Birla Tyres Ltd Management Discussions.

Performance Overview

The Companys performance during the year is shown below:

Rs/ Crores
S.No. Particulars 2020-21 2019-20
1 EBIDTA
a) Total EBIDTA including other comprehensive income (88.13) (99.19)
b) Unallocated Income/(Expenses) - -
Total EBIDTA (88.13) (99.19)
2 Exceptional Income - -
3 Finance Cost including interest 162.36 151.74
4 Cash Profit /(Loss) (250.49) (250.93)
5 Depreciation 33.29 38.06
6 Profit Before Tax (283.78) (288.99)
7 Tax Provision - -
8 Profit After Tax (283.78) (288.99)

Industry Overview

The Indian Automotive Industry contributes to 7% of the overall GDP, 26% of Industry GDP & 49% of manufacturing GDP. The Indian Tyre Industry is engaged in continuous growth despite challenges in raw materials procurement and auto industry slowdown. The tyre industry is bringing agility and flexibility into its operations by focusing on the changes affecting each and every segment in the automotive space, including the increase in number of vehicles like quadricycle, e-rickshaw and electric bus. It has witnessed a remarkable growth in last few years on the back of growth in automobiles demand, especially in passenger vehicles and two wheeler segments. India represents the fourth largest market for tyres in the world after China, Europe and the United States. The demand of tyres is primarily catalyzed from two end-user segments - OEMs and the Replacement Segment. In line to arrest the spread of COVID-19 entire Q1 was affected & automotive manufacturers for most part of the year had to work on managing inventory. These shutdowns had negative impact on production. Industry witnessed Y-o-Y decline in both production & revenue despite the economic stimulus in terms of reduced borrowing rates & others.

Governments efforts to stimulate agricultural sector had some boost in Tractor sales & good monsoon also give positive effect in the sector.

2/3 Wheeler segment had positive growth as customers are likely preferring personal vehicle over public transport due to after effect of COVID-19 as precautionary measures.

Bharat Stage (BS) VI emission norms has come into effect from 1st April, 2020 which will bring some key changes in the Indian automotive landscape.

The global tyre market turnover is US $ 112.16 Bn in 2020 and likely to grow at 4 % CAGR for the next five year 2021-2025. Indian tyre Industry turnover is R 60,000 Cr (US $ 8.5 Bn) and based on the study of CARE (Credit Analysis Research) the market is likely to grow at 9 - 10 %. India represents the fourth largest market for tyres in the world after China, Europe and the United States.

It has been challenging year for the tyre industry on the back of de-growth of automotive sector & economic slowdown coupled with the impact of COVID-19 during the F.Y 21.

Although F.Y 21 has begun with negative outlook but the companies remains optimistic about production activity recovering to desired level from F.Y 22 onwards.

Risks and Concerns

Profit margins on tyres plunged as a spate of headwinds hurt its operating margin. Fluctuating of major raw materials prices is hurting the operating margin. With margins under strain, it is often difficult to pass on the entire input and other throughput cost increment to customers. This position tends to be an obstacle to the industry of the required internal surpluses so essential for expansion of tyre production facilities.

Economic slowdown can lead to decreased volume and capacity utilization.

Second wave of COVID-19 may force Country to go for another lockdown like situation which will also make an impact on the business. The same would put pressure on margins of the Company in coming year.

It has been realized "tyres", is altogether a special segment which would call for investments in brand building to further the cause of equity of a particular brand in a discriminating market. Existence of low profitability in the industry tends to dilute efforts in this direction given the industrys competitive setting and the fact that there are only limited restriction on imports and that also only from China.

Stepping upon minimizing the ill effects of the disequilibrium in margins, industry is reworking upon the strategic approach. This process will serve to rationalize and streamline existing recipes and the application of chemicals and compounds in tyre manufacture. It would be an organic journey, wherein there may be a marginal increment in development costs in the short run but will pay off going forward.

