PPAP Automotive Ltd

BSE: 532934 | NSE: PPAP | ISIN: INE095I01015 
Market Cap: [Rs.Cr.] 153.72 | Face Value: [Rs.] 10
Industry: Auto Ancillaries

Management Discussions
MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Business Overview

PPAP Automotive Limited ("PPAP") is the principal manufacturer of AutomotiveSealing Systems, Interior and Exterior Injection Molded Products. The Automotive Sealingsystem product range includes Outer Belt Moulding, Inner Belt Moulding, WindshieldMoulding, Roof Moulding, Quarter Window Moulding, A-Pillar Garnish, B-Pillar Garnish, BodySide Moulding and Skirt Air Damper etc. The Company introduced new technologies viz. SUStype Extrusion (Bright Stainless Steel type) and Slide Rail to meet the demands of itscustomers for the passenger car segments. The Company also manufactures Injection moldedproducts like Door Trims, Interior Pillars, Rear Parcel Shelf, Trunk Linings, and FenderInner etc.

PPAP is the major supplier to major Automotive manufacturers in India. Some of theprestigious manufacturers like Maruti Suzuki India Limited, Honda Cars India Limited,General Motors India Private Limited, Toyota Kirloskar Motor Private Limited, RenaultNissan Automotive India Private Limited, Tata Motors Limited, Ford India Private Limitedand Mahindra and Mahindra Limited along with the OEM’s. The Company also caters therequirements of their respective Tier 1 suppliers. The Company has technical collaborationwith Tokai Kogyo Co. Ltd, Japan, for Automotive Sealing System and Nissen ChemitecCorporation, Japan, for Injection Molded Products. The Company also has a Joint Venturewith Tokai Kogyo Co. Ltd, Japan for manufacturing EPDM Rubber based Automotive System withproducts like Opening Trims, Hood Seals, Door Weatherstrip and TPV Glass Run Channels.

Industry Review

The year 2013-14 commenced with hopes of economic recovery, however ended as a year ofuncertainty when expectations weathered serious setbacks. The deterioration in the Indianeconomic landscape created by lack of governance, policy and government spending impactedIndia’s growth. The downward spiral in India’s growth momentum, led by itspersistently high inflation and slowing down of demand and investments in Infrastructureand Real Estate and deteriorating investment climate, pulled down the Industrial growthrate. Even as concerted efforts by the Government helped to address volatility in theforeign exchange market and narrow the current account deficit to a significant continuedto weigh heavily on industrial sector. The waning performance of the industrial sector,persistence of high consumer prices, inflation and interest rates, sluggishness inservices sector and the weakening in private consumption and investment, resulted insubdued performance of many sectors.

Indian automobile industry is a major contributor to growth and development of IndianEconomy. The auto industry currently employs more than 19.5 million people both directlyand indirectly. The auto-industry is a key employment generator in the OEM segment thatmanufactures the vehicles, in the inbound auto component and logistics segment that makesand delivers components & systems and the outbound logistics and dealer network thatsells, maintains and distributes the cars. Every vehicle produced, generates secondary andtertiary employment. The auto industry currently contributes 18% to excise revenue. Carsales in India declined for a second straight year, with March sales also ending in thenegative zone. Overall industry volumes slumped nearly 5%. Market leader Maruti managed amarginal rise, but most others saw sales dips. Domestic car sales in Financial Year 2013-14 stood at 17,86,899 units as compared to 18,74,055 units in the previous fiscal.[Source: Society of Indian Automobile Manufacturers("SIAM")]

Future outlook

The rapid improvement in infrastructure, huge domestic market, increasing purchasingpower, established financial markets and stable corporate governance framework have madethe country a favorable destination for investment by global majors in the auto industry,as per Automotive Mission Plan (AMP) (2006-16).

Additionally, the introduction of alternative fuels like hydrogen and bio fuels need tobe promoted to ensure sustainability of the industry over the long term. The vision of AMP2006-2016 aims India to emerge as the destination of choice in the world for design andmanufacture of automobiles and auto components with output reaching a level of US$ 145billion accounting for more than 10 per cent of the GDP and providing additionalemployment to 25 million people by 2016. In addition, the US-based car major, Ford aims tomake India its export hub and plans to sell its products in more than 50 countries over aperiod of time. The luxury car market of India is set for growth over the medium and longterm. The market is about 30,000 cars a year and is rising steadily.

Awards & Recognition

PPAP continued its track record of superior performance with its customers. The Companywas awarded the prestigious Trophy-‘Overall Excellence Award-Gold Trophy’ fromIndia’s Largest Car manufacturer Maruti Suzuki India Limited (MSIL) during theirAnnual Supplier Convention in Dubai held on 7th - 8th May, 2014.PPAPhas also received the shield for achieving focused cost down in specific models from MSIL.

PPAP also received Appreciation Certificate for achieving Targets in the category ofDelivery and Special Effort in the area of Localisationfrom Toyota Kirloskar Motor PrivateLimited.

Opportunities and Threats Opportunities

The growth of auto-ancillary is dependent on the automobile industry. India is beingrecognized as potential emerging auto market. The Indian passenger vehicle market isdominated by cars. Two-third of the auto components production is consumed directly byOEMs As per industry estimates, out of the total turnover of the Indian auto componentsindustry, around 60% is derived from sales to domestic OEMs, around 25% comes from salesto the domestic replacement market and around 15% is derived from exports.

The automobile industry has made investments worth Rs. 35,000 crores in the last threefinancial current production capacity for four-wheelers is of over 6.6 million. Thus thevehicle industry in India is currently carrying over 65% surplus capacity. India is stillhighly under penetrated. In India, there are only 16 passenger vehicles per’000population, 5 commercial vehicles per’000 population and 85 two wheelers per’000population. Globally, these figures are substantially higher. For instance, Germany has anestimated 518 cars per’000 population, Japan has 457 cars per’000 population andThailand 68 cars per’000 population. In case of Commercial vehicles, the penetrationin various countries is much higher – 388 in the USA, 121 in Japan, 86 in Thailand,etc. In two wheelers also, countries like Thailand (248), Indonesia (216), Japan (98),Germany (72), etc. have much higher penetration. (Source : SIAM) There is big opportunityfor the automotive component industries to meet the future demand of the automobileindustry. The four wheeler demand is now growing slowly in small towns and rural areas ofthe country. Maruti has also got some benefit of the increased sales in rural areas duringthe current fiscal.

Indian Automobile component industry has been making rapid strides towards achievementof world class quality systems and reducing cost of production, which are the mostimportant aspects for the automobile industry.

Threats

Key factors influencing the global car manufacturers have a ripple effect on thedomestic automobile industry in different parts of the world, as well as, the autoancillary industry which supplies parts to the auto industry. Internationally consumerpreferences are determining the current styles, reliability, and performance standards ofvehicles. Government regulations in relation to trade, safety, and environment etc. alsomake it necessary for modernization and changes in designs and production methods.Movement in oil prices also has an impact on demand for cars in India. India continues tobe an attractive destination for the global automotive players. To counter the threat ofgrowing global competition, the Company is regularly bridging the quality gap between itsproducts and foreign offerings while maintaining its low cost product development/sourcingadvantage.

Further tightening of liquidity position, hardening of consumer interest rates wouldhave an adverse impact in the domestic automobile market.

Outlook

Government has taken several policy initiatives and pro-active measures to enhance theeffectiveness and drive growth in Automotive Sector. Major steps have been taken to makeIndia a global automotive hub under the ‘Automotive Mission Plan’ for the periodof 2006-2016. The Mission Plan aims to make India emerge as the destination of choice inthe world for design and manufacture of automobiles and auto components.

Some of the other key initiatives include:

• Formation of National Automotive Board (NAB) to look into the issue of recall ofvehicles that will result in improving manu- facturing standards

• Reduction of excise duty on small cars

• Launch of the National Mission for Hybrid & Electric Vehicles under BudgetFY12, to make hybrid vehicle kits cheaper by reducing the excise duty rebate to 5% from10%

• State Government promoting industrial space especially in the automobile sector

• Open to Public Private Partnerships (PPP)

• Establishing special auto parks and virtual SEZ's for auto components industryby providing an interest subsidy on loans and investment in new plants and equipment

• Export benefits to intermediate suppliers of auto components against the DutyFree Replenishment Certificate (DFRC)

• Automatic approval for 100% Foreign Equity Investment in auto components

Risks and Concerns

The Company is operating in the business of automotive components and the performanceof auto component industry is largely dependent on the performance of automobile industry.The Company operates in an environment which is affected by various factors some of whichare controllable, while others are outside the control of the Company. The Company isdependent on several factors such as changes in Government policies & legislation,economy’s growth, market practices and pricing etc. The global automotivemanufacturers are expanding their production capacities in India, leading to globalcompetition which can only be countered by enhancing designing capability and maintaininglow cost production.

