OVERALL VIEW
The automotive industry in India is set to expand at a compound annual growth rate
(CAGR) of 11.3% till 2027. This growth will most likely occur due to factors like rising
disposable income, wide availability of credit and financing options, and growth of
population. Furthermore, with the growth of the passenger transport sector and the rise in
demand for commercial vehicles, the potential for future growth of Indias automotive
sector is pretty high, however, energy crisis, gas shortages, rising inflation and
Interest rates, labour shortages, high consumer demand, and unpredictability in the supply
chain are some of the handicaps being faced by the automotive industry.
Apart from this, industry-friendly policies and initiatives by the Indian Government
will also play a major role in fuelling this development in the years to come.
In the immediate future, Indias automobile industry is on its way to adopting cleaner
technology to reduce emissions. The government has implemented the second phase of BS VI
emission norms from April 2023; this may increase the cost of manufacturing gas-powered
vehicles considerably.
The Passenger Vehicle demand is expected to remain towards new launches in electric,
Hybrid and CNG categories as well as SUVs.
INDUSTRY OVERVIEW, STRUCTURE AND DEVELOPMENT
The automobile sector is one of the key segments of the economy having extensive
forward and backward linkages with other key segments of the economy. The Indian
automobile industry comprises of a number of Indian-origin and multinational players, with
varying degree of presence in different segments.
Automobile dealer Industry plays the vital role of link between the manufacturer of the
automobile and the consumer. With large inventories of cars, dealers provide consumers
with a wide array of vehicles to meet their needs at different price points.
The sales of most of automobiles today are subject to changing consumer tastes, the
popularity of the manufacturers vehicle models, and the intensity of competition with
other dealers. Along with the sale of the car, most dealers also sell additional
automobile-related services to potential buyers. These services include extended
warranties, undercoating, insurance, and financing. After-market sales departments sell
these services and other merchandise after vehicle salespersons have closed a deal. Sales
of these packages greatly increase the revenue generated for each vehicle sold.
Performing repair work on vehicles is another profitable service provided in this
industry. Service departments at motor vehicle dealers provide repair services and sell
accessories and replacement parts. The work of the service department has a major
influence on customers satisfaction and willingness to purchase future vehicles from the
dealer.
Industry Structure: The automobile dealer industry is comprised of two segments.
New car dealers, often called franchised dealers, primarily sell new cars, sport utility
vehicles (SUVs), and passenger and commercial vehicles. These franchised dealers sell
vehicles manufactured by a particular company, which may include several brands. Used car
dealers comprise the other segment of the industry, and are sometimes referred to as
independent dealers. These dealers sell a variety of vehicles that have been previously
owned or formerly rented and leased. Improvements in technology have increased the
durability and longevity of new cars, raising the number of high-quality used cars that
are available for sale. Used car dealers by definition do not sell new cars, but most new
car dealers do sell some used cars.
Developments
Demand for Electric Vehicles (EV) are on the rise. The Current Market Share of EVs in
Indias Automotive sector is standing at 0.7%, however, by 2027, this figure is set to
reach at 3.8%.
Further, the availability and adoption of advanced technology solutions is driving the
majority of the underlying trends in the auto industry. Connected cars, sensors,
electrification, and new business models (including mobility-as-a-service) all take
advantage of advanced technology solutions. Thats where industry experts say the
automotive industry needs to focus going forward. The entire industry, from suppliers to
automakers, is challenged to keep existing operations profitable, while simultaneously
building out capacity to tackle these new innovations.
Companies must find the right balance between continuity of a stable and profitable
business, while at the same time lead the way in disrupting their own business models.
While many automakers and suppliers learned from the past to help them survive recent
disruptions and make their existing operations more efficient, some industry leaders say
that flexibility and innovation will be critical when it comes to the unique challenges
facing the future direction of the automotive industry.
Automotive companies need to innovate and develop solutions quickly in order to react
fast to changing customer demands and market opportunities. In a digital world, innovation
must become an integral part of each department and discipline, so the entire enterprise
contributes to generating top-line, bottom-line, and green-line improvements.
