Tube Investments of India Ltd Management Discussions.

Dear Shareholders;

The Directors take pleasure in presenting the 11th Annual Report together with the audited financial statements of the Company for the year ended 31st March, 2019.

1. Business Environment

As one of the fastest-growing major economies, India accounts for about 15% of the Worlds economic growth, growing at an average rate of about 7% in the last five years. With investment picking up and domestic consumption remaining strong, Indias economic growth is likely to register a soft growth of about 7.2% in FY 2018-19, and about 7.4% in the year after. While investment continued to strengthen with higher levels of spending on infrastructure, consumption remained the major contributor to growth. Goods and Services Tax (GST), a unified consumption tax on all goods and services, eradicated the disparity of taxes among different State Governments and the multilayer tax system. It has pooled the resources of the Central and the State Governments under a single tax, which can benefit both. GST has caused an increase in tax base, easier movement of goods across State borders and reduction in tax rate from 28% to 18% for several products. India also achieved a significant improvement in ease of doing business ranking. Other major structural reforms in the areas of Insolvency and Bankruptcy Code, bank recapitalisation and Foreign Direct Investment are expected to support Indias growth story.

Globally, the steady expansion under way since mid-2016 continues, with the growth for 2019 projected to be at 3.5% and estimated growth at 3.6% in the year after. During the year, US tariff actions on a range of products plus retaliation by its trade partners further complicated global trade relations.

During the year under review, the Indian automobile sector managed to grow 5% driven by a buoyant first half year. In the four wheeler segment, the passenger vehicle and commercial vehicle sale volumes were up by 3% and 18% respectively. In the two wheeler segment, scooters sales during the year remained flat and motorcycles grew by 8%.

2. Standalone Financial Highlights (र in Cr.)
Particulars 2018-19 2017-18
Sale of Products - Gross 4,983.05 4,409.67
Excise Duty on Sales - (74.57)
Sale of Products - Net 4,983.05 4,335.10
Profit Before Exceptional Items and Tax 371.08 217.94
Provision for Impairment on Investments (Net) (9.00) (25.25)
Profit Before Tax 362.08 192.69
Tax Expense (118.57) (56.23)
Profit After Tax 243.51 136.46

No transfer to the General Reserves has been proposed for the year under review.

3. Performance Overview

During 2018-19, the Company achieved a turnover of र 4,983 Cr., growing 15% over the previous years र 4,335 Cr. The Profit before Depreciation, Interest, Exceptional Items and Tax was at र 563 Cr. as against र 403 Cr. in the previous year. The Profit before Tax and Exceptional Items was at र 371 Cr. as against र 218 Cr. in the previous year, an impressive growth of 70%.

On account of various market factors, changes in future project potential and accumulated losses, the Company has recognised during the year an impairment loss of र 12 Cr. in the Statement of Profit and Loss in respect of investment made in Joint Venture Company.

The Cycles and Accessories segment recorded revenue of र 1,238 Cr. as compared to र 1,300 Cr. (net of taxes) during 2017-18, a de-growth of 5%, since the Cycles market continues to be sluggish. The operating profit before interest and tax stood at र 11 Cr. as compared to र 0.34 Cr. during the previous year.

The Engineering segment registered revenue of र 2,896 Cr. as compared to र 2,299 Cr. (net of taxes) during the previous year, a growth of 26%. The operating profit before interest and tax stood at र 254 Cr. as compared to र 175 Cr. during 2017-18, registering a growth of 45%. The increase in exports and stabilisation of the Large Diameter Tube manufacturing facility contributed to the increase in profits of the segment.

The Metal Formed Products segment recorded revenue of र 1,360 Cr. as compared to र 1,150 Cr. (net of taxes) during the previous year, a growth of 18%. The operating profit before interest and tax stood at र 123 Cr. as compared to र 102 Cr. during the previous year, a growth of 21%.

4. Business Review - Standalone

4.1. Cycles and Components TIs Presence

The Cycles and Components segment of the Company comprises of bicycles of the Standard and Special variety including alloy bikes & specialty performance bikes, cycling accessories, bicycle components sold as spares and home fitness equipment.

Industry Scenario

Bicycles fall under two distinct categories - Standards and Specials. While Standard cycles are largely used for commuting, especially in small towns & rural areas, Special cycles cater to recreational usage, where the product is used for fun, fitness and leisure activities. 2018-19 was a year of recovery for the bicycle industry. As per the industry estimates, the industry volumes grew by 3%. Specials grew by 6% over previous year and the Standards segment registered a drop of 2% over previous year in trade. Orders from the Government Schemes witnessed a negative growth of 7% over previous year. Due to increasing aspirations, higher purchasing power, international exposure to usage patterns and growing fitness consciousness, the use of high-end Special bicycles continued to receive impetus, contributing to the continued steady growth of sale volumes year-on-year.

Over 80% of the countrys requirements are met by four major players. The smaller regional players and imports constitute the balance. TI Cycles enjoys a share of 21% of the total organised market (Trade, Government, Exports and Others) with a much higher share in the premium segment.

