GNA Axles Ltd Management Discussions.

ECONOMY OVERVIEW Global Economy

As per the report of IMF the global economy has grown at a rate of around 3.7% in 2017 which is 0.5 % higher than in 2016 on the back of global economic turnaround that started in 2016 and which has become more stronger in 2017.

According to World Bank despite recent so3 ening, global economic growth will remain robust at 3.9 percent in 2018 and 2019 before slowing gradually over the next two years, as advanced-economy growth decelerates and the recovery in major commodity-exporting emerging market and developing economies levels o3 . Activity in advanced economies is expected to grow 2.2 percent in 2018 before easing to a 2 percent rate of expansion next year, as central banks gradually remove monetary stimulus, the June 2018. Growth in emerging market and developing economies overall is projected to strengthen to 4.5 percent in 2018, before reaching 4.7 percent in 2019 as the recovery in commodity exporters matures and commodity prices level o3 following this years increase.

This outlook is subject to considerable downside risks. The possibility of disorderly fi nancial market volatility has increased, and the vulnerability of some emerging market and developing economies to such disruption has risen. Trade protectionist sentiment has also mounted, while policy uncertainty and geopolitical risks remain elevated.

Indian Economy

India has witnessed many path breaking reforms in the year 2017-2018 and the Government has taken initiatives to increase the agricultural growth, reforming the Indirect Tax Structure by introduction of GST, increasing the ambit of fi nancial services by enhancing fi nancial inclusion. All these initiatives are helping India to move steadily and continuously in new Growth trajectories.

During the year 2017-2018 the Indian Economy grew by 6.7 % which was a tad lower than 7.1 % growth achieved in 2017. But the growth showed revival from the third quarter of FY 18 where it stood at 7.2 % and it is an indicator of the good times that are in the o3 ng. India has also climbed 30 steps and is now ranked at 100th position in ease of doing business report of the World Bank. India is expected to grow by 7.3 to 7.5 % in 2018 and 2019 as the Government is focussed on improving the economy by taking care of all the pillars of the economy like agriculture, infrastructure, manufacturing and the services sector. The rural economy is expected to grow at a healthy pace on the back of various steps like plans to spend 14.34 lakh crores in the rural infra and plans to further increase the minimum support price of the farmers produce.

Overall, the pick up in the domestic economy and the optimism in the global economy are good for the overall growth of the Industry.

INDUSTRY OVERVIEW A.

Commercial Vehicles

Global

The global market for heavy-duty commercial vehicles grew strongly in CY2017. A good 3.3 million trucks were sold worldwide, which was a rise of 16 % compared with CY2016 The global commercial vehicles market size was valued at USD 1.32 trillion in CY2017 and is estimated to expand at a CAGR of 7.1% from 2018 to 2025. Although the market has been witnessing stagnant growth over the last few years, it is anticipated to recover with improved sales performance, particularly in emerging economies. Digitization along with increasing infrastructural spending is expected to elevate demand for commercial vehicles over the forecast period.

The North America market captured the largest share by revenue as well as volume and is expected to exhibit a value-based CAGR of over 6.0% over the forecast period. Increase in fi nancing options, continuous investment in infrastructure development, and rising focus of governments on in-house automotive production are key factors positively impacting regional growth.

Indian

Currently the Indian market stands at 5th position in commercial market and is expected to be climbing up the ladder to 3rd level by 2025. During the year, the domestic sales of commercial vehicles created a new record by selling 856,453 units in FY2017-18. The segment surpassed its earlier sales record of 809,499 units in FY 2011-12.The overall Commercial Vehicles segment grew by 19.94 % in April-March 2018 as compared to the same period last year. Medium & Heavy Commercial Vehicles (M&HCVs) grew by 12.48 % and Light Commercial Vehicles grew by 25.42 % in April-March 2018 over the same period last year.

The Indian market is projected to witness the highest CAGR of more than 8.0% over the coming years, in terms of both volume and revenue. Increasing road infrastructure, coupled with rising manufacturing facilities owing to cost-e3 ective labor and raw materials, are expected to stimulate market growth.

(Source: SIAM)

Key Growth Drivers

There is high hopes and hype in the Indian Commercial Vehicle Industry for the upcoming time. The Indian Commercial Vehicle Industry will witness overall positive changes in the year 2018-19. MHCV segment has shown signs of recovery from testing situations since July 2017. The implementation of GST and restriction of overloading has tempted the Truck Industry to make a shi3 towards higher tonnage and technical advance products. With the implementation of new strategies and tax policies, more trucks are required to carry the similar load which has created the demand for the new vehicle for transport services.

The 41T GVW truck which consists of 16 tyres is the new category introduced in the rigid haulage segment. All other segments like a small commercial vehicle, light commercial vehicle and the medium heavy commercial vehicle will also see some changes due changing in market dynamics in the near future.

B. Tractors

Global

The total volumes globally (excluding India) grew at 3 per cent in CY2017. The global tractor market sales fi gure is forecast to reach 2.33 million tractor units by 2023. Rising global population resulting in surging demand for agricultural products, increasing consumer inclination towards small-sized tractors, and penetration of autonomous tractors are among the major factors expected to boost tractor sales, globally, during the forecast period.