Historically, the Indian Passenger Car Market has been skewed towards small passenger
cars. However, there is a structural change taking place in the industry with demand for
UVs taking over the passenger car. This shift is paving a way towards new avenues of the
growth and will results in a more profitable growth for the sector.
In an effort to achieve greater financial and operational efficiency and flexibility in
the automobile dealer industry, greater emphasis is being placed on after sale services,
such as vehicle maintenance and repair, at both new and used car dealers. These services
remain less susceptible to economic downturns. They are also part of an effort to enhance
customer loyalty and overall customer service.
The increased use of the Internet to market, new and used cars has also had a
significant impact on automobile dealers. Through the Internet, consumers can easily
access vehicle reviews, view pictures of vehicles and compare models, features, and
prices. Many websites allow consumers to research insurance, financing, leasing and
warranty options. As a result, consumers are generally better informed and spend less time
meeting with salespersons.
Moreover, sales of automobiles on digital platforms, integration of wireless technology
in cars, and entry of connected and autopilot-enabled vehicles in the market are some of
the factors that are going to fuel the growth of the automotive industry.
OPPORTUNITIES AND THREATS
Opportunities
India being one of the largest automobile markets in the world, has a bright future
because of several factors like rising of living Standards, strong Research &
Development advancement, shifting of manufacturing hub to India, Growing teenage drivers,
overall growth of other industries, infrastructure development and the improved road
infrastructure. This along with rising disposable income, aspirations for a better
lifestyle and a slew of new product launches lined up by companies would aid overall
increase in sales volumes. The Company, with its wide portfolio is expected to benefit
from the same.
Threats
Affordability is the most important demand driver in India, the domestic car market has
until now been segmented on the basis of vehicle price. Price based competition also takes
place in a continuum than in segments since nearly all the models are launched in multiple
versions at different price points. As a result higher end variant compete with lower-end-
variant of a car in a segment above it.
Government are enforcing strict rules relating to pollution, safety, and other aspects
on the vehicle sector. These regulations can significantly raise the costs of vehicle
manufacturing because companies may need to invest in new technologies or processes to
comply with such laws.
Also, the growing popularity of ride-sharing services such as Uber has reduced car
ownership and demand for new vehicles. This trend is expected to continue, especially in
urban areas with easy access to public transportation and ridesharing services, which may
result in lower vehicle demand.
Consumer confidence, interest rates, and employment levels are all highly dependent on
macro and microeconomic factors in the automobile industry. Consumers may be more cautious
about spending money on large-ticket items such as cars during economic downturns.
Further, intensity of competition has increased in almost all the segments of the
Indian automobile dealers market whether its a competition for sales of cars from dealers
of same brand or of competing brands or competition in after-sales service business from
other dealers of same brand or from organised (branded) franchised service network or from
unorganised local garages.
Moreover, in the automobile dealer industry, vehicles cannot be kept in the store for
long unlike consumer durables, as automobiles lose value with time. The model gets old and
the customer would not be willing to pay for it. The damage due to handling, if they are
in the showroom or warehouse for too long, is another factor.
Other factors like affordability, innovation, infrastructure facilities and price of
fuel, stringent emission norms and safety regulations and interest rates affect the demand
for automobiles to a larger extent. These factors and challenges always keep the
automakers and dealers on their toes.
OUTLOOK
The automotive industry in India is set to expand at a compound annual growth rate
(CAGR) of 11.3% till 2027. This growth will most likely occur due to factors like rising
disposable income, wide availability of credit and financing options, and growth of
population. The management of the Company believes the long term outlook for the
automobile industry is bright and robust, though outlook for the Indian auto industry in
near term is expected to remain stable growth.
RISKS AND CONCERNS
Indian car industry is one of the most promising industries across the globe. It has
gradually strengthened its foothold in the international area as well. The country is
dealing with many car manufacturers, dealers, and associations in various countries
including U.S. From some countries, India imports cars and car components and to some
India exports.
Though India has witnessed a growing customer base, it has not inoculated them from the
global crisis. The crippling liquidity and high interest rates have slowed down the
vehicle demand.
