From The ED’s Desk About Us

Shome Danani
Executive Director

Dear Shareholders,

In July 2019, after almost 5 decades, the Hon’ble Finance Minister Nirmala Sitharaman became the second woman in India to ever present the Union Budget. The challenges facing her were vast. The overall unemployment rate has climbed to 6.1% and India has lost the tag of the world’s “fastest growing economy”. Despite this, the OECD estimates India’s GDP growth to be above 7% in the next two years.  In the short run numbers fluctuate, so the important question is, “where is the Indian Economy headed in the future”? And will the government do enough to ignite growth?

The financial year 2018-19 has been a better year for your company compared with the previous couple of years. The Transformer division sales turnover has grown 9% despite harsh competition and depressed prices. Order booking was the highest ever, growing by 38%. This is an achievement in such a competitive market that has not seen any increase in overall demand. Consolidation in the industry is inevitable as over capacity has plagued the market for many years now. However, new capacities seem to somehow keep being added, and margins continue to be under pressure. Expanding our customer base has been a focus area for us over the last few years. As a result of this, our market reach has grown substantially.  

The Motor business has had a good year registering a strong 42% year-on-year sales growth. A number of factors have contributed to this growth. A tight rein on  price realizations, implementation of new energy efficiency standards, and an increased geographic and sectoral coverage have all played a key role. Our division has done well to respond to a sudden spurt in demand by ramping up capacities at short notice. As a result of these efforts market share has increased significantly. The market factors that drove this growth may not sustain and we must be cautious in our expectations. For the second time in three years we have received the CII (Confederation of Indian Industry) Award for the ‘Most Innovative Energy Efficient Product’ for a motor that we have developed in-house.

The Projects division took steps last year to identify certain high potential but low risk segments for order input. This has culminated into the booking of some good orders as per the plan. It will open up further revenue streams in oil and gas, defence, and some specific utilities. We continue to be choosy and avoid taking unnecessary risk in this space.

The Magnet Technology Machines division (MTM) grew 44% on the back of good export orders for elevator machines. Our focus in the coming year will be to maintain our leadership in the domestic market and increase export sales.  This year we will focus on new product development, both in gearless and special direct drive machines. Our new MTM plant has been certified as a ‘Green Building’ by IGBC (Indian Green Building Council).  

Drives & Automation is working closely with the MTM division to develop solutions that will combine motor and drive to improve productivity and energy efficiency of equipment. This will have a number of applications in textiles and plastics. Foreign exchange variations have been affecting our margins and we are taking steps to address this. Our efforts to leverage the synergies of both these divisions and offer an integrated solution to the market should pay off soon.

The World Bank expects global growth to weaken to 2.6% for 2019. A number of macroeconomic factors are contributing to this. A looming trade war between the world’s two biggest economies is bound to have repercussions for the rest. In Europe the Brexit stalemate continues in the United Kingdom, threatening to split the union itself. Even Germany, Europe’s largest economy, has cut its GDP estimate to its lowest in the last 5 years. Trade barriers, renewed financial stress, and protectionist governments are taking their toll. Overall growth is muted and credit is tight.

In India the Modi government has returned with a thumping majority and hopefully they will be able to push through some major reforms. The task however is challenging with the current NBFC and banking crisis leaving financial institutions staring at an unprecedented number of NPAs (non-performing assets). The recent budget in July 2019 has mentioned a large figure to be allocated to infrastructure. It does not however tell us where this money will come from. This kind of stimulus is the need of the hour. Let us hope that this materializes soon.