asi industries ltd share price Management discussions

Global economy

Global economic recovery endures but the outlook is uncertain again amid financial sector turmoil, high inflation, and three years of Covid-19 pandemic.

		Year-on-Year
	Estimate	Projections
	2022	2023	2024
World	3.4	2.8	3.0
Advanced Economies	2.7	1.3	1.4
United States	0.9	1.0	1.3
Euro Area	1.9	0.7	1.8
Japan	0.6	1.3	1.0
Emerging Market and Developing Economies	4.0	3.9	4.2
China	3.0	5.8	4.7
Russia	(4.0)	0.9	1.4

The global trade outlook may be at risk of downside due to renewed bottlenecks in the supply chain and weaker-than-anticipated global demand. The intensification of trade protectionism, fragmentation of trade networks, and security concerns about supply chains could further exacerbate trade concerns, leading to a slowdown in trade growth and supply chain disruptions.

Outlook

The economic forecast for the next ten years predicts a prolonged period of turbulence and unpredictability for businesses. Following the conclusion of regional recessions in 2023, global growth is expected to decelerate once more, with mature markets contributing less to global GDP in the coming decade. A portion of this deceleration can be attributed to the inherent convergence of previously fastgrowing economies such as China and Korea. In addition, the recent sluggishness may be attributed to slow progress in implementing structural reforms, escalating trade tensions, declining direct investment, and a slower adoption of innovation and technology in scattered regions. Nevertheless, companies can still capitalise on investment prospects in mature markets that require innovation to offset the decline in labour force. Furthermore, emerging markets present opportunities for investment in physical and digital infrastructure, owing to their large and young labour force.

(Source: https://www.imf.org/en/Publications/WEO/ lssues/2023/04/11/world-economic-outlook-april-2023)

Indian economy

Global uncertainties will weigh on growth this year, and India will need a strong rebound in investments to attain sustainable growth.

With respect to sector-wise growth, the agricultural industry experienced a growth rate of 3.5% in the FY 2022-23, while the industrial sector expanded by 4.1%. Moreover, initiatives such as the ‘Production Linked Incentive (PLI) schemes, implemented across 14 categories with an estimated capex of INR 4 lakh cr over the next five years, will serve to integrate India into global supply chains.

The private sector balance sheet has improved over the past couple of years, implying that the private sector is poised to increase spending, which can boost capex as and when the investment cycle picks up. Besides, corporate deleveraging has improved banks balance sheets, aiding the banking system to come out of the asset quality cycle. Furthermore, high Goods and Services Tax (GST) and direct tax collections have provided the Government ammunition to spend and cushion the impact of the impending global slowdown and keep the economy buoyant. Consumer demand remains strong as is evident from the robust growth in the retail industry and the better profit performance of consumer staples and discretionary companies in recent quarters. Also, recent labour market data suggests a strong rise in labour force participation and job creation in certain sectors. However, job growth has to sustainably improve to translate into durable demand growth.

(Source: https://www2.deloitte.com/us/en/insights/economy/asia- pacific/india-economic-outlook-01-2023.html)

Outlook

The Governments capital expenditure (capex) has steadily increased in FY 2022-23, contributing to the growth of the Indian economy, helping the country maintain its position as the worlds fastest-growing

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major economy. Looking ahead, the Government must continue calibrating policies and trying out new approaches to boost investments, as it has done in the past.

Our overall outlook for the Indian economy remains positive - the country is expected to retain the top spot throughout FY 2023-24, with a growth rate of 6.5%. We expect investments to see a turnaround and thrust the economy into sustainable growth. Private capex is also expected to rise as corporations strengthen their balance sheets and gain access to more credit financing. Well-capitalised public sector banks are increasing credit supply, resulting in remarkable credit growth for the Micro, Small, and Medium Enterprises (MSME) sector. The Governments Emergency Credit Linked Guarantee Scheme (ECLGS) is further supporting this growth.

All in all, this economic expansion is expected to boost business confidence and kickstart the virtuous circle of job creation, income, productivity, demand, and exports supported by favourable demographics to fuel the growth of the Indian economy.

However, the road to higher growth rate for the Indian economy is expected to be longer. Continued inflationary pressures, geopolitical crises, supply chain reorientations, will weigh on the outlook. At this point in time, investments will be critical to meet Indias rising demand and are expected to be the primary drivers of growth, along with the Governments capital spending playing a major role.

(Source: https://www.indiabudget.gov.in/economicsurvey/doc/ echapter.pdf)

According to a report by CareEdge Research, over 50% of the bearing consumption in India is fulfilled by domestic production. Imports account for less than 40% of the demand and have been on a decline due to the increasing localisation efforts of multinational companies, operating in the domestic bearing industry. These companies are expected to continue investing in enhancing product localisation, resulting in a further decline in imports, while boosting domestic production.

