Force Motors Ltd Management Discussions

I. INDUSTRY STRUCTURE AND DEVELOPMENTS

The Automotive Industry, both in terms of vehicle technology demanded by the market, and in terms of the technology of the componentry required - is evolving rapidly.

It is clear that the latest generation of Diesel Vehicles meeting BS 6.2 standard, will have validity and demand for several years ahead. We are required to continue to make continuous efforts to improve the Diesel and CNG Engines as we go along. The diesel fuel will survive for longer than recently predicted. We have well established and highly acclaimed diesel engines and drivelines, which is a cause for satisfaction.

The pressure from environmental concerns, technology evolution, market tectonics has pushed the automobile industry into needing to cope with the accelerated changes. Economic considerations arising both out of health of the economy are also changing customer expectations define broadly the background, on which the industry has to function.

It is clear that conventional fuels like diesel are not disappearing in a hurry. There may be significant demand for fossil fuel vehicles. Some of the manufacturers on the global scale have announced their decision to step away from electric vehicles, and stay with fossil fuel vehicles albeit of improved variety and versatility. The indications are that, besides pure battery electric vehicles, an opportunity may arise for hybrid electric vehicles going forward in India, such type of vehicles so far was not promoted by regulations.

Hydrogen electric vehicles, where hydrogen fuel cell, which produces electric energy for propulsion - using intermediate batteries and finally electric motor, etc. If is possible that Hydrogen Gas would directly be used as a fuel, to be combusted, in place of fossil fuel like diesel, petrol, etc. The technical capability to produce hydrogen combustion engines is getting well established. Thus, in future, there will be a variety of vehicles in different economies. Also in any given economy, for different applications where the proportion of vehicles operating on fossil fuel, or hydrogen, or electric energy, or organic fuels like ethanol, methanol, etc. would play appropriate roles depending on regulatory environment. The supply situation for different fuels, the energy efficiency and performance in each type of fuel used, must meet customer expectations. If is likely that emphasis by different companies on different types of fuels for propulsion will be significantly different.

It is already obvious that electric vehicle quantity requirement in 2- wheelers and 3-wheelers has reached significant proportions, whereas for haulage trucks or other commercial applications, particularly in medium or heavy vehicles, this is evolving only slowly.

The picture is unclear, and depending on the market segment of the vehicles, the regulatory framework, the availability of various fuels and their prices, a better picture will emerge over the next decade of which fuels will be preferred. The requirement will be for vehicle makers, to make intelligent choices and work to meet all challenges and opportunities.

It has to be noted that currently with the mandated emission standards in India, the air that BS 6.2 diesel engines breathe is not as pure as the exhaust that these vehicles emit after proper processing. Thus, the environmental hazard part is greatly addressed. Yet the world is inexorably moving towards exploring alternative fuels very seriously.

The factors of production, such as land remain very cumbersome and expensive to purchase and manage, given the plethora of laws, rules, etc. involving layer upon layer of bureaucracy and obstructions. Price for industrial land in India is unusually high in international comparison. If new plants in new locations have to be set up, if would help greatly if this aspect is also reformed by the Government, as effectively as Industrial Licensing and Permit License regime was reformed.

Taxation levels on Vans, for reasons best known to the decision makers that be in the authorities, remain extremely adverse, particularly for Vans in the 10 to 13 seats capacity. This is an anomaly which refuses to go away.

The Indian Automotive Industrys global competitiveness can hugely improve if the overall taxation level on passenger vehicles is reduced. The earnings of the industry are only 20 per cent of the earnings of the Government from the same product. On the sale of a vehicle, for every 20 rupees that the industry earns, the Government extracts approximately 50 rupees from the automobile, by way of applied taxes. This must be the highest taxation skew applied to the Automobile Industry anywhere.

The Automobile Industry in India is now very much mature, has scale, experience, competence and drive. The global footprint of vehicles made in India can be rapidly improved to impressive levels, provided the taxation levels are brought within control and the industry is enabled to plough back the profits. Schemes like "Investment Allowance", etc. need to be looked at again, to build up the capital base, and fiduciary strength of companies.

II. PERFORMANCE OF THE COMPANY

Operational Performance: The number of vehicles sold during the Financial Year under report was 32,991 compared to 26,461 vehicles sold in the Financial Year 2022-23. During the year under report, the Company achieved atop line of Rs. 6,99,165 Lakhs. The sales turnover stood at Rs. 6,93,229 Lakhs compared to the previous years turnover of Rs. 4,98,096 Lakhs.

Financial Performance : As stated above, the Company sold 32,991 vehicles during the Financial Year 2023-24 compared to 26,461 vehicles in the previous Financial Year 2022-23. The Profit before Depreciation, Exceptional Items and Taxes, from operations for the year under report was Rs. 88,518 Lakhs as compared to operating profit for the previous Financial Year 2022-23 amounting to Rs. 32,305 Lakhs. The Net Profit after Depreciation, Exceptional Items and Taxes was Rs. 40,169 Lakhs for the Financial Year 2023-24. The Reserves and Surplus of the Company as on 31st March 2024 stood at Rs. 2,31,295 Lakhs.

Key Financial Ratios : In accordance with the SEBI (LODR) Regulations, 2015, the following are the key financial ratios along with the explanation where changes are more than 25%, as compared to previous financial year.

III. OUTLOOK

Outlook on the business of the Company is covered in the Boards Report.

IV. SUBSIDIARY

The Company is a subsidiary of Jaya Hind Industries Private Limited, which holds 57.38% stake in the Company.

The Company is a Holding Company of Tempo Finance (West) Private Limited, and holds 66.43% stake in that subsidiary company.

The Company has a joint venture with Rolls Royce Solutions GmbH, a Company of the Rolls Royce Group. The Company holds 51% stake in Force MTU Power Systems Private Limited (FMTU) by virtue of which FMTU has become a subsidiary of the Company.

V. OPPORTUNITIES, THREATS AND RISK FACTORS

The opportunity in India for successfully enlarging the Tour and Travel Hospitality Sector is a very substantial possibility to achieve high economic gains. The improving roadway infrastructure in India, the focus on connecting attractive pilgrimage centers, and tourist sites to the large and efficient grid of express ways and highways, will yield impressive results in the future. This is a special opportunity, given the emerging enhanced stature of India, as the country to travel to.

There is still a tendency to restrict Diesel vehicles in a number of inner cities even though they meet the mandated stringent regulations which are equal to internationally the best regulation. This is a damper on the image and sale of diesel passenger vehicles, particularly mass transport vehicles, such as Vans and Buses.

VI. INTERNAL CONTROL SYSTEM ANDTHEIR ADEQUACY

The Companys infernal control procedures are adequate to ensure compliance with various policies, practices and statutes in keeping with the organizations pace of growth and increasing complexify of operations.

The Company maintains system of multi-level infernal controls which provides reasonable assurance regarding Effectiveness and Efficiency of Operations, safeguarding of assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records and the timely preparation of reliable financial information.

During the year under Report, such controls were tested and no reportable material weaknesses in the design or operation were observed.

VII. HUMAN RESOURCE DEVELOPMENT

The Company has continued its programme for training and skill development in its plants, for employees at various levels, who are provided training both in hard and soft skills. A large number of executives in the Sales & Marketing arm of the Company and in our dealer, network spread all over India, are also provided continuous upgradation, training in selling skills, product familiarization, customer service aspects - in a well-structured and extensive programme. The Company had 4,473 employees as on 31st March, 2024.

VIII. CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations may be forward looking statements. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include, amongst others, economic conditions affecting demand / supply and price conditions in the markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors.