Automotive Axles Ltd Management Discussions.

Global Economy

The year 2020 was marked by a once-in-a-century catastrophe caused by the COVID-19 pandemic which forced most of the countries to close their borders to curb the spread of the virus; it caused trade disruptions on a level that could only be matched by the aftermath of the Second World War. Global trade volume of goods and services contracted by ~8.5% in 2020 and the global output is estimated to have contracted by 3.3% in 2020, the sharpest since the Great Depression, marking the beginning of an economic slowdown.

Developed countries were the worst hit, with the advanced economies contracting by ~4.7% as many countries in Europe and several states of the United States of America adopted strict lockdown measures early on during the outbreak. The beginning of the vaccine roll-out across the world by the end of 2020 and the phased removal of lockdown restrictions across various countries kick-started the revival of the global economy on the back of major fiscal stimuli from governments and central banks in several countries, accounting for close to 14% of the world output in 2020.

The major economies across the world saw a slowdown in economic activity leading to a decline in GDP during 2020 to as low as 9.9% for countries like the UK. However, some of the countries like China saw an early recovery from the pandemic and recorded a y-o-y growth, stopping the global economy from a further downfall.

Region-wise growth estimates (%)

Region 2019 2020 2021
World 2.9 -3.0 5.8
Advanced Market Economies (AMEs) 2.3 -5.9 4.7
Emerging Markets and Developing Economies (EMDEs) 1.2 -7.5 4.7
Association of South-East Asian Nations (ASEAN) 1.4 -6.5 4.0
US 2.3 -5.9 4.7
Euro Area 1.2 -7.5 4.7
UK 1.4 -6.5 4.0
China 1.4 -6.5 4.0
Japan 2.3 -5.9 4.7
Russia 4.2 1.9 7.4

Outlook

The global economy recovered at a faster rate in the second half of 2020 and is projected to drive a positive global output growth at 6% in 2021 and 4.4% in 2022. Global trade volumes are projected to grow by ~8.4% in 2021, due to the approval of multiple vaccines at the end of 2020 and the subsequent launch of vaccination drives globally. The global fiscal support of close to US$12 trillion and the extensive rate cuts, liquidity injections, and asset purchases by various central banks could drive expectation of a faster recovery from the pandemic and generate stronger consumption and investment appetite and boost employment. However, surging infections in some countries may threaten the pace of recovery. (Source: World Economic Outlook, World Bank, World Economic Situations and Prospects 2021)

Indian economic overview

The year under review was perhaps the most challenging one in recent history as the Indian economy recorded a de-growth of 7.3% during FY 2020-21, compared to the growth rate of 4.2% in the previous year. The economy contracted by 23.9% and 7.5% in the first and second quarters, respectively, before finally resurfacing to the growth territory in the third quarter with a growth of 0.4%, following it up a growth of 1.6% in the fourth quarter. Decline in economic growth could be attributed to the surge in inflation, which resulted in the Indian rupee emerging as one of the worst performers among its Asian peers: a depreciation of 2.83% in 2020 from 71.28 to 73.30 levels. Consumer sentiment remained muted due to factors like the increasing unemployment rate and reduced per capita income. Indias per capita income is projected to have declined by ~5.4% to reach ~ 1.27 lakh in FY 2020-21.

Despite the gloomy economic situation, foreign direct investments (FDI) in India increased by ~13% to reach a value of US$ 57 billion in 2020; this increase was largely on account of the growth of the digital sector. India also became the biggest recipient of foreign portfolio investments worth ~ 2.74 crore in FY 2020-21. Indias Prime Minister also announced COVID relief package worth of around 30 trillion to ensure that the country stands strong in the face of these pandemic-induced challenges. India showed signs of a V-shaped recovery because of the culmination of various factors like consistent agricultural performance, increased government spending, the introduction of the production- linked incentive scheme, the roll-out of vaccines, and the flattening of the COVID-19 infection curve in the second half of the financial year under review (Source: Economic Time, Business Standard, Live Mint).

Outlook

India undertook proactive measures to ensure the containment of the virus to attain economic normalcy. Lockdown restrictions was lifted in the second half of the year and there was a pick-up in demand as well. However, the second wave of the virus towards the end of FY 2020-21, instilled fear among the populace, and full or partial lockdowns were slowly imposed across the states. Despite the surge in COVID-19 cases across the country, IMF raised its growth forecast of the Indian economy to 12.5% for FY 2021-22 and 6.9% for FY 2022-23.

