MANAGEMENT DISCUSSION AND ANALYSIS REPORT
1. INDUSTRY STRUCTURE AND DEVELOPMENT:
Your Company is one of the worlds leading manufactures of "Off- Highway
Tires". It has the widest product range with more than 3,200 SKUs (Stock Keeping
Units). Your Company has made its mark in speciality segments like Agricultural, Mining,
Construction, Industrial, Earthmover, Port, ATV (All-Terrain Vehicle), and Turf care
applications in both cross ply and radial construction.
Your Company is always paying close attention when it comes to latest market trends as
well as the technological developments.
As a result of global economic slowdown and ongoing war, there is some pressure on
exports which seems to be improving. We are fairly hopeful of the demand growing in the
coming quarters with a reduction in inflation.
2. OPERATIONS AND STATE OF AFFAIRS:
Standalone: During the year under consideration on Standalone basis, your Company
achieved Revenue from Operations of Rs.9,81,052 Lakhs as against Rs.8,26,671 Lakhs during
the previous financial year, an increase of 18.67%. EBITDA has decreased to Rs.2,05,343
Lakhs from Rs.2,40,610 Lakhs during previous financial year and Net profit has decreased
to Rs.1,07,871 Lakhs from Rs.1,41,069 Lakhs during previous financial year. The revenue
from exports is about 79%.
Consolidated: During the year under consideration on Consolidated basis, your
Company achieved Revenue from operations Rs.9,75,953 Lakhs as against Rs.8,29,512 Lakhs
during the previous financial year, an increase of 17.65%. EBITDA has decreased to
Rs.2,05,364 Lakhs from Rs.2,44,667 Lakhs during previous financial year, and Net profit
has decreased to Rs.1,05,740 Lakhs from Rs.1,43,538 Lakhs during previous financial year.
3. EXPORT HOUSE AND AUTHORISED ECONOMIC OPERATOR STATUS:
In accordance with provisions of Foreign Trade Policy, your Company continues to enjoy
the "Five Star Export House" status w.e.f September 2021. In addition to this,
your Company is also Authorised Economic Operator (AEO) Tier II which helps your company
in faster processing and clearance of cargo, deferred payment of duty, direct port
delivery/entry and other benefits.
4. PROJECTS AND EXPANSION:
Expansion of Carbon Black and Captive Power Plant: During the year the capacity to
manufacture Carbon Black has been increased from 1,15,000 MTPA to 2,00,000 MTPA in
December, 2022 (well ahead of schedule) leading to an increase in the capacity of power
generation in the Captive Power Plant. The high value advanced Carbon Black of 30,000 MTPA
is now expected to be completed by H2 FY 2024.
Modernization, Automation and Technology Upgradation: During the year under review,
your Company has successfully completed the modernization, automation and technology
upgradation at its Bhiwadi, Chopanki and Bhuj Plants.
Waluj Plant: The expansion at new Waluj plant to have overall capacity of 55,000 MTPA
is completed.
5. OUTLOOK FOR THE FINANCIAL YEAR 2023-24:
Concerns of global economic slowdown, the Impact of war in Ukraine and the Risks of
stagflation envisaging numerous market scenarios are pressing the need for Tire Material
industry players to be more vigilant and forward-looking. COVID-19 has changed the
dynamics of Tire Material supply chain which is further influenced by the burgeoning drive
for a cleaner and sustainable environment.
Over the last few years, the global automobile industry has witnessed a considerable
increase in demand for different vehicles, which boosted the sale of Tire globally. Most
of our customer segments are thriving for mechanization and modernization. This trend is
expected to prevail with continuing growth in tire production and demand over the next
five years.
Despite the Challenges due to global economy due to recessionary conditions, rising
interest rate and political turmoil which has led to slowing of external demand, your
Company is determined to grow further in "Off Highway Tire" segment with its
core strength of Research and Development which is supported by the state-of-the-art
manufacturing facilities. Simultaneous expansion projects at Companys plants are leading
to the launch of advanced and eco-friendly tires also lead to sustainable market growth of
tires. In the Union Budget of 2022-23 there is Duty tweak of Compounded rubber which
according to the industry will pinch the margins. The increase in duty is in line with the
demands of the All India Rubber Industry Association.
The Captive Power Plant of the Company at Bhuj will hedge energy cost and provide
better flow of energy to the plant. While your Companys demand outlook is strong, our
approach is to remain vigilant to ensure that we are agile and evolve our dynamics.
