automobile corporation of goa ltd Management discussions

Indian Economy Overview:

India is one of the Fastest Growing Major Economy in the world. The overall growth remains robust and was estimated to be 6.9 percent for the full year with real GDP growing 7.7 percent year-on-year during the first three quarters of fiscal year 2022/23. There were some signs of moderation in the second half of FY 22/23. The central government is likely to meet its fiscal deficit target of 5.9 percent of GDP in FY23/24 and combined with consolidation in state government deficits, the general government deficit is also projected to decline.

Indias VIBRANT Start-up ecosystem with 54 tech Unicorns expected by 2024, is another feather in the governments cap

Government Efforts l 3,18,506 users registered on Startup India Portal l 19,247 Startups recognized by Department for Promotion of Industry and Internal Trade (DPIIT) l Start-up India Hub: A dedicated team has been set up under Invest India

Government Initiatives l Faster exit for start-ups l Providing Funding Support through a Fund of Funds with a Corpus of Rs. 10,000 crore l US$228.98m have been invested into 247 startups l Tax exemption on Capital gains l Harnessing Private Sector Expertise for Incubator Setup

Source: Economic Diplomacy & States Division, Ministry of External Affairs, Govt. of India

Key Economic Development:

Recent economic developments in India are as follows:

Recovering from pandemic-induced contraction, Russian-Ukraine conflict and inflation, the Indian economy is staging a broad-based recovery across sectors, positioning to ascend to the pre-pandemic growth path in FY23. l Indias GDP growth is expected to remain robust in FY24. GDP forecast for FY24 to be in the range of 6-6.8%. l The Capital Expenditure of the Central Government and crowding in the private Capex led by strengthening the balance sheets of the Corporates is one of the growth drivers of the Indian economy in the current year. l The credit growth to the MSME sector was over 30.6% on average during Jan-Nov 2022. l Retail inflation is back within RBIs target range in November 2022. l Indian Rupee performed well compared to other Emerging Market Economies in Apr-Dec 2022. l Direct Tax collections for the period April-November 2022 remain buoyant. l Enhanced Employment generation seen in the declining urban unemployment rate and in the faster net registration in Employee Provident Fund. l Economic growth to be boosted by the expansion of public digital platforms and measures to boost manufacturing output.

Key Initiatives in Automobile Sector

The Indian automobile industry contributes almost 6.4% of Indias GDP and 35% of manufacturing GDP and is a leading employment provider.

Growing Demand

Rising middle-class income and a huge youth population will result in strong demand. l The industry produced a total of 2,59,31,867 vehicles including Passenger Vehicles, Commercial Vehicles, Three Wheelers, Two Wheelers, and Quadricycles in April 2022 to March 2023.

Opportunities

India could be a leader in shared mobility by 2030, providing opportunities for electric and autonomous vehicles. l Focus is shifting to electric vehicles to reduce emissions. l The electric vehicles industry is likely to create five crore jobs by 2030.

Rising Investment

The automobile sector received cumulative equity FDI inflow of about US$ 33.77 billion between April 2000-September 2022. l The Government of India expects the automobile sector to attract US$ 8-10 billion in local and foreign investments by 2023.

Policy Support

in September 2021, the Indian government issued notification regarding a PLI scheme for automobile and auto components worth Rs. 25,938 crore (US$ 3.49 billion). l The Automotive Mission Plan 2016-26 is a mutual initiative by the Government of India and the Indian automotive industry to lay down the roadmap for the development of the industry.

Source: Economic Data Source-IBEF.org, established by Ministry of Commerce & Industry, Gov of India

INDIAN AUTOMOBILE INDUSTRY Performance of Auto Industry in 2022-23 Production

The industry produced a total of 2,59,31,867 vehicles including Passenger Vehicles, Commercial Vehicles, Three Wheelers, Two Wheelers, and Quadricycles in April 2022 to March 2023, as against 2,30,40,066 units in April 2021 to March 2022.

