amtek auto ltd Management discussions

ABOUT AMTEK AUTO LIMITED

Amtek Auto Limited is one of the largest integrated auto component manufacturers and company is in Corporate Insolvency Resolution Process. ‘Corporate Insolvency Resolution Process (CIRP) was initiated, on a petition filed by Corporation Bank, against the Company, which was admitted vide an Order of the National Company Law Tribunal (NCLT), Chandigarh dated July 24, 2017 under the provisions of the Insolvency and Bankruptcy Code 2016("Code / IBC"), pursuant thereto, on July 27, 2017, Honble NCLT appointed Mr. Dinkar T. Venkatasubramanian as Interim Resolution Professional (IRP) in terms of IBC, who was subsequently confirmed as Resolution Professional (RP) by Committee of Creditors (CoC), constituted under IBC. Mr. Dinkar T. Venkatasubramanian, in his capacity as RP, has taken control and custody of the management and operations of the company with effect from August 22, 2017.

The ‘Resolution Plan submitted by Liberty House Group Pte. Limited (LHG) was voted upon (between April 4, 2018 and April 5, 2018) & duly approved by the CoC and was further approved by NCLT vide Order dated July 25, 2018. However, LHG failed to implement the Resolution Plan. The CoC of the Company sought directions from the Honble NCLT for reinstatement of the CIRP by excluding the time spent, in calculating the 270 days under IBC.

The Honble NCLT vide Order dated February 13, 2019 reinstated the CIRP while observing that LHG has failed to implement the Resolution Plan. The NCLT excluded a 45 days period and an additional 10 days period to negotiate with Deccan Value Investors (DVI), the Resolution Applicant whose offer was second highest, while calculating the period of 270 days permitted for completion of the insolvency resolution process. The CoC filed an appeal with Honble NCLAT to seek permission to restart the CIRP by inviting fresh resolution plans from interested resolution applicants for an effective resolution of the corporate debtor; and to grant adequate time (i.e. Minimum of 90 days) to the CoC and the RP to attempt a fresh process and resolution rather than forcing a resolution with Decaan Value Investors (DVI).

The Honble NCLAT vide their order dated May 3, 2019 instructed the ‘Resolution Professional to ensure that the company remains a going concern and the manufacturing and production of the company do not suffer, payment of wages to the employees/workmen are made on time and if any material is supplied during corporate resolution process, the payment must be paid to the supplier/creditor. However, Honble NCLAT vide their Order dated August 16, 2019 issued a directive to NCLT to proceed under Section 33 of IBC Code, i.e. to issue the liquidation order.

Pursuant to the Honble NCLAT Order dated August 16, 2019, COC has filed an appeal with the Honble Supreme Court of India for staying the aforesaid NCLAT Order and to allow to restart the CIRP process and seek fresh bids. The Honble Supreme Court of India vide their interim order dated September 24, 2019 allowed the Resolution Professional to seek fresh bids within 21 days and within 2 weeks thereafter the CoC to consider the offers and be placed before the Honble Supreme Court of India on next date of hearing scheduled on November 5, 2019.

Since the matter could not be heard on November 05, 2019, it was listed for hearing on November 13, 2019. The Honble Supreme Court of India has vide their order dated November 13, 2019 has directed the CoC to consider the offers received within the time limit and a decision with respect to the offers be taken within 3 weeks from November 13, 2019.

Further the matter was listed on December2, 2019 and the Honble Supreme Court recalled the order dated 13.11.2019 and directed that fresh offers be invited within 30 days from today after due advertisement in accordance with the procedure prescribed for the purpose. The time fixed by this Court vide order dated 24.09.2019 is hence extended

The offer may be evaluated within three weeks by CoC thereafter and it may be placed before this Court for consideration.

