INDUSTRY STRUCTURE AND DEVELOPMENTS
The Indian Automobile Industry is made up of Original Equipment
Manufacturers (OEMs) i.e. Automobile manufacturers and auto component manufacturers.
Indian automobile industry is among the largest automobile industries
across the globe. The Automobile Industry is a growing sector in India with global majors
having set up their facilities here. The Industry has been continually evolving and
absorbing newer technologies in order to align itself with global developments.
Additionally, the Indian automobile industry is anticipated to observe major changes in
the form of electric vehicles (EVs), shared mobility, Bharat Stage (BS)-VI emission and
safety norms which significantly influence the growth of automobile industry in the
country.
The Auto Components Industry in India comprises of Tier One
manufacturers who supply complete component modules to OEMs, Tier Two manufacturers who
cater to Tier One manufacturers and Tier Three manufacturers who supply components to Tier
Two manufacturers. The Industry is divided into five segments viz. engine parts,
transmission drive & steering parts, suspension & brake parts, electric parts and
body & chassis. The fortunes of the Auto Components Industry are closely linked with
those of the OEMs and must be agile to adopt the changes in technology. Apart from this,
it has to continuously raise the quality and delivery performance in stride with the
requirements of OEMs.
Auto component manufacturers would need to keep pace with the changing
needs of automotive OEMs, who in turn are coping with the dynamic expectations of the end
customer, consolidation of platforms to reduce complexity and Cost which includes
constantly shifting market dynamics due to changing, customer demands and operating models
and the changing needs of OEMs, who are likely to want different, more agile and just in
time deliveries.
Indian auto industry has already been reeling under severe de-growth,
and the pressure of disrupted supply chain only aggravated the situation. Auto industry
has been under pressure due to a mix of demand and supply factors.
For the first time, in FY 2019-20, the Auto Industry witnessed a
negative growth of 14.73 per cent. The Passenger Vehicle segment, which includes passenger
cars, vans and utility vehicles, registered a negative growth of 14.76 per cent. Within
this segment, while the Utility vehicle market grew at 2.29 per cent the Van segment and
the Passenger Car segment recorded a negative growth of 38.49 per cent and 19.77 per cent
respectively. The Commercial Vehicle segment also registered a negative growth of 32.40
per cent. Within the CV segment, the M&HCV segment registered a negative growth of
47.34 per cent and LCV segment registered a negative growth of 22.45 per cent. The Two
wheeler segment registered a negative growth of 14.14 per cent and three wheeler segments
registered a negative growth of 10.64 per cent also.
GDP growth of Indian economy is likely to be negative in FY 2020-21 as
the outbreak of Coronavirus COVID- 19 has disrupted economic activities . (Source: RBI )
The chart given below shows the production of various categories of
vehicles during FY2019-20 vis-a-vis FY2018-19.
| Segment |
FY2019-20 |
FY2018-19 |
% Growth |
| Passenger cars |
21,75,242 |
27,11,160 |
(19.77) |
| Utility vehicles |
11,24,975 |
10,99,780 |
2.29 |
| Vans |
1,33,798 |
2,17,531 |
(38.49) |
| Passenger Vehicles |
34,34,015 |
40,28,471 |
(14.76) |
| M&HCVs |
2,33,979 |
4,44,356 |
(47.34) |
| LCV |
5,18,043 |
6,68,049 |
(22.45) |
| Commercial vehicles |
7,52,022 |
11,12,405 |
(32.40) |
| Three Wheelers |
11,33,858 |
12,68,833 |
(6.46) |
| Two wheelers |
2,10,36,294 |
2,44,99,777 |
(14.14) |
| Quadricycle |
6,095 |
5,388 |
13.12 |
| Total of All Categories |
2,63,62,282 |
3,09,14,874 |
(14.73) |
| Source SIAM report |
The Indian automobile industry has been going through a tough phase for
a while now, with a slowing economy, changes in emission & safety regulations and many
other challenges. The onset of COVID-19, and the extended lockdown to contain it, have
only made things worse. The Indian Auto Components Ancillary Industry continues to face
adverse headwinds to maintain volumes and margins. Your Company operates in Sheet Metal
Components, Assemblies and Sub-assemblies segment of the Auto Components Industry. It
manufactures a range of sheet metal components and assemblies for the Automobile Industry
and is a Tier One auto components supplier.
