ECONOMY DURING FISCAL 2023 Global
During fiscal 2023, the global economy appears poised for a gradual
recovery from the devastating effects of the pandemic and of war in Ukraine. China is
rebounding strongly following the reopening of its economy. Supply-chain disruptions are
unwinding, while the dislocations to energy and food markets caused by the war are
receding. Simultaneously, the massive and synchronous tightening of monetary policy by
most central banks should start to yield results, with inflation slowly going down.
Although inflation has declined as central banks have raised interest rates and food and
energy prices have come down, underlying price pressures are proving sticky, with labor
markets tight in a number of economies. Side effects from the fast rise in policy rates
are becoming apparent, as banking sector vulnerabilities are coming into focus and fears
of contagion have risen across the broader financial sector, including nonbank financial
institutions. Policymakers are taking forceful actions to stabilize the banking system.
Global growth is projected to fall from an estimated 3.5 percent in
2022 to 3.0 percent in both 2023 and 2024. Global headline inflation is expected to fall
from 8.7 percent in 2022 to 6.8 percent in 2023 and 5.2 percent in 2024. For advanced
economies, the growth slowdown projected for 2023 remains significant: from 2.7 percent in
2022 to 1.5 percent in 2023. About 93 percent of advanced economies are projected to have
lower growth in 2023, and growth in 2024 among this group of economies is projected to
remain at 1.4 percent. For emerging market and developing economies, growth is projected
to be broadly stable at 4.0 percent in 2023 and 4.1 percent 2024. However, this stable
average masks divergences, with about 61 percent of the economies in this group growing
faster in 2023 and the rest - including low-income countries and most geographic regions
growing more slowly.
(Source: IMF WEO, July 2023)
Indian
According to the second advance estimates released by the National
Statistical Office (NSO) in May this year Indias real GDP growth for FY23 is placed at
7.2%, driven by private consumption and public investment. Economic activity remained
resilient in Q4. Index of Industrial Production (IIP) expanded by 5.2% indicative of the
strength of industrial activity. In the services sector, domestic air passenger traffic,
port freight traffic, e-way bills and toll collections posted healthy growth in Q4, while
railway freight traffic registered a modest growth. Purchasing Managers Indices (PMI)
pointed towards sustained expansion in both manufacturing (56.4) and services in March
(57.8).
A good rabi crop should strengthen rural demand, while the sustained
buoyancy in contact-intensive services should support urban demand. The governments
thrust on capital expenditure, above trend capacity utilization in manufacturing, double
digit credit growth and the moderation in commodity prices are expected to bolster
manufacturing and investment activity. GOI in the Union Budget 2023-24 increased total
capex outlay by 33.0% to Rs.10 lakh Crore, 100 critical transport infrastructure projects,
for last and first mile connectivity for ports, coal, steel, fertilizer, and food grains
sectors have been identified. Budgetary allocation for MoRTH saw a 25% increase totaling
to Rs.2.6 lakh Crore. The external demand drag could accentuate, given slowing global
trade and output. Taking all these factors into consideration, RBI has forecasted Indias
real GDP growth for FY24 at 6.5%.
The inflation trajectory for 2023-24 would be shaped by both domestic
and global factors. The expectation of a record food grains production bodes well for the
food prices outlook. The impact of recent unseasonal rains and hailstorms, however, needs
to be watched. Crude oil prices outlook is subject to high uncertainty. Taking into
account these factors and assuming an annual average crude oil price (Indian basket) of
US$ 85/barrel and a normal monsoon, CPI inflation is projected at 5.2% for FY24.
AUTO INDUSTRY
Indian Auto Industry sold 2.60 Crore vehicles in FY 2022-23 which was
2.32 Crore in FY2021-22.
Domestic Market
Total domestic vehicles sale increased from 1.76 Crore to 2.12 Crore
vehicles in FY 2022-23 showing a growth of 20%. Within this, total Passenger Vehicle Sales
increased from 30,69,523 to 38,90,1 14 units and the overall Commercial Vehicles sales
increased from 7,16,566 to 9,62,468 units. Whereas 3W sales increased from 2,61,385 to
4,88,768 vehicles showing a growth of 87% and 2W sales increased from 1.35 Crore to 1.58
Crore registering a growth of 17%.
