Dryers

Your company booked orders for 372 nos Air Dryers for Diesel and Electric Loco application as well as there was a record order booking of Air Dryer Spares to the tune of Rs 446.63 Lakhs.

4) Outlook

Considering that higher outlay of funds been allocated in the Railway Budget duly supported by a considerable increase of Gross Budgetary Support from Finance Ministry to Railway Ministry it is expected that there will be considerable increase in the demand of the companys conventional products like Train Lighting Alternators, Pantographs as well as for Wagon and Coach Air Brakes. All Railway Manufacturing units have been accorded higher target of production for Coaches as well as for Locomotives.

However, as far as the Wagon procurement is concerned, the situation has not improved much and orders for Wagons have been finalized but the prices at which orders were finalised was not very attractive.

Company had been able to complete the trials of Bogie Mounted Brake System for Wagons in the second quarter of 2015-16 but the process of getting approved as a registered supplier got delayed as Railways decided to amend the specifications withdrawing certain restrictive clause only by late 2nd quarter of 2015-16. Company is actively pursuing the registration process for getting registered as an approved vendor and we expect that this process will be completed by end of 2nd quarter of 2016-17.

In addition, Company is pursuing the development of Computer Operated Brake Systems for new generation 3 phase Electric Locomotives against the orders as received in the year 2014-15.

In order to offset losses of market share of conventional products company had decided to concentrate on the development of EP Brakes for EMU and DEMU Coaches, The Company had already executed orders for 2 rakes for DEMU for BEML in 2015-16.

Further, the company is following up with ICF Chennai for fitment of EMU Brake Systems as well as DEMU Brake Systems so that your company can get approval as registered supplier for EP Brake System.

The Company expects that EMU and DEMU Brake System will be a major growth area in future as Central Government had given lot of stress to develop the tier two cities

5) Risks and Concerns

As explained earlier there has been erosion of margin due to undercutting of the prices of Pantographs. Some recovery has been made by supplying these Pantographs from Nalagarh unit.

As a business strategy your company will try to maximize the sales of Freight Locomotive and EMU Pantographs from Nalagarh Unit.

Railways have decided to stop the production of conventional Electric Locomotives type WAG 7 and WAP4 during the year which had adversely affected company’s business for Panel Mounted Brake Systems, Vigilance Control Devices as well as for Fault Diagnostic and Control Systems to CLW Chittaranjan. In addition, Railway Ministry had not yet reversed the decision of stopping the orders of Conventional Electric Locomotives with BHEL Jhansi which had also affected companys sales for the above products to BHEL Jhansi.

In addition, Railways have decided to stop orders for conventional Main Line Coaches as well as for Main Line EMUs and MEMUs and DEMUs which also affected the sales of Coach air Brakes, EP Brake System and Pantographs to BEML, Bangalore.

6) Internal Control Systems and their adequacy

The company has a well structured internal control system as well as mechanism and the same is monitored by the Internal Audit conducted by an external professional audit firm, which independently reviews and strengthens the control measures. The Internal Audit team regularly briefs the Management and the Audit Committee on their findings and also on the steps to be taken with regard to the deviations, if any.

7) Discussion on Financial Performance with respect to Operational Performance

(Rs. in Lakhs)

Particulars	2015-16	2014-15
Total Income	10895.56	9321.91
Sales (Net)	10100.55	8500.77
Profit after Taxation	(23.58)	(528.71)
Net Cash from Operations	492.15	691.45
Basic EPS (Rs per share)	(0.25)	(6.43)

8) Business Development

The major achievement of the company in the year under reporting is to book and consolidate the business for both 4.5 KW as well as 25 KW ERRUS. The company received orders for 454 nos of 4.5 KW ERRU as well as orders for 136 nos 25 KW ERRUs which is an all time record for the company. The company could upgrade itself to the new design of ERRUs for both 4.5 KW as well as for the 25 KW during the year under review.

The company added one more feather in the cap when the trials of the 50 sets of Bogie Mounted Brake Systems for Indian Railways as earlier supplied for one rake of BTFLN Wagons completed the rigorous trials of more than 18 months in the difficult field conditions. The design of these Brake Systems were developed in house by companys R&D team.

The company had now applied for regular registration as an approved vendor and expect to get the approval of the same in the coming financial year 2016-17.

The Companys prototype Fault Diagnostic and Control System for Version 3 for Conventional Electric Locomotives got the approval from RDSO, Lucknow and Company could supply 6 such systems to Indian Railways in the last financial year. The Company received further orders of 3 sets in the year under review. The Company expects further repeat orders for this niche Electronic product in the future as Indian Railways is firming up plans to retrofit these systems in the existing fleet of Conventional Electric Locomotives.

Company at the moment is developing an upgraded design of High Reach Pantograph with Air Bellows but the development got delayed as Company did not have a technology partner for this high technology product. A suitable technology partner for this product has been identified in the year under review and it is expected that by 4th quarter of 2016-17 company would be able to get an approval as registered supplier for this product. This product will have a substantial potential as new generation Electric Locomotives to be manufactured by ALSTOM also will use such High Reach Pantographs.

