coventry coil o matic haryana ltd Management discussions


Coventry Coil-o-Matic (Haryana) Limited (CCHL) is one of Indias leading integrated spring solutions Company offering a comprehensive range of products and solutions catering to multiple industries. It is a leading manufacturer of Auto Suspension Springs as well as Power Brake Actuator Springs for Commercial Vehicles and is one of the leading market players in springs for other Industrial Applications. Business from the Auto Suspension Springs and Power Brake Actuator Springs accounted for more than 90% of the total turnover.

We, at CCHL, are emphasising the central role of that Risk Management plans, both in term of ensuring effective internal control and in helping to manage risk which may threaten our Companys strategic objectives.

Macro-Economic Review Global

After suffering of more than one year on account of the COVID pandemic, FY 2021-22 began with a strong sense of optimism, driven by vaccine rollout across the globe and a pent-up demand driving economic recovery. However, the pace of economic recovery slowed in many countries due to successive waves of the pandemic, brought along by newer variants resulting in subsequent supply chain disruptions across the globe. It also caused a surge in prices of crude oil and other commodities across the world. Global economy made a sharp, V-shaped recovery following the Delta wave with resumption of economic activities and accelerated consumer demand, supported by favorable fiscal and monetary policies globally. The sudden spurt in demand led to further rise in commodity and crude oil prices, leading to broader inflation across economies globally. Consequently, various central banks began tightening monetary policies to reign rising inflation.

The world witnessed major increase in economic activities enable the world continued to witness enhanced economic activity due to rapid vaccination and stimulus packages by central banks and governments along with the urge of mankind to fight back vehemently to normal life. These initiatives helped the global economy recover at a quicker than expected pace. Overall, the global economy grew by 6.1% in FY 202122, against 7.3% decline in FY 2020-21. Advanced economies grew by 5.2% and the Emerging Market and Developing Economies (EMDE) grew by 6.8%.

Overall global car sales will continue to grow, but the annual growth rate is expected to drop from the 3.6 percent over the last five years to around 2 percent by 2030. This drop will be largely driven by macroeconomic factors and the rise of new mobility services such as car sharing and e-hailing.

A detailed analysis suggests that dense areas with a large, established vehicle base are fertile ground for these new mobility services, and many cities and suburbs of Europe and North America fit this profile. New mobility services may result in a decline of private-vehicle sales, but this decline is likely to be offset by increased sales in shared vehicles that need to be replaced more often due to higher utilization and related wear and tear.

The remaining driver of growth in global car sales is the overall positive macroeconomic development, including the rise of the global consumer middle class. With established markets slowing in growth, however, growth will continue to rely on emerging economies, particularly China, while product-mix differences will explain different development of revenues.

India

India has emerged as one of the fastest growing major economies in the world. As the country emerges from the shadows of the COVID-19 pandemic, the Indian economy is again gaining momentum, driven by focused policy measures, financial interventions, and improving industrial output. Indias GDP grew by 8.7% in FY 2021-22 against the negative growth rate the previous year.

Signs of continued economic revival are evidenced in the healthy growth of indicators, including total GST collections, digital transactions, metals and coal production, electricity demand, rail and air passenger and freight traffic, and FASTag collections. Automobile registrations across most categories also recorded an upward trend.

According to Bain & Company. Indias exports have seen tremendous growth over the last two years, with a compound annual growth rate (CAGR) of 15%, rebounding from 5-10% in the pre-pandemic years.

Indias manufacturing exports reached an unprecedented $418 billion in FY 2021-22, an overall on-year growth of more than 40% compared to the $290 billion from the previous year. The sharp rise in exports last year has been on the back of a significant increase in share of manufacturing in the countrys exports.

According to a report, India is on the cusp of structural shifts, especially in the manufacturing sector. Despite having the sixth-largest economy in the world, contributing to 3.1% of the GDP, Indias export contribution to global trade is still only 1.6%. However, that is going to change, buoyed by the governments robust policy thrust, initiatives like production-linked incentives (PLIs) to encourage local manufacturing, and fresh investments that are pouring into the countrys core industrial sectors.

As per data from Society of Indian Automobile Manufacturers, Passenger Vehicles closed the financial year with a de-growth in production by 13%. Commercial Vehicles production recorded an even sharper contraction of 32.4%. In a year that witnessed even Medium & Heavy Commercial Vehicles (MHCVs) and Light Commercial Vehicles (LCVs) post negative growth of 47.3% and 22.5% respectively, the overall industry production posted a drop of 17%.

Over the forecast period, Asia Pacific has become a prominent market in terms of value. Asia Pacific has registered significant growth rate of approximately 7% in 2020 and more than 8.3% in 2021. The growth of manufacturing facilities by industry leaders in this region has resulted in increased demand for spring from the automobile, transportation, and manufacturing sectors. Due to the simple availability of raw materials and labor, it is expected that the largest production facilities for vehicle spare parts will begin operations.

Government has taken initiative and a Thrust on fresh investments and ease of doing business, PLI outlay of $47.8 billion and FDI policy improved capital inflow and ease of doing business. Growth and high-capacity utilisations, Projected next five years capex is six times higher than last five years

Automotive Spring Industry

With FY23 being the first year of Covid-19 recovery after the impact of the lockdown, which lasted two Aprils - FY20 and FY21 -- the Federation of Automobile Dealers Associations (FADA) expects the Indian auto industry may be able to reach pre-pandemic highs only by FY24 and not before.

Indian auto retails saw a 7 per cent year-on-year (YoY) rise and all segments, except tractors which fell by -1 per cent, closed in positive but fell by -25 per cent when compared to FY20, which was largely a pre-Covid year.

While the two-wheeler (2W) segment recorded the lowest growth of 4 per cent, three-wheelers saw a 50 per cent rise, private vehicles (PV) witnessed 14 per cent growth and the commercial vehicles (CV) segment saw 45 per cent YoY growth. The Organisation also revealed that the average inventory for PVs is around 15-20 days, while the average inventory for 2W is between 25-27 days.

During the FY 2021-22, domestic production of Passenger Vehicles grew by 19.22%, whereas that of Commercial Vehicles grew by 28.90%. Both Medium & Heavy Commercial Vehicles and Light Commercial Vehicles segments increased by 50.17% and20.21%, respectively.

Growing emphasis on fuel efficiency and reduction in harmful emissions from vehicles has led to increased production of lightweight and electric vehicles. This is anticipated to boost the demand for Automotive springs in the automotive industry in the forthcoming years. The automotive industry has been witnessing significant technological innovations over the past many years.

2020 is considered as a base year to forecast the Market from 2021 to 2027. 2020s Market size is estimated on real numbers and outputs of the key players and major players across the globe. Past five years trends are considered while forecasting the Market through 2027. 2020 is a year of exception and analyzed specially with the impact of lockdown by region.

Moreover, according to Bain & Company. Indias exports have seen tremendous growth over the last two years, with a compound annual growth rate (CAGR) of 15%, rebounding from 5-10% in the pre-pandemic years.

Based on vehicle type, automotive spring market is categorized in to PCV, LCV and HCV. PCV dominates the overall market owing to highest demand across the globe. OEMs focusing on improving driver experience and convenience will support the demand. Demand from LCV is driven by increasing public transport and taxy hire services.

The app-cab aggregators are expanding their operations extensively, resulting in higher demand for passenger vehicles.

The Company has received certifications from its United Registrar of Systems TS 16949 for quality of the products of the Company.