A. INDUSTRY STRUCTURE, DEVELOPMENTS AND OUTLOOK

The automobile industry in India is worlds fourth largest, with the country currently being the worlds 4th largest manufacturer of cars and 7th largest manufacturer of commercial vehicles in 2018. Indian automotive industry (including component manufacturing) is expected to reach Rs 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026. Two-wheelers dominate the industry and made up 81 per cent share in the domestic automobile sales in FY19. Overall, Domestic automobiles sales increased at 6.71 per cent CAGR between FY13-18 with 26.27 million vehicles being sold in FY19. In FY19, commercial vehicles recorded the fastest pace of growth in domestic sales at 17.55 per cent year-on-year, followed by three-wheelers at 10.27 per cent year-on-year. The passenger vehicle sales in India crossed the 3.37 million units in FY19, and is further expected increase to 10 million units by FY20. The government aims to develop India as a global manufacturing as well as a R&D hub. It has set up National Automotive Testing and R&D Infrastructure Project (NATRIP) centers as well as a National Automotive Board to act as facilitator between the government and the industry. The Indian government has also set up an ambitious target of having only electric vehicles being sold in the country. The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the country for introduction of electric vehicles (EVs) in their public transport systems under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme. In February 2019, the Government of India approved the FAME-II scheme with a fund requirement of Rs 10,000 crore (US$ 1.39 billion) for FY20-22. The Government of India expects automobile sector to attract US$ 8-10 billion in local and foreign investments by 2023.

• GLOBAL ECONOMIC OVERVIEW

On the surface, global economic growth appears robust. The world economy is projected to expand at a steady pace of 3 per cent in 2019 and 2020. Growth rates in many developed economies have risen near to what is widely considered their potential, while unemployment rates have fallen towards historical lows. Among the developing economies, the East and South Asia regions remain on a strong growth trajectory, while many commodity-exporting countries are continuing a gradual recovery. However, a closer look below this surface reveals significant shortcomings in the foundations and quality of global economic growth

In 2018, global economic growth remained steady at 3.1 per cent when calculated at market exchange rates, or 3.7 per cent when adjusted for purchasing power parities (figure I.1). A fiscally induced acceleration in the United States of America offset slower growth in some other large economies, including Argentina, Canada, China, Japan, Islamic Republic of Iran, Turkey and the European Union (EU) (figure I.2). Despite these slowdowns, economic growth accelerated in more than half of the worlds economies in both 2017 and 2018. There are growing signs that global growth may have reached a peak. Estimates of global industrial production and merchandise trade growth have been tapering since the beginning of 2018, especially in trade-intensive capital and intermediate goods sectors, signalling weaker investment prospects. The annualized expansion of global industrial production slowed to 3.0 per cent in the first 9 months of 2018, compared to 3.5 per cent growth in 2017. World merchandise trade growth averaged 3.7 per cent in the 9 months to September, compared to 4.7 per cent growth in 2017. At the same time, several developed economies are facing capacity constraints, which may constrain growth in the short term.

After strong growth in 2017 and early 2018, global economic activity slowed notably in the second half of last year, reflecting a confluence of factors affecting major economies. Chinas growth declined following a combination of needed regulatory tightening to rein in shadow banking and an increase in trade tensions with the United States. The euro area economy lost more momentum than expected as consumer and business confidence weakened and car production in Germany was disrupted by the introduction of new emission standards; investment dropped in Italy as sovereign spreads widened; and external demand, especially from emerging Asia, softened. Elsewhere, natural disasters hurt activity in Japan. Trade tensions increasingly took a toll on business confidence and, so, financial market sentiment worsened, with financial conditions tightening for vulnerable emerging markets in the spring of 2018 and then in advanced economies later in the year, weighing on global demand. Conditions have eased in 2019 as the US Federal Reserve signalled a more accommodative monetary policy stance and markets became more optimistic about a US–China trade deal, but they remain slightly more restrictive than in the fall.

• INDIAN ECONOMIC OVERVIEW

India continues to remain the fastest growing major economy in the world in 2018-19, despite a slight moderation in its GDP growth from 7.2 per cent in 2017-18 to 6.8 per cent in 2018-19. On the other hand, the world output growth declined from 3.8 per cent in 2017 to 3.6 per cent in 2018. The slowdown in the world economy and Emerging Market and Developing Economies (EMDEs) in 2018 followed the escalation of US China trade tensions, tighter credit policies in China, and financial tightening alongside the normalization of monetary policy in the larger advanced economies.

This moderation in growth momentum is mainly on account of lower growth in ‘Agriculture & allied, ‘Trade, hotel, transport, storage, communication and services related to broadcasting and ‘Public administration & defence sectors. The foreign exchange reserves in nominal terms (including the valuation effects) decreased by US$ 11.6 billion end-March 2019 over end-March 2018.

