akar auto industries ltd share price Management discussions


INDUSTRY STRUCTURE AND DEVELOPMENTS:

GDP: The estimates of GDP released by the NSO show that the Indian economy grew at 8.7% YoY and the fourth quarter of FY 2021-22 grew at 4.1% as compared to fourth quarter of preceding year. The second advance GDP estimates released in February 2022 reaffirmed a resilient and strong recovery of Indias economy with the real GDP for FY 2021-22 estimated to exceed the output of the most recent pre-pandemic year of 2020. These estimates are driven by a revival in services, full recovery in manufacturing and sustained growth in agriculture sectors.

Inflation: As per the Monetary Policy Committee (MPC) of RBI, the risks to the near-term inflation outlook are rapidly materialising, as reflected in the inflation print for March 2022 and the developments thereafter. In 2022, MPC increased the policy repo rate by 40 bps to 4.4%. Consequently, the standing deposit facility ("SDF") rate stands adjusted to 4.2% and the marginal standing facility ("MSF") rate and the Bank Rate to 4.7%. The MPC decided to keep watch on inflation and will take appropriate decision based on the inflation data.

Automobile Industry: The automobile industry recovered substantially in FY 2021-22 due to increased general economic activity. The pre-pandemic FY 2019-20 level was surpassed by the GDP level in FY 2021-22. It crossed not just in aggregate but in all components of the total aggregate demand. On the supply side, in FY 2021-22 the output of all most all sectors had surpassed the FY 201920 levels. In terms of quarterly data, output had exceeded pre-pandemic level in aggregate since the second quarter of FY 2021-22 and in the fourth quarter of FY 2021-22 for all sectors. Distinct month-on-month improvements have been absorbed since December 2021. By February 2022, almost all indicators had moved above pre-pandemic levels, except a few, mainly automobile related, where activity has relapsed due to semiconductor shortages. During FY 2021-22, the Indian automotive sector continued to be impacted by several challenges, including the COVID-19 pandemic, the global semiconductors shortage and other supply shortages. Despite the turbulent year, some recovery was observed in the economy at the end of FY 2021-22.

OPPORTUNITIES AND THREATS:

Opportunities:

The Government of India approved the Production Linked Incentive (PLI) Scheme for Automobile and Auto Component Industry in India for enhancing Indias Manufacturing Capabilities for Advanced Automotive Products (AAT) with a budgetary outlay of Rs.25,938 crore. The PLI Scheme for Automobile and Auto component industry proposes financial incentives to boost domestic manufacturing and attract investments in the automotive manufacturing value chain.

The Government of India also launched vehicle scrappage policy on August 13, 2021. The policy mandates Commercial vehicles aged >15 years and passenger vehicles aged >20 years will have to be mandatorily scrapped if they do not pass the fitness and emission tests. The policy is expected to reduce pollution, create job opportunities and boost demand for new vehicles. Several incentives have been proposed, including - giving exchange value while purchasing new vehicles, zero registration fees for new vehicle purchased, etc. Further, state governments and auto manufacturers have also been advised to provide certain concessions. The governments plan for strengthening the public transport sector under PPP models is encouraging for the industry.

The government of India have undertaken multiple initiatives to promote manufacturing and adoption of electric vehicles in India and has set ambitious targets for 30% EV penetration by FY 2030 and has also been pursuing the use of alternate fuel like Hydrogen as alternative to battery.

Strong policy support initiatives and government focus on infra spending is creating good opportunities for demand revival and growth. We see significant opportunities to leverage the mega trends shaping the Indian automotive industry.

Threats:

Prices of raw material items such as steel, Nickel and petroleum products have generally risen in recent past and may significantly rise in the future. This may impact the production cost of the Company, which may adversely affect the sales and profits of the Company.

The ongoing conflict between Russia and Ukraine could have an impact on our business. United States, the United Kingdom and European Union members, issued broad economic sanctions against Russia, including to prohibit certain trade activity with certain Russian corporate entities, financial institutions, officials and oligarchs. Increasing threat of commodity prices including energy cost will have the bearing on the growth of the Auto Industry. This has also adversely affected the business of the companies in United States and other western countries. This may have an impact on our business as we have customer base in United States and other western countries.

SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE:

The information in this regard is given in Note No. 34 of the Notes forming part of the financial statements.

OUTLOOK:

The outlook for the Indian economy remains strong. The increasing government funding in public infrastructure is expected to encourage growth and attract private investment through a strong multiplier effect in the industry. However, supply-side bottlenecks are expected to remain persistent with gradually rising crude oil and other commodity prices in FY 2023. The availability of budgetary space to ramp-up capital spending, advantages from supply-side reforms, regulatory relaxation, and continued export growth are also likely to contribute to growth. As per IMFs World Economic Outlook projections, Indias real GDP is projected to grow at 8.9% in FY 2023 and 7.1% in FY 2024, making it the fastest growing major economy in the world for all three years between 2021-22 and 2023-24.