This optimism is being driven by Indias focus on normalising economic activities, coupled with the quick roll-out of the vaccine. The approval of the production-linked incentives for 10 major sectors will also help India attract investments, thereby catalysing its journey towards becoming a major global player. Besides these, favourable demography and the increasing population, and urbanisation are projected to drive the India growth story over the foreseeable future (Source: Bloomberg, IMF).

Indian automobile and auto component industry

Automobile industry

The Indian automotive industry is the fourth largest in the world and provides the wheels on which the economy rides as it provides employment to ~37 million people directly or indirectly, while creating job opportunities in other industries simultaneously. After the regulatory change in axle-norms in September 2018, commercial vehicle sales began to plummet at a pace never seen in the past two decades. This sectoral downfall could be attributed to substantially lower credit availability, decreasing demand of the infrastructure and the mining sector, migration to BS-VI norms and muted consumer sentiment, among others, which led to the significant decline of automobile sales.

The industry was on its path to recovery at the start of 2020, but it was halted by the outbreak of the novel coronavirus- induced challenges, which resulted in the decline in demand for automobiles and interfered with the automotive industrys deeply intertwined supply chains. Despite the challenges posed by the unforeseen crisis, the automotive industry was able to overcome these challenges due to a culmination of tailwinds like global supply-chain rebalancing, government incentives to increase exports and technology interventions, which helped create opportunities across all levels of the automotive value chain.

Indian overall automobile (two-wheeler, three-wheeler, passenger, and commercial vehicles) sales were pegged at 18.62 million units in FY 2020-21 compared to 21.55 million units in FY 2019-20. Even though the automotive sector was expected to grow in early 2020, but the COVID- induced challenges hindered the demand. However, as the travel restrictions eased towards the end of the year, passenger vehicles and two-wheelers showed a recovery

in demand. Going forward, the massive vaccination drive across the country, coupled with the emergence of electric vehicles will improve consumer sentiment in FY 2021-22 and beyond. (Source: McKinsey, IBEF, Statista).

Auto components industry

The auto component sector accounts for 2.3% of Indias GDP and provides employment to nearly 1.5 million people, directly and indirectly. Revenue from the auto components sector is projected to decline by ~6-8% during the year under review, on account of the weak demand from the OEM and replacement market, coupled with the decline in exports due to COVID-19. This is however significantly lower than ICRAs initial projection of a revenue de-growth of —12-15%. Improved demand and additional financial support from banks towards the second half of the financial year under review eased the liquidity crunch, which resulted in ICRA changing its sectoral credit outlook from Negative to Stable. The V-shaped recovery is likely to cap the overall margin contraction for auto ancillaries (excluding-tyres) in FY 2020-21 to 100-150 basis points. As a result of the better operating leverage, it is projected that there will be a substantial increase in capex investment, mostly through internal accruals in FY 2021-22 (Source: ICRA).

Tractors

India is the second-largest agricultural market in the world and accounts for the livelihood of —58% of the population. This has been catalysing the demand for tractors for several years. Despite the pandemic, the tractor industry recorded a staggering growth of —20% in 2020, surpassing all projection derived at the start of the year. It is estimated to have sold over 9 lakh units in FY 2020-21, a substantial increase over 7.09 lakh units in FY 2019-20. The demand for tractors remained robust due to healthy farm cash flows across regions, stable crop prices supported by governments focus on procurement, and healthy reservoir levels and government support programmes. It is projected that the tractor industry will continue its growth trajectory in FY 2021-22 due to the progression of Rabi harvesting, coupled with the sowing of summer crops in selected markets. Besides these, macroeconomic factors like rising population, migration of rural labour and the ever-increasing food demand is projected to catalyse the demand for this segment over the foreseeable future (Source: Hindu Business Line, ICRA).

Outlook

The automotive industry was recovering steadily towards the second half of the year under review; however, the second wave of COVID-19 may hinder the economic recovery that the country had achieved in the second half. This could have an adverse impact on the demand for automobiles, resulting

out of the economic uncertainty and muted consumer sentiment.

However, the government has been placing great emphasis to ensure the recovery of this industry over the past few years. In FY 2021-22 fiscal budget, the government lowered the GST burden on electric vehicles (EVs) to 12%, which would catalyse the demand for EVs. Besides these, the government also plans on introducing EVs in the public transport systems in 11 shortlisted cities under the FAME II scheme. Alongside this, the introduction of the scrappage policy is also expected to drive the sales of passenger cars and commercial vehicles. The nation-wide vaccination campaign is bound to instil optimism among the populace, which in turn, could improve consumer sentiments. The culmination of the favourable government policies, macroeconomic factors and success of the vaccination drive could lead the resurgence of the automotive sector (Source: IBEF, Economic Times, Business Standard).