The bearings market is categorised based on application. It is segmented into automotive and industrial machinery, among others. The automotive segment is expected to be the maximum share holder owing to the increasing emphasis on cleaner mobility solutions. Rising popularity of Electric Vehicles (EV) has also contributed to this growth. Today, the automotive sector is continuously working to develop an integrated approach to a cleaner environment and lower carbon emissions. Similarly, in the industrial sector, there is a rising demand for precision bearing because of increased focus on industrial automation.

Several Government initiatives, including ‘Make in India, ‘Aatmanirbhar Bharat, and ‘National Infrastructure Pipeline aim to boost the demand for ball bearings. Rapid industrialisation and the shifting focus on renewable energy will further lead to increased demand for bearings in India. Moreover, India is an attractive destination for foreign investments in the manufacturing sector, which has the potential to reach USD 1 tn by 2025. However, the organised ball bearings market faces a significant threat from counterfeit products, which are readily available at low cost.

(Source: https://www.astuteanalytica.com/industry-report/india- bearings-market)

Key segments

Automotive

Todays automotive industry is focussed towards providing cleaner mobility solutions to customers. Bearings constitute as one of the most important components for enhancing the performance of all the rotating parts. Their use in the manufacturing of modern powertrains, which are fuel-efficient as well as lead to lesser emissions, is rapidly increasing. Acceleration in adoption of electric vehicles is also expected to boost the market growth.

The automotive industry is a crucial driver of the Indian economy, employing approximately 19 mn people and contributing about 7.1% to the countrys GDP.

India also holds the distinction of being the largest manufacturer of two-wheelers and three-wheelers globally, with the fourth-largest production of passenger cars. Furthermore, the trucking market in India is predicted to witness significant growth of more than four times by 2050. To encourage foreign investment, the Indian Government has allowed 100% FDI in the automotive sector through the automatic route. By 2030, the Indian automotive market is projected to be the third-largest in the world in terms of volume.

Over the years, it has faced several challenges such as semiconductor shortages, transitioning towards electric vehicles, complying with emissions regulations, and being vulnerable to cybersecurity risks. However, the Indian automotive industry has successfully navigated these challenges by implementing effective planning and execution strategies, sustaining its growth momentum.

	FY 2022-23	FY 2021-22	FY 2020-21	FY 2019-20	FY 2018-19
Two-wheelers	15.86	13.57	15.12	17.42	21.18
Passenger vehicles	3.89	3.07	2.71	2.77	3.40
Commercial vehicles	0.96	0.72	0.57	0.72	1.00
Three-wheelers	0.49	^0.26	^0.22	0.64	0.70

(Source: https://www.statista.com/statistics/608392/automobUe-industry-domestic-sales-trends-india/)

While experiencing significant growth, the passenger vehicles segment has also encountered unforeseen challenges, including high raw material prices and the ongoing Russia-Ukraine conflict, which has impacted commodity prices, including precious metals. The supply of components continues to pose a challenge, potentially impacting production in the near future. However, the passenger vehicles segment has shown signs of recovery, largely driven by increased Government spending on infrastructure activities and the automotive sector.

According to the Society of Indian Automobile Manufacturers (SIAM), the industry produced more than 25,931,867 units in FY 2022-23, a 20% increase from FY 2021-22. The industry is projected to achieve an 8.1% CAGR through 2027, with passenger vehicles achieving their highest-ever sales of 38.9 lakh units as of March 2023.

(Source: https://www.siam.in/pressrelease-details. aspx?mpgid=48&pgidtrail=50&pid=539)

Electric vehicles

The electric vehicle (EV) industry in India is rapidly growing, driven by several factors, including, increasing concerns about air pollution, Government incentives, and decreasing battery costs. The Economic Survey 2023 estimates that Indias domestic electric vehicle market is expected to experience a 49% CAGR between 2022 and 2030, with annual sales of 10 mn by 2030. The EV industry is also expected to create 50 mn direct and indirect jobs by 2030.

To support the growth of the EV industry, the Indian Government has implemented various policies and incentives. These include the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme, which aims to promote the adoption of EVs by providing financial incentives for buyers, and the National Electric Mobility Mission Plan, which aims to promote the manufacturing of EVs and their components in the country. Additionally, the Government has set a target to achieve 30% electrification of its vehicle fleet by 2030, which will further drive the growth of the EV industry in India. With these initiatives and targets in place, the Indian EV industry is poised for significant growth in the coming years, creating numerous opportunities for both domestic and international players.