Automobile Domestic Sales Trends

Category	2017-18	2018-19	2019-20	2020-21	2021-22	2022-23
Passenger Vehicles	32,88,581	33,77,389	27,73,519	27,11,457	30,69,523	38,90,114
Commercial Vehicles	8,56,916	10,07,311	7,17,593	5,68,559	7,16,566	9,62,468
Three Wheelers	6,35,698	7,01,005	6,37,065	2,19,446	2,61,385	4,88,768
Two Wheelers	2,02,00,117	2,11,79,847	1,74,16,432	1,51,20,783	1,35,70,008	1,58,62,087
Quadricycle	0	627	942	-12	124	725
Grand Total	2,49,81,312	2,62,66,179	2,15,45,551	1,86,20,233	1,76,17,606	2,12,04,162

Domestic Sales

Total Passenger Vehicle Sales increased from 30,69,523 to 38,90,114 units. Sales of Passenger Cars also increased from 14,67,039 to 17,47,376, Utility Vehicles from 14,89,219 to 20,03,718 and Vans 1,13,265 to 1,39,020 units, in FY-2022-23, compared to the previous year.

The overall Commercial Vehicles sales increased from 7,16,566 to 9,62,468 units. Sales of Medium and Heavy Commercial Vehicles increased from 2,40,577 to 3,59,003 units and Light Commercial Vehicles increased from 4,75,989 to 6,03,465 units, in FY-2022-23, compared to the previous year.

Sales of Three Wheelers increased from 2,61,385 to 4,88,768 units, in FY-2022-23, compared to the previous year. Two Wheelers sales increased from 1,35,70,008 to 1,58,62,087 units, in FY-2022-23, compared to the previous year.

Exports

In April 2022 to March 2023, Passenger Vehicle Exports increased from 5,77,875 to 6,62,891 units while Commercial Vehicle Exports decreased from 92,297 to 78,645, Three-Wheeler Exports decreased from 4,99,730 to 3,65,549 and Two Wheelers Exports decreased from 44,43,131 to 36,52,122 units over the same period last year.

Source : siam.in

COMPANY PERFORMANCE

Your Companys Sales (with other income) for the financial year 2022-23 was Rs 514.15 Crores as against Rs. 289.07 crores (net of taxes) in the preceding financial year. The Companys Profit before tax during the financial year 2022-23 was at Rs. 37.12 crores (after exceptional income/(expense) and before other comprehensive loss) as against profit of Rs. 3.34 crores in the preceding financial year. Net profit after tax stood at Rs. 26.30 Crores as compared to a profit of Rs. 2.17 crores in the preceding financial year. During FY 2022-23, your Company sold 5,715 buses.

The increase in Product Sales of your Company is primarily due to revival of economic condition and recovery of demand in the commercial vehicle passenger segment.

The Policy on the Emission Norms, Road & Infrastructure, Electric Vehicles, Bus Body Code, Urbanization & City Developments, Electrification & Gasification (CNG & LNG ) of Bus City Transit and PPP model of Urban & Sub Urban stage bus operation and Scrappage policy would stimulate the demand in next few years.

Segment Overview

The bus segment has maintained its dominance in contributing to your companys revenue and profit. Proportion of bus divisions revenue in the total revenue of the company clocked 87% during the year under review. Large portion of our workforce is operating in the bus segment at Goa. Revenue from Bus segment has grown sharply as compared to last year mainly due to revival of economic condition which was affected in the previous year due to the Covid 19 Pandemic.

1. Segment Review and Developments A. BUS SEGMENT

Revenue from product sales in Bus Segment increased by 101% at Rs. 437 crores (excluding taxes and other income) in FY 2022-23, as compared Rs. 217 crores in the preceding financial year. In FY 2022-23, 5,715 buses were sold as compared to 1,952 buses in preceding financial year which was an increase of 3,763 buses. Out of the 5,715 buses sold during the financial year 2022-23, 1,442 buses were towards Export Application which has reduced by 13% during the current year.

The increase in Product Sales primarily owes itself to the revival of the economy which was affected in the previous year due to the impact of the Pandemic.