Review of Performance

TI Cycles sold 34.4 lakh bicycles during the year, which is 8.4% lower as compared to 2017-18. The thrust on Specials segment was driven by a concerted effort to enhance consumer experience through exclusive retail outlets under our exclusive retail brand Track & Trail 43 new Track & Trail outlets were opened in 2018-19 taking the total number to 239. The segment also made an entry into e-commerce with a presence on well-known e-commerce portals like Flipkart and Amazon besides its own portal,

In 2018-19, 88 new model bicycles were launched and 23 older models were refreshed, contributing to 23.6% of the trade sales volume from such new products. Multiple innovations were introduced for the first time in the industry, notable among them being the Speedbar on Hercules

Assassin and a range of ergonomic handlebars. Hercules Assassin received the Best Mobility Design award in the Automotive category for 2018-19 from the Confederation of Indian Industry (CII). Two patents were also filed for design innovation.

On the consumer outreach front, the business consistently ran digital campaigns for its major brands, BSA Ladybird, Hercules, Roadeo, Mach City and Montra, delivering a significant lift in brand awareness. During the year, a range of premium bicycles under licence from Disney and Marvel were launched. The iconic US cycling brand, Schwinn was also introduced in the premium end of the market for kids.

The operating profit before interest and tax stood at र 11 Cr., as compared to र 0.34 Cr. during 2017-18.

4.2. Engineering

TIs Presence

The Engineering Segment of the Company consists of cold rolled steel strips and precision steel tubes viz., Cold Drawn Welded tubes (CDW) and Electric Resistance Welded tubes (ERW). These products primarily cater to the needs of the automotive, boiler, bicycle, general engineering and process industries. The Company is further engaged in the manufacture of large diameter welded tubes mainly for non-auto application which are largely imported.

Industry Scenario

During 2018-19, the overall growth in the automotive industrys production volume was 6.26%. The passenger vehicle, commercial vehicle and two-wheeler segments registered growth of 0.14%, 24.2% and 5.82% respectively over the last fiscal. In the two wheeler segment, the sale volumes in scooters de-grew by 0.32%, while motorcycles grew by 8.8%.

In Cold Rolled Steel Strips, in a market which is dominated by integrated steel manufacturers, the Company continued to be a niche player by focussing on special grades catering to varied applications in different sizes and grades.

Review of Performance

The Engineering segment continued on the growth path on the back of growth in the domestic auto industry and in exports by taking good advantage of the capabilities, regional plants and distribution network of the segment.

During the year, volumes of the tubes business grew 12%, while the cold rolled steel strips business grew 2%. The Large Diameter Tube manufacturing plant, which caters to the requirements of the power, infrastructure, off-highway and general engineering segments grew by 27% on the back drop of growth in commercial vehicles and shut down of overseas competitors facilities. The plant reached its optimum capacity utilisation during the year and plans

have been drawn up for increasing the capacity of this facility to take advantage of increased demand.

During the year under review, the segment registered revenue of र 2,896 Cr. as compared to र 2,299 Cr. (net of taxes) during the previous year. The operating profit before interest and tax stood at र 254 Cr, as compared to र 175 Cr. during 2017-18, registering a strong growth of 45%.

Increase in volumes in the domestic market, modernisation of facility and further enhancement in efficiencies were the key business emphasis areas aiding improved profitability during the financial year 2018-19.

Engineering exports grew from 26,770 MT to 30,814 MT during the year despite drop in exports to US market due to prevailing high tariffs.

With regard to the ongoing investigation by the US Department of Commerce on complaint of alleged dumping of cold-drawn steel mechanical tubes from India and some other countries, the Countervailing Duty (CVD) and Anti-dumping Duty (AD) on the Companys exports to the US market will be revised based on the first review by the US Department of Commerce scheduled some time in May, 2019, in which the business is planning to participate.

4.3. Metal Formed Products TIs presence

Automotive & industrial chains, fine blanked products, stamped products, roll-formed car doorframes and cold rolled formed sections for passenger coaches constitute the Metal Formed Products segment.

Industry scenario

During 2018-19, despite growth of scooters remaining flat, the two wheeler segment grew 6% driven by motor cycles growth of 9%. The growth of passenger vehicles segment remained flat during the year. The segment is one of the major players manufacturing roller chains and fine blanked parts for the automotive industry in India. The replacement market for chains and sprockets continued to register a good growth due to the increasing two wheeler population. The domestic demand for industrial chains has a good growth.

With international car majors continuing to invest in the country and increasingly using India as an export base, many component manufacturers have the opportunity to cater to the global needs of automobile manufacturers and their Tier 1 suppliers. The passenger coach segment witnessed huge growth as the Ministry of Railways is focussing on passenger safety by initiating conversion of all old type coaches into stainless steel. This segment has achieved considerable volume growth over previous year, supplying to various customers.

Review of Performance

Sale of automotive chains and industrial chains grew by 6% and 19% respectively when compared to 201718 in volume terms. The Company continued to expand its presence in the aftermarket segment benefiting from the two-wheeler population growth. Fine blanked components volumes grew by 15% primarily through new parts developed for the four wheeler segment.

