GNA Axles Ltd Management Discussions

Indian Economy

The Indian economy is set to achieve nearly 7% growth in the FY 2024-25. The positive outlook is attributed to the robust domestic demand that has propelled the country to a growth rate exceeding 6% over the past three years. The strength in domestic demand is driven by private consumption and investment, government reforms and initiatives implemented over the past decade. Investments in both physical and digital infrastructure, along with measures to boost manufacturing, have boosted the supply side, providing a significant boost to economic activity in the country.

Robust public investment driving growth: The Indian governments devotion to boosting infrastructure development and public investment has been a driving force behind the countrys economic growth. Increased spending on infrastructure projects, such as roads, ports, and power generation, has not only created employment opportunities but has also facilitated the smooth flow of goods and services, thereby enhancing overall productivity and competitiveness. With its strong economic fundamentals, strategic focus on infrastructure development, resilient domestic demand, and promising export sectors, India is well-positioned to navigate global uncertainties and sustain its robust economic growth trajectory in 2024.

Industry Overview

The Company manufactures and markets Rear Axle Shafts, Spindles and Drive Shafts for Tractors and Commercial Vehicles. The business of the Company is predominantly dependent on the prospects of the Tractor and Commercial Vehicle Industry, both in India and abroad. During the year under review, the total number of Tractors sold in the country dipped by around 12% as compared to the FY 2022-23. This dip was on account of High base and slowdown in

Business Overview the Tractor Industry. This slowdown in the Tractor Industry resulted in lower demand of the products of the Company. The mid to long term outlook for the Indian tractor industry is positive and the Company hopes to gain in the future. The demand from the tractor Industry from overseas market was also subdued during the year.

FY 2023-24 started on a positive note for the Indian CV industry while it shifted to BS VI Phase II emission norms from April 1, 2023. The firsthalf started optimistically with a surge in sales volumes across most business segments. However, the second half saw a moderation in growth due to the combined impact of a high base, elections in five states, and the impending general elections.

The overall Commercial Vehicle sales increased from 9.62 Lac Units to 9.68 Lac units during FY 2023-24 (As per SIAM). Improving fleet utilisation, uptick in road construction, and increase in cement consumption catalysed demand in the

M&HCV segment. Freight rates continue to improve slowly but consistently, with a good level of utilisation. However, the Company managed to improve its market share in the Commercial Vehicles segment and was able to sell a greater number of products in the Year under review as compared to the FY 2022-2023. The Company managed to sell around 10.26 Lac Units to the Commercial Vehicle industry as compared to 5.72 Lac units sold in the previous financial year. The Company saw an increase in sales of both the Rear Axle shafts and Spindles in the domestic market on the volume front but due to a correction in the steel prices, there was a decline in sales on the value front. In the export markets, the demand for the products of the Company was impacted due to the slowdown in the Commercial Vehicle industry in Europe and North America which are the primary markets for the products of the Company.

The Brief Summary of the operational and financial performance of the Company is given below:

Product Wise Volume Distribution

FY 2023-2024 FY 2022-23

Product Types Domestic Exports Domestic Exports

Rear Axle Shafts 21.51 16.19 20.03 17.71

Spindles 4.70 5.84 3.32 4.83

Drive Shafts 1.42 1.44 1.94 1.67

Total 27.63 23.47 25.29 24.21

Segment-wise distribution

FY 2023-2024 FY 2022-23

Segments Domestic Exports Domestic Exports

Off-Highway 17.37 2.99 19.57 2.61

CV 10.26 20.48 5.72 21.60

Total 27.63 23.48 25.29 24.21

Geography-wise Revenue from operations

Segments FY 2023-2024 FY 2022-23

Exports 776.20 838.91

Domestic 714.34 720.66

Total 1490.54 1559.57

Financial Highlights FY 2023-2024 FY 2022-23

Total operating Revenue 1506.26 1582.93

Profit Before Depreciation, Interest and Tax 199.72 234.12

Financial Costs 11.54 10.96

Depreciation 53.34 48.51

Profit before Tax 134.84 174.64

Tax Expense 34.82 44.41

Profit after tax 100.02 130.20

Earnings Per Share

- Basic 23.30 60.67

- Diluted 23.30 60.67

Key Financial Ratios

The Company has identified the following ratios as key financial ratios :

Particulars FY 2023-2024 FY 2022-23 Explanation for Significant Change

1 Debtors Turnover Ratio (Times) 2.63 3.01 -

2 Inventory Turnover Ratio (Times) 7.72 8.29 -

3 Debt Service Coverage Ratio 4.60:1 6.72:1 This ratio has dropped due to a decrease on the generation of funds and an increase in the repayment of term loans

4 Current Ratio (Times) 2.16:1 1.93:1 -

5 Debt Equity Ratio (Times) 0.27:1 0.28:1 -

6 Return on Capital Employed (%) 14.65% 20.68% It has reduced due to a fall in the overall profits of the Company and increase depreciation.