B. PRESSING SEGMENT

Sheet metal business follows the cyclicity of OEMs business for which your company is a key supplier. The segment is necessarily capital intensive and capacity utilization drives the profitability in this segment. Revenue from product sales (excluding taxes and other income) from this segment has increase from Rs 64 crores (excluding taxes and other income in FY 2021-22), to Rs 68 crores in the given financial year as a result of increase in the demand of components due to recovery in the demand of Commercial Vehicles.

Share of pressings business in the overall revenue of the

Company has reduced from 23% in FY 2021-22 to 13% in FY 2022-23, as mass transport sale has improved in FY 2022-23 due to revival of the economic conditions and opening of schools and offices.

2. Technology Initiatives

Your Company is focussing on product and technical capability building by enhancing its design capability using modern methodology, while continuously benchmarking its product with competition offerings and calibrating itself to provide the best value proposition to the customer.

3. Entry into New segment

Your Company is making efforts to gain entry into bus body manufacturing of electric buses which would be the future technology in passenger mobility.

Your Company was able to develop new models in school and staff segment meeting new regulatory norms to meet market expectations and to diversity in its product offerings.

4. Awards, Certification & Recognition

Your Company is accredited with IATF 16949 QMS Certification for its Goa, Jejuri and Dharwad Plants.

5. Risks, Opportunities and Threats Risks and Concerns

In order to build capacity & capability for future, your Company need to upgrade its old infrastructure and induct machinery and equipment to support new technology products like EV.

Your Company has made infra upgradation plan and implementing the same in financial year FY24 & FY25.

Your Company has also successfully implemented new IT servers and established Disaster recovery of IT system in Jejuri to support business continuity.

Opportunities

With governments increased focus on development of infrastructure including highways and Electric mobility, there would be an opportunity for growth in commercial vehicles and mass transportation solutions.

Your Company is working on product up-gradation to meet market requirement by diversifying its product range in school and staff segment with new contemporary designs.

Threats

The threat remains the same for the Company this year, as with the presence of multinational companies in Electric Vehicle space and various tie-up made by local bus body builders with foreign collaborators, could have an impact, especially in Electric Buses from domestic OEMs.

The GST difference between Fully Built Vehicle and Bus Body Supplied separately is posing hurdles for the growth of OEM supplied Bus Bodies.

Your Company is also facing a challenge due high manpower cost in comparison to industry benchmarks.

Your Company has aggressively worked on cost reduction which has helped to achieve additional sales due to price competitiveness and also be able to achieve profitability in FY22-23.

Your Company is also working on product diversification to enhance value addition and sale, to achieve economies of scale for better fixed cost apportionment.

6. Internal Control System

The Company has adequate internal control systems in place and also has reasonable assurance on authorizing, recording and reporting transactions of its operations in all material respects and on providing protection and safeguard against misuse or loss of assets of the Company. The Company has in place, well documented procedures covering financial and operational functions commensurate with the size and complexities of the organisation. Some of the salient features of the internal control system in place are: -

I. Following statutory and applicable Accounting Standards and Policies.

II. Preparation of annual budget for operation functions and monitoring the same with actual performance at regular intervals. III. All assets are properly recorded and procedures have been put in place to safeguard against any loss or unauthorized use or disposal.

IV. Internal audit department carries out periodic audit at all locations and functions.

V. The observations arising out of internal audit are periodically reviewed at the Audit Committee meetings along with follow up action.

VI. Periodic presentations are made to the Audit Committee on various operational and financial risks faced by the company and action plans to mitigate the same.

VII. Company has implemented system of Internal Financials Controls over Financial Reporting (ICOFR) and formed a three member team for the continuous assessment.

VIII. Statutory Auditors of Company have conducted Test of Design (TOD) and Test of Effectiveness (TOE) under the purview of

Internal Financial Controls over Financial Reporting (ICOFR) and found same operating effectively.

7. Financial and Operational Performance

Companys Total Revenue including Other Income (Excluding taxes) stood at Rs 514 crores, as against Rs 289 Crores in the previous year. Correspondingly, profit before tax (after OCI and exceptional item) is Rs 35.05 Crores (after exceptional income of Rs 2.97 crore related to fire incident at one of the plants in Goa, Plant-1) as compared to profit of Rs 1.64 Crores (after exceptional expense of Rs 5.94 crores) in the last financial year. Earnings per equity share is Rs 45.73 as compared to Rs.5.65 in the last financial year.

