MANAGEMENT DISCUSSION & ANALYSIS Overview Asahi India Glass Limited (AIS) is one of India's leading integrated glass solutions company offering a combrhensive range of products and solutions catering to multiple industries. It commenced operations in 1987 and within a span of three decades, it grew in size and developed a pan-India brsence having 10 manufacturing facilities and three warehouse cum sub-assembly units. AIS has four business segments namely, the Automotive, Architectural, Consumer and Solar Glass segments. It enjoys a dominant position in the Automotive and Architectural Glass segment being a brferred supplier to leading automotive OEMs and construction companies. AIS's focus is to provide value-added products to enhance the experience of its customers. Macro - Economic Review Global The global economy, despite having tangible signs of recovery in 2014, remained sluggish in 2015. Financial market volatility, decelerating growth in emerging economies, tumbling commodity prices, weak capital flows and subdued global trade dragged down the growth momentum to 3.1% in 2015 against 3.4% in 2014. The emerging economies grew 4% in 2015 compared to 4.6% in 2014. The decline in growth was primarily on account of economic rebalancing in China and deceleration in Brazil and Russia due to macro-economic troubles. China grew 6.9% (7.3% in 2014) while Brazil and Russia's economy declined 3.8% and 3.7% respectively. Recovery in advanced economies gained some traction driven by strong domestic demand, rising credit growth and improving employment in Euro Zone. The advanced economies grew 1.9% in 2015 compared to 1.8% in 2014. Growth in Euro area increased to 1.6% against 0.9% in 2014. While, the US economy maintained its brvious year's growth of 2.4% as improving housing markets, strengthening balance sheets and no fiscal drag was offset by declining energy investments, slowdown in manufacturing, tighter financial conditions across some sectors and drag in net exports due to strengthening dollar and slower growth in trading partners. The short term outlook for the global economy is still weak as recovery is expected to longer time. The implications of Brexit in Euro zone, rising macro-economic tensions in emerging economies and instability in financial markets would weigh down growth. The global economy is likely to grow 3.2% in 2016 and start picking up momentum growing by 3.5% in 2017. (Source: World Economic Outlook, International Monetary Fund) India The Indian economy grew 7.6% in FY 2015-16 compared to 7.2% in FY 2014-15 as low oil prices and high real income drove private consumption. Various initiatives by the government led to a positive macro-economic scenario driving growth across most sectors of the economy. The output from the agricultural sector grew despite deficit monsoons. The services sector despite being impacted by subdued performance of tradable and non-tradable grew modestly. The deceleration in production volume of the industrial sector was offset by declining input costs. The gross value added by manufacturing sector grew 9.5% against 5.5% in FY 2014-15. Tight monetary policy, supply side measures and low commodity prices brought out inflation well under 5%. The outlook of Indian economy is very strong as low inflation, declining fiscal deficits, forecast for good rainfall and favorable government policies are likely to boost growth across all sectors of economy. The real GDP growth for the country is expected to be 7.6% or higher in FY 2016-17. (Source: RBI Monetary Policy Report) Industry The demand for glass is primarily driven by automotive sector and construction sector. The automotive industry in India continued to witness good performance as total automobile sales grew 7.06% and passenger vehicle sales grew 7.24%. Activities in India's construction industry have slowed down owing to shortage of skilled labour, scarcity of construction materials and political disturbances. The prolonged slowdown in real estate market led to pile-up of unsold inventory. Thus, the overall growth in the glass market was marginal. Despite this, the glass industry in India is expected to grow at a good pace in the coming years as positive economic scenario is likely to boost growth in the automotive and construction sectors in India. The demand drivers for the glass industry in India are: • India's climatic condition, being hot and sunny, would drive demand for insulated and reflective glasses in automobiles and buildings to save energy. • Smart Cities and 'Housing for all by 2022' projects by the Government of India are likely to boost up growth in the construction sector. Also, there is a rising demand for LEED certified and energy efficient buildings. • Stabilisation in the prices of real estate, technological advancements and strong macro-economic scenario would enhance sale of real estate properties. • Environmental concerns, limited availability of fossil fuels and rising government thrust on renewable energy is likely to boost demand for solar glasses. Financial Performance The year 2015-16 marked significant improvements in performance of the company driven by rising economy, focused product development and increased marketing. AIS reported marginal sales growth coupled with major improvements in operations. The major highlights of AIS's performance as a consolidated entity are: • Net sales increased 5.28% from Rs. 2,096.58 crores in FY 2014-15 to Rs. 2,207.37 crores in FY 2015-16 owing to significant improvement in the automotive glass segment. Operating profit (EBITDA before forex losses, extraordinary & exceptional items) increased 25.95% from Rs. 343.23 crores in FY 2014-15 to Rs. 432.31 crores in FY 2015-16 as the Company benefitted from decline in oil prices. • Profit before tax (PBT) increased 177.52% from Rs. 51.19 crores in FY 2014-15 to Rs. 142.06 crores in FY 2015-16. • Net profit after tax increased 106.93% from Rs. 42.02 crores in FY 2014-15 to Rs. 86.95 crores in FY 2015-16. • Earnings per share increased from Rs. 1.73 in FY 2014-15 to Rs. 3.58 in FY 2015-16. The year's performance reflects the