MANAGEMENT DISCUSSION AND ANALYSIS

The expected revival of the Indian economy continues to elude us and it now appears to be delayed at least by a year or two. That implies that the next two years would be challenging for the Company's businesses. What is especially concerning is the lack of revival in the demand and pricing situation in the Power Systems business of your Company.

We began last year with the hope of an uptick in the investment environment in the country supported by a declining interest rate cycle. Unfortunately, neither has happened to a degree that improves business confidence. This has resulted in continued demand brssures for the core products of your Company viz. Transformers and Industrial Motors. The decline in the pace of interest rate reduction has resulted in additional brssure on the working capital requirements and profit margins.

Even in these difficult times, there are certain bright spots in your Company. The Elevator Systems and Drives & Automation businesses continue to grow well. We have successfully achieved the ISO 14001:2004 certification for Environmental Management System and OHSAS 18001:2007 certification for Occupational Health and Safety Management for our manufacturing facilities. The Transformer testing lab has also received the brstigious NABL accreditation.

While we believe that further downside seems limited, it would be prudent to tone down the timeline expectations of an impending economic recovery and brpare for a more long drawn revival cycle. To that extent, we will continue to build capabilities, aggressively maintain our market positions and look for all possible means to keep costs under control.

SEGMENT ANALYSIS

The Company operates in two Business Segments, viz. "Power Systems" and "Industrial Systems".

Power Systems:

The Power Systems segment comprises primarily of Power Transformers upto 200 MVA, 220 KV voltage class and EPC projects for electrical substations upto 400 KV.

Our Transformer business is heavily dependent on investments in the Transmission networks in the country. The business environment, therefore, is linked to the capex budgets and infrastructure growth plans of all State Power Utilities and the Power Grid Corporation of India Limited (PGCIL). While we continue to see tenders being floated across these customers, the demand is still far below the supply capacity of the industry. This continues to put tremendous brssure on margins in an increasingly competitive business environment. We have consciously diversified our customer base to reduce dependence on Power Utilities. However, these segments are expected to revive along with the broader economic recovery over the years.

We continue to adopt a conservative approach to building our projects order book to ensure that margins, project readiness for timely completion and collection of dues do not drag the performance and profitability of the business. So far this seems to be working well.

Industrial Systems:

This segment comprises the marketing, engineering, design and manufacture of a full range of industrial motors, synchronous gearless machines for elevators, and AC variable speed drives and drive systems.

The Industrial Motors business continues to experience lower demand resulting in higher competitive intensity. We have, however, maintained our margins and market share in this difficult demand environment. We hope to see a recovery in this segment in the later part of next year. We have substantially improved our supply chain to capitalize on any demand recovery as it materializes. We also continue to concentrate on market reach, and understanding our end customers better. The Medium Voltage motor business has gained traction and continues to grow over time. We have also developed a range of high efficiency motors that will brpare us to compete with the best in the industry.

The Drives business caters to highly engineered application segments. We continue to build on our leadership in niche applications and aspire to repeat that performance in other customer segments as well.

The Elevator Systems business has also maintained a healthy growth trajectory and we are brpared to capitalize on any further improvements in the business prospects.

INTERNAL CONTROLS, AUDITS, RISK MANAGEMENT  & IT

The Company has in place internal controls, procedures and policies to ensure that the Company's assets are acquired, accounted and monitored appropriately, that the operational and financial records are reliable, and all brvailing statutes are complied with at all times.

The organisation-wide SAP ERP system ensures that all material business processes and controls are mapped, transactions recorded and continuously reviewed and refined. These provide reasonable assurance with regard to the monitoring of operations, maintaining of proper accounting controls, safeguarding of assets, adherence to access and authority frameworks, compliance with regulations, and ensuring reliability and accuracy of financial reporting. We intend to review these in the coming year for continued high levels of assurance.

Internal controls related to all business operations in the factory and offices are regularly reviewed and tested both by the Company's Internal Audit function and the Statutory Auditors and necessary improvements in processes, IT systems and controls are recommended and followed up for implementation with process owners. Review of significant audit observations, and monitoring of the implementation of consequential corrective and brventive actions, is periodically undertaken by top management and the Audit Committee.

The Company has a well defined framework for Risk Management which is being integrated within its business planning and review process.

Risks are identified and prioritised annually on the basis of impact and likelihood, and mitigation plans are developed by Risk owners and are subject to evaluation and review by the Audit Committee.

To promote our efforts to manage and protect critical business knowledge, the internal PRO+Active team that maps and  improves internal processes is being complemented through Knowledge Management initiatives.

RISKS AND CONCERNS

The brvailing macro economic situation in the country is the key risk for the business outlook in the coming financial year. We hope that the investment cycle kicks off over the next six to nine months resulting in capex uptick and improved business demand.

FUTURE OUTLOOK

The worst seems to have been factored in and any further downside seems to be limited. We expect tough times to continue for a few more quarters before the first signs of a sustainable revival are visible.