6. MATERIAL CHANGES AND COMMITMENTS:
In terms of Section 134(3)(l) of the Companies Act, 2013, there are no material changes
and commitments affecting the financial position of your Company which have occurred
between the close of the financial year of the Company on 31st March, 2023 to
which the Financial Statements relate and up to the date of this report.
7. OPPORTUNITIES AND THREAT:
Opportunities:
Your Company operates into a segment predominantly known as "large varieties - low
volume segment", which is not only capital intensive but also labour intensive. Your
Company is fully geared to take advantage of the peculiarities of the said segment and has
developed a large base of SKUs to meet the diverse needs and applications. Your Company is
witnessing gains in market leadership due to its strong and robust product portfolio.
Moreover, this segment is neither exposed to any technological obsolescence nor wild
fluctuations in demand for its products.
The Company is continuously marching ahead to explore incremental opportunity in the
form of developing "Ultra Large Earthmovers & Mining Radial Tires" markets
and taking advantage of the shift from Bias to Radial Tires, which is growing
continuously. In order to take advantage of this opportunity, the Company had set up
Indias first Ultra Large size all-steel OTR Radial tire plant at Bhuj and further added
capacity to cater the market demand. Your Company is continuously expanding its base into
various segments like agricultural, mining, industrial, construction, winter and solid
tires under both technologies - Bias as well as Radials.
Threats:
Like any other Company, your Company is also exposed to various threats like
competition, retention of employees, labour issues, increase in raw material prices and
its timely availability, etc.
An economic downturn or slowdown in the key markets (India and Europe) may lead to
decrease in volumes and capacity utilisation. Volatile exchange rates, Price Competition
and fears of aggravation in Russia-Ukraine war are some of the threats. It may increase
the operating cost of running the business. Increases in raw material cost can impact the
profitability of the Company.
8. SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS & RETURN ON NET WORTH:
As per Schedule V read with Regulation 34(3) of Listing Regulations, details of
significate changes (i.e change of 25% or more as compared to the immediate previous
financial year) in Key Financial Ratios and any changes in Return on Net Worth of the
Company including explanations thereof are provided in Note No. 52 & 54 of Standalone
and Consolidated financial statement respectively forming part of this Annual Report.
9. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY:
The Company has put in place well defined procedures, covering financial and operating
functions. Delegation of authority and segregation of duties are also addressed to ensure
that the financial transactions are properly authorised. The Company believes that
Internal Control is one of the key pillars of governance, which provides freedom to the
management within a framework of appropriate checks and balances.
The Company has a robust internal control framework, which has been developed
considering the nature, size and risks in the business. The Company has adequate internal
control systems in place and has reasonable assurance on authorising, recording and
reporting transactions of its operations. The Company has well-placed, proper and adequate
internal controls environment, commensurate with its size, scale and complexities of its
operations. The Company has already developed and implemented a framework for ensuring
internal controls over financial reporting.
This framework includes entity level policies, processess and operating level standard
operating procedures (SOP). Internal control systems are an integral part of your
Companys Corporate Governance structure. Information Technology (IT) policies and
processes also ensure that they mitigate the current business risks. The Company has
successfully implemented ERP system, supported by SAP software & backed by necessary
Bandwidth. The systems and processes are continuously improved by adopting best in class
processes and automation and implementing the latest IT tools which help further for
maintaining financial and commercial discipline. These have been designed to provide
reasonable assurance with regard to credibility of data and compliances, inter-alia:
a. recording and providing reliable financial and operational information;
b. complying with the applicable statutes;
c. safeguarding assets from unauthorized use;
d. executing transactions with proper authorization, and ensuring compliance with
corporate policies;
e. prevention and detection of frauds / errors;
f. continuous updating of IT systems;
g. managing the risk of security exposure or compromise.
Your Company has adopted Cyber Security and Data Privacy Policy. Further, your Company
understands the significance of protecting personal and sensitive data (as per the
regulatory provisions such as price sensitive information, details of complainant in case
of discrimination or POSH related incidents) and the requirement for appropriate controls
while collecting, transferring, storing and processing personal data. It anticipates that
all information shall be handled responsibly in accordance with the applicable laws.
The management has assessed the effectiveness of the Companys internal control over
financial reporting as of 31st March, 2023.
