FIEM Industries Chairman Speech

Dear Shareholder’s

What is remarkable about India is that even after reporting lower growth for 2017-18, its GDP growth averaged 7.3% from 201415 to 2017-18, the highest among major economies.

At FIEM, we believe that this outperformance was achieved on the back of low inflation, improved Current Account balance and reduced fiscal deficit-to-GDP ratio.

The year under review was marked by structural reforms undertaken by the Central Government. In addition to GST introduction, the year witnessed significant steps towards a resolution of problems associated with non-performing assets, FDI liberalisation, bank recapitalisation and privatisation of coal mines.

Although there could be several reasons attributable to this slower growth, the most apparent was investment deceleration resulting from spiralling NPAs from across the nation’s banking system. What this means is that the banks are now far more selective in offering term loans or working capital debt, reducing funds availability for several up-and-coming companies. Besides, just when the dampening effects of demonetisation had begun to recede, the implementation of Goods & Services Tax (implemented on July 1, 2017) reduced production and offtake for a couple of months.

Against this challenging backdrop, the performance by the Indian twowheeler industry (especially the domestic motorcycles segment) proved impressive. After registering a contraction of 0.4% during FY2015-16 and a growth of 3.7% during FY2016-17, India’s motorcycle sales grew 13.7% during FY2017-18, exceeding 12.6 million units, the fastest in the country since FY2010-11.

Following consecutive years of deceleration, India’s motorcycle exports increased 22.6% during the fiscal gone by to reacRs.2.48 million units. Finally, the scooters segment continued to perform creditably, with domestic sales growing at 19.9% to 6.7 million units.

FIEM replicated this sectoral resurgence and growth of the automotive segment with a corporate growth of 29.14% that translated into a turnover of Rs. 1,225.13 crore (Rs. 948.70 crore in the previous fiscal). However, on the overall basis, the company’s growth was relatively muted at 22.31% due to a sharp decline in the turnover of the LED general lighting segment.

This robust growth in the automotive revenues can be attributed to FIEM’s ability to consistently manufacture research-led products integral to the plans of its valued OEM customers. FIEM capitalised on enduring institutional relationships to generate value- and volume-based growth. The convergence of a world-class R&D platform, futuristic design team and state-of-the art manufacturing capabilities broadened FIEM’s range of new-gen proprietary products. The sizeable time and resources expended by the Company in scaling capacities and capabilities resulted in enhanced organisation-wide synergies. The Central Government’s decision to enact the AHO regulation under the BS-4 regime strengthened the automotive lighting business, reinforcing sales of energy-efficient daylight running lamps, accelerating the adoption of LED automotive lighting and improving realisations. The proof: during the year under review, FIEM’s profit after tax improved 60.12% to Rs. 52.55 crore (Rs. 32.82 crore during FY2016-17).

FIEM continued to launch new products across select models to cater to valued OEMs. These products were equipped with advanced features and superior aesthetics. A strong pipeline of products under development, sizeable order book, prudent R&D investments as well as designing, testing and manufacturing infrastructure augurs favourably for the Company. The Company invested Rs. 133 crore to create the next growth platform during the year under review.

The increasing LED adoption by OEMs has widened opportunities for FIEM. Since LED lighting solutions are dearer than conventional variants, they can generate superior margins. Despite needing to pay higher prices, OEMs are willing to shift to these products on account of their energy-efficiency and superior aesthetics. The wider adoption of LEDs should translate into higher sales and margins for FIEM. The Company reinforced its future-readiness by commissioning world-class R&D centres in India, Italy and Japan manned by knowledgeable and experienced personnel. Thanks to the longstanding relationships that the Company enjoys with Indian and global OEMs, FIEM is poised to capitalise and stay ahead of the curve.

FIEM is investing in its business to stay abreast of latest trends and technologies. A number of initiatives undertaken by the Central Government have brightened FIEM’s prospects. The National Electric Mobility Mission Plan 2020 aims to create a fleet of ~7 million electric cars by 2020. The Indian automobile industry is engaged in conforming to the stricter norms laid down under the BS-VI regulations (implementable in 2020). These realities should pave the way for FIEM to venture into new territories by leveraging its understanding of new technologies.

In view of these developments, FIEM entered into joint venture with Aisan Industry Co. Ltd. and Toyota Tsusho to manufacturing fuel pump modules for the domestic market.

Perhaps the single-biggest disruptive development that transpired during the year was the implementation of the GST, a landmark taxation reform in the history of the country. The Company took a number of decisive steps to deal with GST implications and despite a temporary industrywide supply disruption in June and July 2017, FIEM reported a seamless transition to the GST regime.

On 25th January 2018, a fire broke out in one portion of Unit#5, situated in Hosur, Tamil Nadu, that resulted in substantial damage to plant, machinery and inventory. However, the management restored supplies immediately to customers, helping business to return on normal. These assets were adequately insured and necessary claims were lodged.

The World Bank has projected India’s economic growth to accelerate to 7.3% in 2018-19 and 7.5% in 2019-20. Strong private consumption and a growth in the services sector are expected to support higher economic activity. India’s middle-class is expected to expand significantly, strengthening the demand for two-wheelers.

In this great time of optimism, positive energy and enthusiasm, we remain focussed and want to remain firmly on our journey of growth and seek support, guidance and patronage of all stakeholders and well-wishers!

J.K. Jain

Chairman and Managing Director