Although rising inflation,interest rates and crude oil prices are concerns of shortterm, the Company is optimistic about medium and long term and is gearing up for growth.The Company is actively exploring all new business opportunities in terms of productdiversification.

The Company is also exposed to financial risk from changes in interest rates, foreignexchange rates and commodity prices. The Company also faces challenges with regard to fastchanging technology, sustaining cost efficiencies and planning capacity expansion in thewake of changing demand patterns.

FINANCIAL PERFORMANCE

1. Income

Our total income has been increased from Rs. 219.59 crores in fiscal 2013 to Rs. 255.25crores in fiscal 2014. The increase in income was on account of increase in sales ofproduct manufactured by the Company.

2. Profit and EBIDTA margin

The Company’s Profit before Interest, Depreciation and Tax increased from Rs.19.74crores in fiscal 2013 to Rs. 36.27 crores in Fiscal 2014. The EBIDTA margin for the fiscal2013 and 2014 has been 9.20 % and 14.70% respectively. PAT increased to Rs. 5.45 crores infiscal 2014 from Rs. 1.54 crores in fiscal 2013.

3. Earning Per Share (EPS)

The Company recorded an EPS of Rs. 3.90 per equity share of Rs.10 each on 14,000,000Equity Shares.

Internal Control System and their Adequacy

The Company has comprehensive internal control system for all major processes to ensurereliability of reporting. The system also helps management to have timely data / feedbackon various operational parameters for effective review. It also ensures propersafeguarding of assets across the Company and its economical use of the same. The internalcontrol system of the Company is commensurate with the size, scale and complexity of itsoperations. The systems and controls are periodically reviewed and modified based on therequirement. The Company has an internal audit function, which is empowered to examine theadequacy and compliance with policies, plans and statutory requirements. It is alsoresponsible for assessing and improving the effectiveness of risk management, control andgovernance process. The scope of Internal Audit is well defined and documented and auditcommittee reviews the observations of the Internal Audit critically.

Human Resources

The Company seeks respect and values the diverse qualities and background that itspeople bring to it and is committed to utilizing the richness of knowledge, ideas andexperience. Acquiring the right talent for the right job, creating a motivating workenvironment, empowering employees to be pro-active, providing growth opportunities, anddeveloping future leaders, our people management system and processes facilitate us tomeet business commitments consistently and build a strong performing culture.

The Company recognizes the fact that leadership is a critical component of itsorganizational strategy. Hence it is focused on developing leadership acrossorganizational levels and helps leaders to transition seamlessly from one level toanother. In FY14, we continued to provide a comprehensive suite of leadership programs toall levels of career transitions. The work environment is stimulating and development ofcore competencies through formal training, job rotation and hands on training is anongoing activity. As on 31st March 2014 your company has 802 employees.

Cautionary Statement

Statements in this Report, particularly those which relate to Management Discussion andAnalysis, describing the Company’s objectives, projections, estimates andexpectations, may constitute ‘forward looking statements’ within the meaning ofapplicable laws and regulations and actual results might differ materially from thoseeither expressed or implied.

   
Futures & Options Quote
Future Data Not present
Key Information

Key Executives:

Ajay Kumar Jain , Managing Director

Abhishek Jain , Whole-time Director

Pravin Gupta , Independent Director

Sonia Bhandari , Company Secretary


Company Head Office / Quarters:

54 Okhla Industrial Estate,
Phase-III,
New Delhi,
New Delhi-110020
Phone : New Delhi- / New Delhi-
Fax : New Delhi- / New Delhi-
E-mail : investor@precisionpipes.com
Web : http://www.precisionpipes.com

Registrars:

Link Intime India Pvt Ltd
A-40 II Flr Phase-II,Naraina Indl Area,Near Batra Banquet,New Delhi - 110 028

 
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