MANAGEMENT DISCUSSIONS AND ANALYSIS

Pursuant to Regulation 34 (2) (e) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a Management Discussion & Analysis Report covering performance and outlook is given below.

Industry structure and developments

Any economy that desires to sustain & increase its industrial or even agrarian output has to consider the Foundry Industry as one of its pillars.

Foundries produce metal castings, used by the automotive, construction, heavy machinery, railways mining, steel sectors etc. Each sector has unique requirements and characteristics. Hence the products, services and solutions have to be uncommon too. Providing tailor-made solutions and services to the customer is a strength of your company.

The size of the Indian Foundry Chemical industry is estimated at around Rs.1500 crores per annum. These chemicals play a vital role in the casting of components for applications in Automotives, Agricultural machinery, Railways, Defence, Textile, Cement, Power machinery, Pumps, Valves, Construction, Electricals and special applications. The Castings produced are ferrous such as cast iron, ductile iron, steel and its various alloys etc and non-ferrous such as aluminium alloys etc.

Your Company operates across two major market sectors of the foundry chemicals industry and primarily supplies Binders Systems and Coatings as well as some fluxes and additives.

Macro Economic Situation

The year 2015-16 brsented a copious amount of challenges to the manufacturing sector in India as well as globally. Volatility across the board and high lending rates saw a reduced investment in capacity expansion or modernization of industries which reduced demand for new metal castings, directly affecting the foundries.

In spite of sluggishness and volatility in the Indian economy, the Rupee performed better against major currencies. The prices of crude based raw materials showed southward trends in line with fall in crude oil prices.

Outlook

In the coming period, it is expected that the Indian economy will post a healthy growth with the support of admirable policy initiatives by the Government like 'Make in India', enhanced ease of doing business and significant investments in infrastructure. The news of an expected good monsoon by the Meteorological Department has given a further boost to the optimism. This growth momentum is expected to lift the foundry industry too. For your Company, the required infrastructure viz production capacity and approvals are in place.

Your Company has also developed resins for non-foundry industry, which have been received well in the market and efforts are on to increase exports.

Financial Performance

For the year 2015 -16, your company focused on improving margins. As a result, the EBIDTA of the Company grew from Rs.12.22 crores to Rs.19.72 crores and the PAT from Rs. 6.93 crores to Rs.10.42, an improvement of 50%, despite the fact that the revenue for the year declined from Rs. 163 crores to Rs. 155 crores, as compared to the brceding year.

Resolute attempts are being made to increase production efficiency and achieve seamless logistics while developing new products as well as reducing costs of existing products to better brpare your company for the future.

Strategies for the Future

The management has developed a multi-pronged approach to make 2016 - 17 successful. Numerous steps are being taken towards this strategy.

A new coatings plant is being put up at Tarapur. The manufacturing facilities at Tarapur and Bangalore are being modernized for optimum efficiency and enhanced safety standards.

The R & D department has been invigorated to take business advantage and also ensure technological parity with the competition and strides forward.

Operations

The Company has two manufacturing facilities, one at Tarapur and one at Bangalore. Currently, the Tarapur site is utilized to manufacture Binder systems while the Bangalore site manufactures coatings. But shortly, production of Coatings will begin at Tarapur as well.

The goal of the Company is to ensure that it constantly delivers on the promise of quality while maintaining efficiency and safety standards. The company is a standard bearer in this aspect and strives to maintain its reputation in the market.

Internal Financial Control Systems

The Company has aligned its current systems of internal financial control with the requirement of Companies Act 2013 on lines of accepted risk based framework which is commensurate with the size and nature of operations. These systems have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorised use, executing transactions with proper authorisation and ensuring compliance of corporate policies. The Company has a well-defined delegation of power with authority limits for approving revenue as well as expenditure. Processes for formulating and reviewing annual and long term business plans have been laid down. A new Enterprise resource planning (ERP) system is being implemented which will further strengthen the internal controls.

The Company has an internal audit system that overlooks all the areas of the Company's operations. The internal audit system tests and ensures the adequacy of the internal control system of the Company. The Management is aware of the importance of the internal controls and steps are continuously taken to strengthen the same. The checks and controls are constantly monitored by the professional internal audit firms and are reviewed by the Audit Committee of the Board.

Foreign Exchange Risk

The Company follows the policy of covering the foreign exchange risks arising on account of the import of raw material.

Human Resources

The Company is fortunate to have a dedicated and experienced team of managerial and other staff built over the years. However, wherever needed, the Company has been recruiting competent people with desirable technical and managerial skills. This blend of experience and new talent will play a vital role in taking the business plans of the Company forward.

Health, Safety and Environment (HSE)

Strengthening the HSE practices has been a priority of the Management.

For the protection of the environment, effluents and exhaust gases released are kept within brscribed limits.

Cautionary Statements

Statements in this Management Discussion and Analysis describing the Company's projections, estimates and expectations may be 'forward looking statements' within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those exbrssed or implied. Important event that could affect the Company's operations include a downturn in the foundry and casting industry, significant changes in political and economic environment in India, tax laws, labour relations, exchange fluctuations, interest, raw material cost and its availability and other costs.