AAL: Progressing with technology and teamwork

Automotive Axle Limited (AAL) is a joint venture between Kalyani Group and Meritor Inc., USA, incorporated in 1981. We are Indias largest independent manufacturer of Rear Drive Axle Assemblies and fabricate S-Cam actuated quick-change air brakes and trailer axles for 10 tonnes to 13 tonnes gross vehicle weight (GVW).

With our expertise in production of axles and brakes and advanced gearing technology, we have built trust among our customers by providing them reliable products and we are determined to enhance value proposition in future. It has enabled us to grow our presence in both domestic and international markets, as we serve the manufacturers of trucks and buses in segments like light, medium and heavy commercial vehicles; military and off-highway vehicles; and aftermarket.

Our product suite includes front steer axles, defence axles, off-highway axles, non-drive axles, drive axles, drum brake, disc brake, gearing, integral brake to axle design, wei ght option designs and driver operated differential locks.

We have four manufacturing units spread across India— Mysuru (Karnataka), Rudrapur (Uttarakhand), Jamshedpur (Jharkhand) and Hosur (Tamil Nadu)—where we reinforce our world-class manufacturing standards by underpinning the concept of built-in quality. Besides, Meritor Commercial Vehicle Systems (India) Pvt. Ltd. serves as our technology partner in product engineering, product benchmarking, prototyping, validation and testing, and aftermarket engineering.

We are listed on both National Stock Exchange and Bombay Stock Exchange

AAL in a snapshot

Experience Product categories Team size (Approximately)
40+ • Drive Axles  

2,000+

years • Front Steer Axles
• Off-highway Axles
• Non-Drive Axles
• Drum & Disc Brake
• Suspension
Production units Major Customers Financial Performance for the year
Four • Ashok Leyland Total income: 912.65 crore
• Daimler India Profit after tax:
• Mahindra & Mahindra 22.73 crore
• Tata Motors 15.04
• Volvo Eicher
• Volvo Thailand

Vision

To be a world-class quality manufacturer of axles, providing innovative solutions to customers at competitive price that enhance mobility, safety and environment and retain leadership.

In the pursuit of excellence

Our focus has always been on delivering the best quality of products. Our business enablers include the following:

Business acumen: Our market insights and understanding of client requirements are a result of our 40 years of experience. With a focus on innovation and cost-effective products, we ensure our clients can rely on our offerings.

Competitive edge: Our skilled workforce and technical expertise enables us to deliver bespoke products and services to our customers. We also enjoy technology leadership owing to our joint venture with Meritor Heavy Vehicle Systems LLC, USA.

Quality-focused: At AAL, we strive to strengthen our quality standards regularly by incorporating internationally acclaimed techniques like Gemba, 5S and Six Sigma processes. Besides, we have inculcated the policy of no acceptance, production or release of defective products among our teams.

Extensive offerings: Our wide-ranging product suite caters to various Original Equipment Manufacturers (OEMs) with reliable and highly efficient products.

Our customer base

• Ashok Leyland

• Daimler India

• Mahindra & Mahindra

• Tata Motors

• Volvo Eicher

• Volvo Thailand

At AAL, we enjoy an extensive client list across India and are steadily growing our presence in the markets of China, USA, France, Italy, Brazil and others.

Certifications

• Environmental Management System certified with ISO 14001:2015

• ccupational Health and Safety Management System Migrated from OHSAS-18001 and certified with ISO 45001:2018

• Got re-certification by Union of Japanese Scientists & Engineers (JUSE) through Quality Circle Forum of India (QCFI) for continuous implementation of best 5S practices in November 2020.