Electric vehicle sales in India

Segment	FY 2022-23	FY 2021-22
Two-wheelers	720,733	252,539
Three-wheelers	399,540	188,447
Passenger vehicles	39,562	17,760
Total	1,171,944	458,746

(Source: https://www.autocarpro.in/analysis-sales/ev-sales-in-india-

hit-117-million-units-in-fy2023-charge-past-100000-for-six-months-in-

a-row-114543)

(Source: https://corpbiz.io/learning/government-initiatives-for-

electric-vehicles-in-india/#:~:text=FAME%20H%20plan%20was%20

launched,set%20to%20expire%20in%202022)

Outlook

The automotive industry in India is experiencing robust growth and is expected to expand at a CAGR of 11.3% until 2027. This growth can be attributed to various factors such as rising disposable incomes, the availability of credit and financing options, and the increasing population in India. Moreover, the growth of the passenger transport sector and the increasing demand for commercial vehicles are expected to drive future growth in the automotive sector.

Additionally, the demand for electric vehicles is expected to surge significantly in India, particularly in the twowheeler segment. Experts predict that as many as 9.1 mn electric vehicles may be on the road in India by 2027.

Over the near term, domestic industry volumes will continue to drive growth, creating opportunities for both domestic and international players.

Manufacturing

Manufacturing has emerged as one of the high-growth sectors in India. The countrys manufacturing sector market is expected to register a CAGR of more than 4% during the forecast period (2023 - 2028).

Governments policies have increasingly been tailored towards supporting and expanding the economys manufacturing footprint, as a source of improving trend growth and employment. One of the initiatives by the Government of Indias Ministry for Heavy Industries & Public Enterprises is SAMARTH Udyog Bharat 4.0, or SAMARTH Advanced Manufacturing and Rapid Transformation Hubs. This is expected to increase the manufacturing sectors competitiveness in the capital goods market. With an impetus on developing industrial corridors and smart cities, the Government is focussed on developing a conducive environment for industrial development and manufacturing. Similarly, initiatives like the National Manufacturing Policy and the PLI scheme for manufacturing is helping the gradual shift of manufacturing sector in India to a more automated and process-driven manufacturing which is expected to increase the efficiency and boost production of the manufacturing industry.

(Source: https://www.mordorintelligence.com/industry- reports/india-manufacturing-sector-market_)

Propelled by growth in priority sectors and driven by favourable megatrends, Indias manufacturing sector has opened itself into new geographies and segments.

Indian railways

Indian railways is the fourth-largest railway network worldwide having 75,439 miles of total track spanning 67,368 km route.

Today, the Indian railways sector is working rapidly to modernise itself to enhance the passenger experience including actively investing in the development of new lines, modernisation of stations, and electrification of tracks. It has established new freight corridors, including the Western and Eastern dedicated freight corridors, to enhance the efficiency of freight transportation. In FY 2022-23, the Indian railways took a host of steps to improve its infrastructure and services including freight loading, adding new line, production of locomotives, electrification of existing and new track as well as the adoption of advanced technologies, like artificial intelligence and machine learning to improve efficiency.

According to Railway Ministry statement, Indian railways has registered a record revenue of INR 2.40 lakh cr in FY 2022-23, up by nearly INR 49,000 cr from the previous year. The freight revenue rose to INR 1.62 lakh cr, a growth of nearly 15 % from the previous year. Similarly, Indian railways passenger revenue has registered an all-time high growth of 61 % to reach INR 63,300 cr.

(Source: https://www.outlookindia.com/business/railways-earns- record-revenue-of-rs-2- 40-la kh-crore-in-2022-23-news-279323)

(Source: https://www.ibef.org/uploads/industry/lnfrographics/large/ railways-infographic-february-2023.pdf)

During FY 2022-23, the track length increased by 5,243 kms, compared to 2,909 km in FY 2021-22, and 785 electric locomotives were produced. Additionally, electronic interlocking was provided to 538 new stations, a 27.79% increase compared to 421 stations in FY 2021-22. In FY 2022-23, the Indian railways registered the highest-ever freight loading in any financial year, with a turnover of 1,512 MT, an increase of 8.3% over the previous year.

(Source: https://www.investindia.gov.in/sector/railways)

Outlook

The Indian Government is focussed on meeting countrys infrastructural needs and has developed various schemes and policies in this regard. The National Infrastructure Pipeline (NIP), introduced in 2019 emphasises on social

and infrastructure projects including energy, roads, railways, and urban development projects worth INR 102 lakh cr.