Company's determination to pursue a "value-added" product strategy with focus on enhancing shareholders' value. All the segments of the Company performed well. The Company declared a dividend of Rs. 0.60 per share. The details of development and financial performance of the each business segment is given in the subsequent sections. Auto Glass AIS enjoys a strong position in the automotive glass segment. It is one of the most trusted and reputed Original Equipment Manufacturer (OEM) suppliers in India owing to the quality of products, product range, cost competitiveness and constant product innovation that focuses on enhancing consumer experience. The OEM segment is the primary business area and accounts for a major proportion of revenue in the overall auto glass business. Other business areas of the segment include product exports, after-market and spares. The Company's product portfolio include laminated windshields, defogger glass, tempered glass for sidelites and backlites, rain sensor windshield, IR cut glass, UV cut glass, solar control glass, encapsulated glass, heated windshield and plug-in window among others. Industry structure and development The year 2015-16 has been a good year for the automobile industry as total automobile sales grew 7.06% from 37.49 lakh units in FY 2014-15 to 40.13 lakh units in FY 2015-16. The automotive industry also achieved its highest ever production and exports of 51.31 lakh units and 11.60 lakh units during the year growing by 5.38% and 3.96% respectively. Sales of passenger vehicles increased 7.24% from 26.01 lakh units to 27.90 lakh units. The various segments within Passenger Vehicles include Passenger Cars, Utility Vehicles and Vans which grew by 7.87%, 6.25% and 3.58% respectively during FY 2015-16. Sales of Commercial Vehicles grew 11.51% from 6.15 lakh units in FY 2014-15 to 6.86 lakh units. Medium & Heavy Commercial Vehicles (M&HCVs) grew by 29.91% and Light Commercial Vehicles grew marginally by 0.30%. (Source: SIAM) Performance The major highlights for AIS Auto Glass SBU are: • Total revenue increased by 11.67% from Rs. 1,208.07crores in FY 2014-15 to Rs. 1,349.10 crores in FY 2015-16. • Segment profits before interest and un-allocable items increased by 14.58% from Rs. 161.48 crores in FY 2014-15 to Rs. 185.02 crores in FY 2015-16. The Company continued to work towards further streamlining & improving manufacturing process & technology, enhancing employee engagement and upgrading employee skills. The auto segment reflects the Company's approach for achieving highest performance standards and commitments towards its customers. The Company further focused on expanding business with existing customers and tapping new ones as it supplied products for new car launches in FY 2015-16. The Company's focus is on enhancing its product offering thourgh constant innovation. The company also initiated design engineering improvements to enhance optical properties and reflection quality of its products. Operations During 2015-16, the Company undertook various expansion projects that included commissioning of new capacities for laminated glass having capacity of manufacturing 0.7 million windscreens per annum, doubling capacity of glass encapsulation and enhancing production of door glass by 20%. The Company also received various awards and certifications from its customers across India reinforcing their faith in its abilities and commitments. The list of awards includes: • Manufacturing Excellence award, spares schedule adherence award and overall excellence award from Maruti Suzuki India Limited. • Environment award 2016 for CO2 REduction from Honda Cars India Ltd. • Quality Excellence award from General Motors India Pvt. Ltd. • 'A' grade in Formai Q-Capability from Volkswagen India Pvt. Ltd. • Award for achieving target in delivery and quality 2015, runner up supplier of the year 2015 and overall best environment managed company from Toyota Kirloskar Motor Pvt. Ltd. • Gold award for REgional Quality Circle Competition conducted by Toyota Kirloskar Suppliers Association. • Quality Excellence award and excellence in container management for 2015 from Hyundai Motor India Ltd. • Award for stupendous performance in supply chain from Mahindra & Mahindra Ltd. • Quality Excellence award from Volvo Buses India Ltd. Besides, AIS has also got Excellent Quality Improvement award from AGC and certification for ISO 50001:2011 Energy Management System from DNV GL Business Assurance B.V, the Netherlands. Outlook The outlook for Indian automotive industry is expected to remain quite strong in the near future. The new value added products offered by the Company are expected to significantly enhance the glass value per car. The notable trend in the industry is the customers increasing brference for compact SUVs, with luxury and fuel efficiency. The Company registered good performance during the year with most of its new launches being readily accepted by the OEMs. It continued to expand its market share in the segment and remains positive of the future as OEMs are aggressively expanding and focusing on new model development. Architectural Glass Architectural glass is another key business segment of AIS where it enjoys a strong brand reputation among the major construction and real estate players in India. The Company is one of the major industry players in the category given its exceptional quality, range of value added products and diverse product application areas and pleasing aesthetics. The Company manufactures a wide range of float glass, processed glass and other value added products. The product range of this SBU includes heat reflective glass, energy efficient reflective glass, solar control glass, uPVC Windows, tempered burglar proof glass, lacquered glass, frosted glass, sound resistant glass, impact resistant glass and many more products, in varied thickness, colours and other specifications. Industry structure and development The construction sector in India absorbs nearly 65-70% of the supply from the glass industry. However, the past fewye ars have been quite difficult for the industry as