The Company continued to pursue the development of Computer Operated Brake System for Electric Locomotives and substantial progress has been made for this project. The Company expects to offer the prototype to CLW, Chittaranjan by 3rd Quarter of 2016-17. The Ministry of Railways have already awarded contract for supply of 1000 nos High Horse Power Electric Locomotives to ALSTOM and 100 nos High Horse Power Diesel Locomotives to GE. The development of these Brake Systems will help the Company to introduce this product for these future generation locomotives.

During the year, the Company supplied 2 rakes of DEMU Brake Systems to BEML Bangalore and those have been successfully installed and commissioned. These Brake Systems were designed in house R&D team. With such successful execution of EP Brake Systems the Company will try to further consolidate their market share for this product as the production of EMU and DEMU Coaches will substantially increase in the near future.

The Company continued its effort to develop Permanent Magnet Alternators for LHB coaches. While the alternator has already been successfully tested, the Controller is in advanced stage of development with the help of a reputed university.

During the year, the Company had been upgraded as PartI vendor for supply of Air Spring Control Equipment. This had generated a business of Rs. 352.16 Lakhs in the year under review. This product is also having good potential as it is being used in all EMU and DEMU Coaches and plans are also on anvil to use the same for LHB Coaches in future. These will be used for all the rolling stock which will use Air Springs in their suspension.

9. ESCALATORS & ELEVATORS

The Company formed a consortium with Shenyang Brilliant Elevator Co., Ltd., China, for participating in bids for Escalators and Elevators for selected market segment in India. The Company participated in bidding at Delhi Metro, Kochi Metro, Lucknow Metro in aforementioned product segment. The Company was successful in acquiring prestigious contracts from Lucknow Metro for Heavy Duty Escalators worth INR 20.61 Crore and from DMRC Greater Noida Project for Machine Room Less Elevators worth INR 16.87 Crore. During the year, the Company successfully acquired orders from Indian Railways for supply of Heavy Duty Escalators worth INR 17.22 Crore also.

10. PLATFORM SCREEN DOOR/GATE

Company in consortium with NRT & Co. of Korea is executing the first order valuing Rs.78.83 Crores at DMRC, New Delhi. During the financial year 2015-16, Company booked turnover of Rs. 11.73 crores on account of Platform Screen Doors.

11. BIO TOILETS

Another major initiative taken by your Company is to revolutionize hygiene and sanitation in the country, which is the crying need of the hour, as India loses more than 6 % of its GDP due to spread of diseases from Open Defecation . Your Company has designed and developed Biological Toilets which converts human waste into non toxic non contaminating water through multi strain aerobic bacteria culture in a multi chamber bio digester tank. The path breaking technology has been supported and validated by the Ministry of Science and Technology and is featured on the websites of Ministry of Drinking Water and Sanitation and Ministry of Urban Development. This product is also approved by CII for rural schools

1. Total installations as on 31.03.16 is 3264 units. all over India at construction sites, Labour colonies, Village communities, Village homes, Urban slums, Construction Sites, Railway Platform, Tea Gardens, Schools under CSR projects etc. Turnover for bio toilets during the financial year 2015-16 stood at Rs 457.32 Lacs.

2. Several proposals being processed with State Governments, Corporate CSR, International Donor Agencies, Global NGOs and Foundations and MPLAD funds etc.

3. Many breakthroughs round the corner for new areas like Fair Grounds, Marriage Venues, Beaches, Islands, Railways, Warehouses, Disaster Sites, Girls Schools and Houseboats etc.

4. Railways are reconsidering fitment of our bio toilets for LHB coaches and have already started installing Bio Toilet Blocks on Railway Platforms.

13. SOLAR PROJECT

Your Company has also taken a decision to diversify into Solar Energy Projects to address the power deficit problems in the country. The R & D Department, recognized by Ministry of Science and Technology, has developed Solar Micro inverter for both Off Grid and Grid Connected applications

1. Design and prototype manufacturing in process. Further modifications and extensions of the product conceived taking into account market requirements and trends.

2. Testing & certification of the product as per international standards which are essential for obtaining subsidy & empanelment for solar projects is in progress. First phase of testing over, however, testing of modified and extended versions in progress.

3. Simultaneously your Company is in the process of lining up various pilot projects to validate the technology.

4. Your Company shall embark on the commercial projects only after validation of technology & Satisfactory operation through pilot projects.

14. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS FRONT INCLUDING NUMBER OF PEOPLE EMPLOYED:

Your Company lays significant importance for all round development of its Human Resources with special emphasis to train the employees at all levels to enhance their effectiveness in their contribution to the overall performance of the Company through skill up-gradation, knowledge improvement and attitudinal change. These enable the employees at all levels to cope with the competitive environment through which the Company is passing at present and to achieve the desired corporate objective. Regular training program are organized in order to improve the skill of the existing employees by improving their domain knowledge as well as their attitude and behavior.

Your Company is further improving on the performance of management process system, which identifies the Key Result Areas (KRAs) for employees at different management levels. The KRAs are designed to ensure the overall alignment of individual and group performance with the Companys business and growth strategy. The process identifies training and development needs of employees and develops career tracks for high performers.

The industrial relations climate in your Company continued to remain harmonious and cordial. Various welfare measures and recreational activities continue to sustain such relations.

Your Company had 384 employees on the roll at the end of the year under review as against 396 of last year

	For and on behalf of the Board
	G. P. GOENKA
Kolkata	Chairman
Date : 12th August, 2016	DIN: 00030302