Decline in investment rate and fixed investment rate since 2011-12, seems to have bottomed out with some early signs of recovery since 2017-18. Fixed investment growth picked up from 8.3 per cent in 2016-17 to 9.3 per cent in 2017-18 and further to 10.0 per cent in 2018-19

Service sector is the most dynamic sector in the economy and has remained the key driver of economic growth along with being a major contributor to GVA and export basket of the Indian Economy. Growth in the industry accelerated during 2018-19 on the strength of improving manufacturing and construction activity. Manufacturing accounted for 16.4 per cent in total GVA in 2018-19, marginally higher than that of ‘Agriculture & allied sector.

Foreign direct investment (FDI) in India declined for the first time in the last six years in 2018-19, falling by 1 % to $44.37 billion as overseas fund inflows subsided in telecom, pharma and other sectors, official data showed.

Net Foreign Direct Investment (FDI) inflows grew by 14.2 per cent in 2018-19. Among the top sectors attracting FDI equity inflows, services, automobiles and chemicals were the major categories

According to Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflows in India in 2018-19 stood at US$ 44.37 billion, indicating that governments effort to improve ease of doing business and relaxation in FDI norms is yielding results.

Currently, India is the fastest-growing trillion-dollar economy in the world and is expected to reach US$ 6 trillion by Fiscal 2027 and achieve upper-middle income status on the back of digitization, globalization, favourable demographics, and reforms. India is expected to be third largest consumer economy as its consumption is expected to triple to US$4 trillion by 2025. The World Bank expects, Indias GDP growth to accelerate moderately to 7.5% in Fiscal 2020, driven by continued investment, improved export performance, and resilient consumption. India is likely to become the worlds second largest economy by 2030, next only to China.

Key Announcement by Ms Nirmala Sitharaman, Minister for Finance and Corporate Affairs, Government of India.

Financial restructuring: The INR 70,000 crores of upfront capital infusion in public sector banks (PSBs) and the merger of 10 PSBs to form four larger banks are likely to infuse capital into banks, improve liquidity in the economy, and enhance their lending capacity. In addition, these measures are likely to reduce lending costs and help improve banks nonperforming assets (NPAs).

Sectoral reforms: Several reforms have been announced to boost the real estate, auto, and export industries, among others. With the intention of boosting demand and supply for housing, the government announced a package of INR 20,000 crore for stalled affordable housing projects, which will likely benefit around 3.5 lakh homeowners, and relaxed external commercial borrowing guidelines for affordable housing for home buyers (subject to conditions). The package will likely provide the much-needed last-mile funding for housing projects that are "non-NPAs" and non-National Company Law Tribunal. This may release the capital stuck with financial institutions and make it easier for real estate developers to access capital from a larger pool of funds. Expanded scope of the Export Credit Insurance Scheme by the Export Credit Guarantee Corporation and revised priority sector lending norms for export credit are expected to benefit small- and medium-sized enterprise exporters. These measures are likely to boost their contribution to exports as well as improve competitiveness. Measures such as increased depreciation cost for automobiles for corporate and businesses and deferred one-time vehicle registration fees until June 2020 are likely to improve demand for automobiles and increase the cash flow for manufacturers.

Corporate tax rate cuts: The government announced a cut in corporate tax rate to 22 percent from 30 percent, excluding surcharge and cess. Under another provision in the Income Tax Act, new domestic companies that are incorporated on or after October 2019 and are making new investments in manufacturing are now liable to pay reduced income tax of 15 percent instead of 25 percent. This move is expected to infuse capital investment in manufacturing, a sector that has failed to take off at the desired pace despite several government initiatives. The cuts that will be effective from the current financial year are subject to the condition that the eligible companies do not avail any other exemption or incentive.

• Global Automobile Industry

The global automotive industry is expected to begin a challenging phase in 2019, with OEMs especially facing multiple obstacles all over the world. China faced its first even decline in vehicles sales in over 20 years, the USA market grew marginally, the shockwaves of Brexit and USMCA deal are expected create across global markets and the new US-China trade war. This is expected to play out till 2020 at least with global markets expected to rebound by around 2023.

The automotive industry has evolved significantly over the past decade. Digital technology, change in customer sentiment and economic health have played a vital role in this evolution. OEMs and other key industry players are taking note of this evolution and investing heavily in non-commercial business practices of manufacturing vehicles.

Overall global demand remains healthy. Despite headwinds, the global automotive market has an overall strong outlook:

Chinese demand is expected to soften in 2019, with light-vehicle registrations down 1%-3% as comparisons ease in the second half of the year.

In Japan, demand is expected to increase 1%-3%. This is due to expected purchases ahead of a consumption tax increase (from 8% to 10%), set to take effect in October 2019.