• Quality Management System certified with IATF 16949:2016

• Heat Treatment Process certified with CQI 9

• Welding processes certified with CQI 15

Awards and recognitions

During FY 2020-21, we have received recognitions from the following Institutions & customers for our consistent efforts to improve work conditions at AAL and deliver better quality products:

• Received The Machinist Super Shop Floor Award-2020 received in November 2020

• Bagged IATF 16949:2016 certification for our Quality Management System

• Bagged Twenty Two Gold Awards during Confederation of Indian Industry (CII) Mysuru Chapter Convention on

Quality Concept Kaizens competition (CCQC-2020) in Sep 2020

• Won 04 Excellence and 01 Par Excellence award in NCQC-2020 Allied Case Study Presentation competition during National Convention on Allied Concepts held during Dec 2020

• Bagged Silver Award in Challengers Trophy competition held by CII as a further part of 37th CII Kaizen Competition during Nov 2020

• Bagged 2 Platinum and 2 Silver Awards in 6th Annual 6-Sigma Competition conducted by National Institution of Quality & Reliability during Dec 2020.

Operational highlights

At AAL, we adopt and utilise state-of-the-art equipment to deliver our customer requirements of world-class products catering for global requirements. During the year, specific CNC equipment were inducted in production lines to meet new models and variants with emphasis on improving productivity, maintaining flexibility and quick response to varying volume and variant demands.

Additionally, the plant has undergone lot of changes by reorganising machine layouts, adopting single piece flow and cell concepts, enabling flexibility and higher efficiency. Key emphasis were given for elimination of non value added activities and enhancing productivity through multi-manning of machines, which enabled cost competitiveness.

In the new axle assembly line, key focus was on Industry 4.0 technology. IOT was implemented which involved inhouse programming, installation of relevant hardware and software including devices to capture all the critical process and quality parameters, thus enabling higher operational efficiency and effectiveness.

In the CNC gear line, we use state-of-the-art gear manufacturing equipment maintain global standard with fully closed loop system. We implemented close loop system with prediction to counter heat treatment distortion. This has enabled us to manufacture gears in line with global standards. With this technology, we are able to produce parts having digitised masters and also are capable of mapping heat-treated gear parts.

We have successfully made transition from BS-IV to BS- VI norms implementing all changes required by our customers. This included axle, gear, carrier parts.

This year we also began a journey to implement Total Productive Maintenance (TPM) to adapt best processes and world-class manufacturing systems. As a starting point, TPM training and kick off was initiated. Under this programme, good progress has been made in terms of initiating activities in all the eight pillars

As part of our lean journey, two bin system of procurement for small Bought Out Finished (BOF) parts has been implemented and is being monitored.

During the year, due to COVID, 1st two quarters saw a dip in business, but the plant learned to adapt to various safety measures in line with government regulation and saw minimal effect in terms of COVID transmission and minimal shutdown. During the pandemic, all the above key initiatives were discussed online remotely and implemented in a phased manner. This include implementation of safety measures across the plant, implementation of new technologjes, process improvements to meet dynamic customer demands, etc.

Business outlook FY 2021-22

We expect a surge in performance in terms of revenue growth for FY 2021-22, despite the slowdown expected in Q1, due to the second wave of COVID. Volumes and revenues are expected to grow by an estimated figure of 15% to 20%, in FY 2021-22 compared to previous year. Also, AAL operations made a good foundation in terms of New Product Development (NPD) for various platforms and variants.

This year key focus would be on ramp up for various models and variants maximising available resources with focus on cost reduction. TPM and Lean (which is a systematic process for elimination of waste and involves streamlining resources for manufacturing and optimised resource utilisation) would be key features in achieving our goals.

BS-VI

We have supported all our customers with necessary BS-VI products aiding them with a smooth transition to the new emission norms.

Strategy in action

Our strategy is to enhance market share, introduce more world-class products using our technology expertise, cost competitiveness, productivity delivering high quality of products.

Technology

We use contemporary technology to provide our customers products that are dependable and enduring. These operating processes include:

• Friction welding

• Housing line IOT getting installed in production scenario

• Close loop in Gear line being used for regular production

• Friction welding

• Argon CO2 welding

• Robotic welding

• CNC machining

• Gear and pinion dry cutting with robotic part handling

• Robotic gear quenching

• Specialty axles manufacturing unit

• Robotic brake web hot forming

• Robotic welding of housing halves

• Automated inside welding machines for housing manufacturing

• Special purpose multi-spindle high productive machines

• Flexible machining centers and specially built machines for producing axles and brakes

• Metallurgy, chemical and metrology lab with CMM

• New assembly line with robotic painting line

During the year, we adopted the following technologies and equipment:

• As a technology advancement, fully automated diff case manufacturing line has been implemented for 15i platform. The machines are now fully operational for full production.

• The new semi-automated diff case assembly line, which is under implementation, to adopt new models like 13X, 15i, Swift 15 etc.