peaking real estate prices and slowing economy had led to low demand from the residential, commercial, hospitality and retail segments. Moreover, most of the projects faced delays in project approvals, environment clearances, financial issues and poorly executed public-private-partnership projects that crippled growth in the sector. Performance The Float Glass SBU of AIS witnessed another good performance last year. The major highlights of AIS Float Glass SBU are: • Revenues were recorded at Rs. 800.57 crores in FY 2015-16 as against Rs. 827.96 crores in FY 2014-15. Sales from new products launched in the brvious fiscal gained significant acceptance among the real estate and construction players. • Segment profits before interest and un-allocable items increased by 117.94% from Rs. 56.81 crores in FY 2014-15 to Rs. 123.81 crores in FY 2015-16. The new products introduced by AIS during the year include: • Chrome yellow, hazel brown, stone grey and turquoise green DEcor shades in the lacquered glass range • Opal+ Olive Green in the solar control Opal HC reflective glass • Solar control glass with thermal insulated (Low-E) properties that can be used in single glazed applications in the Ecosense Edge • Suprême Gold in the SunShield Heat Reflective Glass range. • Cross hatch and T-weave designs of Opal Trendz Operations The Company undertook various productivity improvement exercises during the year. Product innovation and new product development has been a key strategic area that positions AIS uniquely in the industry. The Company continued branding and promotional activities, customer meets and dealer engagement programs. Participation across various events and exhibitions were carried out to promote products, receive insights on industry and new technological developments. The Company launched various social media, print media and digital media marketing campaigns to promote product and service offerings, new product launch, company updates and undertake engaging activities. Outlook AIS continues its value added journey focussing on increased proportion of value added products that are eco-friendly, have excellent quality, better features and great aesthetics. The Company is well positioned to cater to increasing demand of architectural glass segment. Consumer Glass The Company in a bid to provide end-to-end solutions to consumers started the Consumer Glass SBU that focusses on providing consumers various after-sales and repair services. The SBU plays a critical role in establishing the brand position of AIS as it engages in dealing with end customers. The various solutions offered by the Company include: • Integrated services for glass selection and installation for homes, offices and commercial establishments through its subsidiary, GX Glass Sales and Services Limited, under the brand name of GlasXperts. The Company has also launched a new website for GlasXperts having rich user interface to provide consumers necessary information and assist them in choosing products as per their requirements. • Repairing and replacement of windshields and other allied services for the automotive solutions through Windshield Experts, which happens to be the only company in India for such solutions. • Distribution of automotive safety glass and sealants manufactured by the Company to dealers and retailers through AIS Distribution Services Limited (formerly known as Asahi India Map Auto Glass Limited) and AIS Adhesives Limited respectively. Quality The Company lays significant importance to quality across all operations, products and processes as an endeavour towards excellence. The Company practices total quality management (TQM) that focusses on high level of employee engagement and various improvement themes (like deep analysis, kobetsu, kaizen and PDCA among others). It also provides knowledge upgradation training to employees on regular basis to enhance workforce compEtence. Strengthening of TQM culture for consistent and continuous improvements is a regular practice. Information Technology (IT) IT infrastructure is one of the most important elements driving growth at AIS. It provides a competitive edge to the business through efficient management, streamlining and automation of operations across all the plants and offices of the Company. The Company's IT function is responsible for planning, developing, and running information systems that have a direct bearing on the business operations. • AIS has a very lean IT team and engages Accenture as its Strategic IT Outsourcing Partner for managing the entire IT requirements of the Company. It includes the management, support and maintenance of Oracle R12 E-Business Suite applications, Business Communication systems and support/ maintenance of custom and third-party applications developed in earlier phases of the ERP implementation. The Company shall continue to invest and upgrade its IT infrastructure on a regular basis to meet the growing requirements of business and manage complexities efficiently. Risks Risk management is an integral part of the Company's operations as it protects the Company from uncertainties due to various external and internal factors. It helps in strengthening business operations through better planning and being brpared to face challenges. Human Resources The Company considers employees to be the most important assets that can guide the Company to growth. Combrhensive and well-structured HR policies of the Company ensure growth of employees at personal and professional levels. The Company focuses on attaining the highest levels of employee involvement by increasing their participation in QC (quality control) circles, kaizen and suggestion schemes. The Company also focuses on providing regular knowledge up gradation and training to employees to enhance their work skills and contribute towards its growth. These trainings also inculcate leadership skills that enable the Company to identify key management personnel. The Company emphasizes on integrating key function areas across different functions ensuring better synergy and intra and inter-functional effectiveness. |