The Indian government passed monetary and tax reform actions in 2017-18 that spurred light-vehicle demand up to a full-year increase of 8.3%. However, we expect tighter credit policy to dampen light-vehicle demand growth to 6%-8% in 2019.

The Brazil light-vehicle market saw a 13.7% increase in 2018 due to labor reform and favorable monetary policy. In 2019, though, political turmoil and unpopular pension reform could be significant risks to growth.

Russian light-vehicle demand is expected to increase 6%-8% in 2019, in the face of economic sanctions imposed by the international community and moderating oil prices.

These circumstances suggest that demand in the worlds major markets is likely to soften moderately but remain relatively healthy, as long as they arent subjected to a no-deal Brexit and trade-conflict escalation.

• Indian Automobile Industry

The automobile industry in India is worlds fourth largest, with the country currently being the worlds 4th largest manufacturer of cars and 7th largest manufacturer of commercial vehicles in 2018. Indian automotive industry (including component manufacturing) is expected to reach Rs 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026. Two-wheelers dominate the industry and made up 81 per cent share in the domestic automobile sales in 2018-19. Overall, Domestic automobiles sales increased at 6.71 per cent CAGR between FY13-18 with 26.27 million vehicles being sold in 2018-19. Indian automobile industry has received Foreign Direct Investment (FDI) worth US$ 21.38 billion between April 2000 and March 2019.Domestic automobile production increased at 6.96 per cent CAGR during 2013-2019 with 30.92 million vehicles manufactured in the country in 2018-19.

In 2018-19, commercial vehicles recorded the fastest pace of growth in domestic sales at 17.55 per cent year-on-year, followed by three-wheelers at 10.27 per cent year-on-year.The passenger vehicle sales in India crossed the 3.37 million units in 2018-19, and is further expected increase to 10 million units by 2019-20.

The government aims to develop India as a global manufacturing as well as a research and development (R&D) hub. It has set up National Automotive Testing and R&D Infrastructure Project (NATRiP) centres as well as a National Automotive Board to act as facilitator between the government and the industry. Under (NATRIP), five testing and research centres have been established in the country since 2015.

The Indian government has also set up an ambitious target of having only electric vehicles being sold in the country. Indian auto industry is expected to see 8-12 per cent increase in its hiring during 2018-19. The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the country for introduction of electric vehicles (EVs) in their public transport systems under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme. The first phase of the scheme has been extended to March 2019 while In February 2019, the Government of India approved the FAME-II scheme with a fund requirement of Rs 10,000 crore (US$ 1.39 billion) for FY20-22. Number of vehicles supported under FAME scheme has increased to 192,451 units in March 2018 from 5,197 units in June 2015.

Automobile exports grew 14.50 per cent in 2018-19. It is expected to grow at a CAGR of 3.05 per cent during 2016-2026. Domestic two-wheeler industry is expected to grow at 8-10 per cent during 2018-19. Also, Luxury car market in India is expected to grow at a 25 per cent CAGR till 2020. The Government of India expects automobile sector to attract US$ 8-10 billion in local and foreign investments by 2023.

The Indian auto-components industry has experienced healthy growth over the last few years. The auto-component industry of India has expanded by 18.3 per cent to reach at a level of US$ 51.2 billion in FY 2017-18. The auto-components industry accounts for 2.3 per cent of Indias Gross Domestic Product (GDP) and employs as many as 1.5 million people directly and indirectly each. A stable government framework, increased purchasing power, large domestic market, and an ever increasing development in infrastructure have made India a favourable destination for investment.

• MARKET SIZE

The Indian auto-components industry can be broadly classified into the organised and unorganised sectors. The organised sector caters to the Original Equipment Manufacturers (OEMs) and consists of high-value precision instruments while the unorganised sector comprises low-valued products and caters mostly to the aftermarket category.The total value of Indias automotive exports stood at US$ 13.5 billion in 2017-18 as compared US$ 10.9 billion in the year 2016-17. This has been driven by strong growth in the domestic market and increasing globalisation (including exports) of several Indian suppliers. Growth is further expected to accelerate to 8-10 per cent in FY19 due to pick up in global scenario. According to the Automotive Component Manufacturers Association of India (ACMA), the Indian auto-components industry is expected to register a turnover of US$ 100 billion by 2020 backed by strong exports ranging between US$ 80- US$ 100 billion by 2026.

