bharat seats ltd share price Management discussions


OUTLOOK

The global economy is under pressure from multiple complex and interconnected crisis and challenges which include inflation, climate change, the war in Europe, supply chain disruptions and COVID-19 pandemic to name a few. Indian economy continues to show resilience amid challenging global environment. The overall growth remains robust. Growth was underpinned by strong investment activity bolstered by the Governments capex push and buoyant private consumption. Inflation remained high but the current account deficit narrowed on the back of strong growth in service exports and easing global commodity prices.

But the growth is expected to be constrained by slower consumption growth and challenging external conditions. Rising borrowing cost and slower income growth will weigh on private consumption growth. Further, Government consumption is projected to grow at a slower pace due to withdrawal of pandemic related fiscal support measures. Spillovers from recent developments in financial markets in the US and Europe pose a risk to short term investment flows to emerging markets, including India. But Indian Banks remain well capitalized.

The Indian automotive sector is a vital growth driver of the Indian economy, with valuable contribution to GDP and creating jobs for millions. The Indian automobile industry has historically been a good indicator of how well the economy is doing, as the automobile sector plays a key role in both macroeconomic expansion and technological advancement. Major four wheeler companies recorded highest growth in annual sales in 2022. The Governments initiative by introducing battery-swapping policy, expansion of Indian National Highways and adding advanced technologies including alternate fuel systems such as compressed natural gas (CNG), Bharat Stage VI compliant flex-fuel engines, electronic control units (ECU) for safety, advanced driver assist systems and e-quadricycles, under the Production-linked incentives (PLI) scheme for automobiles has attracted new investment has further provided boost to the industry. India is also a prominent auto exporter and has strong export growth expectations for the near future. Passenger vehicle exports from India rose 15%, with Maruti Suzuki India Limited (MSIL), countrys largest carmaker leading the exports in last fiscal, despite struggling with shortage of electronic components.

Factors such as growing demand for low emission commuting and Government supporting long range zero emission vehicles through subsidies and tax rebates have compelled the manufacturers to provide the electric vehicles(EV) around the world. This has led to a growing demand for electric vehicles in the market. Countries around the world have set up targets for emission reductions according to their own capacity. Increasing investments by the Government across the globe to develop EV charging stations and hydrogen fueling stations along with incentives offered to the buyers will create opportunities for the OEMs to expand their revenue stream and geographical presence. India is the worlds third-largest EV market. This competitive market is set to transform the Indian automotive sector in 2023. The best aspect is that, in addition to decreasing pollution and aid in the fight against climate change, EVs can reduce oil imports. However, a smaller number of EV charging stations and hydrogen fueling stations, higher cost involved in initial investments and performance constraints could hamper the growth of global electric vehicle market.

INDUSTRY STRUCTURE AND DEVELOPMENT

In the past four decades, the automobile industry emerged as a shining light to catalyze Indias Gross Domestic Product (GDP) and the economy as a whole. Automobile industry looks to sustain growth momentum in 2023 embracing clean technology amid the lurking speed breakers of rising interest rates and cost increases due to new emission and safety norms. The industry anticipates a good year with rising vehicle prices and increased EV adoption which has already started taking root in 2022.

Besides, rising interest rates and not so bright global economic situation and its impact on India in the days to come are some of the factors which are keeping the industry in a cautious mode.

The OEMs (original equipment manufacturers) need to continue with the creation of excitement through new launches, product upgrades etc. The capex outlay for OEMs is estimated to remain heightened with the OEMs budgeting for a substantial outlay towards new product development, including development of capabilities/platforms for electric vehicles.

Automobile sector is one of the key sector which attracted maximum FDI in 2022, wherein FDI is allowed under automatic route. India is the preferred investment destination due to a series of measures such as liberalisation in the FDI policy, steps to further promote ease of doing business, reducing the compliance burden for industry, the rollout of the PLI schemes among others.

OPPORTUNITIES AND THREATS

Projected sales for the upcoming 12-month period look set to return to pre-pandemic levels with once again, EVs and hybrids provide a highlight.

Auto components industry expected to grow in double-digits in 2023 on back of demand from both local and overseas markets despite fears of recession in major markets of US and Europe.

Our business association with Toyo Seats, Hayashi Telempu and Toyota Boshoku is adding to capability enhancement and growth. The technical know how adopted and adapted keeps us abreast with the latest technology keeping us future ready and also providing value added solutions.

Additionally, we have plans to introduce new products with the support of our technology partners thereby enhancing BSL product portfolio. These associations will also prepare BSL for future technology readiness such as NVH requirement for Hybrid and Electric Vehicles.

There is need for sustainable development of the industry, considering the challenges on the front of energy security, concern for the environment and reducing carbon footprint. With India declaring to achieve carbon neutrality 2070, the Automotive sector, together with all other verticals of the industry will have to work in unison towards the realization of this national goal.

SEGMENT WISE/ PRODUCT WISE PERFORMANCE

The Company is currently operating primarily under single business segment manufacturing complete seating systems and interior components for passenger Cars as well as Utility Vehicles.