Railways, one of the most important segments of Indias overall infrastructure development, has been allocated INR 2.4 lakh cr for the development of new semi highspeed Vande Bharat trains, that are aimed at enhancing connectivity, and for the upgradation and maintenance of railway tracks to allow for high-speed travel. Additionally, the Ministry of Railways is working on a mission to fully electrify all the existing and new routes. It is targeted to become the largest green railway network by 2030.

With these steps and targets, the Indian railways continues to play a crucial role in the economic growth and development of the country. Altogether, with a focus on infrastructure and technology investment, the outlook for the Indian railways is positive. Thus, further bolstering its journey towards becoming a world-class railway system.

(Source: https://www.investindia.gov.in/sector/

railways#:~:text=lndia%20has%20the%204th%20largest,2909%20

Kms%20during%202021-22)

Capital goods

The Indian capital goods sector is poised for significant growth, with a current value of USD 43.2 bn in 2022.

The Governments decision to allow 100% FDI under the automatic route has increased the sectors potential for growth. The capital goods sector holds substantial significance in Indias manufacturing output. It is projected

to offer direct employment opportunities to 5 mn individuals and indirect employment opportunities to 25 mn individuals by the year 2025.

The Union Budget 2023-24 has increased capital investment by 33% to INR 10 lakh cr, equivalent to 3.3% of GDP, nearly three times the outlay in FY 2019-20. This move is expected to provide a significant boost to the capital goods sector by promoting the development of advanced infrastructure and manufacturing capabilities, creating new employment opportunities and increasing the sectors contribution to Indias economy. Despite challenges such as intense competition and technology adoption gaps, the Indian capital goods industrys outlook appears optimistic.

(Source: https://www.investindia.gov.in/sector/capital- goods#:~:text=The%20Capital%20Goods%20in%20India,market%20 size%20of%20%24%2043.2%20Bn.&text=The%20market%20size%20 of%20each,and%20mining%20machinery%3A%20%243.3%20Bn)

The Indian Government has consistently augmented its capital expenditure as a percentage of the GDP, year on year. Furthermore, it has provided interest-free loans and increased borrowing ceilings to encourage state governments to prioritise their spending on capital expenditure. The Governments heightened focus on infrastructure-intensive sectors like roads and highways, railways, housing, and urban affairs is expected to have significant positive implications for medium-term growth. This capital expenditure-led growth strategy is set to enable India to maintain a positive growth-interest rate differential, leading to a sustainable Government debt to GDP ratio in the medium-term.

(Source: https://www.indiabudget.gov.in/economicsurvey/doc/ echapter.pdf)

Outlook

The capital goods industry in India is experiencing significant growth due to a variety of factors such as infrastructure development, increasing investments, and rising consumption. The Governments National Infrastructure Pipeline initiative aims to invest USD 1.4 tn in infrastructure projects over the next five years, which will drive demand for capital goods. The ‘Make in India initiative is also driving the manufacturing industry towards becoming a global hub. However, despite positive projections, the capital goods sector faces challenges such as intense competition, requiring constant investment in research and development to stay ahead. Additionally, India still faces technology adoption and skill development gaps compared to other countries, which could hinder the growth of the capital goods sector. Overall, the future prospects of Indias capital goods industry seem promising, buoyed by a burgeoning economy, surging investments, and a substantial demand for infrastructure development and manufacturing.

Renewable energy

India has committed to lowering its emission intensity and increase non-fossil capacity to 500GW by 2030. According to Ministry of New and Renewable Energy, the Government has decided to invite bids for 50 GW of renewable energy capacity annually for the next five years i.e., from FY 2023-24 till FY 2027-28.

Maintaining strong growth, while making this shift, presents a challenging yet crucial opportunity to establish a decarbonised recovery path. India currently has a total renewable energy capacity of 168.96 GW (as of 28^th February 2023) with about 82 GW at various stages of implementation and about 41 GW under tendering stage. Encouragingly, an annual growth rate of 7.13% is expected (CAGR 2023-2028). This is expected to be driven by a combination of factors, including falling costs of renewable energy technologies, increasing demand for clean energy sources, supportive policies and regulations, and improvements in energy storage and grid integration technologies.

(Source- https://www.statista.com/outlook/io/energy/renewable- energy/india )

Outlook

India has emerged as one of the world leaders in energy transition and this is evident in the growth that the country has achieved in the area of renewable energy. This growth is driven by a combination of factors, including falling costs of renewable energy technologies, increasing demand for clean energy sources, supportive policies and regulations, and improvements in energy storage and grid integration technologies.

Looking ahead, the outlook for the renewable energy

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market is positive, and the sector is expected to continue to play an increasingly important role in meeting global energy demand while reducing greenhouse gas emissions. The structured bidding trajectory will provide sufficient time to the renewable energy developers to plan their finances, develop their business plans and manage the supply chain more efficiently.