• INVESTMENTS

The Foreign Direct Investment (FDI) inflows into the Indian automotive* industry during the period April 2000 – March 2019 were recorded at US$ 21.38 billion, as per data by the Department for Promotion of Industry and Internal Trade (DPIIT)).

Some of the recent investments made/planned in the Indian auto components sector are as follows:

• Schaeffler India, the Indian arm of Germanys automotive and industrial parts maker, is planning to invest Rs 300 crore (US$ 46.66 million) per annum over FY18-19.

• As of December 2018, German automotive major Continental has planned investments of Rs 180 crore (US$ 25.65 million) for setting up a premium surface materials facility in Pune. The facility will have an initial capacity of five million square metres and is expected to start production in 2020.

• In October 2018, IMI Precision Engineering inaugurated its second largest manufacturing facility in the Asia Pacific region. The company is planning to expand its product and technical offerings over the course of the next few years.

• As of September 2018, air-compressor manufacturer Elgi Equipments is going to invest Rs 18 crore (US$ 2.56 million) for setting up of a motor production facility in India. The facility is expected to be commissioned in Q1 FY20.

• ACHIEVEMENTS

• The FAME – India Scheme formulated by Department of Heavy Industry led to a continuous increase in registered OEMs and vehicle models. Also, the scheme enhanced the sales of electric vehicles and about 261,507 electric/hybrid vehicles were supported under the scheme up to December 6, 2018. In February 2019, the Government of India approved the FAME-II scheme with a fund requirement of Rs 10,000 crore (US$ 1.39 billion) for FY20-22.

• Under National Automotive Testing and R&D Infrastructure Project (NATRiP) various facilities including passive safety labs comprising of crash core facility and crash instrumentations including dummies were established at ICAT-Manesar & ARAI-Pune

• To give a fresh thrust to e-mobility in public transport, Department of Heavy Industry announced the launch of public & shared mobility based on electric power train.

B. OPPORTUNITIES & THREATS

Currently, the automotive sector contributes more than 7 percent to Indias GDP. The Automotive Mission Plan 2016–26 sets an aspiration to increase the contribution to 12 percent. A number of economic trends could help in meeting this target. Rapid urbanization means the country will have over 500 million people living in cities by 2030 which is 1.5 times the current US population. Rising incomes will also play a role, as roughly 60 million households could enter the consuming class (defined as households with incomes greater than $8,000 per annum) by 2025. To reduce dependency on oil imports, the government is promoting adoption of alternative fuels through FAME2. It is expected to incentivize electrification of the public-transport fleet of buses and taxis, as well as facilitate demand for all types of alternative fuel. Furthermore, to enable immediate adoption, a lower goods and services tax of 12 % is applied to battery electric vehicles, compared with 31 to 48 percent for other vehicles. Electrification has just started to take off in India. Factors such as declining prices of batteries and supportive policies from the government are stimulating the segments growth. In 2017, only 2,352 units of electric vehicles were sold. However, early signs of growth are visible through an order for 10,000 electric vehicles by the governments energy-service company known as Energy Efficiency Services Limited.

The pros and cons of electrification continue to evolve. Reduction in emissions and less dependency on oil imports are clear advantages of electrification. The level of adoption of electric vehicles will determine its impact on the automobile industry. According to industry experts, people carriers like buses, two and three wheelers, luxury passenger vehicles, and light commercial vehicles could see maximum penetration by 2030.

THREATS

There is a direct relationship between the economic growth of the country and the performance of its major industries, including the automobile sector, which is also responsible for the allied sectors, especially auto component that is the most prominent among them.

The salaried class accounts for less than half of the automotive sales. Self-employed people are generally the bigger source of auto sales, representing the larger unorganized economy in the country. Since the sentiment among small businesses has weakened, there is a pullback in discretionary spending such as automobiles. Initial indicators on slowing of economy didnt raise an alarm as a result most of the companies missed it and has pushed production during festive season. As a result of low sales a huge inventory pile up is seen across all OEMs leading to production cuts now. Further the Supreme Court of India has ruled out for the compliance of Bharat Stage IV Norms for all Vehicles to be manufactured and sold across the country with effect from April 1, 2020. In order to expedite, the Central Government skipped the BS-V norms altogether for the adoption of BS-VI norms by 2020. Some Manufacturers found that induction of such Technology would involve substantially higher development cost and manufacturing Vehicles would not lead as a viable option to the consumers in terms of cost, hence posing a threat of shutting down the Manufacturing Units, whereas some Manufacturers have already started the induction of Technology, leading to the overall slowdown of the Industry.