The industry needs nonetheless to do much more in stepping up the gas on tyre related research. As the technology keeps changing at a very fast pace and with new innovations coming up in this arena, it is important to be ahead of the curve in producing dedicated tyres for new generation vehicles, including the electric vehicles.

Growth Drivers and Outlook

The Country is today a growing market. The gradual exposure of the Indian economy to the more developed markets abroad has helped create a multiplier effect on the various components that go into the configuration of a Countrys economy. The slowdown in demand, closure of production activities, fall in the global price of crude oil, ban on foreign trade, amongst others, are bound to adversely affect inflation, thereby affecting the economy chart. It is believed that COVID-19 would adversely bring down the Countrys GDP growth rate.

Road conditions are improving virtually by the day. Indeed there has been a credible move towards concretizing road surfaces both in urban agglomerations as well as state and national highways. The progressive upgradation in road conditions and their geographical spread across the country has been a fillip to road transport. As the Indian economy expands in size, so will the road transport and therefore the demand for tyres. To boost the same GOI has made a budget allocation of 18,000 Crores for enhancement of road public transport. And this market need will not be for commercial vehicles alone. There will be a demand boost for tyres of all types of automotive vehicles including off the road ones.

The government has been speaking about improving the infrastructure in the Country. This could be a ray of hope for the OEMs as road construction would improve sales of tippers, dumpers and other construction equipment. At the moment, even the smallest of hope is seen as a savior and the OEMs are looking at every single such opportunity.

Lot of promising work is happening on National Logistics Policy, which aims to promote seamless movement of goods across the Country. It looks at several areas such as process re-engineering, digitization and focus on multi-modal transport. It is also looking at exim trade and improving logistics in core sectors such as coal, fertilizer, cement & steel. The policy would improve Indias trade competitiveness and performance in global rankings and pave the way for India to become the logistic hub.

The new scrappage policy could play an essential role in reviving the commercial vehicle sector in India. As per the market reports, it is expected that the situation would improve gradually during the current fiscal that has been affected by the current downturn in the industry and the corona virus pandemic. When we look at the commercial vehicle industry, its core to the Country, it is pretty much the core industry, to have it at 28 percent (GST rate) is something which the industry has put forth to the government in the past and now as well. It would help, and it could be one of the possible demand triggers. Fundamentally what we are seeing is that each segment of the commercial vehicle industry would have its own trajectory.

Despite the lockdown, India officially switched over from BS-IV to BS-VI was achieved in just three years, a feat not seen in any of the large economies around the globe. More than 1,000 models and variants of BS-IV were to be developed to BS-VI emission norms in just 3 years, and the industry in the process is investing R70,000 Crores for this achievement. Nearly R60,000 Crores was spent on the switch-over to BS-VI fuels.

The Companys Tyre Business going forward

The business will continue to be an influential player in Bias Segment which have even today a steady demand. Several new bias product offerings are in the pipeline, including a range of fuel savers for truck and bus, re-engineered for light commercial vehicles tyres will now enter the market.

The Company has entered into off take agreement with a couple of tyre manufacturers. This will help in optimum utilization of the production capacity.

Even so, the business, during the current year, will further re-position and consolidate its radial offerings in keeping with its standing as a key industry player. Radials for commercial vehicles as well as for passenger cars will be unfolded in a phased manner. Two and three wheeler tyres constitute an attractive slot in a thriving market.

Exports will be another thrust area. Besides the conventional markets in South-East Asia where the business already has a presence, efforts are on to enhance visibility in several other select overseas markets. At the same time, attention to further refining manufacturing technology and managing supply chain is being accorded the priority they deserve. Economising on sourcing costs, for instance, the use of alternative materials and other input items are under serious consideration. The Research & Development centre is working on advanced simulation techniques for better product performance and lesser service failures.

In overall terms, the Tyre business looks to the future with confidence.

Financial Performance during 2020-21:

The "General Review on Business Performance" incorporated in the Directors Report sets out a brief performance resume of the Companys operating businesses.