To conclude, the move towards the net-zero target by 2070 will require incremental steps in the short-term, including disincentivising fresh investments into fossil sources, and retrofit energy intensive industries.

Way forward for Indian ball bearing industry

The global bearing market has surpassed USD 50 bn and is projected to attain a CAGR of 8.5% from 2022 to 2032. In comparison, the Indian bearing market is expected to experience a higher CAGR of 11.3% from 2022 to 2027, with an estimated market value of USD 3.4 bn. The markets growth is attributed to the increasing demand for ball bearings in industries such as automotive, construction, and mining equipment. The utilisation of high-precision bearings in specific applications will also contribute to the markets growth. The demand for bearings in the production of modern powertrains, which are fuel-efficient and have lower emissions, is increasing rapidly. Additionally, advancements in industries such as aerospace and defence, shipbuilding, energy, capital goods, and railways are poised to positively impact the ball bearing market in the future.

(Source: https://www.gminsights.com/industry-analysis/bearings- market-report)

Opportunities

Investing in advanced technologies

Manufacturers have increased their digital investment over the past few years and accelerated the adoption of emerging technologies to drive future competitiveness. Apart from the conventional functions of bearings, to operate load on the shaft and facilitate the torque transfer smoothly, manufacturers are focussing on increasing the efficiency by using specialised bearings leading to growing preference for high-quality bearings with superior durability and fatigue resistance.

Similarly, auto component manufacturers, for instance, are adopting the latest technologies to achieve efficiency goals, reduce emissions, and improve fuel efficiency. Bearings play a critical role in realising these objectives. Additionally, increasing demand for electric vehicles, is driving the demand for high-performance bearings for the transmission and wheel assemblies. In this direction, the bearing manufacturers are innovating and advancing technologically to meet the evolving requirements of their customers. The bearing industrys ability to innovate and adapt to changing customer needs is expected to drive its growth and contribute to the growth of the industries it serves. Furthermore, the Governments robust policies and initiatives is providing an impetus to the growth of the bearing industry.

As a result, the market for bearings in India is expected to expand in the coming years, with manufacturers seeking more advanced and customised solutions to improve their production processes and meet the evolving demands of their customers.

Demand for hybrid bearings

Around the world, the electrification of passenger transport is picking up momentum. SKF Indias range of offerings in this area can raise energy efficiency, enable compact design and simplify assembly, to create a new generation of vehicles with mechanical and electronic robustness. As an example, electric vehicles play a huge role in reducing emissions, but the powerful electrical motors that they use can be damaging to bearings. This can be overcome with hybrid bearings, which combine steel rings with rolling elements made from silicon nitride, an effective electrical insulator. This means that hybrid bearings can insulate the housing from the shaft in both AC and DC motors, as well as in generators. As a ceramic material, silicon nitride also exhibits low density, high strength, stiffness, toughness and hardness. Hybrid bearings have higher speed capabilities and provide a longer service life, under identical operating conditions, than equally sized, all-steel bearings. They also withstand excess vibration and oscillation, and, under these conditions, it is often unnecessary to preload the bearing or apply special grease.

Development of precision bearings for power trains

The demand for precision mechanical bearings is experiencing rapid growth across various industries, owing to their ability to enhance equipment efficiency, decrease downtime, and improve productivity.

Chromium steel is widely utilised in the production of precision mechanical bearings due to its exceptional hardness, wear resistance, stiffness, fatigue life, and other properties in comparison to traditional bearings. Moreover, bearing manufacturers are using advanced materials such as tungsten carbide and ceramic to cater to the specific requirements of industries that operate in severe environments.

Threats

Raw materials

The production of bearings heavily relies on the availability of raw materials at right prices. Any volatility in the market can significantly impact the bearing industry, affecting its profitability. High-grade steel is the primary material used in manufacturing bearings. Hence, any fluctuations in the global steel price or supply crunch can lead to price fluctuations, scarcity of the material, and impact profitability, ultimately affecting the production of bearings.

Growing advancements

Bearing manufacturers are facing significant challenges with the increasing digitalisation of the value chain, which includes design, manufacturing, procurement, and maintenance. The adoption of new technologies

such as Industry 4.0 is not uniform due to differentiated capabilities, a lack of knowledge in use cases, minimal availability of design thinking, and limited skilled labour. Hence, these factors pose serious issues in technological advancement and upgradation for the bearing manufacturers.