• SWOT ANALYSIS

Strengths	Weaknesses
Geographical spread of operations in India allows proximity to a large and diversified customer base.	Automotive operations are directly dependent on general economic conditions across key global markets.
One of the Largest Forgings player in the country with vast capabilities	Signs of melting demand for Automotives industry.
One of the best metallurgical laboratory in India with availability of key machines such as spectrometer, microscope with image analyser, storohlin appartus/ ferro excel lab & precision sand testing equipment.	Shortage of availability of raw materials like steel, precious metals, petroleum products and fluctuating prices are dependent on various environmental factors and any unforseen or sudden spike in the cost of these items could impact profitability.
Proximity to all major OEMs coupled with consistent track record of deliveries manifested by their increased levels of localisation in India	The liquidity continues to remain under stress coupled with availability of fresh working capital funds being a major challenge has led to low capacity utilisations thereby impacting profitability.
State-of-the-art in-house tool design and 3D modelling/ simulation software with key machines such as CNC, VMC etc.
Trusted partner and strategic supplier to leading OEMs. It has well established strategic relationships most OEMs across the country and abroad.
Well positioned to cater to growing demand of automobile industry in India coupled with a large scale of operations allowing economies of scale.
Dedicated R&D team focused on development & acquisition of new technologies relevant for future product portfolio.
Skilled, experienced and diversified workforce with proven credentials.
Political instability, wars, terrorism, multinational conflicts, natural disasters, fuel shortages and their prices all present business risk.	Strong economic growth in India and other growth markets like China, Southeast Asia and North Africa - resultant demand for Automobiles.
Due to global integration of automobile supply chains the industry has become highly competitive with OEMs continously scanning the market for lower prices and better terms.	Indian Governments focus on improving ease of doing business with its "Make in India" initiative to transform India into a global manufacturing hub, an advantage for our Company
Changing technologies have led to shortening of life cycles of new vehicles.	GOIs emphasis on substitution of imported goods sectors such as railways and defence are expected to turn towards Indian Conpanies for procurement.
Imposition of additional taxes and levies designed to limit use of automobiles could adversly affect demand.	Diversification towards forward integration.
Presence of large number of players in the automobile industry has resulted in extensive competition thus enhancing scope for eating into share of business of other players.	Strategic alliances and partnering could be a smart strategy resulting in specialised capabilities differential offerings.

• STRATEGY AND OUTLOOK

The company is able to engage with customers from the early stages of development projects which enable the company to introduce companys products into a vehicles designs phase. This when combined with close proximity to customers, technological leadership, demonstrated reliability and financial stability will result into winning orders but at a new global upcoming platform.

The company is one of the few suppliers in its product segment with a global engineering and manufacturing footprint and this strong diversification enables the company to capitalize on global growth opportunities while mitigating the impact of any regional demand fluctuations.

The company has realised that cyclicality demand coupled with a leveraged balance sheet can lead the Company to a vicious cycle which eventually leads to stagnation. Keeping this in mind, we have constantly emphasized on de-risking our business by entering new sectors thereby adding breadth to our customer profile.

The Companys in-house R&D team focus is to commit to work on various projects including developing technologies to minimize carbon footprint and manufacture light weight products that result in lower energy consumption. Innovation is an on-going process which has helped us explore new ideas and deliver transformative solutions.The Companys strategy is based on the principle that creating value for its customers and gaining their trust requires consistent outstanding performance and a broad product portfolio, continuously upgraded through technical and process innovations. The Company is poised to play a meaningful role in this Make in India mission, with indigenously focus to develop cutting-edge technologies and innovations. The key strategy is on developing new processes, expanding the product portfolio & product mix, and leveraging on our innovation capabilities to open more growth avenues.

The Amtek Business Excellence Program, which the Company started in 2014, has facilitated a highly successful implementation of lean manufacturing processes. It remains the driving force cost controls and productivity initiatives, and is a key attribute of the Companys business strategy. The Company has also taken up certain other strategic initiatives such as realigning the product mix and expanding the product range to increase the share of our value added product offering. Other initiatives centre round the overall fiscal control, quality improvement, up-gradation in technology and research & development.