Doorframe sale volumes were higher at 12% during 201819 due to higher sales on select models with two of the renowned auto majors. The focus is on generating more business from the auto Original Equipment Manufacturers (OEMs), leveraging the Tier-1 position with specific emphasis on roll form products and other tubular parts used in passenger cars. In addition, strengthening the current position in respect of coach parts, expanding the customer base and foraying into agri-rotovators blades and other farm implements are some of the opportunities that are looked into closely to sustain the drive towards growth.

The chains business segment will continue its core business processes to handle both volume fluctuations and change in the product mix to meet customers demand. The replacement market continues to provide opportunities for growth notwithstanding good competition and the business expects to strengthen on the sales structure, deepen its coverage and launch new products for new categories.

During the year under review, the segment recorded revenue of र 1,360 Cr. as compared to र 1,150 Cr. (net of taxes) during the previous year, a growth of 18%. The operating profit before interest and tax stood at र 123 Cr. as compared to र 102 Cr. during the previous year, a growth of 21%.

5. Dividend

The Board of Directors has recommended a final dividend of र 0.75 per share on equity share of face value of र 1 each for the financial year ended 31st March, 2019. Together with the interim dividend of र 1.75 per share, paid on 24th February, 2019, on which a Dividend Distribution Tax (DDT) of र 8 Cr. was paid, the total dividend for the year works out to र 2.50 per share on equity share of face value of र 1 each. The final dividend, if approved by shareholders, will be paid on or after 28th July, 2019. It would involve payment of DDT of about र 2.9 Cr.

The dividend pay-out is in accordance with the Companys policy on Dividend Distribution. The said Policy as approved by the Board is uploaded and is available on the following link on the Companys website, article/values/601. Details thereof also form part of this Annual Report for the information of shareholders as Annexure- A.

6. Share Capital

The paid up Equity Share Capital as on 31st March, 2019 was र 18.77 Cr.

7. Finance

Cash and Cash Equivalents as at 31st March, 2019 were र 26.28 Cr. The Company continues to focus on judicious management of its working capital. The Company has taken many steps during the year to improve the working capital turns. The working capital parameters were kept under strict check through continuous monitoring.

7.1. Non-Convertible Debentures

During the year, Non-Convertible Debentures (NCDs) aggregating र 250 Cr. were redeemed and no fresh NCDs were issued during the year. As on 31st March, 2019, NCDs aggregating र 200 Cr. were outstanding.

7.2. Deposits

The Company has not accepted any fixed deposits under Chapter V of the Companies Act, 2013 and as such no amount of principal and interest was outstanding as on 31st March, 2019.

7.3. Particulars of Loans, Guarantees or Investments

During the year under review, the Company has not given any loans or guarantees under the provisions of Section 186 of the Companies Act, 2013. The Company purchased 1,50,663 equity shares of the face value of र 10 each, fully paid up, at par, of M/s. Watsun Infrabuild Private Limited, for an aggregate amount of र 0.15 Cr., during the year. As part of treasury management, the Company also deploys any short-term surplus in units of mutual funds, the details relating to which form part of the Notes to the financial statements provided in this Annual Report.

7.4. Consolidated Financial Highlights

(र in Cr.)
Particulars 2018-19 2017-18
Revenue from contract with customers (net) 5,774.77 4,999.95
Profit Before Exceptional Items and Tax 383.49 230.17
Exceptional items 3.00 (3.26)
Profit Before Tax and Exceptional Items 386.49 226.91
Tax Expense (126.81) (58.32)
Profit for the year before Minority Interest and share of profit from Associate 259.68 168.59
Share of loss from Associate 8.85 (13.08)
Net Profit for the Year 250.83 155.51

8. Business Review - Subsidiaries and Joint Ventures

8.1. Shanthi Gears Ltd (SGL)

SGL, a subsidiary of the Company, recorded revenue of र 243 Cr. in 2018-19 against र 220 Cr. in the previous year. Profit before tax was र 42 Cr. (previous year: र 33 Cr.). During the year, SGL renewed its focus on re-establishing itself in the market and gaining new customers.

SGL continued to look at enlarging its market presence, create a robust channel, enhance its process capabilities and launch new products to meet the growing expectations of customers.

During the year under review, the Company participated in the Buyback Scheme announced by SGL to all its eligible shareholders to purchase up to 50 lakh shares at a consideration of र 140/- per share. The Company tendered 49 lakh shares, of which, 32,38,958 equity shares were accepted on a proportionate basis by SGL taking into account the overall response to the Buyback. The Company received a consideration of र 45.35 Cr. as Buyback consideration on the 5th April, 2019 from SGL. Post-Buyback, the Company holds 70.47% of SGLs paid up share capital as against 70.11% held pre-Buyback.

SGL also declared and paid a Special Dividend of र 5 per share for the financial year, 2018-19.

8.2. Financiere C10 SAS (FC10)

FC10, the Companys wholly-owned subsidiary in France, recorded consolidated revenue of Euro 34 Mn in 2018 (previous year: Euro 30 Mn). The Profit before Tax for the year was Euro 0.07 Mn (previous year: Euro 0.01 Mn.). The consolidated results of FC10 include results of its subsidiaries viz., Sedis SAS, Sedis GmbH and Sedis Co Ltd in UK.