The Company recognizes that in todays fast growing digital world, one must be equally
conscious of cyber threats. Your Company has a robust system to prevent any intrusion into
their IT systems and servers thereby protecting the IT assets of the Company.
Your Company has appointed M/s. Deloitte Haskins & Sells LLP to assess the
effectiveness of internal financial controls of the Company. Their assessment was based on
an internal audit plan, which was reviewed in consultation with the Audit Committee and is
found to be quite adequate.
The Audit Committee reviewed the reports submitted by the Management and Internal
Auditors. Based on their evaluation (as defined in section 177 of the Companies Act, 2013
and Regulation 18 of Listing Regulations, 2015), the Companys Audit Committee has
concluded that, as of 31st March, 2023, the Companys internal financial
controls were adequate and operating effectively.
10. HUMAN RESOURCES:
With a motivated team of 3,472 employees (permanent) as on 31st March, 2023,
your Company is proud to inform that the employees have been the key players in its
progress. This workforce is focussed towards building a Sustainable organisation. Immense
emphasis is placed on to have a safe workplace with an agile team. Your Company believes
in a culture of inclusion, trust, skill development, empowerment, and all-round
development of its employees. Your Company continues to build strong pillars of cultural
values which strengthens the business operations. Young Talent is coached and mentored by
a seasoned leadership team.
Effective Communication channels help your Company to transcend its Vision and Mission
till the bottom of the pyramid. Your Company visualises the greater good of its workforce
which would conversely make the Company achieve its business goals in a competitive
environment. Your Company keeps an "Employee First" approach and accords topmost
priority to all human issues within the organisation.
The core cultural values of your Company is nurturing top quality talent, teamwork,
innovation, respect for all, open door policy and creation of a future ready workforce
with Happy Hearts. Your Companys organisation structure is robust and committed to
deliver the best business results. Your Company through its people policies, promotes the
congruence of employee personal vision and the Companys goals.
There is a constant sharing of information about the business with the employees. Your
Company provides fast track career paths for the young talent. Employee engagement
programmes and developmental sessions have created an outstanding workforce which is
focussed and cognizant of its responsibilities. An objective performance management system
has provided satisfaction and growth to all employees. Your Company strongly believes in
harnessing a culture of trust and mutual respect amongst all employees. The values and
principles of your Company have given good results in challenging times. Industrial
relations continue to be cordial across the plants.
11. RISKS RELATED TO BUSINESS:
Risk is an integral and unavoidable component of business. BKTs nature and scale of
the business operations calls for a robust risk management framework to deal with impacts
of external and internal environment. In todays challenging and competitive environment,
mitigating risks is imperative. The range of risks are not only limited to business
disruptions to COVID-19, but include volatile commodity prices, raw material price
fluctuation, growing demand of customers, cybersecurity risks, etc. Common risks include
changing regulations, competition, business risk, technology obsolescence, investments and
retention of talent.
Business risk, inter alia, further includes financial risk, social risk, political
risk, environmental risk and legal risk. These ranges of risks have been meticulously
addressed through a comprehensive risk management process. For managing risks more
efficiently, the Company has undertaken a detailed risk management exercise and has
identified key risks that can have a critical impact on the Companys performance. Risks,
once identified, are periodically monitored, along with emerging risks on the dual scale
of impact and probability. The Company has inter alia identified the following key risks:
Operational Risk:
Operational risks like equipment obsolescence can impact production. To mitigate such
risks, the Company continuously monitors equipment obsolescence and upgrades equipment
from time to time and undertakes preventive maintenance measures. The Company has also
made significant investment in equipment modernisation.
The Companys major raw material is Natural and Synthetic Rubber, Carbon Black and
Nylon fabric. Due to the high demand of all the major raw materials and shutting down of
some raw material manufacturers, the prices and the supply have been adversely affected.
In view of this we have experienced that an increase in cost gets set off by an increase
in prices over a period of time.
Market Risk:
Your Company manages market risk by expanding its presence in different markets, deeper
penetration into existing markets and by launching new products. Furthermore, the Company
spends requisite amount on marketing and promotional activities to ensure customer
retention and brand-building. Company has also invested in building larger network of
distributors and dealers across the market to avoid the risk in case of fluctuations in
market.
Labour Relations:
Since the manufacturing process of the Company is labour intensive, it requires lot of
skilled as well as un-skilled workers. Maintaining a huge work force is a challenging
task.
