MANAGEMENT DISCUSSION AND ANALYSIS

INDUSTRY OVERVIEW:

During the F.Y. 2015-16, India's Macro economic scenario remained stagnant with demand for Capital Goods waiting to recover. The investment by the state power transmission utilities (transcos) is expected to get momentum. With the budget target of 100% village electrification by May 2018, coupled with Government projects like Green Energy Corridor for power generation from renewable resources would augment the growth of Transformer industry in medium term. Overall CAPEX by corporate both private and public sectors, are much lower and with that limited demand is being chased by huge capacity. This has caused industry's capacity utilization at sub-optimum level and price realization and liquidity problem is still faced by most of players in transformer industry.

However, the inflation rate, currency rate fluctuation and the release of planned funds for the power sector are the challenges adversely affecting the performance of the industry. The market is crowded with capacity expansion by all players and sizable investments by the Chinese manufacturers. The uncertainty and slow down in the overseas markets are expected to substantially affectthe exports potential.

OUTLOOK FOR THE COMPANY:

With Inflation on downward trend, the Reserve Bank of India finally initiated a cycle of interest rate cuts. Investment in industry however continue to be impacted by interest rates, which continue to remain relatively high, and slow pace of project implementation. However, the industrial economy continues to witness sub-par growth with the capex cycle clearly awaiting more policy actions from the Government before taking forward its investment decisions. Company is continuously focusing on cost control to effectively fight competition. Aggressive pricing by the new entrants from the chinese market and multinational companies will impact the margins of the Company in the near future. The medium term perspective of the Company is positive considering the planned expenditure in the power and distribution sector, with reduction in interest rates by banks, the stuck projects are likely to be revived over a period of time.

Considering the future plans of the Government such as 100% Village electrification by 1 May 2018, Power for all by 2019, and Green Energy Corridor, the outlook for our Company seems positive in the long run.

As on date orders available for execution in the current year amount to Rs. 285.48 crores (5407 MVA) providing revenue visibility for 6 to 7 months period.

The Company could achieve sales of Rs. 563.30 crores (9202 MVA) as compared to Rs. 516.88 crores (8389 MVA) in the brvious year and the PBT increased to Rs. 59.29 crores as compared to Rs. 33.39 crores in the brvious year and PAT increased to Rs. 43.98 crores as compared to Rs. 28.41 crores in the brvious year. 

FINANCE:

The Company continued to remain debt free during the year. The Company continued to focus on optimizing its working capital to improve cash position. The Company could leverage its cash availability position to get better terms from suppliers. The Company has maintained excellent relationship with its bankers and was able to enjoy favorable terms for various banking facilities. The Company has continued investment of surplus funds available, invarious debt and equity schemes of mutual funds, fixed deposit with banks, debentures and bonds, PMS, tax-free bonds, etc. and earned a reasonable return on the same and the Company has also expanded its investment portfolio, from time to time. The receivable position and inventory holding level is not improving and higher investment in receivables and inventory has become reality for the Company to live with. In this uncertain market condition, the Company has limited options todeal with this situation.

FACTORS AFFECTING OUR FUTURE RESULTS OF OPERATIONS:

The major factors affecting future results of operations of your Company are the currency fluctuation, competitive brssures from local as well as recently entered International competitors, Govt. policies on powerand infrastructure sectors and project implementation, large unutilized capacity in Industry, aggressive pricing, continuing and highly volatile raw material prices, and timely availability of imported raw materials at budgeted cost.

HUMAN RESOURCES:

The Company is a firm believer that its employees are its strength and the Company therefore respects individual rights and dignity of all its employees. Training, Learning expands the knowledge base of employees and isa key element in the development of organization, thus adequate time was committed to such trainings. The Company focuses on providing the employees, employee - friendly environment and culture and career growth opportunities.

INTERNAL CONTROL SYSTEMS:

The Company has in place, effective internal control systems and policies for compliance of laws andto safeguard the interest of the Company. The Company maintains a systemof internal controls designed to provide reasonable assurance regarding the efficiency and reliability of operations and for safeguarding the assets of the Company and for ensuring appropriate recording and reporting of financial information for ensuring reliability of financial controls and for ensuring compliance of applicable laws and regulations.

The internal financial controls are adequate and are operating effectively and there are proper systems in place to ensure compliance with the provisions of all applicable laws and such systems are adequate and operating effectively.

The internal audit covers a wide variety of operational matters and ensures compliance with specific standards with regard to reliability and suitability of policies and procedures.

The internal auditors report to the top management through Chairman & Managing Director and continuously monitors adherence to laid down systems and policies. Services of internal auditors are being outsourced through established audit firm. The systems are regularly reviewed and modified for changes in operating and regulatory requirements.

The Audit Committee reviews the adequacy and effectiveness of internal control systems and suggests improvement for strengthening the same from time to time.

RISKS & CONCERNS:

The major risk factors affecting the Company are overcapacity in industry, non-lifting of ready materials due to cash constraints at customers' end building inventory and liquidity issues, increase in receivable positions due to delay in payment by certain customers, uncertainty in execution of low fixed price orders. The wide fluctuation of rupee against US Dollars also affects margin since the key raw materials, viz. copper, transformer oil, special steels for lamination, etc., are of import origin.

STRENGTH:

The Company is debt free since many years and havinga good amount of investments of its surplus funds in diversified portfolios, viz. debt and equity mutual funds, bonds, debentures, fixed deposits, PMS, tax-free bonds, etc. and the Company has efficient working capital management. The Company has a diverse industrial client base and nondependent on any particular industry segment or region to book orders.