RESEARCH. DEVELOPMENT (R&D)

The rapid globalization is opening new opportunities for the automobile industry, especially while it makes a shift towards electric, electronic and hybrid cars, which are deemed more efficient, safe, and reliable mode of transportation

Over the next decade, this will lead to new verticals and opportunities for auto-component manufacturers, who would need to adapt change via systematic R&D.

Your company has successfully developed:

- NVH components like floor carpet, wheel housing cover, dash insulation, EV battery cover, etc. for passenger car

- Extrusion for roof as well as windshield for passenger car

- Seating system design & development for 4- wheelers and 2-Wheelers

- Value Engineering and Value analysis (VA-VE) in process, creating design and development standard for each commodity, developing expertise knowledge in fabric lay-outing called "nesting" to increase yield, etc. for value addition.

RISK AND CONCERNS

The Company is exposed to external and internal risks associated with the business.

BUSINESS RISK

The worldwide supply chain continues to be affected by challenges related to COVID-19 pandemic, shortage of semi- conductors and volatility in energy prices. Organization needs to reimagine and manage its supply chain differently to ensure business continuity and growth.

FINANCIAL RISK

The companys sales and margins are subject to the market factors that affect Maruti Suzuki India Ltd. and Suzuki Motorcycle India Private Ltd. The Company is exposed to the risks associated with fluctuations in foreign currency rates, import duties and taxes, fluctuation in the price of various inputs including raw material supplies and under- utilized capacity.

Your Company reviews forward exchange contracts/ derivative contracts on a regular basis to analyze foreign exchange exposure and confirms that the Company has a Risk Management policy, with a clause on foreign exchange risk management in place.

Both the operational and financial risks are constantly assessed, and adequate steps are taken from time to time to mitigate them successfully.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an adequate system of internal controls to ensure that transactions are properly authorized, recorded, and reported, apart from safeguarding its assets. The internal control system is supplemented by well-documented policies, guidelines and procedures and reviews carried out by the Companys internal audit function, which submits reports periodically to the Management and the Audit Committee of the Board.

Your Company has a favorable work environment that motivates performance, customer focus and innovation while adhering to the highest degree of quality and integrity.

DISCLOSURE OF ACCOUNTING TREATMENT

The Company has complied with all the provisions of the accounting standards in accordance with Section 133 of the Companies Act, 2013.

HUMAN RESOURCES/ INDUSTRIAL RELATIONS

Your Company believes that employees are key for our success, have immense knowledge and power of innovation. Your Company aims to create an environment where every employee can contribute to the companys performance, excel and grow in their respective jobs. Our focus is to recruit employees with right skills and talent, raise competency through training and development, recognize and reward leadership and performance. Several measures are implemented to retain the talent within the organization. At each location, the work force goes through a mandatory training plan including the vision, mission and company values which forms a base for treating everybody with dignity and respect. To further strengthen and motivate our employees, several initiatives are taken on a continuous basis to foster teamwork, trust and communication across the organization. Employees are encouraged to have a passion for excellence and focus on the customer with a performance goal of doing things right first time and every time. Your Company provides challenging and fulfilling opportunities to maximize employee potential so that every employee excels and grows along with Companys growth.

Your Company ensures quality at our suppliers and service providers by horizontal deployment of learnings and training at our supplier partners.

In addition to timely delivery and quality, your Companys utmost focus is on safety of its workforce. As we continue to face the COVID-19 pandemic, our commitment towards safeguarding the health of our people, and efforts to ensure safety at our workplaces has been in greater focus.

Health, Safety and Environment remains our top priority. Periodic audits are carried out both internally as well as through external agencies to identify gaps and to define action items for continuous improvement, ensuring a safe workplace for employees. Total number of permanent employees on the rolls of Company as on 31st March 2023 are 380.

FINANCIAL PERFORMANCE

The Company continued its focus on lean operations and cost optimization through several measures. The Company was further taking cost control measures in order to mitigate loss of production due to the shortage of semi-conductor chips and increase in commodity prices.

The details of the financial performance of the company appear in the Balance Sheet, Profit & Loss Account and other financial statements forming part of this Annual report. For financial highlights please refer heading ‘FINANCIAL

RESULTS of Boards Report.

KEY FINANCIAL RATIOS

Changes in key financial ratios are as under:

Sr. No.

Ratios Unit 2022-2023 2021-2022 % change
1 Debtors Turnover Times 10.14 8.46 19.90%
2 Inventory Turnover Times 25.69 19.78 29.88%
3 Interest Coverage Ratio* Times 13.85 9.59 44.48%
4 Current Ratio Times 0.79 1.03 -23.30%
5 Debt Equity Ratio Times 0.41 0.29 41.38%
6 Operating Profit Margin** % 3.16 2.42 30.58%
7 Net Profit Margin % 2.05 1.46 40.41%
8 Return on Net worth % 14.72 9.37 57.10%

*Earnings before interest, depreciation, tax and amortization (EBIDTA) has been considered for coverage ratio.

**Operating profit is earning before interest and tax (EBIT)

There is a upwards trend, compared to last year due to an overall upswing in sales primarily due to more off take by

MSIL.

DISCLAIMER

Statements in this Report, particularly those which relate to Management Discussion and Analysis as explained in the Corporate Governance Report, describing the Companys objectives, projections, estimates and expectations may constitute ‘forward looking statements within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied in the statement depending on the circumstances.