A. The Interest Coverage Ratio stood negative 0.75 as at 31st March, 2021.

B. The Operating Profit Margin percentage stood at negative 0.67 as at 31st March, 2021.

C. The Net Profit Margin percentage is also negative at 2.09 as at 31st March, 2021.

The Net Worth as at 31st March, 2021 is negative R 566.85 Crores.

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations thereof, including:

Sl. No. Particulars 2020-21 2019-20
i) Debtors Turnover Ratio 1.22 8.15
ii) Inventory Turnover Ratio 2.10 3.50
iii) Interest Coverage Ratio (0.75) (0.90)
iv) Current Ratio 0.09 0.24
v) Debt Equity Ratio (1.71) (3.17)
vi) Operating Profit (0.67) (0.21)
vii) Net Profit Turnover (2.09) (0.61)
viii) Return on Equity 0.51 1.01

Internal Control Systems and their adequacy:

This has been covered in the Directors Report.

Material Developments in Human Resources

Human Resources continue to be the cornerstone around which the Company functions. The Company engages with the people who work for it on a proactive basis so as to transform the environment from a "place of work" to a "place to work". The Company believes that such approach has assisted it enormously in promoting harmony and a sense of belonging amongst those working for it thereby seeking to enhance their work life balance. The gradual evolution of this perception constitutes, according to the Company, a defining sign of sustained employee commitment to its wellbeing.

The number of people employed as on 31st March, 2021 is separately covered under Annexure IV to the Directors Report. Industrial relations remained cordial during the year.

Impact of Novel Corona Virus (COVID-19) upon Tyre Industry:

(A) The Indian Economy has been severely disrupted by the occurance of COVID-19. It has resulted into drop in GDP by 7.3% in 2020-21 compared to 2019-20. In absolute terms the GDP value came down from US $ 145.7 Trillion in 2019-20 to US $ 135.13 Trillion in 2020-21. This is the worst performance of Indian Economy since independence.

In terms of Automobile Industry also, the situation is no different with Commercial vehicle registering a significant decline thereby affecting the Tyre Industry adversely. Also the 2 Wheeler segment got badly affected as there has been rampant job losses & business downturns resulting in reduction of purchasing power of individuals.

The threat of job loss has resulted in financing companies becoming more selective in disbursement of auto loans thereby affecting the automobile industry adversely.

In the entire value chain, only the Passenger vehicle segment did reasonably well and the Tractors had a dream run because of improvement in the rural income coupled with good monsoon.

Overall, the second wave of COVID-19 was not only spreading fast but was also destabilizing the growth which the Country had achieved during the months when the COVID-19 threat was less.

The Government tried to chip in with various incentive measures at different points of time. However, the same was probably not adequate compared to the requirement.

As regards Birla Tyres Limited, in order to overcome the financial challenges we are actively engaged with the Banks for the Resolution Plan to come through however the same may take some more time in view of frequent lockdowns and the apprehension of the lenders of impact of COVID-19 on our business environment.

(B) In Birla Tyres Limited we are fighting the battle against Corona in a united manner and the COVID-19 precautions are taking precedence over all other considerations.

The Health and Safety of our Customers, People and Employees are of paramount importance to us. The Management is trying to strike a balance between maintaining the precautions relevant to health of employees and at the same time to serve the customers in the best possible way.

The Company is actively engaged in implementing the Government laid down policies for fighting the Covid, including Work from Home wherever possible.

In order to ensure that our Export market is not hampered due to frequent lockdowns, we are actively engaged with our customer base overseas to ensure smooth functioning.

As a team and community we are confident of winning the fight against COVID-19 and get back to normal business cycle.

For and on behalf of the Board of Directors
Uma Shankar Asopa Manjushree Khaitan
Director Chairman
Registered Office:
9/1 R.N. Mukherjee Road
8th Floor, Birla Building,
Kolkata - 700 001
Date: 30th July, 2021