8.3. TI Tsubamex Private Limited (TTPL)

TTPL is a joint venture of the Company with M/s. Tsubamex Company Limited, Japan to engage in the business of design and engineering of sheet metal dies and fixtures and providing related services The Company presently holds 78.3% of TTPLs equity capital.

Since its incorporation, TTPL has been facing operational challenges in terms of winning new orders, and also in meeting rising customer expectations on quality and price parameters. The small size of its operations and high working capital intensity have further made the business situation difficult for TTPL as its customers, being OEMs, require technically superior products. Under the circumstances, TTPL sold its identified manufacturing assets to M/s. Nagata Auto Engineering India Private Limited for an aggregate consideration of र 8 Cr. excluding taxes. The amount realised through the sale is being utilised by TTPL to repay its creditors.

TTPL recorded revenue of र 6 Cr., in 2018-19 compared with र 26 Cr. in 2017-18 and recorded a loss before tax of र 11 Cr., during 2018-19 compared with the loss before tax of र 7 Cr. in the previous year.

The Company has provided for impairment in the value of its investment for र 12 Cr. in its books of account for the financial year under review. In the previous year, the Company had provided impairment in the value of investments for र 11.50 Cr. Accordingly, the entire investments have been impaired as at 31st March, 2019.

8.4. Great Cycles (Private) Limited (GCPL)

GCPL is the Companys subsidiary in Sri Lanka acquired in March 2018. The Company holds 80% of GCPLs equity capital.

During the year under review, GCPL recorded revenue of र 16 Cr. and registered Profit before Tax of र 2 Cr.

8.5. Creative Cycles (Private) Limited (CCPL)

CCPL is the Companys subsidiary in Sri Lanka acquired in March 2018. The Company holds 80% of CCPLs equity capital.

During the year under review, CCPL recorded revenue of र 55 Cr. and registered Profit before Tax of र 1 Cr.

8.6. TI Absolute Concepts Private Limited (TIACPL)

During the year under review, the Company exited TIACPL by divesting its 50% stake in the joint venture company in favour of the joint venture partner viz., Absolute Speciality Foods Chennai Private Limited at a consideration of र 3 Cr. Consequently, TIACPL ceased to be a joint venture company during the year.

TIACPL had been facing operational difficulties due to competitive operating environment including certain restrictive regulatory orders affecting the food and beverage industry.

The Company had provided for impairment in the value of its investment of र 13.75 Cr., in its books of account during the previous financial year, 2017-18 itself.

The Statement containing salient features of the financial statements of the Companys Subsidiaries/Associate Companies /Joint Ventures is attached as Annexure-B. The Consolidated Financial Statements of the Company and its subsidiaries, prepared in accordance with the Indian Accounting Standards, form part of the Annual Report.

9. Financial Review

9.1. Profits & Profitability

The Profit before Tax and exceptional items registered a growth of 70%, through higher volumes, better operating efficiencies, input and fixed cost reduction initiatives and reduction in interest costs.

All the business segments of the Company maintained their focus on servicing customers, improving efficiencies, controlling working capital and reducing resources employed in the business.

9.2. Capital Expenditure

The Company continues to assess the trends emerging in the industry and the changing requirements of its customers and invests appropriately for the long-term, with a view to servicing its customers in a more timely and efficient manner. The Companys new plant in Rajpura, Punjab for precision tube manufacturing was operational during the financial year and the Company has planned for further expansion in the coming financial year.

9.3. Interest Cost

The Companys interest cost reduced to र 51.68 Cr. in 2018-19 from र 56.38 Cr. in the previous year mainly on account of lower borrowing. With strong focus on cash generation, the Company achieved a significant level of debt reduction of र 166 Cr. during the year. The total borrowings were reduced to र 513 Cr. as on 31st March, 2019 from र 679 Cr. as on 31st March, 2018.

9.4 Financial Ratios

The key financial ratios of the Company in which there were significant changes (more than 25%) during the financial year compared to the previous financial year, with reasons therefor, are as under:

Sl. No. Financial Ratio* FY 2018-19 FY 2017-18

% change over previous year

1 Interest Coverage Ratio 10.72 6.69 60% Reduction in borrowing & finance charges and increase in the Profit before Interest Tax and Depreciation.
2 Debt-Equity Ratio 0.36 0.56 36% Reduction in debt and increase in net worth due to higher profits.
3 Net Profit Margin 4.9% 3.2% 55% Improvement in profits and reduction of fixed and interest cost.
4 Return on Net Worth 17.1% 11.2% 52% Higher profits for the year.
5 Return on Capital Employed (in %) 21.4% 14.3% 50% Higher profits and maintenance of capital employed at lower level despite increase in sales.
6 Sales Growth 14.9% 10.4% 43% Higher sales driven primarily by growth in Auto Industry in H1 of FY 2018-19, Railways and exports.

*Ratios are tracked by the Company on a standalone basis

9.5. Internal Control Systems

Internal control systems in the organisation are looked at as the key to its effective functioning. The Company believes that internal control is one of the key pillars of governance which provides freedom to the management within a framework of appropriate checks and balances. Given the nature of business and size of operations, the Company has designed and instituted a robust internal control system that comprises well-defined organisation structure, roles and responsibilities, documented policies and procedures to prevent business risks through a framework of internal controls and processes. These controls ensure:

a) Recording of transactions are accurate, complete and properly authorised;

b) Adherence to Accounting Standards, compliance to applicable Statutes, Company policies and procedures and timely preparation of financial statements;

c) Effective usage of resources and safeguarding of assets;

d) Prevention and detection of frauds/errors; &

e) Efficient conduct of operations.