In order to mitigate the said risk, the Company follows good HR practices to promote
the welfare and safety of its workmen and maintain a cordial working environment. All
workers are paid more than government stipulated wages.
Retention of skilled manpower:
Like other players in the industry, the Company is also exposed to this risk, more
particularly when there is shortage of skilled manpower in the industry. However, the
Company is able to manage the said risk by good HR practices and rewarding its employees
handsomely. Company provides various opportunities for career development.
Currency Fluctuation:
The Company revenues are mainly through exports. Further, since most of the raw
materials and capital equipment are imported, the Company is exposed to foreign currency
risk. However, it enjoys natural hedge as most of its revenues are in foreign currency.
However, since, the Company is a net foreign exchange earner and mostly hedges its net
exposure in advance by way of forward contracts, it is immune to a large extent from the
fluctuation in currencies.
Technology Risk:
Due to growing digitalisation the company is exposed to vulnerability to cyber-attacks.
To avoid such risks your company has put in place policies and procedure for data privacy.
Also, adaptation of Security operations control and technologies to safeguard IT data and
applications. Focus is also maintained on mandatory employee training on cybersecurity
awareness.
12. RISK MANAGEMENT AND MITIGATION:
Risk Management is the identification, assessment, and prioritisation of risks
followed by coordinated and economical application of resources to minimise, monitor and
control the probability and/or impact of uncertain events or to maximise the realisation
of opportunities. Risk management also provides a system for the setting of priorities
when there are competing demands on limited resources. Risk management also attempts to
identify and manage threats that could severely impact or bring down the organisation.
The Companys Board of Directors has overall responsibility for the establishment and
overseeing of the Company risk management framework. Pursuant to Regulation 21 of Listing
Regulations, Risk Management Committee was constituted comprising of Mr. Pannkaj Ghadiali,
an Independent Director as Chairman of the Committee, Mr. Arvind Poddar and Mr. Vipul
Shah, Directors of the Company are Members of the Committee. The primary objective of the
Committee is to control the various risks that the Company is exposed to, with a view to
prevent unacceptable losses, to provide an effective means of identifying, measuring and
monitoring credit exposure risks by the Company and to keep such risk at or below
predetermined levels. The Company has framed an Enterprise Risk Management Policy (the
"Policy") to realise the following benefits for the Company:
a. Enhanced risk management for the organization including strategy setting.
b. Facilitate risk-based decision making.
c. Improve governance and accountability.
d. Enhance credibility with key stakeholders such as investors, employees, government,
regulators, society, etc.
e. Create, protect and enrich stakeholder value.
The policy contains the objectives of risk management, companys approach to risk
management and the risk organization structure for identification, management and
reporting of risks. The policy specifies the roles and responsibilities of key
stakeholders and other key personnel of the Company with regards to risk management. The
policy also aims to ensure and identify process of risk identification and management in
compliance with the provisions of the Companies Act, 2013.
Following objectives are achieved through the Risk Management program of the Company
viz:
a. Enable organizational sustainability taking cognizance of the impact of its
products, services & operations on society and the environment
b. Reduce potential gaps in achieving companys objectives
c. Align and integrate existing risk management practices in the organization
d. Build confidence of investor community and stakeholders
e. Enhanced Corporate Governance
f. Successfully respond to changing business environment
Risk management policies and systems are reviewed regularly to reflect changes in
market conditions and the Companys Activities.
The Audit Committee oversees how management monitors compliance with the Companys risk
management policies and procedures and reviews the adequacy of the risk management
framework in relation to the risks faced by the Company. Internal Audit undertakes both
regular and ad hoc reviews of risk management controls and procedures, the results of
which are reported to the audit Committee.
There are no risks, which in the opinion of the Board threaten the existence of the
Company.
13. CAUTIONARY STATEMENTS:
Certain statements in the "Directors Report & Management Discussion and
Analysis" describing the Companys views about the Industry, expectations/
predictions, objectives etc., may be forward looking within the meaning of applicable laws
and regulations. Actual results may differ materially from those expressed in the
Statement. Companys operations may inter-alia affect with the supply and demand
stipulations, input prices and their availability, changes in Government regulations,
taxes, exchange fluctuations and other factors such as Industrial relations and economic
developments etc. Investors should bear the above in mind.
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