Financial and Operational Performance:	Percentage of Sales Year ended 31 March
Particulars	2023	2022
Total Revenue (excluding taxes & including Other Income)	100	100
Expenditure:
Material (Including change in stock)	69.48%	69.35%
Employee cost	9.12%	13.56%
Manufacturing Expenses	13.84%	12.12%
Total Expenditure	92.44%	95.03%
Profit before Interest, Depreciation, Exceptional Items, Tax and OCI	7.56%	4.97%
Depreciation	0.91%	1.72%
Finance Cost	0.02%	0.03%
Profit before exceptional Item , OCI and Tax	6.63%	3.21%
Exceptional item	0.58%	-2.06%
Profit before tax before OCI	7.21%	1.16%
Provision for Tax (net) before OCI	-1.80%	0.03%
Other Comprehensive Income (net of taxes)	-0.30%	-0.44%
Profit After Tax after OCI	5.11%	0.75%

8. Human Resources

The Companys innovative human resource management strategies supported its business growth in a challenging environment. The focus has been to create an environment where performance is rewarded, individuals are respected and employees get opportunities to realise their potential.

The employee cost reduced to 9.12% of total revenue (net of taxes) notwithstanding mainly due to increase in sales value. The strength of permanent employees reduced to 462 as on 31st March 2023 against 480 on 31st March 2022. Industrial Relations with staff and workmen across the Plants at Goa, Jejuri and Dharwad continue to be cordial.

9. Financial Ratios

The Key Financial ratios of the company are given below with explanation in case of significant changes:

	For year ended
	2022-23	2021-22
Sr. No Type of Ratio	Ratio	Ratio	% Change	Reason of variance
(a) Current ratio	2.06	2.07	0%	The Company has started discounting its sales invoices with the third-party financer on recourse basis, as a result of which there is increase in borrowing (current liability) resulting an increase in debt-to-equity ratio. The volumes have also doubled in the current financial year in comparison to previous year as a result of which there is corresponding rise in the borrowing.
(b) Debt-equity ratio	0.37	0.25	48%
(c) Debt service coverage ratio	507.60	72.70	598%	The improvement in the ratio is majorly due to increase in the EBITD, which is due to increase in business. The business have increased due to revival of economic condition which was affected in the previous year due to the Pandemic - Covid 19 with almost same level of borrowings as that of the previous years.
(d) Return on equity ratio	0.15	0.02	649%	The company is having a positive EBT before OCI net of notional income due to increase in business, from that of the previous year.
(e) Net profit ratio	0.06	0.01	351%	The business has increased due to revival of economic condition which was affected in the previous year due to the Pandemic - Covid 19 with almost similar level of equity and capital employed as that from the previous year.
(f) Inventory turnover ratio	11.17	7.09	58%	The ratio has increase due to growth in
(g) Trade receivables turnover ratio	6.45	5.60	15%	business from that of the previous year
(h) Trade payables turnover ratio	6.95	4.50	54%	which has helped in effective utilisation of
(i) Net capital turnover ratio	3.58	2.40	49%	working capital. The business has increased due to revival of economic condition which was affected in the previous year due to the Pandemic - Covid 19. With almost the same level of receivable/payable/capital.
(j) Return on capital employed	12.91%	4.44%	191%	The improvement in the ratio is majorly due to increase in the EBIT, which is due to increase in business. The business have increased due to revival of economic condition which was affected in the previous year due to the Pandemic - Covid 19 with almost same level of capital employed as that of the previous years.
(k) Return on investment	-23.14	129.55%	-118%	The return from equity perspective is directly related to fall in the share price of the company which have declined to 717.90 on 31.03.2023 from 934.05 on 31.03.2022, due to sluggish market condition globally.

Cautionary Statement

Statements in this Management Discussion and Analysis and Directors messages describing the Companys objectives, expectations and predictions 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 raw material availability and prices, demand and pricing by the Companys major customers, changes in the Government regulations, Tax regimes, economic developments and other incidental factors.