It has been another year of stellar performance by your Company in a challenging environment which involved skillful handling of the risks posed by high raw material prices, transition to new GST and the transition from BS III to BS IV emission standards for automobiles.
Industrial production, which saw a low to moderate growth as we entered into FY18, has picked up of late, as the economy is showing clear signs of having overcome the combined impact of demonetization and GST implementation in the previous year.
It is heartening to report that your Company was able to significantly improve its total revenue in FY18 with a growth of 14% over the previous year (growth of 22% after adjusting the excise duty in the previous year to make it comparable with the post-GST regime). Operating profit before exceptions recorded a phenomenal increase of 125% despite the challenging business environment, especially the increase in prices of raw material, as well as higher manpower costs and fierce competition from new and established Competitors. Despite the challenges, your Company has been successful in sustaining and growing market share across segments without sacrificing profitability on the back of the efforts of the last few years to strengthen the Company through the strategic emphasis on operational efficiency as well as placing renewed focus on both the Kennametal and WIDIA brand products to better leverage all possible opportunities for growth in the cutting tool market.
The Operating structure of your Company, involving dual brands in metal cutting tools business independently competing in the market has begun yielding positive results and is being driven more forcefully to make the Company more agile and competitive in the marketplace. As part of this effort your Company has initiated steps for incorporation of a Wholly owned subsidiary for sale of “WIDIA” brand products. Your Company continues to localize tooling products and make capital investments to meet the quality standard and demand, both at domestic and international levels.
Our product offering includes a wide selection of standard and customized technologies for metalworking, such as sophisticated metal cutting tools, tooling systems and services, as well as advanced, high-performance materials, such as cemented tungsten carbide products, super alloys, coatings and investment castings to address customer demands. We offer these products through a variety of channels to meet customer specified needs.
Your Company also provides end-to-end solutions in design and manufacture of high precision Special Purpose Machines to meet the needs of end users in automotive, defense, railways, infrastructure and General engineering segments.
Your Company’s products are used in almost all manufacturing industries, with the automotive, aerospace, infrastructure and machinery manufacturers being major users. The major user industry is the Transportation sector at present and therefore the developments in this sector will have a direct impact on the demand for metal cutting tools market.
During the year, your Company continued to launch new products under the “INNOVATIONs” range for the Kennametal brand and “ADVANCES” for Widia Brand. Some of the major products for the Kennametal Brand are new generation Drilling “Kentip FS”, Modular end mill system “DUOLOCK”, new generation Solid Carbide Drill “KMH” for hard materials, Solid Carbide Dynamic Milling “Harvi TCDE”, Finish Milling “KCFM” and new Short Shrink Holders. New Products under the WIDIA Brand include a new shoulder milling solution VSM490-10, solid carbide endmills VariMill II ER & VariMill III ER for advanced milling in exotic, aerospace materials, high speed aluminium profiling and pocket milling cutter VHSC and a new solid carbide drill TDS45 for drilling in stainless steel. The sales from such new products launched over the last five years today constitute 40% of total current year Hard Metal Product sales.
For fiscal year 2019, the Company’s outlook is moderately positive with the private sector investment showing signs of revival. There is optimism regarding continuance of the present situation of strong demand for cutting tools especially from the Transportation Segment. The optimism is mainly because of the sustained buoyancy in demand for vehicles and the expectation of demand arising out of the mandatory transition of automotive engines from BS-IV to BS-VI emission norms in April 2020 because of which the transportation sector is expected to sustain the double-digit growth. Moreover, the monsoons are expected to be near normal and there is expectation of good demand from the tractor segment. Aerospace is another segment which is beginning to show promise.
However, the intensity of competition is expected to continue with almost all global players making India a manufacturing location for production of tools. The trend of raw material price increases is also expected to continue because of the sustained demand as well as the weakening of the Indian Rupee against the US Dollar. Despite these headwinds, the management continues to focus on the various growth initiatives and development of new products as key drivers to continue to maintain profitable growth. Profitability improvement will remain a key focus area for FY19 as well. Your Company will continue to drive growth through efforts at offering the best service and differentiated products to its customers.
The primary challenges continue to be the pricing pressures arising from intense competition for market share especially from Asian Players and increase in raw material costs. The weakening of the Indian Rupee will also have an impact on price of the raw materials, all of which is imported. However, the Company is making all out efforts to sustain its strong performance based on superior product quality and strong brand together with a sustained focus on providing Customers with innovative solutions to stay ahead of competition.
In order to meet Customer expectations of faster delivery of the products, your Company has invested in working capital for stocking of additional inventory of fast moving imported products. The strong focus and monitoring of Receivables continued and has resulted in improved DSO (Days Sales Outstanding). It has been reduced by 7 days (56 days in FY17 to 49 days in FY18).