Counterfeit products

Ball bearings and roller bearings are critical components in the design of various machines across different industries. The usage of counterfeit bearings can lead to equipment failure and unplanned shutdowns, resulting in potential revenue and profitability losses, as well as damage to brand equity. Therefore, it is crucial for companies to prioritise educating customers on the importance of using genuine bearings to avoid such risks.

Company overview

SKF India (the Company), the pioneer of ball bearing manufacturing in India, was incorporated in 1961. Having commissioned the first manufacturing plant in Pune in the year 1965, the Company has come a long way with 3 manufacturing facilities, 4 offices, a supplier network of over 1,700, 700 distributors and an employee base of 1,662 dedicated professionals as on 31^st March 2023.

The Company is a well-known supplier of ball bearings, catering to over 40 industries globally with products and services, helping customers achieve sustainable and competitive advantage.

Being one of the leading bearing manufacturers known for its deep grove ball bearings, the Company has a strong presence across the industrial and auto sectors. With a rich experience in design and manufacture of bearings, seals and lubrication systems, the Company is able to offer unique solutions for companies across automotive, agriculture, construction, food and beverage, oil and gas, metals and other industrial sectors. Keeping pace with technological advancements, the Company integrated digital technology and wireless sensors to expand its offerings to provide machine health assessment, engineering and remanufacturing services.

Sustainable development is at the heart of Companys operations. It has integrated clean technology, innovation and digital solutions across its world-class manufacturing facilities. The Company has a simple, clear and differentiated strategy across verticals such as industrial markets, automotive OEM and automotive aftermarkets. With support of the employees and suppliers across the value chain, the Company aims to have net zero emissions across its production facilities by 2030 and to make the entire supply chain net zero by 2050.

Business segments

The Company focusses on offering a rotational equipment solution across its automotive and industrial segments. The Company offers a wide range of products and services, including bearings, seals, lubrication systems, mechatronics, and services such as technical support, maintenance, and condition monitoring.

Automotive

In the automotive sector, SKF India provides solutions for various applications, such as engines, transmissions, wheel-end, and steering systems. The Companys products help improve vehicle performance, reduce fuel consumption, and increase safety and reliability. It offers customised solutions for various applications, including wheel-end, driveline, e-powertrain, engine, suspension, and steering systems. These solutions are catered to manufacturers of cars, light and heavy trucks, trailers, buses, and two-wheelers. Additionally, SKF India supplies spare parts to the vehicle aftermarket through a network of more than 570 distributors in India.

The demand for these offerings is driven by electrification, energy efficiency, and reduction of emissions in the light vehicle market. In the truck market, the focus is on total cost of ownership, connectivity, and integrated systems. Meanwhile, the aftermarket is driven by changing buying patterns, new channels, product performance, and cost optimisation.

The Company holds a strong position in the development of components for automotive electrification and wheel- end solutions. It also has a leading position in providing application-driven powertrain solutions and an extensive distribution network in the aftermarket.

Industrial

In the industrial segment, SKF India offers bearings, seals, lubrication systems, rotating shaft services, and solutions for machine health assessment, reliability engineering, and remanufacturing. The Companys industrial products are supplied to a broad range of products and services to over 40 industries globally, both

directly and indirectly through a network of more than 140 distributors in India.

The demand for these offerings varies from application to application, such as low friction, low energy use, maintenance-free solutions, and total cost of ownership. Furthermore, digitalisation enables monitoring and predictive maintenance throughout the product lifecycle, providing additional value to customers.

The Company holds a leading position in industries such as railway, heavy industries, and the industrial distribution market, and a prominent position in other industries.

Financial overview

The Companys standalone Revenue from Operations for FY 2022-23 stood at INR 43,049.2 mn compared to INR 36,658.9 mn the previous fiscal. Profit After Tax (PAT) for the year ended 31^st March 2023 increased from INR 3,951.3 mn in FY 202122 to INR 5,247.9 mn in FY 2022-23.

Statement of Profit and Loss for 31^st March 2023 (MINR)

Particulars	FY 2022-23	FY 2021-22
Revenue from Operations	43,049.2	36,658.9
Other Income	518.7	346.4
Total Income	43,567.9	37,005.1
Expenses
Cost of Materials Consumed	10,416.9	9,007.0
Purchases of Stock-in-Trade	15,536.5	15,177.1
Changes in Inventories of Finished Goods, Work-in-Progress and Stock-in-Trade	(295.2)	(1,732.2)
Employee Benefit Expense	2,996.3	2,856.9
Finance Costs	15.1	20.8
Depreciation and Amortisation Expense	668.4	571.0
Other Expenses	6,900.6	5,794.9
Total Expenses	36,238.6	31,695.5
Profit before Tax	7,329.3	5,309.6
Income Tax Expense:
Current Tax	2,075.7	1,377.0
Deferred Tax Charge / (credit)	5.7	(18.7)
Total Tax Expense	2,081.4	1,358.3
Profit for the Year	5,247.9	3,951.3