To ensure efficient internal control systems, the Company has a well-established, independent and multi-disciplinary in-house Internal Audit function that carries out periodic audits across locations and functions. The scope and authority of the Internal Audit function is derived from the Internal Audit charter duly approved by the Management. The Internal Audit function reviews compliance vis-a-vis the established design of the internal control, as also the efficiency and effectiveness of operations. Internal Audit function is responsible for providing, assurance on compliance with operating systems, internal policies and legal requirements as well as suggesting improvements to systems and processes.

The summary of the Internal Audit findings and status of implementation of action plans for risk mitigation are submitted to the Audit Committee every quarter for review, and concerns if any, are reported to the Board. This process ensures robustness of internal control system and compliance with laws and regulations including resource utilisation and system efficacy.

Revenue and capital expenditures are governed by approved budgets and the levels are defined by a delegation of authority mechanism. Review of capital expenditure is undertaken with reference to benefits expected in line with the policy for the same.

Investment decisions are subject to formal detailed evaluation and approved by the relevant authority as defined in the delegation of authority mechanism. The Audit Committee reviews the plan for internal audit, significant internal audit observations and functioning of the Companys Internal Audit department on a periodic basis.

9.6. Internal Financial Control Systems with reference to the Financial Statements

The Company has complied with the specific requirements of the Companies Act, 2013 which call for establishment and implementation of an Internal Financial Control framework that supports compliance with requirements of the said Act in relation to the Directors Responsibility Statement.

The Companys business processes are enabled by an Enterprise-wide Resource Platform (ERP) as its core IT system. The operating management is not only responsible for revenue and profitability, but for also maintaining financial discipline and accountability. The systems and processes are continuously improved by adopting best in class processes, automation and implementing latest Information Technology tools.

The Company has a formal system of internal financial control to ensure the reliability of financial and operational information, and regulatory and statutory compliances. The Companys business processes are enabled by the ERP for monitoring and reporting processes resulting in financial discipline and accountability.

10. Enterprise Risk Analysis and Management

The Company has an established risk assessment and minimisation framework. This framework provides a mechanism to identify the risk, evaluation of likelihood of happening and consequences. It also provides for assessment of options to mitigate the risk and develop appropriate risk management plans. There are normal constraints of time, efficiency and cost.

The Risk Management Committee of the Board of Directors reviews the risk mitigation plans periodically to monitor the key risks of the Company and evaluate the management of such risks for effective mitigation.

During the year under review, the Risk Management Committee met on 8th May, 2018 and 26th March, 2019 and reviewed the risks and mitigation plans of the SBUs of the Company.

Some of the risks associated with the business and the related mitigation plans are discussed hereunder. The risks given below are not exhaustive and the evaluation of risk is based on managements perception.

10.1 Bicycles and Components

Risk Why considered as Risk Mitigation Plan/Counter Measure
Product Obsolescence • Availability of alternatives • Higher variety, especially of premium bikes
Risk • Increased affordability for motorised vehicles • Products based on customer need
• "Cycling" as a concept beyond commuting - leisure, fitness, fun and recreation
• Shrinking road space for cycling
Sourcing Risk • Dependence on vendor base • Continuous upgrading of vendor capability
• Consistent quality and supplies • Relationship building
• 25% of vendors located in residential area • Imports from quality sources
• Reconfigure & relocate vendor base
Competition Risk • Competition from domestic suppliers • Enhancing the Brand awareness
• Imports • Introducing new models with a healthy innovation funnel
• Consistent quality and timely delivery
• Enhancing price competitiveness
Volume & Profitability Risk • Rapid decline in Standards segment • Drive growth in Premium cycles segment
• Low price competition in Specials segment • Build capability to compete in Specials segment at various price points
• Growth in Premium segment not sufficient to offset the overall drop in volume • Cost reduction measures to enhance profitability
• Higher fixed cost related to volume
Technology Risk • Lack of capacity and capability to handle large scale shift to alloy bikes • Capability building for manufacture and assembly of alloy bikes
• Establishing reliable source for high end bikes


10.2. Engineering
Risk Why considered as Risk Mitigation Plan/Counter Measure
User Industry • Significant exposure to auto sector • New products/applications to existing customers
Concentration Risk • Time lag in pass through of input cost changes • Introduction of new products catering to non-auto users
• Drive operational efficiencies vigorously
• Leverage application engineering skills for tubular solutions
• Cost reduction through operational excellence initiatives
Technology • Cheaper alternatives for auto applications affecting revenue streams • Imbibing new and relevant technologies
Obsolescence Risk • Equipment upgradations
Raw Material Risk • Volatility in steel price • Alliance with steel producers
• Inconsistency in quality • Global sourcing
• High inventory holding • Strategic sourcing
• Rationalisation and standardisation of grades
• Move to products with higher value addition
Competition Risk • Competition from integrated steel mills • Consistent quality and timely delivery
• New entrants with financial strength • Import substitution, development of new grades.
• Imports • Product range of offering leveraging all businesses of the Company
• Innovate on products, process and applications
• Leveraging metallurgy skills
Export related risks • Increased trade protectionism and import tariff • Identification of new export markets and customers
• Global competition • Capability building
• Need for higher capability • Enhanced domestic sales

