MANAGEMENT DISCUSSIONS AND ANALYSIS REPORT a) Structure and Developments, Opportunities and Threats, Performance, Outlook, Risks and Concerns: Indian consumer segment is broadly segregated into urban and rural markets and is attracting marketers from across the world. The sector comprises of a small effluent class, growing middle class and large economically disadvantaged social strata who are primarily dependent on farming/other labour job etc. with spending anticipated to be more than double by 2025. A recent study by the McKinsey Global Institute suggests that if India continues to grow at current pace, average household incomes will triple over the next two decades, making the country the world's fifth- largest consumer economy by 2025, up from the current 12th position. According to report by BCG and CII, India's robust economic growth and rising household incomes would increase consumer spending to US $ 3.6 trillion by 2020. The maximum consumer spending is likely to occur in food, housing, consumer durables, transport and communication sectors. Growth in demand from rural and semi- urban market is essential to outpace demand from urban market for consumer goods. The consumer durable sector in India is one that is passing through some very interesting times. On the one hand there is substantial scope for expansion as the favourable demographics of India are positive for the sector, on the other hand there are factors like adverse fluctuations of exchange rate as well as stiff competition provide a challenge that the company is geared to accept. Your Appliance Division improved its performance in terms of increase in sales, however, EBITDA margin is continuously under brssure. Front Loaders - IFB Front Loaders of 5.5-8 kg capacities operates with a dominant market share close to 50%. The company has launched a range of new models which will strengthen market shares, especially in the mid and high end segments. We have introduced models with high-end designs and user interfaces, including models driven by smart mobile based technologies and a range of new washing applications. For exports, your Company has commenced commercial supplies to a Japanese major under an OEM arrangement. The company expects to get more export orders during current year. Top Loaders - IFB's own manufactured range started commercial production in fourth quarter of 2014-15. This includes a range of fully automatic top loaders in the 6.59.5 kg capacity range with high end 'Deep Clean' technology and unique wash features. The company has achieved a sale of 119,000 numbers of washing machine during 2015-16. The top loaders have created a niche position in the market with their aesthetics, features and wash performance. This category will be key towards revenue growth of the division. We believe we have about 15% market share in the segment we operate in. Microwave Ovens - IFB is the 3rd largest player with a market share of around 18%. A complete new range of products were introduced from 3rd quarter of 2015-16. IFB is one of the few companies actually registering strong and healthy growth in this category . IFB continues to run the industry's largest microwave cooking class programme under the brand" Spice Secrets" which teaches our customers to optimize microwave oven usage post purchase. More than 125,000 customers have attended these classes last year. Built in ovens, chimneys and hobs - We have focused on increasing displays across all markets. There has been a special focus on local level promotions to drive traffic for these categories to IFB Points. The IFB Point channel is a key driver for growth in this category. The company has 5% market share as on date which will expand in subsequent quarters as market placements are increased. Modular Kitchen - The pilot store in Goa is fully operational in Q4. In Q1 of FY 16-17 our store in Bangalore will be fully operational. The initial respond to our offering to customer in Goa has been very good and enquiry pipeline is very encouraging. Air conditioner - IFB is a new player in the market in this category and its products are well accepted by the customers. As a product, performance has been of a high level. The new product range will enhance this experience as the product has been improved further in the key areas of energy efficiency and performance at high ambient temperature. IFB range is unique in terms of features such as 52oC compliant combrssors across all models, green gas and copper piping - all features designed for high-end performance. The appliance division operates via five key channel segments through which it reaches its customers base- 1. Multi brand stores - a. These are the large format chain stores that operate on a pan-India basis. b. The regional/town level single stores inclusive of regional and geography specific chain stores. The above channels contribute 60% by volume of IFB's sales. 2. IFB exclusive stores (IFB Points and the IFB website)-These stores display the full range of products that the company offers. The IFB website is also an important online store serving the same purpose. IFB Point & IFB website contribute 16% & 18% of sales by volume. 3. CSD/defence canteens, institutions etc. These channels contribute 6% of the Company's sales by volume. 4. The channel of dealers who are also service providers- This segment specifically addresses air conditioner sales. 5. The channel of distributors- This channel is driving your Company's channel expansion programme. One of the critical areas for the Appliances Division is the service function and its reach to the customers. We have a total of 740 service franchisees across India. We have 29 service training centres, which are fully equipped to impart training on all aspects of assembly, dismantling, installation etc. Sales of additives and accessories continue to be a key focus area and are expected to continue to contribute significantly, both to the topline and bottomline in the current year. IFB's 4 million plus customer base is being tapped to increase the sales of additives and accessories that have been repackaged and now sport a contemporary look.The Company's own call centre at Goa continues to be effective in issue resolution and customer feed back. It has a total capacity of 120 people (brsently 90 seats are occupied). IFB has also outsourced call centres at Munnar and Hyderabad. The service centre at Goa focuses on outbound calls to track and improve customer satisfaction and also to reduce the number of pending customer issues through focused data tracking. As a customer contact programme, we continue to contact customers directly and then visit them. This is increasing customer satisfaction and also generating higher revenues from the customers visits. Amongst the major issues Appliance Division addressing are: 1. Retail dominance from large players and consolidating small players that provide the company with a cost challenge. 