• Machineries are getting installed for Pinion preloading and semi-automatic DH line, again to adopt new models as mentioned above.

Housing line equipment: Housing line capacity was enhanced by improving existing processes and infusing high technology processes such as robotic welding cells and multi-machining machines. Specific improvements in the fixturing were implemented to improve the capability and flexibility.

Gear manufacturing equipment: Gear Set capacity improves by adding cutting-edge close-loop and fully automated machines, which facilitate the production of Meritor Global product and HT compensation functionality using Spiron Face Hob system. This enables computerised correction and manufacturing fully digitised parts eliminating human intervention for part geometry optimisation.

FINANCIAL PERFORMANCE

Key highlights FY 2020-21 FY 2019-20 FY 2018-19 FY 2017-18 *FY 2016-17
Total Income 9126.48 9596.81 19420.02 15580.63 13039.92
Profit before Depreciation & Tax 661.68 971.76 2314.97 1710.30 1143.77
Profit After Tax 227.30 411.34 1215.50 839.32 494.18
Earnings Per Share (?) 15.04 27.22 80.43 55.54 32.70
Key financial ratios 2020-21 2019-20 If there is change of 25% or more as compared to the immediately previous financial year detail with explanation
Debtors Turnover 3.2 7.8 There is reduction in Debtors turnover ratio as more than 40% of yearly volume and revenue in last quarter of the year which resulted in higher end receivable balance when compared to March 2020
Inventory Turnover 3.1 4.1 As the volume ramped up steeply in Q4, holding higher inventory to meet customer demand. Higher inventory at the end of year clubbed with overall lower sales of the year, pushed the inventory turnover ratio low compared to March 2020
Interest Coverage Ratio 23.3 18.4 Very low interest cost pushed the coverage on higher side compared to previous year.
Current Ratio 1.8 2.6 Current ratio is continue to grow strong. A small dip in the current ratio is attributable to higher current liabilities as on 31st March 2021 due to a ramp of business volumes in Q4.
Debt Equity Ratio (%) 3.4 4.3 Small portion of long-term borrowing pending lower than last year with repayment.
Operating Profit Margin (%) 21.3 22.7 Operating margin as % impacted due to base impact of commodity price escalations though back to back reimbursed by customers.
Net Profit Margin (%) 2.5 4.3 Net profit % impacted due to very low sales in first two quarters and base impact of commodity.
Return on Capital Employed (%) 6.6 11.4 The ROCE lower in current year due to the impact of COVID-19 and market slowdown first two quarters
Return on Net Worth (%) 4.1 7.7 The RONW lower in current year due to the impact of COVID-19 and market slowdown first two quarters

Quality management

We are strengthening our production quality by embracing contemporary production techniques. The adoption of Quality Management System (QMS) and Lean Manufacturing System (LMS) have helped us reinforce our Built-In Quality (BIQ) concept and ZERO COC (coolant, oil and chips). The Automotive Axles Production System (APS) has enabled us to synchronise our operations. We have also implemented Gemba, Six Sigma and 5S principles to enhance our production processes.

We have robust monitoring systems such as IATF 16949: 2016, CQI9 (heat treatment process), CQI15 (welding process standards) and OHSAS (environmental occupational, health & safety management).

We launched our TPM excellence/Total Quality Management (TQM) implementation initiative company-wide to become a benchmark organisation and to use operational excellence as a key differentiator in the marketplace.

Human resource

No doubt that our growth is the direct result of our teams ability to collectively leverage our capabilities. At AAL, we onboard talent and nurture them, using training and other knowledge-enhancing and skill upgradation methodology to upskill them. We also have a robust rewards and recognitions programme at AAL which helps motivate our dynamic and determined team.

Culture at AAL

We have built a diverse culture that we defend at every step. We respect our team members and treat all our employees with respect. With a merit-based and inclusive culture at the heart of AAL, we drive various programmes towards:

• Treating employees with respect/dignity

• Motivating workforce to deliver quality output

• Encouraging a sense of belongingness

• Promoting the culture of innovation and participation

We offer our people transfers, promotions and job rotations (inter and intra department/business unit) that helps in employee retention. At AAL, we encourage clear and transparent communication and utilise quarterly and monthly Town hall gatherings, quality and customer feedback meetings, one-on-one discussions with key employees and group meetings for the purpose.