Key ratios

Ratios	FY 2022-23	FY 2021-22	% Change	Reason for change
Debtors Turnover (Times)	6.3	5.8	9.2	-
Inventory Turnover (Times)	3.8	3.9	-4.0	-
Interest Coverage Ratio (Times)	486.4	256.3	89.8	The coverage has increased due to increase in profitability
Current Ratio (Times)	3.1	2.9	7.1	-
Debt to Equity Ratio (Times)	0.0	0.0	-27.7	This ratio has decreased primarily on account of increase in retained earnings by way of profit for the year and a reduction in lease liability.
Operating Profit Margin (%)	17.3	14.8	17.5	-
Net Profit Margin	12.2	10.8	13.1	-
Return on Net Worth (%)	24.8	22.9	8.4	-

 

Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof	FY 2022-23:	FY 2021-22:	Reason for Change
	11.2	11.0	Increase in profit for the year

Risks and their mitigation strategy

Given the complex and dynamic market the Company operates in, it is exposed to various potential risks that can impact its financial, operational, and reputational performance. The Company recognises that effective risk management is critical to safeguarding its reputation in the market. To proactively manage risks, SKF India regularly conducts risk assessments, establishes contingency plans, and implements adequate insurance coverage. By taking a comprehensive approach to risk management, the Company can minimise the impact of potential risks and position itself for long-term success in an ever-changing and challenging market environment.

SKF India believes that risk management is a core part of its business philosophy. To ensure effective

management of risks, the Companys Board has established a dedicated Risk Management Committee to systematically manage, review, and improve its risk management systems, policies, and strategies.

( ^ Economic uncertainty V J	f \ An economic slowdown initiated by high inflation and the Russia-Ukraine war might have an adverse effect on the Companys operations. V J	f \ The Company has been diligently monitoring and evaluating macro-environmental conditions to determine the best course of action to sustain business growth. This concerted effort ensures that any rising challenges are promptly addressed and managed to maintain the Companys upward trajectory. V J
Counterfeit products	Counterfeit items may erode the customers trust in the brand and have a negative influence on the Companys profitability.	In order to ensure customer satisfaction and prevent the circulation of counterfeit products, the Company consistently raises awareness by organising a range of training courses and programmes in partnership with different stakeholders. Any individual caught promoting or misusing fraudulent goods is subject to legal action and penalties.
r \ Competitive landscape/ challenges V J	c \ Increasing industry rivalry, both at the global and domestic levels, can put pressures on pricing and margins. V J	f \ The exceptional expertise and solid reputation of the Company has helped to establish an unparalleled position in the market, resulting in strong and enduring customer relationships. Moreover, the Companys innovative and superior quality products and services provide a distinct advantage over its competitors in the industry it operates. V y
Data security	Data and personal information may be lost as a result of cyber-attacks. This might have a negative influence on the Companys brand and operations.	The Company has developed a comprehensive and robust security system that employs multiple layers of protection to detect and prevent any potential security breaches. In addition, the Company maintains a detailed policy framework that is continually updated to guarantee the smooth and effective management of data.
Evolution of new business models V J	r \ E-commerce and fintech challenges may have an influence on the business of the Company. v J	f N The Company is strongly committed to pursuing new and innovative business models, such as the development of an e-commerce platform, in order to achieve unprecedented growth and expansion of its business. It is actively exploring various avenues to enhance its operations and optimise its performance. By embracing cutting-edge technologies and exploring novel approaches to conducting business, the Company is poised to achieve unprecedent success in its future endeavours. V J

Human resources

Human resources have always been crucial to the Companys ongoing business success and its aim is to create a diverse, equitable, and inclusive workplace that attracts, retains, and advances exceptional talent. Through ongoing employee learning & development, comprehensive compensation and benefits, and a focus on health, safety, and overall well-being, the Compamy strives to foster a culture that supports its employees in all aspects of their lives so they can achieve their true potential-while learning, growing, and feeling engaged.

As the operating environment continues to rapidly evolve, the Company remains committed to investing in its employees, further enhancing learning and development opportunities to better meet its evolving business needs and strengthening its culture to achieve and sustain profitable growth. Given that people-centric approach has been a key differentiator for the Company, it provides its employees with learning experiences focussed on building multi-dimensional leadership skills and offer training programmes that are closely aligned with its business strategy. During the year under review, the Company implemented some major initiatives to promote inclusion and diversity. Similarly, multiple initiatives for building market-leading skills and capabilities of employees were undertaken to address skills gaps. For example, LeadX programme was rolled out to enable employees to get exposure in various cross functional projects of their preference and build cross-cultural, and multi-industry experience.