Financial Performance:

The year 2021-22 has been a satisfying year for your Company due to improved demand. Financial and operational performances have largely been close to the budgets. Your Company managed to implement its plans and executed them more efficiently to post better financial results. The net Turnover of the Company stood at 5,774.67 Lakhs in FY 2021-22 as against Rs. 3,909.55 Lakhs in 2020-21 thereby making a growth of 47.7% over the previous year. The Company posted a profit (PAT) Rs 126.32 Lakhs as against Loss of Rs. 48.45 Lakhs in the previous year.

Product Development:

Because of high operational costs as explained above, CCHL was not able to adapt the new technology to increase its foray in the Front Suspension Springs for passenger cars and MUVs so as to further enable it to increase its presence in this segment again. However, with better control on its operational costs and reduction in raw material, the Company expects to start generating profits and be able to adapt the newer technology.

OPPORTUNITIES:

The shift towards zero emission mobility is an inevitable transition happening across the world and India cannot remain insulated from it. With growing focus on climate change and global warming, it is essential that India must move fast and take a leadership position in global electric mobility revolution. We at CCHL are already working towards that and trying to find better ways to support the electric mobility.

Moreover, the Government is already offering a number of incentives. Manufacturers such as Hyundai and Tata have already rolled out their EVs. In fact Tata Nexon EV was launched very recently. The Government shall continue to support EV segment and we at CCHL are continuing with our efforts to produce better products for EV segments.

BUSINESS OUTLOOK AND OVERVEIW Outlook

We are witnessing a transformational shift in the mobility domain, where the world is shifting towards shared and connected form of transport. India will be driver of shared, connected and zero mobility. By 2030 India is expected that nearly 35% of miles travelled shall be shared. Any change in the mobility landscape should be viewed through this prism. The slowdown is only temporary phase. The Automobile sector will bounce back.

In the wake of the continued drop in inflation and interest rates and favorable macro-economic sentiments, the RBI softened its stance on monetary tightening. Various policy measures were undertaken in FY 2019-20. Similarly, the Automobile segment is witnessing growing demand led by entrance of increasing number of foreign players.

Automotive Mission Plan 2016-26

• Indian automotive industry to grow 3.5-4 times of the current value of USD 74 billion to USD 260 -300 billion by 2026.

• India to be among top three automakers in the world along with China and US Auto Component to grow from the current levels of Rs. 120 billion to Rs. 593.5 -732 billion

• Passenger vehicles likely to increase between 9.4 -13.4 million units from the current level of 3.2 million units Generate 65 million jobs (both direct and indirect) by 2026.

• OEM Domestic to touch 9.32 Lakh and component market to 6.62 Lakh by 2026.

• BSV norms to be adopted by 2019 and BSVI norms to be implemented by 2023 for passenger vehicles.

Risks

CCHL recognizes the impact of industry uncertainties and their outcomes. At the heart of CCHL business model is a comprehensive and integrated risk management framework. It comprises a clear understanding of strategy, policy initiatives, prudential norms, proactive mitigation and structured reporting. The Company faces several risks due to various uncertainties in external and internal factors. Prudent risk management system protects the Company and strengthen the business operations, as it is better prepared to face unforeseen challenges.

Human Resources

The Company has a diversified workforce with no discrimination in terms of nationality, sex, religion, marital status, caste and creed. The Company adopts friendly human resource (HR) policies to motivate its employees and create a congenial work environment. Merit-based recruitment, adequate training facilities, rewards and recognitions are some of the components of its HR policies. The Company drives skill enhancement, knowledge up gradation and employee motivation, which in turn, contribute to organisational excellence.

Internal Control

The Company has in place comprehensive and sound internal control practices across all processes, units and functions. It has well laid down policies and processes for management of its day-to-day activities. These controls are well designed and commensurate with the size and scale of operations. The Company regularly evaluates the adequacy and effectiveness of all internal controls, risk management, governance systems and processes and is manned by appropriately qualified personnel.

The Company assumes no responsibility in respect of forward-looking statements herein which may undergo changes in future on the basis of subsequent development, information or events.