Acquiring talent and people management

We are building our bench strength with talent identification and succession process (TI & SP) and capability development programmes. TI & SP ascertains successors for leadership roles, helps develop talent across the organisation and determines career development opportunities for our people. The TI & SP talent are reviewed by the top management. It ensures growth, stretch assignments and provides development opportunities for potential management staff.

We recruit Graduate Engineer Trainees (GETs) every year. During FY 2020-21, we hired 35 GETs from different parts of India, of which 50% are women. This initiative reflects our commitment to diversity and inclusion and inculcates the culture of inclusion in the organisation.

It is an initiative that creates higher visibility of AALs commitment to Diversity and Inclusion among its people and inculcates the culture of inclusion. By doing this, we are realigning business and people practices to build an inclusive and nurturing work environment for all employees.

With a specialised learning centre for induction, on-the- job-training (OJT) and special trainings for the operators, we provide trainings on wielding, CNC machine operation, material handling and tools identification. The learning centre is fully equipped and uses contemporary training procedures. We also hire trainers for our neuro-linguistic training programme (NLP).

5S Workplace Management

The 5S workplace management system allows us to maintain better controls on our processes and operations and enhances overall positive environment of the plant.

Employee engagement

We promote the One AAL concept across all our locations to build team spirit, a collaborative approach and camaraderie. We have employee satisfaction surveys to enhance employee engagement in the organisation.

We undertake several initiatives like family day, sports day, festival celebrations, summer camps, annual sports and cultural activities. We inspire our people to participate in external events such as inter-company best safety worker competition, cricket tournaments and so on. Besides, we

organise different programmes like essay and slogan writing for special occasions like National Safety Day, World Environment Day and International Womens Day, among others.

Our employee engagement activities are organised during non-shift hours between the months of August and October. However due to the pandemic situation, during FY 2020-21 we could not organise major employee engagement activities such as sports, cultural activities and Family Day.

Human Resource Management System

Additionally, our Employee Development Programme allows our teams exposure to contemporary management concepts and techniques, simultaneously focusing on education and development of high-potential talent and leadership. Our Human Resource Management System (HRMS) implementation through Darwin allows AAL employees to easily manage respective HR policies/processes through web-based automated system, streamlining administrative processes and leveraging tasks leading to improved HR productivity and efficiency.

We have launched following modules during the year as Employee Self Service and all modules have been implemented and are working successfully:

• Employee Information Management

• Leave Management

• Performance Management

• Communication on HR Policies

• MIS Reports

Safety and emergency preparedness training

The Hazard Identification and Risk Assessment (HIRA), RULA/REBA (Rapid Upper Limb Assessment & Rapid Entire Body Assessment) and Job Safety Analysis tools are used to identify the process wise /activity wise Potential Hazards & Risk involved in the operation. Corrective and Preventive Action (CAPA) are implemented for all the identified Potential Hazards & Risks, which helps in reducing risk factors. Permit to work system is practiced and adhered to for all non-routine hazardous activities. We have our On-Site Emergency Plan & Preparedness approved from the Department of Factories and Boilers Office, Government of Karnataka.

We reinforce the safety awareness of our employees through various safety training programmes such as EOHS induction training, Refresher training, Behavioural-Based Safety, On- Job Safety and External certification trainings. Our employees are also rewarded and recognised through continual improvement (Kaizens)/Suggestions implementation. Our well-trained Emergency Response Team is readily available 24x7 to attend any kind of emergencies at our worksites. We also conduct regular mock drills to check, evaluate and ensure our on-site emergency Plan and Preparedness readiness all the time.

Occupational Health Centre (OHC)

Qualified doctors, paramedical staff and emergency medical equipment are available in our OHC to deal with industry-specific health and safety issues among our people. Besides, the doctors undertake monthly health programmes for all employees to educate them on employment-related health hazards and work-life balance.

Policy for women employees

AAL is an equal opportunities organisation, and we believe in creating a level playing field for all our employees irrespective of their caste, creed, gender or background. We have stringent policies in place to address issues pertaining to women at our organisation. Our objective is to ensure that we provide a safe environment for all our colleagues, including women. To achieve this purpose, we run regular dialogue between our women employees and the management.

The International Womens Day 2021 was celebrated on 8th March 2021 wherein all the lady staff were made to speak out themselves with respect to their opinion about their career growth in the organisation, support, if any, they require to grow further and other developmental parameter like what they "Choose To Challenge" - being the theme of the year was discussed.

Safety, health and environment

As the health and safety of our communities are equally important to us as that of our people, we actively undertake initiatives around various causes to constantly uplift them. We ensure the efficient management of our sustainability drivers; safety, health, and environment, to build the overall health and well-being of communities.