Rising Input costs of commodities, availability of credit and affordable interest rates
are important facilitators for automobile sales. The uncertain exchange rates and a sudden
increase in dollar value against Indian rupee have contributed to slowdown. Increasing
Dollar value has raised the landed cost of imported machine, tools and even raw materials
required for production.
In addition, rising cost of dealership operations, limited availability of trained and
untrained manpower, increasing labour and wage rates, prospects of accelerated career
growth and better training & development opportunities have kept the margins of
dealership operations under immense pressure.
Intensity of competition has increased in almost all the segments of the Indian
automotive market due to entry of new players and appointment of new dealers by Maruti.
Launch of new models by different players have also increased market competition. This
increasing level of competition would also translate into higher selling and distribution
costs. The Company is aware of the increasing competition and is taking measures to remain
competitive in the market place.
SEGMENT WISE BUSINESS PERFORMANCE
Competent Automobiles Co. Ltd. is mainly in the business of trading and servicing of
Maruti Suzuki vehicles. The Company operates in two segments, namely, Showroom and
Services & Spares. The Showroom segment deals with purchase and sales of vehicles
manufactured by Maruti Suzuki India Limited. The Service and Spares segment includes
servicing of Maruti vehicles and sale of their spare parts. For Segment wise business
performance of the Company, please refer to note no. 36 in the notes to financial
statement forming part of the annual accounts.
OPERATIONAL & FINANCIAL PERFORMANCE
The details of the operational & financial performance are appearing in the
financial statements separately. For highlights, please refer to Directors Report forming
a part of this Annual Report.
HUMAN RESOURCES/ INDUSTRIAL RELATIONS
During the year, the Company has taken several initiatives to further strengthen its
human resource base to meet its current & future growth plans. There was unity of
purpose among the employees to continuously strive for all round
improvements in work practices & productivity. Industrial relations were cordial
throughout the year at all locations. As on 31st March, 2023, there were 2183 employees on
the payroll of the Company.
INTERNAL CONTROL SYSTEMS & THEIR ADEQUACY
The Company has proper and adequate systems of internal control in order to ensure that
assets are safeguarded and transactions are duly authorized, recorded and reported
correctly.
Internal Audit function is looked after by team of in house Internal Auditor appointed
by the Company, who conduct regular audit at all units/locations. Both the statutory as
well as Internal Auditors independently evaluate the adequacy of internal control system.
Based on the audit observations & suggestions, follow up & remedial measures are
being taken on a regular basis.
CAUTIONARY STATEMENT
Certain statements in the Management Discussion & Analysis describing the companys
views about the Industrys expectations/predictions, objectives etc. may be forward
looking within the applicable laws and regulations. Actual results may differ materially
from those expressed in the statements. Companys operations may be affected with the
demand and supply situations, input prices and their availability, changes in Government
regulations, tax laws and other factors such as industrial relations and economic
developments etc. Investors should bear the above, in mind.
KEY FINANCIAL RATIOS
In accordance with the SEBI (Listing Obligations and Disclosure Requirements 2018)
(Amendments) Regulations, 2018, the Company is required to give details of significant
changes (change of 25% or more as compared to the immediately previous financial year) in
key financial ratios.
| Ratios |
2021-22 |
2022-2023 |
Remarks |
| Debtors Turnover Ratio |
24.88 |
34.66 |
Increase in ratio due to effective collection of receivables |
| Inventory Turnover Ratio |
18.47 |
17.04 |
No Significant Change |
| Interest Coverage Ratio |
4.28 |
3.09 |
Increase in ratio due to increase short term borrowing |
| Current Ratio |
1.656 |
1.26 |
No Significant Change |
| Debt Equity Ratio |
0.45 |
0.54 |
No Significant Change |
| Operating Ratio |
2.8 |
2.90 |
No Significant Change |
| Net Profit Ratio |
1.52 |
1.38 |
No Significant Change |
| Return on Net Worth |
6.81 |
8.51 |
Increase in ratio due to increase in profits |
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