MANAGEMENT DISCUSSION AND ANALYSIS INDUSTRYSTRUCTURES AND DEVELOPMENTS In India, the investment climate is still plagued with structural issues of the past few years. The country is trying to deal with the legacy of large number of stalled projects. Majority of the stalled projects are in the manufacturing and infrastructure. Within infrastructure, majority were related to electricity and power, where the primary issue is non-availability of coal linkages. Infrastructure projects which are related to construction and real estate, lack of adequate clearances is the major impediment. The legacy of stalled projects has generated a vicious cycle of financial instability for infrastructure related companies and banks. India needs large scale investments in infrastructure to sustain high growth is well accepted fact. While there have been various problems in infrastructure development in India, it is also true that the new government at the centre is taking strides in the positive directions. Government has significantly increased allocation of investments in the union Budget 2015-16 by Rs 70,000 crore, with a focus on railways and roads. However, the long term prospects of the industry are huge and an opportunity area for us for times to come. Despite the focus on industrialization, agriculture remains a dominant sector of the Indian economy both in terms of contribution to gross domestic product (GDP) as well as a source of employment to millions across the country. Agriculture plays a vital role in the Indian economy. Over 70 per cent of the rural households depend on agricultureas their principal means of livelihood. There are multiple factors that have brdominantly worked in tandem leading to the growth of the Indian agriculture sector in recent years. These include growth in income and consumption, growth in food processing sector and increase in agricultural exports. Recognizing the importance of Agriculture Sector, the Government took a number of steps for sustainable development of Agriculture. These steps include enhanced institutional credit to farmers besides other steps. The Indian agriculture sector is expected to grow with better momentum in the next few years owing to increase in investment in agricultural infrastructure such as irrigation facilities, warehousing and cold storage. Factors such as reduced transaction costs, time and fiscal incentives will also contribute to this upward trend. The growth in the Agricultural Industry will help your company as it will result in robust growth in tractor volumes as well new products like track harvesters, rotavators launched in the recent past. As far as the growth of equipment manufacturers (cranes, construction, material handling and agri equipments) is concerned; it is linked with growth of infrastructure, real estate, agricultural and indirectly with the growth of Indian economy. It requires expertise, in terms of technology, design and providing customer satisfaction. It potential and market is huge; however only companies who would be able to provide good quality products at most competitive price will survive. The Company's ACE brand has emerged as brand for reliability and has been able to win the customer loyalty in all these years. ACE will continue its successful stint in the industry, through providing good quality products at most reasonable prices and complete customer satisfaction by its strong distribution and service network. ? OPPORTUNITIES ACE continues to focus on various strategies and initiatives to overcome challenges. These include consolidation of new generation cranes in the targeted market segments. ACE maintained its market leadership position and is well positioned to achieve growth in terms of volumes and market share through better service levels and by providing the best of technology atan affordable price. We believe that our proactive steps in providing best solutions to our customers and implementation of our strategies have brpared us for growth as demand picks up once the consumer sentiments improve with the expected revival of the infrastructure industry. In the Agri segment; company is looking at significant product expansions and improving its market share. We are increasing our brsence in few more states. We are, consequently, focusing on providing customers a complete range of crop solutions. To implement this. Company has also started production of Harvesters, rotavators etc. • THREATS • Economic downturn or slowdown can lead to decreased volumesand capacity utilization. • Continued threat of raw material price volatility translating into brssure on margins during a rapid increase in raw material prices. • Weekcurrency resulting in brssureon margins. • Any change in the government policy or its budgetary allocation to the infrastructure sector will have a major impact on Company's business. • Change in the tax structure of Sales Tax, Entry Tax, Service Tax, VAT etc. • Increasing competition from National and International players. • Unforeseen business losses • SEGMENT WISE OR PRODUCT WISE PERFORMANCE Company operates mainly in three segments i.e. Cranes, Material Handling/Construction Equipment and Tractors. The Company has a balanced approach to the Cranes, Material Handling/Construction Equipment and Tractor, which helps us in capitalizing on our strengths in all three segments and to respond to market fluctuations and customer strategies. Cranes and material handling / construction equipment division