I am pleased to share with you some further developments
in your Company since my last letter to you last
year. The year 2006-07 closed well with the Company
achieving landmark performance, the annual sales
and operational income crossing the figure of
Rs.100 crores for the first time. The profitability
too improved substantially compared to the year
2005-06.
Considering the likely sustained growth of Indian
economy at around 9% per year for the next 2-3
years, most of our end user industries and customers,
who are largely in the Infrastructure Development
Sector, have been indicating a significant increase
in their annual requirements of steel castings.
Keeping this trend in mind, we are investing a
further sum of Rs. 1820 lacs in the current Financial
Year 2007-08 towards capacity expansion, additional
CNC Machines for our in-house Machine Shop, Energy
Conservation and R&D. These investments initiated
in November 2006 are likely to be completed by
September 2007. Investments made in the year 2006-07
amounting to Rs. 11 crores have been commissioned.
The installed capacity of your Company in the
current year is as follows
The installed capacity for the year 2008-09 will
be 13,000 Tons.
Considering the investments made in the last 3
years and investments proposed in the next 3 years,
we will be targeting top-line growth of 25 – 30%
for the coming 3 years, i.e. 2007-08. 2008-09
and 2009 -10. However, protecting the present
operating margins will be a great struggle due
to the following reasons:
1.
Raw material cost in the current financial year
2007-08 is up by more than 25% compared to 2006-07.
So far, we were
generally able to pass on the increase in the
input cost to our customers, but lately we are
finding greater resistance.
2.
Due to capacity expansion and the consequent need
to secure additional business, our ability to
press the customers
for price increase has been decreasing.
3. Due to buoyancy in the economy
there is definite shortage of skilled manpower,
and, to prevent excessive attrition,
we are forced to incur a steep increase in the
personnel cost.
4. As you know, the Company’s exports are now
to the extent of 40% of the total sales, and more
than 90% of these
are in Euros. Over the past 3 to 4 months, due
to the Rupee appreciating the exchange rates of
US$ with Euro
have taken a serious beating as follows:
| Currency |
February,
2007 |
June
2007 |
% Rupee
appreciation |
| Euro |
58 |
54.50 |
6% |
| USD |
44 |
41.00 |
7% |
5.
In the short term it is extremely difficult
to reduce the cost to compensate the appreciation
in the rupee value.
6. With 40% exports, we are confronted with
global competition and not merely local. Increasingly
tighter quality standards
both by Indian and International customers, without
being fully paid for the higher quality products,
are putting
strain on the operating margins.
7. The last few months have been seeing
an increase in the interest cost. This too will
put pressure on the margins.
In
order to protect the operating margins, a Senior
Management Team has been put in place to bring
about substantial
cost reduction through increasing manufacturing
productivity, raising internal quality levels,
reducing internal
rejections, reducing raw material procurement
cost, reducing interest cost by hedging &
treasury operations
etc. Effect of all these measures will be reflected
in Quarter 2 of 2007-08.
The Company is fully on track with respect
to its Vision 2010 and the financial results
of 2006-07 are one year ahead of our Vision
projections.
I am happy to share with you that your Company
has received the following recognitions and
awards:
1.
ISO 14001 and OHSAS 18001 Certifications
concerning Environment and Occupational Health
& Safety from TUV Nord,
Germany.
2. SILVER SHIELD in the category of “Star
Performers” in 2007 in the product group of
Industrial Castings in Large Enterprises
from Engineering Export Promotion Council (EEPC).
We had received Certificates of “Export Excellence”
in 2005 and 2006 also.
3.
“Best Vendor (Category-Castings)” award
from M/s. Bharat Earth Movers Ltd., Bangalore,
in recognition of outstanding
performance in supply of materials during 2006-07.
Please find below the comparison of Company’s
performance during the year 2006-07 with 2005-06:
| Sr. No. |
Aspect |
Unit |
2006-07 |
2005-06 |
% improvement |
| 1 |
Total
Income |
Rs.
Lacs |
10103.98 |
7616.45 |
33 |
| 2 |
Operating
Profit (PBDIT) |
Rs.
Lacs |
2037.26 |
1514.34 |
35 |
| 3 |
Profit
Before Tax (PBT) |
Rs.
Lacs |
1719.91 |
1313.59 |
31 |
| 4 |
Profit
After Tax (PAT) |
Rs.
Lacs |
1117.94 |
874.46 |
28 |
| 5 |
Return
on Net Worth (RONW) |
% |
41 |
47 |
- |
| 6 |
Return
on Capital Employed (ROCE). |
% |
24 |
30 |
- |
| 7 |
Earnings
per Share (EPS) |
Rs. |
31.43 |
24.19 |
30 |
| |
|
|
|
|
|
I have also passed on all the above information
to the shareholders who were present in the
Company’s AGM held on 15.6.2007.
I would like to place on record my sincere
appreciation of the contribution of our employees
at various levels and also thank all the stakeholders
for supporting us, without which your Company
could not have achieved the level of performance
reflected above.
Finally, I convey my personal gratitude for
the confidence that you have reposed in your
Company’s Board of Directors and hope that you
will continue to extend your wholehearted support
to us in our quest for further accelerated progress
of your Company.
I look forward to being in touch with you and
sharing my perceptions in future also, periodically.
With regards,
Yours sincerely,
(Chetan Tamboli)
MANAGING DIRECTOR