Regular product launches planned by OEMs will keep customer excitement levels up and create demand for us which is favourable for the overall industry growth. The Company, in spite of the challenges, is well positioned to benefit from the globalization of the sector as exports potential is harnessed to achieve the above. Technological advancement and product innovation remain our key differentiators. The Companys in-house R&D team has been committed to work on various projects including developing technologies to minimize carbon footprint and manufacture light weight products that result in lower energy consumption. Innovation is an on-going process which has helped us explore new ideas and deliver transformative solutions. Transformation of a nation or a company cannot sustain without wholehearted people participation. The capabilities of our people have brought us this far, and we will continue to invest in developing our teams to enhance their efficiency and introduce industry-leading practices. With strong focus on developing skills and capabilities of our employees.

The forward integration strategy of the Company is to move in fully machined & assembled supply of auto components for its customers. The Company has demonstrated sound technology absorption capabilities, translating into a shortened learning curve and stronger proprietary knowledge management. Moving ahead, we are graduating to the next level and charting our next course of growth. The company is investing in tomorrows technologies to further hone our innovative drive and thereby lead change. Being a value-accretive and solutions-driven Company, we are constantly fine-tuning our growth strategies and leveraging our intrinsic strengths to create and deliver incremental value to our stakeholders.

C. SEGMENT PERFORMANCE

The company is operating under single segment since Companys primary business segment involves manufacturing, assembling and trading of automobile component.

D. RISKS AND CONCERNS

The risks and concerns of the Indian auto component industry are closely linked with stiff overseas competition, uncertainty arising from currency volatility, low-priced imports, counterfeit parts and oil pricing. The industry efforts to mitigate the above Annexure to Directors/ Resolution Professional Report

Operational risks like shortage of power which leads to increase in cost of production and change in technology which makes existing technology obsolete, rupees Depreciation at the time of import are major concern for the business. In addition to this, demand of auto component sector is dependent on the automobile sector which makes the market uncertain at times. Constantly changing regulatory environment always carries with it the risk of high taxes or duties which may increase cost to the company and also competition from foreign substitutes.

Apart from this, company also face foreign exchange risk, fluctuation in the price of raw material, excess capacity, entry of foreign players in the domestic market, high market share of unorganized sector etc. To counter these risks, the Company has in place adequate risk measures and control systems which identify the risks, assess their severity, their potential effect on the performance of the Company through systematic reports and charts. Reports generated from the system are monitored regularly to ensure that appropriate corrective actions are taken Management/Resolution Professional of your company is continuously analyzing and evaluating various risks associated with the Companys business and has adopted risk management practices to minimize the adverse impact of these risks.

E. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has a comprehensive system of internal control to safeguard the Companys assets against any loss from unauthorized use and ensure proper authorization of financial transactions. The Company has internal control systems commensurate with the size and nature of the business and has experienced personnel positioned adequately in the organization to ensure internal control processes and compliances. The Company takes abundant are in designing, reviewing and monitoring regularly the working of inter control systems and their compliances for all important financial internal control processes. The Company maintains a system of internal controls designed to provide a high degree of assurance regarding the effectiveness. Further The Company has an elaborate internal control system which monitors compliance to internal processes. It ensures that all transactions are authorised, recorded and reported correctly. The systems are routinely tested and certified by Statutory as well as Internal Auditors and cover all offices, plant facilities and key areas of business. The Internal Auditors independently evaluate the adequacy of internal controls and concurrently audit the majority of the transactions in value terms.

To further strengthen the internal control process, the Audit Committee has documented control procedures covering all aspects of key financial and operating functions. The Companys internal control systems provide for

• Adherence to applicable accounting standards and policies

• Accurate recording of transactions with internal checks, prompt reporting and timely action

• Compliance with applicable statues, policies, listing requirements and management policies and procedures

• Review of capital investments and long term business plans

• Periodic review meetings to guide optimum utilisation of resources

• Effective use of resources and safeguarding of assets

The Audit Committee reviews the effectiveness of internal control systems, and also provides timely updates on operating effectiveness and controls to senior management team. A CEO and CFO Certificate, forming part of the Corporate Governance Report, confirms the existence and effectiveness of internal controls and reiterates their responsibilities to report deficiencies to the Audit Committee and rectify the same.

Our auditors carry out periodic audits as per an agreed internal audit programme. They bring to the notice of management, issues which require their attention and also highlight the severity of the issue. Corrective actions are then set in place. The internal auditors report is reviewed by the Audit Committee and placed before the Board of Directors for their consideration.

F. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The financial statements have been prepared in accordance with the requirements of applicable Corporate Laws of India. The Resolution Professional / management of your company accept the integrity and objectivity of these financial statements as well as the various estimates and judgments used therein. The details of the financial performance of the Company are appearing in the Balance Sheet, Profit & Loss Account and other financial statements forming part of this Annual Report. For financial highlights please refer heading ‘Financial Summary of Board/ Resolution Professional Report.

• FINANCIAL OVERVIEW

Amtek Autos performance in the last six months is a reflection of the challenges faced by the automotive industry in general and certain other regions internationally. In the financial year 2019, the consolidated revenues of the Company were at Rs. 48,159 million. During the year under review, Revenue from discontinued operations is Rs. Nil.

Consolidated EBITDA of Continuing operations (before exceptional item) for the year stood at Rs. 2,958 million at a margin of 6%. Management remained focused on cost optimization and value enhancement during this period

• DEBT POSITION

As of March 31, the Company had consolidated debt (Continuing Operations) of Rs. 1,16,189 million comprising Rs. 94,065 million of long term debt and Rs. 22,125 of short term borrowings. Cash and equivalents stood at Rs. 2,156 million, translating into net debt of Rs. 1, 14,033 million.

G. HUMAN RESOURCES AND DEVELOPMENT

At Amtek, we believe in fostering equal employment opportunities, where individuals are selected and treated on the basis of their job-relevant merits and are given equal opportunities within the organization. Your company always strives to achieve maximum employee satisfaction and has initiated many programs on up-skilling/ training and empowerment of its employees. The Company

has criteria for hiring of best talent in the Company who can provide quality of work and add to the Companys growth. The Company had 1099 permanent employees as on 31st March, 2019. The industrial relations remained peaceful and cordial throughout the year. The company has complied with all the respective labour laws during financial year 2018-19.

Further During the year, the Company delivered value to its customers and investors. This was made possible by the relentless efforts of each and every employee. The Company has developed a robust and diverse talent pipeline which enhances Amtek Autos organizational capabilities for future readiness, further driving greater employee engagement. Our human resource program is focused on attracting the right talent, providing excellent on the job training opportunities, and finally giving them the growth opportunities consistent with their aspirations.

Amtek Auto has always enjoyed strong industrial relations. The Company has a systematic grievance redressal system to further strengthen these relationships. This system encourages employees to share their views and opinion with the management. The Company reflects on this feedback and incorporates relevant changes into the existing policies, systems and processes.

H. STATUTORY COMPLIANCE

Pursuant to Listing Regulations, the Company regularly obtains declaration in respect of compliance of Code of Conduct adopted by the Company. A certificate from CEO and CFO is also adopted on yearly basis certifying the compliances as stipulated in Listing Regulations.The Whole Time Director before Commencement of Corporate Insolvency Resolution Process (CIRP) makes a declaration to the Board of Directors every quarter regarding compliance with provisions of various statutes as applicable. The Company Secretary ensures compliance with the Companies Act, 2013, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and compliance with the guidelines on insider trading for prevention of the same. The Company Secretary ensures compliance with the Companies Act, 2013, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and compliance with the guidelines on insider trading for prevention of the same.

I. SIGNIFICANT CHANGES

Company is in CIRP Process and accordingly power of the board has been dispensed due to the appointment of Mr. Dinkar T. Venkatasubramanian as resolution Professional pursuant to NCLT vide order dated July 27, 2017.

J. CAUTIONARY STATEMENT

The above mentioned statements are only ‘forward looking statements based on certain assumptions and expectations. The Companys actual performance could differ materially from those expressed/projected depending upon changes in various factors. The Company does not assume any responsibility to any change(s) in forward looking statements, on the basis of subsequent developments, information or events etc.

Important developments that could affect the Companys operations include a downward trend in the domestic automotive industry, competition, rise in input costs, exchange rate fluctuations, and significant changes in the political and economic environment in India, environmental standards, tax laws, litigation and labour relations.

Certain statements in the Management Discussion and Analysis describing your 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 from those expressed or implied in these statements. Your Companys operations may, inter-alia, be affected by the supply and demand situations, input prices and availability, changes in government regulations, tax laws, government or court/tribunal decisions and other factors such as industry relations and economic developments etc. Investors should bear the above in mind.

Source: extract from www.ibef.org

Annexure to Board/Resolution Professional Report