7 Net Profit Margin (%) 6.71% 8.35% -

8 Return on Equity (%) 12.47% 18.22% It has reduced due to a fall in the overall profits of the Company.

Market and Business outlook

With promising GDP growth outlook, incentives from government to improve productivity in both manufacturing and agriculture sectors, and continuing focus on infra, demand for CVs is expected to improve from FY 2024-25. We remain cautiously optimistic about domestic demand while keeping a close watch on geopolitical developments, interest rates, fuel prices and inflation. As far as the Domestic Tractor Market is concerned we expect that the domestic sales are expected to post a lower single digit growth in this year as the Country expects a good monsoon this year which is expected to increase higher farm incomes and a lift in the rural economy.

Opportunities and Threats

It is expected that India will grow faster and ahead of the other economies of the World in the current decade which will give rise to new and manifold opportunities. The Auto component Industry is going to be a big made a global hub of Automobile and Auto Component manufacturing. Adapting to the required changes to grab the new opportunities, the Company will be in a strategic position to reap the benefits of globalisation and sourcing of auto components from India by the global OEMs. The escalation of geopolitical tensions, which have led to a broad-based increase in global commodity prices. The Auto Component Industry continues to face business risks related to higher input costs, supply the chain and changing customer preferences. Any delay in the economic recovery coupled with an increase in commodity prices and forex volatility are some of the major risks and headwinds which are being confronted.

Human Resources

The Company believes that human resources is the strong foundation for creating endless possibilities for its business. Our employees are our prime assets and are instrumental and vital to our success. We nurture our people by investing in their empowerment through learning and development, wellness and safety besides providing contemporary workplace facilities. By identifying, developing and nurturing quality talent at every stage of the employee lifecycle, we are empowering them to become future-ready and build rewarding careers. We are committed to creating a professional culture which enables our employees to grow in their careers along with the growth of the organisation. We continue to step up efforts to accelerate our value-based growth strategy and the overall development of our employees and continue to engage them in various initiatives of development and learning opportunities, reward and recognition and their career growth. Richer collaborations and stronger teamwork have accelerated our pursuit of excellence. The Company employed 1489 employees as of the end of FY 2023-24.

Quality, Efficiency & Delivery

During the year under review, we undertook various measures to reflect our strong endeavour towards quality commitment, efficiency and deliveries.

• In-house execution of manufacturing processes to monitor product quality, control production costs and maintain delivery schedules

Improving forging efficiency to increase capacity utilisation

• Better relations with vendors for achieving quality, costs and delivery objectives with the help of regular vendor Audits

• Centralised approach towards sourcing and vendor management ensuring economies of scale in raw material procurement, especially steel

• Special focus on product packaging to meet customers requirements. Due consideration is given to the mode of transportation and destination, ensuring timely deliveries

Technology and Automation

Technology defines ones competitive edge in the market.

The Company realises that and has been investing in technological upgradation and also fine-tuning and processes to ensure that those are in sync with the technology platforms. Thus, helping us provide a variety of customer specifications. The forging facilities are supported by robots. We intend to invest in automation for most stages of the production process. This will help ensure optimal use of resources, reduction of industrial risk to human workers, economies of scale and significantly higher accuracy in the overall manufacturing and design of products.

Internal Control System

The Company has devised and designed proper and adequate Internal Control Systems which are commensurate with its size and nature of operations and ensure that it is integrated with our financial and operating systems which direct more effectively. These controls have been designed in such a way to provide assurances regarding the maintenance of proper financial records, protection of the assets of

Company, and also ensure monitoring of the operations of the Company. The Internal Audit function of the Company reviews the Compliance of the established designs of Internal Control and the shortfalls and discrepancies, if any, are looked upon and tracked for closure. The summary of the Internal Audit findings and status of implementation of action plans for risk mitigation are submitted to the Audit Committee every quarter for review, and concerns around residual risks if any, are presented to the Board.

Cautionary Statement

Statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be ‘forward-looking within the meaning of applicable laws and regulations. Actual results may differ from those expressed or implied. Important factors that could make a difference to the Companys operations include the global economy, political stability, stock performance on stock markets, changes in Government regulations, tax regimes, economic developments and other incidental factors. Except as required by law, the Company does not undertake to update any forward-looking statements to reflect future events or circumstances. Investors are advised to exercise due care and caution while interpreting these statements.