10.3. Metal Formed Products

Risk Why considered as Risk Mitigation Plan/Counter Measure
Product Risk • Revenues are model specific • Indigenisation of equipment • Pursue options for other business using the same facilities • Model specific investments to be done by OEMs • More rigorous analysis of risks before taking up the project
User Industry • Dependence on auto sector • Diversification into non-auto business
Concentration Risk • Impact of slow down • Focus on industrial applications
• Develop range of power transmission products
Customer Retention • Availability of alternative source • Cost competitiveness through operational excellence
Risk • Disruption in supplies initiatives • Leverage design strength • Leverage proximity to customer • Build technology superiority • Product - plant rationalisation
Entry of competition • Low technology barrier • Leverage position with customer as technology leader
• Impact on profit • Continuous upgrading of technical specifications • Cost reduction
• Concentration in focus markets
Entry of internationally established players in domestic market • Better product range • Enhance product portfolio leveraging acquisition
• Tie-up with local player/end user • Leverage leadership and competitive position in industry
• High quality image • Strengthen collaboration with R&D team of customers
• Pursue opportunities in systems/components
• Pursue options for collaborating with other multinational player(s) of repute
Sourcing Risk • Dependence on a few vendors for certain components • Vendor relationship building
• Enhancing vendor base, both locally as well as overseas
• Leveraging strength of combined entity
Pricing risk • Year-on-year price reduction expectation • Utilisation of existing assets, optimal investment assumptions and reduced cost of operations
• Price recovery due to dependence on a few OEMs • Value engineering and value analysis in business
re-engineering process
• Claims from customer for lower volumes


10.4. General
Risk Why considered as Risk Mitigation Plan/Counter Measure
Human Resource Risk Ability to attract talent, especially people with domain knowledge for new projects • Corporate brand building
• Robust recruitment process
• Structured induction and on the job training
Retention of talent • Coaching and team building

• Individual career and development plan

• Effective communication exercises

• Continuous engagement with identified talent pool

• Deskill operations
Currency Risk Foreign currency exposure on exports, imports and borrowings • Early identification and monitoring of exposures
• Hedging of exposures based on risk profile
IT/Cyber Related Risk Confidentiality, integrity and availability Access controls

Secure Network Architecture

Infrastructure redundancies & disaster recovery mechanism

Audit of controls

Project Management Delay in implementation Effective project management
Risk Increase in cost Pre-implementation planning
Potential delay in stabilisation of production Deployment of adequate resources
Effective monitoring

11. Corporate Social Responsibility (CSR)

The Company, being part of the Murugappa Group, is known for its tradition of philanthropy and community service. The Companys philosophy is to reach out to the community by establishing service-oriented philanthropic institutions in the field of education and healthcare as the core focus areas. The CSR Policy of the Company is available on the Companys website at the following link, .

As per the provisions of the Companies Act, 2013, the Company was required to spend र 2.67 Cr., during the financial year, 2018-19. The Company spent र 2.69 Cr. towards the identified CSR projects in the fields of education, health care and rural sustainability during the year.

The Annual Report on CSR for 2018-19 is annexed to and forms part of this Report as Annexure-C as well as in the Companys website at the following link, .

12. Alteration of Memorandum of Association

During the financial year, 2018-19, with the approval of the Members by means of a Special Resolution passed with the requisite majority at the 10th Annual General Meeting, sub-clause 10 under III(B) of the Memorandum of Association of the Company was altered to provide for/facilitate the making of contribution for political purposes. No contribution for political purposes was made during the year.

The Board had, by Notice of Postal Ballot & Electronic Voting dated 27th March, 2019, further proposed for the Members approval by means of a Special Resolution, through postal ballot and electronic voting, an alteration to Clause III(A) [Main Objects Clause] of the Memorandum of Association by insertion of a new sub-clause 10 to facilitate the Companys foray into the business of vision products and components, as and when decided appropriate.

13. Corporate Governance

The Company is committed to maintaining high standards of corporate governance.

The Company was wholly in compliance with the requirements of the Listing Agreement with the Stock Exchanges as well as the SEBI Listing Regulations.

A report on corporate governance together with a certificate from the Auditors is annexed in accordance with the terms of the SEBI Listing Regulations and forms part of the Boards Report as Annexure-D. The Managing Director and the Chief Financial Officer have submitted a certificate to the Board regarding the financial statements and other matters in terms of Part B of Schedule II [Corporate Governance] of the SEBI Listing Regulations.

The Report further contains details as required to be provided in the Boards Report on the policy on Directors appointment and remuneration including the criteria, annual evaluation by the Board and Directors, composition and other details of Board committees, implementation of risk management policy, whistle-blower policy/vigil mechanism, dividend policy etc.