International Market
Due to global market disruptions on account of severe inflation,
geo-political tension and forex issues, auto sales has been decreased from 56.17 Lakh to
47.61 Lakh, de-growth of 15%. Within this, total Passenger Vehicle Sales increased from
5,77,875 to 6,62,891 units and the overall Commercial Vehicles sales decreased from 92,297
to 78,645 units. Whereas 3W sales was most hit segment as the sales decreased by 27% from
4,99,730 to 3,65,549 vehicles and 2W decreased by 18% from 44.43 Lakh to 36.52 Lakh Units.
RESEARCH AND DEVELOPMENT
The Company has been strategically making required investment in
Research and Development Activities. The main focus of the Company in sphere of R&D is
on electric vehicle capable of providing the comfort that is being given by the alternate
fuel three wheelers. The Company has also in the process of launching more models and
variants in Alternate Fuel Three Wheelers with a capacity of 0.50 tonne on the back of a
strong support of R&D.
The R&D team continues their efforts in developing cutting-edge
technologies that are relevant for the near and long-term requirements of the Companys
business plans. These developments are centered on customers, emerging mobility needs,
providing advanced safety systems and sustainability. The Company continues to leverage
global talent through several co- operations with Indian and global expert organizations.
Alternate Fuel 3W
The Company has been moving progressively into Alternate Fuel 3W
(Petrol/ CNG/ LPG) space. As part of Companys commitment to make constant embellishments
in its Alternate Fuel 3W space, the Company has been focused on improving its Alternate
Fuel 3W in terms of comfort and economy in 0.35 tonne as well as 0.50 tonne segment.
Electric Vehicles (EV)
Backed with the rich experience in the three wheeler industry, the
Company has ventured into the world of electric vehicles by launch of EV i.e. Atul Mobili
and Atul Energie this year. Having confidence upon the models launched, the Board foresee
this as a new era for the industry as well as for the Company. Considering the benefits
provided under FAME II (Faster Adoption and Manufacturing of Hybrid & Electric
Vehicles) and fuel costs, the Boards believes in bright future of electric three wheeler
and necessary developments are going into this segment. Further, AGPL has tied-up with
Honda Power Pack Energy India and Valeo to develop the prototype Cargo and Passenger three
wheeler with the most reliable Honda Mobile Power Pack e: Swap & Valeo power train
system. This is considered as a remarkable step towards providing swappable battery
solution in 3W segment.
OPPORTUNITIES AND THREATS
The whole automobile industry has been transforming towards greater
safety and greener environment. Considering the importance of automobile industry to the
economy, its potential for generating employment opportunities and its backward and
forward linkage with several sectors, the Government is keen to support its development.
The BS6 OBD 2 norms were a big engineering change. The notification of
the OBD norms splitting it into OBD 2A and 2B came in only in November 2022. The
powertrain and vehicle configurations had to be adjusted to meet the new norms rapidly.
Such changes increase the capital investment and increases the cost.
The Government is actively pursuing the plan for electrification of the
vehicle fleet and has announced the benefits under FAME II (Faster Adoption and
Manufacturing of Hybrid & Electric Vehicles) policy. The industry is gearing up for
meeting this challenge on the technology and product fronts. Having required technology
support and R&D strength, the Company is satisfactorily progressing to launch electric
three wheeler with Lithium-ion battery.
With new range of Alternate Fuel 3W (Petrol/ CNG/ LPG) and recovery of
economic activities upon disappearing COVID-19 impact, the Company expect to have deeper
penetration in existing markets.
The strategic move by making Khushbu Auto Finance Limited, a Wholly
Owned Subsidiary, is becoming helpful in having retail financing facilities to the
customers of Atul and acting as a spirit to expand or strengthen the reach of the Company
where the dealers were in need of the retails financiers to boost the business. When this
finance arm is available, it would also become beneficial to EV from AGPL where the
financiers may reluctant in initial face.