We have the following safety, health, and environment initiatives:

Safety

To ensure a healthy and safe work environment for our people, we strive to create Safety First Priority across the organisation at all levels. We prepare our employees and contractors for the groundwork and foundations for working safely by providing them continuous training on safety measures. Through safety induction trainings, refresher safety sessions, and customised safety workshops, we educate our employees on prevention of any accidents.

We incorporated various symbolic visual displays on all the machinery on operational hazard along with defined and displayed various safety protocols within factorys premises to promote Sensitive to Safety (STS).

Under accident prevention programme, the safety levels at source are improved through various hazard mitigation initiatives on the 4M analysis (Man, Machine, Method & Material) by respective Line Head of Departments. We provide safety goggles to our employees to wear during the working hours. To reduce operator fatigue, we practice Rapid Upper Limb Assessment (RULA) and Rapid Entire Body Assessment (REBA) for studying employee posture at workplace. We also inspect all electric chain hoists beams, and test different equipment (air receivers, power press, EOT cranes, and others) by a certified external agency. For more safety, we added more Lock-out and Tag Out Stations.

Moreover, we also conduct safety relief valve testing and certification for mounded LPG storage bullets by Petroleum and Explosive Storage Organisation (EPSO), in accordance with statutory requirements. Every year, we observe Safety Day and Chemical Disaster and Prevention Day to create awareness among employees on the importance of safety and safe chemical management, we also observed it in FY 2020-21. We also completed ISO 45001: 2018, Surveillance Audit successfully by M/s. DQS India.

Under the Fire Mitigation Programme, we installed early fire warning system, CO2 auto-flooding system, and LPG leak detector. Moreover, we extended fire hydrant points, and procured latest technology of Compressed Air Foam Portable Mini Fire Tender for emergency. We also organised a certified fire-fighting training for Emergency Response team members. To eliminate potential fire hazard, a cotton- based reusable sorbent was introduced in case of oil and coolant accidental spillage or leakage. Apart from that we conduct on-site emergency preparedness mock drills and fire drills involving all emergency response teams.

We engage our employees in different safety programmes ensuring transparent communication and recognise departments for implementing Safety Kaizens. To reiterate the Safety First culture, we organise various competitions on promoting the importance of safety, we also promote 5S culture at workplace.

Health

We conduct several healthcare practices for our people at all levels to ensure good health. Every year, we organise several annual and bi-annual medical check-ups (vision & colour vision tests, audiometry, skin tests, and ENT examination) for different personnel, even for new recruits. Last year,

we conducted several awareness sessions on COVID-19 precautions, personal hygiene, and social distancing to prevent spreading of the virus. We also conducted a vaccination drive for protecting our employees and their families.

Environment

Focusing on our vision towards sustainability, we introduced several environmental initiatives including, water conservation, reusable packaging, carbon emission control, energy conservation, and waste management. Within our Water Conservation initiative, we installed a rainwater harvesting facility of capacity 665KL/annum and a storm water harvesting facility of capacity 600 KL/annum.

For energy conservation, we replaced induction motors with energy-efficient motors and Variable Frequency Drive (VFD) for two treatment plants, which save 20% energy. Moreover, we used polycarbonate sheet on the roof of our NX plant to get sunlight for better illumination of shopfloor. Under the mission "Spare a Watt" we controlled 70% carbon emission by adopting 50% solar energy. Apart from that, we implemented various optimised processes such as robotic painting process, oil & coolant recovery plant, reusable & returnable packaging to reduce consumption of resources.

As a part of the "Go Green" Initiative we replaced 100% of wooden separators by metal separators for stacking FG Brakes, and 70% of wooden pallets by reusable and returnable steel pallets for loading of our finished goods. Continuing our efforts towards environment, we planted 200 saplings in and around our premises on World Environment Day 2020. For our environmental efforts, we sustained ISO 140001:2014, Environment Management System certification.

Prevention Strategies for COVID-19

With the challenges presented by the second wave of the COVID and its several mutations, we are carefully considering the best course of action to ensure the wellbeing of our people and our business.

• Strict provision for wearing protective masks, maintaining social distance, screening body temperature, hand sanitizing, and personal hygiene.