OPERATIONS
During the period under review, your Company has four manufacturing
facilities at Chakan Unit-1, Chakan Unit- 2, Pune (Maharashtra), Halol (Gujarat) and
Pantnagar (Uttarakhand).
Your Company in FY 2018-19 has shifted manufacturing operations located
at Bhosari in order to achieve operational efficiency and productivity improvements from
G-71/2, MIDC, Industrial Area, Bhosari, Pune: 411026, Maharashtra, India to leased
premises located at Survey No. 679/2/2, Alandi Road, Kuruli, Chakan, Taluka - Khed,
District- Pune: 410 501, Maharashtra, India.
During the period under review, your Company has transferred leasehold
rights in the land along with building located at G-71/2, MIDC, Industrial Area, Bhosari,
Pune: 411026, Maharashtra to Fronius India Private Limited, M/s. Pradeep Sweet Icon and
M/s Mittal Engineering Works respectively after obtaining necessary approvals from MIDC
and concerned authorities.
Financial Year 2019-20 has been a challenging year with weakening
macro-economic conditions, slowing market growths in Auto sector and finally, COVID-19
outbreak and containment measures towards the end of the year. The Ministry of Home
Affairs, Government of India on March 24, 2020 notified the first ever nationwide lockdown
in India to contain the outbreak of Covid-19 pandemic. The Financial Year 2019-20 ended
with the pandemic situation created by the spread of the Corona virus COVID-19, all over
the world and day to day life across the globe came to a virtual stop and your Company was
not an exception. The operations were disrupted at all the manufacturing facilities of the
Company. Your Company had to put a halt on its operations for some period during March,
2020 to May, 2020, caring more for the wellness and safety of its people and complying
with Government and Health authorities advisories during lockdown.
The Company is taking all necessary measures in terms of mitigating the
impact of the challenges being faced in the business. The Company is working towards being
resilient in order to sail through the current situation. It is focused on controlling the
fixed costs, maintaining liquidity and closely monitoring the supply chain to ensure that
the manufacturing facilities operate smoothly.
Your Company operates its business in conformity with the highest
ethical and moral standards and employee centricity. In view of the outbreak of the
pandemic, your Company undertook timely and essential measures to ensure the safety and
well-being of its employees at all its plant locations and office.
During the time of uncertainty Companys volunteers had worked
aggressively to support your Company & community around Companys locations. Your
Company took a number of measures to ensure effective management of the situation while
continuing to serve community and customers effectively. Apart from this, your Company
also provided the Local Administration / Corona Warriors with Touch free temperature
measurement (Three Time in a day), Three number & color Face Masks, no touch Sanitizer
Stations, no touch Drinking Water tabs, Face Shield, installation of Aarogya Setu App,
Social distance marking at prominent locations, conducting awareness session, no visitor
Policy, compulsory Medical report to join the duty, Quarantine area identification to
support them in their tryst with this pandemic overall in the plants.
Majority of the employees were given the option to work from home
during the lockdown period and a Task force of senior management ensured developing
strategies and monitoring them for Business continuity activities. The Company observed
all the government advisories and guidelines thoroughly and in good faith.
Your Companys sales during the year were impacted by lower volumes
than expected in all segments considering various developments in auto sector like BS- VI
norms transition, introduction of Electric Vehicles in Passenger Vehicle segment resulted
into low inventory / production for all OEMs & which was further exacerbated by
COVID-19 related lockdown in March, 2020. Some of the models under Passenger Car segment
and Commercial Vehicles segment, on which your Company has heavy dependence, recorded drop
in volume and this had an adverse effect on sales. Even though, the Utility Vehicle
production recorded meager growth of 2.29 per cent, your Company couldnt achieve
corresponding growth, since the major customer including anchor customer of your Company
recorded a negative growth in all segments.