RISKS AND CONCERNS
The geo political tension that emerged last year, though localized, had
global ramifications. This situation remains persistent and unresolved. This issue hangs
over the global economy and trade. Any escalation or delayed resolution would impact
global liquidity, food and energy demand supply. These could adversely impact many low
income and emerging markets. Even though the India story remains buoyant, the speed of
growth may be impacted by global factors.
The global liquidity and inflationary trends could also lead to
slowdown in private investments and consumption. These could adversely impact the global
economy and slow down the Indian recovery. The Indian urban consumption which has seen a
smart recovery may be susceptible to challenges on liquidity, especially in the emerging
start up ecosystem.
In international business, there is risk of slower than expected
recovery due to currency depreciation, inflation, forex shortage and socio-political
turmoil in select geographies.
The broader risk of supply chain disturbances is expected to be lower
than previous years. However, some EV specific components may continue to face challenges
leading to delayed service levels and impacted financial performance.
The Company manages a diversified, multi-source, global supply chain.
Any new developments arising out of geo political strife, which impact the global supply
chain, causing short-term or mid- term disruptions in the supply of essential raw
materials or utilities could also have an impact.
The Company has repaid its term loan and become the debt-free, hence
adverse externalities will affect less to the company.
Demand growth in India will need to be preceded by an improvement in
consumer sentiment. The consumer sentiment index, though on the mend, is yet to recover to
pre-COVID levels. This could be adversely impacted by slower than projected GDP growth.
The consumption demand may also be impacted by persistent high inflation directly and by
raising of interest rates by RBI to counter inflation. When a large section of the Indian
three wheeler buyers rely on retail finance, any increase in cost of credit could impact
Sales.
Monsoon still delivers majority of the irrigation needs of Indian
agriculture. This year due to predicted El-Nino conditions if the monsoons are less than
normal, this could significantly impact and delay recovery in rural demand further.
Additionally, three wheeler export industry is influenced by changing
regulatory policies in some specific markets. Country specific retail prices may be
adversely impacted by currency devaluations due to global inflation, supply disruptions
and liquidity situation.
OUTLOOK
FY23 has been a year which showed the revival in the economy and
particularly in three wheeler segment. The Company could gain the business from the
increased demand in the market post- covid and could able to make its balance sheet
positive.
While inflation continued to affect every one of us during the year,
your Company was able to more than neutralize through better price realization on account
of product-mix and increase in sale of diesel vehicles.
Auto Expo held at New Delhi in January this year provided a great
opportunity to demonstrate the technological readiness for the future. Atul Mobili, a
passenger 3W and Atul Energie, a Cargo 3W in L5 EV segment are launched by Atul Greentech
Private Limited (AGPL). The Company is confident on these products to achieve the new
milestones in emerging EV segment not only in India, but in international market, too.
The factors affecting the international markets are expected to move
towards favorable to auto industry in coming year. This may boost up the business
development attempts of the Company. The scrappage policy as well as increasing
urbanization is seen to be positive for the business.
Growth in fiscal 2024 and coming years is expected to be holistic,
supported by following factors:
i) Strong rural demand by favorable agri season
ii) A pickup in urban consumption demand
iii) Improving consumer sentiment
iv) Increase in CNG dispensing units
v) Extension of FAME II Incentives
vi) Possibility of fuel prices remained moderated
vii) Uptick in capex spends by the Central and State governments
The Company has been analyzing what has been happening in the economy
specifically concerning the supply and demand, and taking steps to align the business with
it to overcome the risk and grab the opportunity wherever it is available. The Company is
also eying over the opportunity lying in three wheeler EV segment across the globe.
INTERNALCONTROLSYSTEMS
Your company maintains adequate internal control system which is
continuously evaluated by professional auditors of repute. The company continues to
improve the present internal control systems by implementation of appropriate policy and
processes. The Company is focused on incorporating the controls and checks in ERP system
of SAP. Further, the Company has appointed KPMG as Internal Auditors for FY 2023-24 and FY
2024-25 which also includes Atul Greentech Private Limited and Khushbu Auto Finance
Limited.
An increased emphasis has been laid on Internal Control Systems and
Vigilance Systems to ensure efficacy and monitoring of the Companys operations.
MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT
Human Resource Development activity includes workforce planning,
employee engagement, performance and compensation management, learning and development,
career & succession planning and organization development. Towards sustenance and
delivering improved results, these activities have a structured approach, policies and
standard operating procedures which are reviewed and updated periodically. The
Company is committed to nurturing, enhancing and retaining top talent
through superior Learning and Organizational Development. As on March 31, 2023, the number
of employees working with the Company was 615 excluding contractual labour. The Company
continuously maintain good industrial relations without any disruption at work.
COMPANYS OPERATIONAL PERFORMANCE
The details of companys financial performance vis-a-vis operational
performance during the financial year ended March 31,2023 are as under:
• The Company sold 25,549 vehicles in FY 2023 in compare to last
year figure of 16,061 vehicles. Out of this, 2,566 vehicles sold in international market
in compared to 1,691 vehicles last year.
• The ratio of cargo, passenger and E-Rickshaw to total number of
three wheelers sold during FY 2023 were 41%, 41% and 18% respectively.
• The income from operations increased to Rs.47,470 Lacs in FY
2023 compared to Rs.29,382 Lacs last year. The Income from operations consists of Vehicle
Sales Turnover in export of Rs.3,719 Lacs.
• EBITDA margin for the year is 5.46% which was (-) 6.52% during
last financial year.
• Average Sales Realization P/Vehicle has gone down to
Rs.1,67,828/- by 2.03% on account of change in product mix.
• Material cost in FY 2023 stood at Rs.37,072 Lacs in compare to
Rs.24,039 Lacs in last year.
• Employee benefits expenses stood at Rs.4,496 Lacs in FY 2023 as
compared to Rs.3,966 Lacs last year.
• Finance cost increased to Rs.633 Lacs in FY 2023 from Rs.400
Lacs in FY 2022.
• Product Development Charges decreased to Rs.52 Lacs this year in
compare to Rs.95 Lacs last year.
• Achieved Net Profit for the year of Rs.440 Lacs as against loss
of Rs.2,487 Lacs during last financial year.
KEY FINANCIAL RATIOS
The key financial ratios of the Company are as under:
| Particulars |
2022-23 |
2021-22 |
Details of significant changes |
| Debtors Turnover (Days) |
23 |
28 |
- |
| Inventory Turnover (Days) |
41 |
64 |
The turnover has increased by more than 60% and hence the
inventory turnover ratio has improved. |
| Interest Coverage Ratio (Times) |
1.94 |
-7.12 |
The company has pre-paid considerable amount of debt during
the year hence debt has been reduced and so the debt equity ratio has improved. |
| Debt Equity Ratio |
0.11 |
0.30 |
|
| Current Ratio (Times) |
1.46 |
1.12 |
As on 31.03.2023, the company has surplus cash and liquid
investment are in excess and hence ratio has improved, comparatively. |
| Operating Profit (Before Tax) (%) |
0.67 |
-11.87 |
During the year, the company has sold 25049 vehicles as
against 16061 vehicles last year, which has resulted in favorable ratios. |
| Net Profit Margin (%) |
0.93 |
-8.46 |
|
| Return on Net Worth (%) |
1.33 |
-9.25 |
|
Cautionary Statement
This document contains statements about expected future events,
financial and operating results of Atul Auto Limited, which are forward- looking. By their
nature, forward-looking statements require the Company to make assumptions and are subject
to inherent risks and uncertainties. There is significant risk that the assumptions,
predictions and other forward- looking statements will not prove to be accurate. Readers
are cautioned not to place undue reliance on forward-looking statements as a number of
factors could cause assumptions, actual future results and events to differ materially
from those expressed in the forward-looking statements. Accordingly, this document is
subject to the disclaimer and qualified in its entirely by the assumptions, qualifications
and risk factors referred to in the managements discussion and analysis of Atul Auto
Limiteds Annual Report FY 2023.
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