14. Business Responsibility Reporting

As required under the SEBI Listing Regulations which mandate the inclusion of a Business Responsibility Report as part of the Annual Report for the top 500 listed entities, the Business Responsibility Report forms part of the Annual Report as Annexure-E.

The Business Responsibility Policy of the Company is displayed in the Companys website at the following link, .

15. Human Resources

The Company continues to leverage its strength in human capital by attracting the right talent, nurturing & developing, and retaining them to meet the shortterm and long-term organisation goals. The key HR imperatives were addressed through Organisation Structure & Design, building technical & operational excellence capabilities, building leadership & talent pool, productivity improvement and employee cost reduction programs, maintaining cordial industrial relations and digitising HR processes.

The Company is successful in attracting talent from outside and during the year people were hired across different levels and functions. The Company has started creating a resource pool, wherein project executives/engineers have been hired and given exposure to the different businesses, functions, organisation values and culture.

In order to enable the Company to grow exponentially, the Company is emphasising on a high performing work culture that would enable employees to transform from a fixed to growth mind-set through empowerment across levels and by inculcating a higher sense of accountability through systematic interventions.

During the year, for providing a clear direction and focus for the future, the Companys Vision Statement was framed involving different stakeholders. The Statement reads as "Build a Globally Admired Indian Engineering Company Creating Stakeholder Delight". In line with the said Vision

Statement, empowered employees are vested with clear responsibility and focus on achieving cost leadership and faster growth of their respective business.

The Company continues to conduct leadership programs, where individuals go through 360-degree assessment feedback forming Individual Development Plans (IDPs), performance enhancement assignments, supported through mentorship. The Company continues its focus on identifying the high potential employees in the organisation, who are groomed to occupy the key roles.

In order to make the operations efficient and profitable, Total Quality Management [TQM] (at the Tubes & Chains Business Units) and Toyota Production System [TPS] (at TI Cycles Business Unit) initiatives have been launched with the help of renowned Japanese consultants.

The total number of permanent employees on the rolls of the Company as on 31st March, 2019 is 3,253.

Industrial relations continued to remain cordial at all the Companys units during the period under review.

The information relating to employees and other particulars required under Section 197 of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules 2014 will be provided upon request. In terms of Section 136 of the Companies Act, 2013, the Report and Accounts are being sent to the Members excluding the information on employees, particulars of which are available for inspection by the Members at the Registered Office of the Company during business hours on all working days of the Company up to the date of the forthcoming Annual General Meeting. If any Member is interested in obtaining a copy thereof, such Member may write to the Company Secretary in the said regard.

The disclosure with regard to remuneration as required under Section 197 of the Act read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is attached and forms part of this Report as Annexure-F.

16. Prevention of sexual harassment at workplace

The Company has policy on prevention of sexual harassment at workplace in line with the requirement of the Sexual Harassment of Women at the Workplace (Prevention, Prohibition & Redressal) Act, 2013. An internal Complaints Committee (ICC) to redress complaints received regarding sexual harassment has been constituted. The policy extends to all employees (permanent, contractual, temporary and trainees). Employees at all levels are being sensitised about the new Policy and the remedies available thereunder. No complaints were received and disposed off during the year under review.

17. Employee Stock Option Scheme

During the year under review, the Company has granted 62,562 stock options to eligible employees under its Employee Stock Option Plan viz., ESOP 2017.

Details in respect of the ESOP 2017 as required under the relevant SEBI Regulations are displayed in the Companys website at the following link, .

18. Directors Responsibility Statement

The Board of Directors confirm that the Company has in place a framework of internal financial controls and compliance system. The Internal Audit team periodically evaluates the adequacy and effectiveness of these internal controls, recommends improvements and also reviews adherence to policies based on which corrective action is taken to address gaps, if any. The internal controls are also monitored and reviewed by the Audit Committee and the Board and also subjected to a review by the Statutory Auditors. To the best of their knowledge and belief and according to the information and explanations obtained by them, your Directors make the following statements in terms of Section 134(3)(c) of the Companies Act, 2013:

a) that in the preparation of the annual Financial Statements for the year ended 31st March, 2019, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;

b) that such accounting policies as mentioned in the Notes to the Financial Statements have been selected and applied consistently and judgment and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March, 2019 and of the profit of the Company for the year ended on that date;

c) that proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

d) that the annual Financial Statements have been prepared on a going concern basis;

e) that proper internal financial controls to be followed by the Company have been laid down and that the financial controls are adequate and were operating effectively; and,

f) that proper systems have been devised to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

19. Auditors

M/s. S R Batliboi & Associates LLP, Chartered Accountants (LLP Identity no.AAB-4295) were appointed as Statutory Auditors at the 9th Annual General Meeting held on 6th November, 2017 for a period of five years viz., from the conclusion of the said 9th Annual General Meeting till the conclusion of the 14th Annual General Meeting.

I n terms of the resolution passed by the Members with regard to the appointment of the Statutory Auditors, the same is subject to ratification by the Members at every Annual General Meeting and their remuneration will be recommended to the Shareholders at the time of taking up such ratification of appointment each year. In the said regard, by an amendment to the Companies Act, 2013 under the Companies (Amendment) Act, 2017, the requirement for ratification of appointment of the Statutory Auditors at each Annual General Meeting has been done away with. Accordingly, there is no requirement under the present law for ratification of appointment of the Statutory Auditors. The remuneration payable to them in respect for FY 2019-20 hence needs to be fixed at the Annual General Meeting as required under Section 142 of the Companies Act, 2013.