Sales of your Company did not grow as expected due to slower ramp up of
new businesses and lower off-take from key customers. The capacity utilization of your
Company was therefore low as compared to last year. During the financial year 2019-20, the
manufacturing costs decreased due to reduced sales and change in product mix as compared
to previous financial year 2018-19. However to minimize the impact, your Company has
identified 5 EBITDA Pillars for various cost reduction initiatives to enhance productivity
and improve operational efficiencies and Cross Functional Team is formed to regularly
monitor the same. The Management is confident that the cost reduction initiatives and
operational efficiencies are sustainable. Your Company has been aggressively managing its
net working capital and was able to keep it under control.
Apart from the cost reduction programmes, your Company has been
aggressively pursuing new business opportunities in Off- road, Commercial Vehicles, and
Three Wheeler Segment by targeting greater share of business from existing and new
Customers and ramp up of business in Utility Vehicle Segment. This will not only increase
the sales but also will help to reduce the dependency on one segment resulting in reducing
overall risk.
Your Company is focused on achieving volume growth, reduction in costs
and improving product portfolio. These measures will continue to drive improvement in your
Companys business.
INCOME AND EXPENDITURE
During the year under review, the net Sales dropped by 24.73 per cent
to Rs 36,224.42 Lakhs as compared to previous year primarily due to reduction in Customer
volumes & lower off take from key Customers. Other operating revenue decreased from Rs
39.71 Lakhs to Rs 15.88 Lakhs. Other income of Rs 44.41 Lakhs mainly consists of gain on
sale of assets of Rs 36.45 Lakhs and other non- operating income of Rs 7.96 Lakhs.
Cost of materials consumed (including change in stock) as a percentage
to sales increased by 1.90 per cent to 77.03 per cent because of change in the product
mix. In order to mitigate the impact, your Company is taking various cost reduction
initiatives like negotiations with customers and vendors, blank optimisation, band
tolerance, CTS (Cut to Size) to coil ratio, grade change, resourcing and change in the
product mix. The Management has been taking continuous steps to improve material yield.
Employee benefits expense decreased by 8.12 per cent as compared to
previous year due to changes in manpower requirements and outsourcing.
Other Expenses comprising Administration and Selling Expenses have
decreased to Rs 5,836.07 Lakhs largely due to reduction in sales as compared to previous
year & costs related to rent and leasing, logistic costs, freight and forwarding
charges, rates and taxes, power and fuel, packing materials, machinery repairs and
maintenance, consultancy fees etc. During FY 2019-20, Finance cost increased to Rs
1,748.27 Lakhs due to increased borrowings.
Your Company is taking various initiatives on productivity improvements
and cost reduction Programmes.
Key Financial Ratios
| Ratios |
31.3.2020 |
31.3.2019 |
% change |
| 1 Debtors Turnover |
11.44 |
12.06 |
(5.15) |
| 2 Inventory Turnover |
20.19 |
26.92 |
(24.98) |
| 3 Interest Coverage Ratio |
0.67 |
0.83 |
(18.42) |
| 4 Current Ratio |
0.36 |
0.51 |
(30.05) |
| 5 Debt Equity Ratio |
9.03 |
6.98 |
29.28 |
| 6 Operating Profit Margin (%) |
(5.63) |
0.80 |
(800.44) |
| 7 Net Profit Margin (%) |
(4.69) |
(2.62) |
79.07 |
| 8 Return on Net Worth |
(28.92) |
(30.39) |
(4.85) |
Notes:
1. Current ratio is decreased as compared to previous FY 2018-19 mainly
due to reduction in inventories and trade receivables.
2. Increase in debt during FY 2019-20 as compared to previous FY
2018-19 resulted in higher debt equity ratio.
3. During the year under review, the net Sales dropped by 24.73 per
cent to Rs 36,224.42 Lakhs as compared to previous year primarily due to reduction in
Customer volumes & lower off take from key Customers. The capacity utilization of your
Company was therefore low as compared to last year resulting in reduced operating profit
margin and thus reduced net profit margin as well in FY 19-20 as compared to FY 18-19.
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