Divgi Torqtransfer Systems Ltd Management Discussions

Overview: Global economic growth declined marginally from 3.3% in 2023 to an estimated 3.2% in 2024. This was marked by a slowdown in global manufacturing, particularly in Europe and parts of Asia. This was driven by supply chain disruption and weak external demand. In contrast, the services sector demonstrated resilience, contributing to growth across economies. Inflation moderated in most regions.

Growth in advanced economies was expected at 1.8% in 2024 (projected at 1.9% in 2025 and 1.8% in 2026). Emerging and developing economies are likely to report a growth decline from 4.4% in 2023 to 4.2% in 2024 (projected at 4.2% growth in 2025 and 4.3% in 2026). Global inflation was expected to decline from 6.1% in 2023 to 4.5% in 2024 (projected at 3.5% and 3.2% in 2025 and 2026 respectively). This decline is attributed to the declining impact of previous economic shocks, and labour supply improvements. Monetary policies anchored inflation, preventing wage-price spirals.

Global unemployment declined from 5.4% in 2023 to around 5.3% in 2024 (projected at 5.2% in 2025 and 2026). The end of the calendar year was marked by the return of Donald Trump as the new US President. The new US government threatened to impose import tariffs on countries exporting to the US unless those countries lowered tariffs for the US to export to their countries. This enhanced global trade and markets uncertainty and could affect the outlook across 2025.

(Source: IMF, KPMG, Press Information Bureau, BBC, India Today)

PERFORMANCE OF THE MAJOR ECONOMIES, 2024:

(Source: CNBC, China Briefing, ons.gov.uk, Trading Economics, Reuters)

Outlook: The global economy is anticipated to remain resilient with 3.3% growth in 2025 and 2026. This stability is likely to be influenced by disinflation, declining commodity prices, and easing monetary restrictions. However, conflicts, geopolitical tensions, trade restrictions and climate risks could emerge as challenges. (Source: IMF, United Nations)

Overview

The Indian economy was projected to grow at 6.5% in FY 2024-25, compared to a revised 9.2% in FY 2023-24. This was a four-year low due to sluggish manufacturing and investments. Despite the slowdown, India retained its position as the worlds fifth-largest economy.

Indias nominal GDP (at current prices) was RS.331 trillion in FY 2024-25 (RS.301.23 trillion in FY 2023-24). Nominal GDP per capita increased by RS.35,000 in FY 2024-25 compared to FY 2022-23, reflecting sustained economic expansion. The Indian rupee weakened 2.12% against the US dollar in FY 2024-25, closing at RS.85.47 on the last trading day of FY25. In March 2025, the rupee recorded the highest monthly appreciation in the currency since November 2018, rising 2.39%.

Inflationary pressures eased, with CPI inflation averaging 4.8% in FY 2024-25, driven by moderating food inflation and stable global commodity prices.

Indias foreign exchange reserves reached a record high of $640.3 billion as of December 31, 2024. This was the fourth consecutive year when rating upgrades outpaced downgrades on account of strong domestic growth, rural consumption, increased infrastructure investments and low corporate leverage (annualized rating upgrade rate 14.5% exceeded the decade-long average of 11%; downgrade rate was 5.3%, lower than the 10-year average of 6.5%).

Gross inward foreign direct investment revived in FY25, rising 20.6% YoY from $51.8 billion in the first eight months of FY24 to $62.5 billion during the same period in FY25. However, the net foreign direct investment in India declined from USD 7.84 billion in the first nine months of FY24 to USD 1.18 billion in the corresponding period in FY25, followed increased repatriation and overseas investments by Indian firms.

Growth of the Indian economy

(Source: MoSPI, Financial Express)

Growth of the Indian economy quarter by quarter, FY 2024-25

(Source: The Hindu, National Statistics Office)

The banking sector continued its improvement, with gross non-performing assets (NPA) for scheduled commercial banks (SCBs) declining to 2.6% as of September 2024, down from 2.7% in March 2024. The capital-to-risk-weighted assets ratio for SCBs stood at 16.7% as of September 2024, reflecting a strong capital position. Indias exports of goods and services are projected to reach $800 billion in FY 2024-25, up from $778 billion in the previous fiscal year. The Red Sea crisis impacted shipping costs, affecting price-sensitive exports. Merchandise exports were expected to grow 2.2% YoY, reaching $446.5 billion.

