Alicon Castalloy Chairman Speech

Dear Members,

I It gives me immense pleasure to share with you I the overall performance of your Company in i FY 2018-19.

I FY 2018-19 began with an expectation of higher | growth as the economy moved past the teething I troubles of the Goods and Services Tax (GST) roll-out. The second advanced estimates of national income for FY 2018-19, released by the I Central Statistics Office (CSO) on February 28, 2019, indicate that the economy could not continue I the expected growth momentum with 6.6% .¦ GDP growth in the third quarter of FY 2018-19, down from 8.0% and 7.0% growth in the first and second quarter of FY 2018-19 respectively. The CSO estimates overall GDP growth in FY 2018-19 at 7.0%, as compared to 7.2% in FY 2017-18.

This drop in GDP growth for FY 2018-19 was on account of multiple factors such as a rising Current Account Deficit (CAD), fluctuating systemic liquidity with a consequential impact on interest rates, sticky NPAs and a slowdown in the financing sector. The stress in liquidity was compounded on account of a debt default by a systemically important NBFC. The default resulted in money markets virtually drying up, impeding access to funds for borrowers such as NBFCs and Housing Finance Companies (HFCs) in the third quarter of FY 2018-19. This had an adverse impact on sales in the automobile sector, which was already grappling with rising fuel prices and a steep increase in the price of new vehicles as a result of new insurance regulations.

Since August 2018, CPI-based inflation has remained below the Reserve Bank of India’s (RBI’s) medium-term target of 4%, reaching a 19-month low of 1.9% in January 2019. This prompted the RBI to reduce interest rates in February and April 2019. Coupled with interventions by the RBI to increase liquidity, this has resulted in restoring credit flow and should have a positive impact this year.

Despite these challenges, your Company recorded a topline growth of 17% as compared to the automobile industry growth for FY 2018-19 estimated at 9%. This was coupled with a healthy growth of 27% EBITDA, which grew to 13% of sales. This high level of performance in the face of a challenging year for the economy is a testament to your Company’s mission to continuously diversify its customer and product base. This is a result of our G5 2020-21 vision which emphasised adopting a holistic approach in unifying the underlying strengths of our European engineering skills, Japanese quality and inherent creativity, backed by a focus on R&D and new technologies like 3D printing and scanning. This sharpened our edge over others, enabling us to engage with our customers at a very early stage in component development.

We believe that FY 2019-20 will be a challenging year, given (i) recent increases in international crude prices, (ii) that some high frequency indicators such as growth in manufacturing and capital goods, IIP and auto sales point to significant moderation in activity, amid a slowing global economy, (iii) that the possibility of El Nino and its impact on the monsoon poses a risk to food prices, (iv) that the budgetary and political announcements (income support for the poor), if implemented properly, would add an upside to inflation, and (v) the challenges likely to be faced by the Indian automobile industry as it transitions to the new emission norms BS-VI effective April 1, 2020.

On the International front, we note that the International Monetary Fund (IMF) has cut its global growth forecast to the lowest level since the financial crisis, warning of significant downside risks to the world economy, including trade tensions, pockets of political instability, mounting debt levels and increasing inequality.

In the previous year, we had shared with you our desire to augment our capacities through expansion of our production facilities with a new greenfield project at Khed, Pune. Even though your Company has taken significant steps in the face of a challenging FY 2018-19 (including “Shrink Balance”) to control operational costs and ensure the optimal utilisation of resources, given the uncertain environment we foresee in FY 2019-20, we have decided to postpone this investment for the time being.

We, at Alicon, managed to outperform the industry in FY 2018-19 despite difficult market conditions. We are cognisant of the hurdles we are likely to face in FY 2019-20, including changes in regulatory norms, but are confident that our efforts in building capacities and capabilities over the past few years will help us overcome these challenges.

We will continue to deepen our capabilities by (i) adopting best-in-class human resource policies, enabling us to attract talent, (ii) achieving higher levels of automation on the shop floor, (iii) aiding the development of vendor skills by helping with technical developments and resolving their financial structuring, (iv) enhancing our customer-centric off-road by integrating internal information systems to provide customers with a web-enabled bird’s-eye view of their orders at each stage within your Company, and lastly (v) adopting a robust review mechanism to monitor every performance-metric on a monthly basis.

Last year, we had shared with you our goal to remain ahead of the emerging disruptive technologies by exposing our key managers to the following areas: (i) additive manufacturing; (ii) augmented and virtual realities; (iii) development of advanced materials - to develop alloys that aid in optimising weight and mechanical properties and (iv) the use of machine learning and artificial intelligence in design capabilities. Our key employees’ engagement at international forums in these areas over the past year continues to keep us “future-ready” and sharply focussed on emerging technologies.

The current sombre environment does not dampen our spirits. It only furthers our resolve to achieve exponential levels of growth.

I take this opportunity to thank my colleagues on the Board and the Management team for their commitment and focus. Let me also thank all members of the Alicon family for aligning themselves to our North Star philosophy and working with dedication to translate our vision into a reality. In conclusion, I would also like to thank our business associates, bankers, members and all stakeholders for their constant support and cooperation.

Shailendrajit Rai

Managing Director