2. Adverse exchange rate fluctuation. The Appliance division achieved a net revenue from operations of Rs 122,898 lacs and a 19.9% growth over the last year. Sale of Front Loader and Top Loader increased by 11% and 229% respectively. Sale of Microwave ovens increased by 17% over last year sale and those of Air conditioners by 20%. However, due to, adverse exchange rate fluctuation, product mix and high overhead etc. the PBDIT margin of the division had adversely affected as compared to last year. With the resolution of coal mine issue, the domestic demand for heavy commercial vehicle is showing signs of recovery. The "Make in India" programme will certainly help to reduce imports and boost domestic demands. The various initiatives by Government of India and the major automobile players in Indian market are expected to make India the leader in 2 wheeler market. The automobile sector witnessed a marginal growth last year. The Industry now expects a three to five percent growth in 2016-17 due to improving macro-economic sentiments, stable commodity prices, restart of mining activities and infra projects and higher industrial activities with an improved investment climate. Due to weakening demand for new vehicles, revenue growth of auto component suppliers remained subdued during 2015-16. Apex Court decision to ban diesel car in New Delhi has Pan India impact. Motor cycle sales saw a drop in the last quarter with rural demand dropping. Your company has undertaken a drive to increase its customer base. Despite stiff competition, the engineering division including the after market division grew by 15.09%, due to strong marketing initiatives and introduction of highly critical engineering auto parts. The AFM vertical focused on brand building for the "ULTRAMILES" retail brand and expanding into new geographics. Growth in the Fine Blanking Division (FBD), is being sustained with regular capital expenditure despite its impact on the ROCE. The FBD is aggressively building a profitable order book. The FBD is also focusing successfully on increasing the customer base, both in auto and non-auto segments and substantial orders are expected. The issues that FBD is successfully addressing include- i. Strong pricing brssure from customers & competitors. ii. Consistent increase in power cost. iii. Rapid increase in minimum wages. iv. High cost for new machinery & technology v. Timely Raw material availability vi. Fluctuation in volumes resulting in inventory and debtors. The Fine Blanking Division achieved net turnover of Rs. 27,196 lacs and registered a growth of 15.09% as compared to last year. The operating PBIDT for the division achieved Rs 3,434 lacs and registered an increase of1.4%. b) Internal Control Systems and their Adequacy : Your Management has put in place effective Internal Control Systems to provide reasonable assurance for: • Safeguarding Assets and their usage. • Maintenance of Proper Accounting Records and • Adequacy and Reliability of the information used for carrying on Business Operations. Key elements of the Internal Control Systems are as follows: (i) Corporate policies for Financial Reporting and Accounting. (ii) A Management information system updated from time to time as may be required. (iii) Annual Budgets and Long Term Business Plans. (iv) Internal Audit System. (v) Periodical review of opportunities and risk factors depending on the Global / Domestic Scenario and to undertake measures as may be necessary. (vi) Application of Internal Financial Control - Your Company has in place adequate internal financial controls with reference to the Financial Statements. Such controls have been tested during the year and no reportable material weakness in the design or operations was observed. Moreover regular review of the processes ensure that such systems are reinforced on an ongoing basis. Over and above Company's in house Internal Audit team, the Company has appointed PWC & KPMG , renowned firm of consultants to ensure compliance and effectiveness of the Internal Control Systems at various locations. The Audit Committee regularly reviews the Internal Audit Reports for the auditing carried out in all the key areas of the operations. Additionally the Audit Committee approves all the audit plans and reports for significant issues raised by the Internal and External Auditors. Regular reports on business development, future plans and projections are given to the Board of Directors. Internal Audit Reports are regularly circulated for perusal of Senior Management for taking appropriate action as required. Normal foreseeable risks of the Company's assets are adequately covered by combrhensive insurance. d) Human Resources Development and Industrial Relations: IFB is a knowledge-driven organization and its greatest asset is the experience and skill of its employees. Recognizing that the workforce will provide critical competitive edge in its growth endeavor, IFB has laid major emphasis on acquiring, maintaining and developing its human asset base. It offers a wide range of career development programmes including on the job training and job rotation amongst others. A highly evolved Human Resource Policy has ensured a minimal rate of attrition amongst executives. IFB's welfare activities for employees include Medical Care, Group Insurance and Canteen Facility. e) Cautionary Statement: Statements in the Management Discussion and Analysis and Directors' Report describing the Company's strengths, strategies, projections and estimates are forward-looking statements and progressive within the meaning of applicable laws and regulations. The actual results may vary from those exbrssed or implied, depending upon economic conditions, Government Policies and other incidental factors. Readers are cautioned not to place undue reliance on the forward looking statements. On behalf of the Board Bikram Nag joint Executive Chairman & Managing Director Dr. Rathindra Nath Mitra Director Registered Office: 14, Taratala Road Kolkata - 700 088 Date : 18 May 2016 |