The EV market is expected to increase at a CAGR of 36% until 2026. The EV battery market is also expected to expand at a CAGR of 30% during the same period. With the governments aim to move towards a completely Aatmanirbhar Bharat, the Ministry of Heavy Industries has sanctioned 2877 public EV charging stations in 68 cities all over India, under the Scheme for Faster Adoption and Manufacturing of Electric Vehicles in India Phase-II (FAME India Phase II) to be set up by Oil Marketing Companies in prominent cities and highways. The government also announced a battery-swapping policy in the Union Budget 2022-23, which will allow drained batteries to be swapped with charged ones at designated charging stations, thus making EVs more viable for potential customers.

RISKS AND CONCERNS:

The automotive industry could be materially affected by the general economic conditions and developments in India and around the world and investors reaction to such conditions and developments.

The automotive industry, in general, is cyclical, and economic slowdowns in recent years have affected the manufacturing sector in India, including the automotive and related industries. Deterioration of key economic factors, such as the growth rate, interest rates and inflation, reduced availability of competitive financing rates for vehicles, implementation of burdensome environmental and tax policies, work stoppages and increase in freight rates and fuel prices could materially and adversely affect Companys sales and operations.

Our operations and financial position have been, and may in the future be, impacted by the COVID-19 pandemic, including the emergence of new variants of the virus, uncertainty surrounding the effectiveness of COVID-19 vaccines and future government action in response to the next stages of the pandemic.

We rely on third parties to source raw materials, parts and components used in the manufacture of our products. At a local level, we rely on smaller enterprises where the risk of insolvency is greater. In addition, for some parts and components, we are dependent on a single source. Our ability to procure supplies in a cost-effective and timely manner is subject to various factors, some of which are not within our control.

Increases in commodities and input prices may have a material adverse effect on our operations. Prices of commodity items such as steel, nickel and petroleum products have generally risen in recent past and may significantly rise in the future.

We are exposed to operational risks, including cyber security risks, in connection with our use of information technology.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has an adequate system of internal controls in place. It has documented policies and procedures covering all financial and operating functions. These controls have been designed to provide a reasonable assurance with regard to maintaining of proper accounting controls for ensuring reliability of financial reporting, monitoring of operations and protecting assets from unauthorised use

or losses, compliances with regulations. The Company has continued its efforts to align all its processes and controls with global best practices.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

The Company mainly manufactures automobile parts for heavy commercial vehicles as well as passenger vehicles. The Company recorded net revenue from operations of Rs.26,852.22 Lakhs in FY 2021-22, 42.89% higher than Rs.18,805.70 Lakhs in FY 2020-21. The Profit Before Tax for FY 2021-22 was Rs.733.56 Lakhs as compared to Loss Before Tax of Rs.209.46 Lakhs for FY 2020-21. The Profit After Tax for FY 2021-22 was Rs.687.65 Lakhs as compared to Loss After Tax of Rs.283.88 Lakhs for FY 2020-21.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATION:

The Company believes that the success of any organisation depends upon availability of human capital. Our assets are our people who work to innovate beyond and challenge established boundaries. Thus, employees are vital to the Company. We have favourable work environment that encourages innovation and meritocracy. We focus on attracting the best and brightest talent and the meritocracy is the sole criteria for selection. The Company firmly believes that manpower is the most important asset, above all. The Company has good cordial relation with trade union and employees representatives and views these relationships as contributing positively to the success of the business. The total number of employees of the Company as on March 31, 2022 stood at 376

KEY FINANCIAL RATIOS, STANDALONE:

Particulars FY 2021-2022 FY 2020-2021 Explanation
Debtors Turnover Ratio 8.13 5.35 The ratios for the financial year 2021-22 are better as compared to financial year 2020-21, as the Company has performed well post COVID-19 pandemic period and has surpassed the pre COVID-19 pandemic level of the Company in terms of sales and profit.
Inventory Turnover Ratio 2.44 1.75
Interest coverage ratio 1.92 0.74
Current Ratio 1.26 1.18
Debt Equity Ratio 2.01 2.82
Operating Profit Margin 5.71% 3.17%
Net Profit Margin 2.56% -1.58%
Return on Net Worth 21.19% -11.59%

CAUTIONARY STATEMENT:

Statements in the Management Discussion and Analysis describing the Companys objective, projections, estimates, expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include, among others, economic conditions affecting demand / supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors.

For and on Behalf of Board
Sd/-
Date: 11th August 2022 N K Gupta
Place: Aurangabad (Chairman)
DIN. 00062268