Accordingly, the Board recommends the terms of remuneration payable to the Statutory Auditors as set out in the resolution contained in the Notice of the ensuing Annual General Meeting.

M/s. S Mahadevan & Co., (firm no.000007), Cost Accountants were appointed as the Cost Auditors of the Company for auditing the cost accounting records maintained by the Company in respect of the applicable products for the financial year, 2019-20. Necessary resolution for ratification of their remuneration in respect of the aforesaid terms of appointment for financial year, 2019-20 forms part of the Notice for the ensuing Annual General Meeting.

20. Related Party Transactions

All related party transactions that were entered into during the financial year under review were on an arms length basis and were in the ordinary course of business. There are no materially significant related party transactions during the year which may have a potential conflict with the interest of the Company at large. Necessary disclosures as required under the Indian Accounting Standards have been made in the notes to the Financial Statements.

The policy on Related Party Transactions as approved by the Board is uploaded and is available on the following link on the Companys website, article/values/476. None of the Directors had any pecuniary relationships or transactions vis-a-vis the Company.

21. Directors

Mr. Ramesh K B Menon, Director will retire by rotation at the ensuing Annual General Meeting under Section 152 of the Companies Act, 2013 ("the Act") and being eligible, he offers himself for re-appointment.

Mr. Sanjay Johri was appointed as Additional Director with effect from 14th August, 2018. He holds office up to the date of the ensuing Annual General Meeting. The Board recommends his appointment as Independent Director under Section 149 of the Act for a term of four years viz., from the date of the 11th AGM (2019) till the date of the 15th AGM (2023).

Mr. Mahesh Chhabria was appointed as Additional Director with effect from 5th February, 2019. He holds office up to the date of the ensuing Annual General Meeting. The Board recommends his appointment as Independent Director under Section 149 of the Act for a term of five years viz., from the date of the 11th AGM (2019) till the date of the 16th AGM (2024).

The present term of Ms. Madhu Dubhashi as Independent Director is till the date of the ensuing 11th Annual General Meeting and she is eligible for a second term. The Board recommends her re-appointment as Independent Director under Section 149 of the Act for a second term of two years viz., from the date of the 11th AGM (2019) till the date of the 13th AGM (2021) by means of a Special Resolution as proposed in the Notice.

All the Independent Directors of the Company including the aforementioned Independent Director appointees have furnished necessary declaration in terms of Section 149(6) of the Act and the Listing Regulations affirming that they meet the criteria of independence as stipulated thereunder.

The Board takes pleasure in recommending the appointment of Mr. Sanjay Johri and Mr. Mahesh Chhabria as Independent Directors and the re-appointment of Ms. Madhu Dubhashi for a second term as Independent

Director for such term of Office as provided under the relevant item of the Notice for the ensuing Annual General Meeting.

22. Declarations/Affirmations

During the year under review:

- t here were no material changes and commitments affecting the financial position of the Company, which have occurred between the end of the financial year of the Company to which the financial statements relate viz., 31st March, 2019 and the date of this Report; &

- there were no significant material orders passed by the regulators or courts or tribunals impacting the Companys going concern status and its operations in future.

23. Secretarial Audit

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed Mr. R Sridharan of Messrs. R. Sridharan & Associates, a firm of Company Secretaries in Practice (C.P. No.3239) to undertake the Secretarial Audit of the Company. The Report of the Secretarial Auditor is annexed herewith and forms part of this Report as Annexure-G.

The Company has ensured compliance of the Secretarial Standards issued by the Institute of Company Secretaries of India during the period under review. Accordingly, no qualifications or observations or other remarks have been made by the Secretarial Auditor in his said Report.

24. Annual Return

Extract of the Annual Return of the Company is annexed and forms part of the Report as Annexure-H. The same is also available on the website of the Company at the following link, .

25. Key Managerial Personnel

Mr. L Ramkumar retired as Managing Director of the Company upon completion of his term at the conclusion of the previous Annual General Meeting held on 13th August, 2018.

Mr. Vellayan Subbiah, Managing Director (Designate) assumed Office as the Managing Director of the Company with effect from 14th August, 2018.

Mr. Vellayan Subbiah, Managing Director, Mr. K Mahendra Kumar, Chief Financial Officer and Mr. S Suresh, Company Secretary are the Key Managerial Personnel (KMPs) of the Company as per Section 203 of the Companies Act, 2013.

26. Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo

The information on conservation of energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of The Companies (Accounts) Rules, 2014 is annexed herewith and forms part of this Report as Annexure-I.

The Directors thank all Customers, Vendors, Financial Institutions, Banks, State Governments, Joint Venture Partners and Investors for their continued support to your Companys performance and growth. The Directors also wish to place on record their appreciation of the contribution made by all the employees of the Company resulting in the good performance during the year under review.

On behalf of the Board
Chennai M M Murugappan
30th April, 2019 Chairman