• To ensure social distancing, several steps have been taken—installation of no-contact walk-through metal detectors with body temperature screening for every worker, installation of no-contact automatic hand sanitizer dispenser, floor marking across plant where

necessary for social distancing, sitting arrangement adjustment at cafeteria ensuring social distance, arrangement of internal meetings at open space or virtually.

• To distribute the packed food to our employees, only biodegradable dishes and glasses were used in the canteen.

• Various COVID-19 control and preventive measures are followed within the organisation such as— awareness walkathon across the plant to sensitise personnel, employee self-declaration on adhering to the COVID guidelines, restrictions for employees on inter-state and overseas travel, a daily global and local checklist update on the COVID-19 measures are provided to the senior management.

• Continuous disinfectant fumigation across the plant at regular intervals and for all the incoming material trucks prior to entry into plant along with compulsory medical screening for all truck drivers at every entry point into plant.

• All health related OPD cases must be reported to the Occupational Health Centre (OHC), which will monitor, analyse, and take preventative action.

• Dedicated set up of medical team to regularly monitor the health practices and frequently counselling the employees, guiding the employees to take proper safety measure on COVID-19

We are consistently communicating with the people on various measures we are undertaking to avoid the spread of the COVID-19 pandemic. We have also suspended all training initiatives for our tech-team, apart from those that can be imparted online. Additionally, we have minimised external visitors in our premises and allow it only in case of emergencies. External visitors are only allowed to enter our premises after obtaining permission of the Plant Operations Head and after all necessary precautions.

Further we are complying with all statutory requirements on COVID-19 compliances and following all required guidelines of central & state Government.

Corporate Social Responsibility (CSR):

CSR initiative has reinforced in us a community conscious, socially responsible and value based organization, committed to making the world a better place to live in. All our CSR activities concentrate towards the holistic development of

the individual and the society as a whole. Considering the surge in COVID-19 pandemic cases we have identified and executed below key notable programs to help the society in containing the pandemic in addition to our other initiatives:

Promoting health care including preventive health care by contributing Lab Built on Wheel

Your company has donated the first "Lab Built on Wheels" to the Government of Karnataka through its CSR initiative. Lab Built on Wheels is a novel initiative where the laboratory built on a trailer which is first of its kind in the country (meeting BSL2/3 laboratory safety standards). This initiative helps the rural people delivering healthcare services conveniently

at their villages or town level. This moving laboratory can be connected to any simple vehicle like tractor, Jeep or any LCV which is commonly available in a district or rural environment. This can be taken to town or panchayat or any places where bringing patients to the hospital for diagnosis is a challenge currently.

Disaster management, including relief & rehabilitation during COVID-19 Pandemic Outbreak

Your company Joined hands with District Administration of Mysuru along with Asha Kirana Hospital & Gopal Gowda Shanthaveri Memorial Hospital for setting up of the Meritor- Kalyani Care in Princess Krishnajammanni Super Speciality Hospital, Mysuru by converting existing civil structure into

ultramodern ICU with all oxygenated beds within record 18 days and opened for public service. Your company also installed oxygen Generator which will help local society at large even post COVID.

Risk management

We acknowledge the criticality of a strong risk management architecture to achieve our strategic objectives and sustainable development. We underline our risk management framework to mitigate/minimise all inherent and operational risks.

Risk What it means Mitigation
Industry risk A general slowdown in the automobile markets where our • Regular review of market conditions
customers are based has the potential to influence our • Resilient business model
• Long-term contracts enable us to tide over short-term slack in the markets
• Introduction of value-based products to our customers
• Improving the share of business through quality, delivery and cost performance.
Cost inflation risk The growing cost of key raw materials may impact revenues and net profitability of the organisation • Develop cost-efficient manufacturing processes • Consistent efforts to reduce costs
Technology The failure to innovate and develop new technologies or • Monitor emerging trends in automotive worldwide
risk products, or to adapt to changing customer behaviour • Continuous improvement
could lead to our business being adversely impacted • investment in New Product technology
People risk The inability to attract, recruit, retain and motivate a highly • Focus on key talent and their retention.
skilled workforce could result in the loss of key talent • Pay by performance culture
• Strong value-led culture throughout recruitment, induction and training
• Employee engagement activities and incentive plans

Internal Control Systems

We have a robust internal control system that ensures to keep a track of our assets. The system corresponds to the size of our organisation and overviews operations. We conduct regular internal audits to comb out any discrepancies. We further employ PricewaterhouseCoopers Services LLP to conduct internal audit. This ensures autonomy of the auditing body. We also ensure to implement the auditors recommendations immediately.