Indias net direct tax collections increased 14.69%, totalling RS.17.78 lakh crore by February 2025. Gross GST collections for the first 11 months of FY 2024-25 stood at RS.20.13 lakh crore, a 9.4% increase YoY.

On the supply side, real gross value added (GVA) was estimated to expand 6.4% in FY 2024-25. The industrial sector was expected to grow 6.2%, supported by growth in construction activities, electricity, gas, water supply and other utility services. Indias services sector grew an estimated 7.3% in FY25 (9.0% in FY24), driven by public administration, defence and other services (expanded at 8.8% as in the previous year). In the infrastructure and utilities sector, electricity, gas, water supply and other utility services grew a projected 6.0% in FY25, compared to 8.6% in FY24. Meanwhile, the construction sector expanded at ~8.6% in FY25, slowing from 10.4% in the previous year.

Manufacturing activity is expected to have remain subdued in FY25, with growth projected at 4.3%, lower than 12.3% in FY24. Moreover, due to lower public spending in the early part of the year, government final consumption expenditure (GFCE) is anticipated to have slowed down to 3.8% in FY25, compared to 8.1% in FY24.

The agriculture sector growth was estimated at 3.8% in 2024-25 (1.4% in 2023-24). Trade, hotel, transport, communication and services related to broadcasting segment were estimated to grow at 6.4% in 2024- 25 (6.3% in 2023-24). From a demand perspective, private final consumption expenditure at constant prices was forecast to grow 7.3%, a rebound in rural demand and stronger consumer confidence.

The Nifty 50 and SENSEX recorded their weakest annual performances in FY 25 in two years, rising 5.3% and 7.5% during the year under review respectively. Gold rose 37.7% to $3,070 per ounce, the highest increase since FY 2007-08, a reflection of growing global uncertainty. Foreign portfolio investments (FPIs) in India experienced high volatility throughout 2024, with total inflows into capital markets reaching approximately $20 billion by year-end. However, the final quarter witnessed significant selling pressure, influenced by rising US Treasury yields, Chinas economic stimulus measures and high valuations of Indian stocks. Despite this, FPIs remained the net buyers of Indian equities, with net inflows of around $50 million in 2024. The secondary market sell-off was largely offset by robust primary issuances, making 2024 a record-breaking year for Indian IPOs.

Outlook: India is expected to remain the fastest-growing major economy. Initial estimates project that Indias economy could grow 6.3-6.8% during the current financial year, the US tariffs notwithstanding. The services sector is likely to sustain its momentum, manufacturing activity is expected to accelerate (driven by government initiatives to enhance logistics infrastructure and tax reforms). The following are some key growth catalysts for India in FY26.

Tax stimulus: The February 2025 Budget marked a shift in approach, with the government proposing substantial personal tax cuts. Effective April 1, 2025, individuals earning up to RS.12 lakh annually will be fully exempt from income tax. Economists estimate that the resulting RS.1 lakh crore in tax savings could boost consumption by RS.3-3.5 lakh crore, potentially increasing the nominal private final consumption Expenditure (PFCE) by 1.5-2% of its current RS.200 lakh crore.

Pay Commission impact: The 8th Pay Commissions awards could lead to a significant salary revision for nearly ten million central government employees. Historically, Pay Commissions have granted substantial pay hikes along with generous arrears. For instance, the 7th Pay Commission more than tripled its monthly salaries, raising the range from RS.7,000 to RS.90,000 to RS.18,000 to RS.12.5 lakh, triggering a widespread ripple effect.

Easing in_ation: With El Ni?o dissipating by mid-2024 and the South-West monsoon delivering 8% above the normal rainfall, inflation has been on a downward trend. A 4-5% increase in agricultural output has helped cool food inflation, which dropped from 10.8% in October 2024 to 3.75% by February 2025.