revenues were more or less similar to 2014 levels. Agri Equipment division revenues were down by 10.30 % in 2015 as compared to 2014 levels as tractor industry was down by more than 15 % due to poor monsoons, tightening of credit norms by banks / NBFC due to increase in NPA and delay in payment to farmers by the sugarcane industry. Cranes division profits increased by 20 % inspite of no increase in revenues mainly because of various cost initiatives taken by the Company. Material handling / Construction equipment division profits increased by 180 % inspite of slight reduction in revenues in 2015 as compared to 2014 levels due to cost initiatives taken by the Company. Agri Equipment Division profits were reduced by 66.50 % mainly due to lower volumes and increase in costs due to opening of new territories. • RISKS AND CONCERN The Company's ability to foresee and manage business risks is crucial in achieving favorable results. The Company operates in an environment which is affected by various risks some of which are identifiable and controllable. Some others are unexpected and cannot be controlled. Under these conditions, proper identification and management of risks is very important in determining the ability of the organization to sustain and create value for its stakeholders. The impact of the key risks which are listed below has been identified through a formal process by the management. However, the Company has been taking appropriate measures to mitigate these risks on a continuous basis. Some of the risks that are potentially significant in nature and need careful monitoring are listed hereunder: • Raw material prices volatility: Steel and other commodities are subject to price volatility and our profitability and cost effectiveness may be affected due to any increase/decrease in the prices of raw materials and other inputs. • Ability to pass on increasing cost: Ability to pass on increasing cost in a timely manner depends upon the demand supply situation and competitive activities and there has been a general reluctance as seen in the past, to make significant price hikes. • Continued Economic Growth: Demand of our equipments / machines is dependent on economic growth and / or infrastructure development. Any slowdown in the economic growth affects our growth. • Market Risks: Even as the Indian economy slowly recovers from the prolonged downturn, infrastructure spends will take time to kick in. Consequently, demand for construction equipments remains muted. Where ever there is demand, one find stiff competition from other players trying to secure these orders at such prices as may put unsustainable brssure on margins. • Foreign Currency Risks: Exchange rate fluctuations may have an adverse impact on the Company. • Cyclical nature of the Industry: The Company's growth is linked to those of the crane Industry, which is cyclical in nature. The demand for crane has a significant impact on the demand and prices of the products manufactured by the Company. A fall in the demand and / or prices would adversely impact the financial performance of the Company. Agriculture Industry growth is dependent upon normal monsoons and availability of finance from public sector banks and NBFC. The Indian met department is brdicting below normal monsoon in the current fiscal. Tractor sales run the risk of demand drop in case of significant variations in the monsoons. ? OUTLOOK Global economic conditions are expected to improve moderately in FY2016. Growth had stagnated in the Infra structure sector mostly on account of issues related to sovereign clearances and land acquisition. But, even as restrictive regulations are being eased or removed, industry sentiments are slow to recover, with large number of projects, being struck due to serious liquidity issues and lenders trying to limit their exposure to the ailing sector. Given the focus on infrastructure that the current Government has, we expect to see some improvements on the ground for the infrastructure development sectors. One believes that worst is behind for infrastructure in India. With signs of lowering interest rates, the construction and infrastructure sector is expected to pick up shortly. However, most markets will remain competitive but ACE due to its good customer relationship will penetrate the market and will gain marketshare. Your Company recognizes the tough times and we have already initiated significant cost reduction efforts, optimization of working capital requirements in order to minimize financing costs. These, coupled with other operational executions will enable the Company to register better performance in the coming years. The Management anticipates improvement in the economy and is confident that when the revival happens, with right focus and proactive approach your Company will be able to capitalize on the future opportunities. FY 2016 will be challenging for ACE, however, it is cautiously optimistic of its prospects. It will be a year for reviving the business with process improvement initiatives which should see better performance of the Company. ? CAUTIONARY STATEMENT Management Discussion and Analysis detailing the Company's objectives, outlook and expectations have "forward looking statement" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those exbrssed or implied depending upon global and Indian demand-supply conditions, changes in Government regulations, tax regimes and economic developments within India and overseas. _ |