Specifically, the Company continues to embed new ways of working and leadership principles to instil a growth mindset, drive innovation, optimise processes, and tackle industry challenges.

As a manufacturing organisation, the Company has a culture of working together through joint consultation between Union and Management and is strongly committed towards creating an environment of trust and collaboration. The Companys HR framework encompasses several essential business aspects.

This includes job design, recruitment, onboarding, training and development, compensation and benefits, performance management, managerial relations, and labour relations. HR initiatives, such as equitable treatment, a people-centric approach, and performance- based reward systems, have led to a higher retention rate and strong employee loyalty.

As of FY 2022-23, the Company had 1,662 permanent employees on its payroll.

IT and digital infrastructure

A robust information technology and digital infrastructure ecosystem is a critical enabler for todays businesses. Digitalisation and blockchain technology have become important tools for research on design and regulations. In addition, the IT technology has taken on the Herculean task of workplace monitoring and managing technostress issues, arising from the increase in digital presence. Across organisations and industries, digital adoption has taken a quantum leap. Establishing the necessary infrastructure to support a digitalised world and remain updated with the latest technology has become imperative to stay competitive.

In line with this, the Company has developed a digital transformation strategy that is pivotal in automating business processes and enhancing customer experiences across full value chain. Enabled by IT, the implementation of Industry 4.0 solutions has resulted in significant improvements in the manufacturing processes across the value chain. The Company is committed to accelerating technological advancements, digitalising the entire value chain, and establishing a regionalised supply chain to remain competitive. Improving sales through digitalisation & data driven decision-making remains a top priority for the Company. It has also embarked on the journey of ERP implementation to SAP S/4 Hana across region.

To deliver digital solutions that enhance operational processes, customer experiences, and enable new business models, the global IT team established the Global Competency Centre (GCC) in India. This has enabled the in-house development of digital capabilities, resulting in faster delivery of digital solutions.

Internal control systems and their adequacy

The Companys policies and procedures are commensurate with its nature of business and ensure reliable and efficient business conduct. The internal control systems are periodically reviewed to confirm their effectiveness and adequacy. Internal audit, an indispensable part of management control systems, is responsible for keeping the Management updated about the adequacy and efficacy of the control systems. The three-line defence monitoring and control approach comprising the Management, Internal Controls team and Internal Audits, enables effective control on the internal control system. The Company has adopted a risk prevention approach to strengthen its controls proactively.

The Company, during the year, reviewed its Internal Financial Control (IFC) systems and strived to establish a more robust and effective IFC framework. Being part of the SKF Group, the Company adheres to SICS (SKF Internal Control Standards), a customised control system required to be adhered to, across the globe, by all SKF companies. The standard operating procedures for the business functions comprise the standards specified by SICS. Compensating controls within the process, minimising deviations and exceptions are the key focus areas. The adequacy of controls is tested and verified by the Internal Control team. The Internal Audit function conducts Process Audits with the help of specialised external professional firms. Risks/improvement areas, identified out of the audits, are reviewed and mitigation plans are put in place. Every Audit Committee reviews the

status of implementation of the action plans for major observations.

The reports submitted by the Management and the audit reports submitted by Internal and statutory auditors are reviewed by the Audit Committee. To ascertain, inter alia, their views on the adequacy of internal control systems, the Audit Committee also meets statutory auditors. Based on the Committees evaluation, it was concluded that as of 31^st March 2023 the Internal Financial Controls were adequate and operating effectively. The Company has complied with the specific requirements as laid out under Section 134(5)(e) of the Companies Act, 2013. It calls for the establishment and implementation of an Internal Financial Control framework that supports compliance with the requirements of the Act concerning the Directors Responsibility Statement. The Internal Controls function regularly reviews the adequacy of controls of the processes. Suggestions to further strengthen the processes are shared with the respective process owners. The Audit Committee periodically reviews any significant observations, along with Management response and status of action plans.

Cautionary statement

Statements in this report on Management Discussion and Analysis, describing the Companys objectives, projections, estimates, expectations, or predictions may be forward- looking statements within the meaning of applicable laws and regulations. These statements are based on certain assumptions and expectations of future events. Actual results could differ materially from those expressed or implied since the Companys operations are influenced by many external and internal factors beyond its control. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements, based on any subsequent developments, information, or events. Readers are cautioned that the risks outlined here are not exhaustive. Readers are requested to exercise their judgment in assessing the risks associated with the Company.