Deeper rate cuts: In its February 2025 meeting, the Monetary Policy Committee (MPC) reduced policy rates by 25 basis points and omitted any reference to the 4% inflation target from its official statement. The committee emphasized balancing growth and inflation in its monetary policy approach. Under its new Governor, the RBI has shown greater willingness to inject liquidity into money markets. As a result, the yield on 1-year government bonds has declined from over 7% to 6.4% within a year, while 10-year gilt yields have fallen from 7.2% to 6.6%.

Lifting credit restrictions: In November 2023, the RBI increased risk weights on bank loans to retail borrowers and NBFCs, significantly tightening credit availability. This led to a sharp slowdown in retail credit growth from 20-30% to 9-13% between September 2023 and 2024. However, under its new leadership, the RBI has prioritized restoring credit flow. Recent policy shifts have removed restrictions on consumer credit, postponed higher liquidity requirements for banks, and are expected to rejuvenate retail lending.

Union Budget FY 2024-25: The Union Budget 2025-26 laid a strong foundation for Indias economic trajectory, emphasizing agriculture, MSMEs, investment, and exports as the four primary growth engines. With a fiscal deficit target of 4.4% of GDP, the government reinforced fiscal prudence while allocating RS.11.21 lakh crore for capital expenditure (3.1% of GDP) to drive infrastructure development. The MSME sector will benefit from revised classification criteria, customized credit cards for micro-enterprises, and sector-specific initiatives supporting footwear, leather, and toy manufacturing. Additionally, the budget prioritized human capital development with initiatives such as Atal Tinkering Labs, skilling programs, and a RS.20,000 crore R&D fund to foster innovation and technological advancement.

(Source: Pound Sterling, CNBC, Press Information Bureau, Business Standard, Economic Times, World Gold Council, Indian Express, Ministry of External Affairs)

GLOBAL AUTOMOTIVE INDUSTRY OVERVIEW:

The global automotive industry market size was USD 4,359.98 billion in 2024 and is expected to reach around USD 6,678.28 billion by 2032, growing at a CAGR of 5.66% from 2024 to 2032.

In todays rapidly evolving business landscape, marked by the proliferation of emerging markets, the rapid advancement of new technologies, stringent security regulations, and shifting customer preferences, the automotive industry finds itself at the nexus of transformative change. Digitalization and innovative business models are reshaping traditional paradigms, ushering in a new era of disruption in the automotive sector.

Four critical technological disruptions are mobility, autonomous driving, electric vehicles, and connected technologies which are poised to revolutionize the automotive landscape. While these disruptions are often viewed as independent phenomena, there is a growing consensus among business leaders and industry experts that they are intricately interconnected, complementing, and reinforcing each other. The industry, overall, is perceived as primed and ready for substantial transformation.

(Source: Fintech, Globe News Wire, Statista)

INDIAN AUTOMOTIVE INDUSTRY OVERVIEW:

India is the worlds third-largest automobile market, leading in three-wheeler, passenger vehicle, and second in two-wheelers. By 2030, it aims to lead in shared mobility and EV adoption, targeting 30% of new vehicle sales as electric. The automotive market is projected to grow from 5.1 million units in 2023 to 7.5 million units by 2030, with passenger vehicles reaching 6 million units, solidifying Indias position as the worlds third-largest passenger vehicle market.

Automobile retail sales grew 6.5% in FY 2024–25, driven primarily by a 5% rise in passenger vehicle (PV) sales, an 8% increase in two-wheeler numbers, and a 5% uptick in commercial vehicle (CV) sales. This compares to a growth of 10% for the industry in FY 24. However certain concerns emerged in March, as retail sales declined for second consecutive month — down to 0.7% compared from March 2024. The fall was attributed to a 2% slide in two-wheeler sales, a 6% drop in three-wheeler sales, and a 6% decline in tractor sales.

Indias automotive industry had benefited from low-cost skilled labour, strong R&D, and affordable steel, driving investment and job creation. The EV market is expected to reach RS.20 lakh crore by 2030. This growth could generate 5 crore jobs in the EV sector by 2030.

The EV sector market size is expected to grow from USD 396.49 billion in 2024 to USD 620.33 billion by 2030, at a CAGR of 7.7%. NITI Aayog and RMI estimate that Indias EV finance industry will reach USD 50 billion by 2030. The EV market is set to grow at a CAGR of 36% through 2026, with the EV battery market expanding at 30%.

Indias automotive mission plan 2047, released in August 2025 June 2025, aims to make India a global hub for automotive manufacturing and research and development (R&D). India being a leader in two-wheelers and third in medium and heavy commercial vehicles, is planning to add 4 million passenger vehicle production capacity by 2032.

(Source: IBEF, Forbes, Business Standard, Globe News Wire)

GLOBAL AUTO COMPONENTS INDUSTRY OVERVIEW:

The global auto components manufacturing market size had reached USD 2,250.5 Billion in 2024. Looking forward, IMARC Group expects the market to reach USD 2,761.1 Billion by 2033, exhibiting a growth rate (CAGR) of 2.3% during 2025-2033. The increasing global demand for automobiles, the rising governments initiatives and incentives promoting the automotive industrys growth and sustainability, and the growing consumer demand for enhanced comfort, connectivity, and convenience features in vehicles are some of the factors propelling the market.

Auto components manufacturing is a vital industry that plays a crucial role in the automotive sector. It involves producing various components and systems essential for vehicles functioning and performance. Auto parts manufacturers employ advanced technologies, such as computer-aided design and manufacturing, to develop high-quality parts that meet the automotive industrys stringent requirements.

(Source: IMARC)

INDIAN AUTO COMPONENTS INDUSTRY OVERVIEW:

The Indian auto component market is expected to grow by USD 259.03 billion, at a CAGR of 37% between 2025 and 2029. The industry is projected to grow by 8-10% in FY 2025-26, down from 14% in 2023-24, due to rising freight rates. Operating margins should remain stable at 11-12%, supported by operating leverage and value addition. Despite challenges such as rising ocean, freight rates affecting some exporters and importers, margins are expected to remain stable.

Indias auto components market share has expanded significantly, driven by increasing demand from the growing middle class and strong export performance. With a surge in demand for Indian auto components, both domestic and international players are entering the market. The industry is divided into organized and unorganized sectors; the unorganized sector primarily produces low-value items, while the organized sector caters to OEMs and includes high-value precision instruments.

India is rapidly becoming a global hub for auto component sourcing, with the industry exporting more than 25% of its annual production reaching US$ 100 billion by 2030.

By FY 28, the Indian auto industry plans to invest US$ 7 billion to enhance the localization of advanced components such as electric motors and automatic transmissions. This strategy aims to reduce imports while capitalizing on the ‘China Plus One trend.

(Source: IMARC, Technavio, PIB, Industry Outlook)

WORKING CAPITAL MANAGEMENT

Current assets as on March 31, 2025 stood at RS.3,954.14 million compared to RS.3,792.87 million as on March 31, 2024. Current ratio as on March 31, 2025 stood at 7 compared to 6.94 as on March 31, 2024. Inventories increased from RS.357.34 million as on March 31, 2024 to RS.387.31 million as on March 31, 2025. Current liabilities stood at RS.565.11 million as on March 31, 2025 compared to RS.546.65 million as on March 31, 2024. Cash and bank balances stood at RS.2,848.33 million as on March 31, 2025 compared to RS.2,643.06 million as on March 31, 2024.

KEY RATIOS:

(Rs. in Lakhs)

RISK MANAGEMENT AT DIVGI– TTS:

HUMAN RESOURCE MANAGEMENT:

The company cultivates a positive work environment that motivates high performance, emphasizing customer-centricity and innovation while maintaining the highest quality standards. It invests significantly in employee training and development to continually improve operational efficiency. Committed to attracting and retaining top talent, the company provides growth and learning opportunities, along with progressive policies and programs such as recognition and reward initiatives, engaging employee activities, and efforts to promote work-life balance. Notably, industrial relations have remained smooth and harmonious across all company plants over the past year.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The company has a strong internal control system in place, ensuring proper authorization, recording, and reporting of transactions, while also protecting its assets. This system is essential for effective risk management and governance. Designed to fit the companys size and operational complexities, it is well-defined and robust. Over the past year, the system has functioned effectively, with both internal and external auditors regularly testing and certifying the controls across all offices, factories, and key business areas. Additionally, cross-functional teams within the factories play a vital role in controlling production operations, while system certifications further strengthen these controls.