Indian

The Indian tractor industry is believed to be among the largest tractor markets in volume terms, contributing 35 per cent of the global volumes. The Indian Tractor industry registered a strong growth of 22 percent in the year 2017-2018 touching a sales volumes of 711,478 units, compared to 582,846 units a year ago. Riding on the back of two high growth years, the Indian tractor industry is pegged to grow between 8-10 % in 2018-19. Supplementation of tractor usage with non-agri operations like haulage for construction activities as infrastructure development picks up steam pan-India, coupled with easy fi nancing options, and various government support programmes will also give a boost to the domestic tractor

Key Growth Drivers

The Indian tractor industry is subjected to grow from di3 erent supporting industries. The forecast of a normal monsoon by the India Meteorological is expected to keep the tractor market sentiments positive. The positive market sentiment will trigger replacement demand with farmers exchanging old tractors for new ones.

Among other growth drivers for the tractor sector will be the regions, where tractor density has not been high and that have started showing signs of revival. For instance, Jharkhand, Telangana, Haryana as well as some pockets in the North and Punjab that are experiencing growth. Though the tractor market has faced low sales numbers in Maharashtra, it is set to recover during this fi scal. Further, exports of the Indian tractor industry are pegged to grow at 15 per cent during the current FY, with Africa being an important market for the Indian products both in the above 50hp and 75hp range.

C. Auto Components Industry

Global

The global auto parts manufacturing market is expected to witness a 3.6% value CAGR and is estimated to reach a value slightly higher than US$ 350 Bn in 2017. The global auto parts manufacturing market is anticipated to touch a market valuation of around US$ 466 Bn by the end of 2025.

Asia Pacifi c is expected to show high market a3 ractiveness in the coming years. This region currently refl ects high growth potential and scope for the auto parts manufacturing market owing to a favorable environment and presents various growth opportunities to the manufacturers operating in this market. The auto parts manufacturing market in Asia Pacifi c is projected to progress at a moderate CAGR to reach a valuation of just under US$ 200 Bn by the end of 2025.

Indian

In 2017, overall automotive component industry grew by 18.3%. The demand from the OEMs remained stable with revival in domestic demand and also on account of exports but the replacement demand was slowed down due to demonetisation, therefore, refl ecting a overall steady demand in the segment. Several auto component players are estimated to have incurred a higher capex. This can be accredited to BS VI norms and the possibility of new technology of hybrid and electric vehicles hi3 ing the road soon.

Going ahead, it is estimated that the OEM o3 take will refl ect a healthy growth pace of 13-15% owing to the growth in:

• Increased demand from the Tractor OEMs due to increased rural economic activity.

• The two-wheeler segment due to improved rural sentiment;

• PV (passenger vehicle) due to increasing a3 ordability, easier access to fi nance and various new model launches and

• CV (commercial vehicle) space due to improvement in freight demand from sectors such as infrastructure (Source: Crisil).

According to the Automotive Component Manufacturers Association of India (ACMA), the Indian auto-components industry is set to become the third largest in the world by 2025.

Key Growth Drivers

The rapidly globalising world is opening up newer avenues for the transportation industry, especially while it makes a shi3 towards electric and hybrid vehicles, which are deemed more e3 cient, safe and reliable modes of transportation. Over the next decade, this will lead to newer verticals and opportunities for auto-component manufacturers, who would need to adapt to the change via systematic research and development.

D. Rear Axle Market

Global

The Global Rear Axle Market is set to register substancial growth owing to increased sales of Commercial Vehicles including LCVs, Tractors etc. and is expected to reach approximately $68.54 billion by 2025. The increasing demand for Commercial Vehicles and stringent norms by the government regarding emissions are expected to drive the industry over the forecast period. Lightweight rear axles are developed and designed to fulfi ll the consumer demands.

(Source: prnewswire.com) Indian

India is expected to witness a signifi cant growth, owing to the high production capacity of rear axle being an emerging market. In last few years, the region dominated the market in terms of light vehicle production. The Indian automobile industry is witnessing signifi cant development in rear axle market supported by increasing demand for vehicles in the region. Increasing buying power of consumers and infrastructure development in metropolitan cities have resulted in an increase in demand for commercial vehicles and personal transportation. The increase in the demand of Tractors from Rural India and also increased use of Tractors for supplementary means will also propell demand for Rear Axles in India.

Key Growth Drivers

One of the major factors driving the growth of the rear axle market is increasing global automotive production. Further, the increasing need for high capacity li3 ing applications is fuelling demand for the rear axle market. Moreover, logistics operations of heavy weight equipment such as electrical machines and new vehicles is expected to increase the adoption of rear axles in the near future. OEMs forming strategic alliances with manufacturing equipment providers to cope with the demand from vehicle manufacturers is a major trend identifi ed in the global automotive rear axle market.

BUSINESS OVERVIEW

Given below is a brief overview of the Companys operational and fi nancial performance in FY 2017-18

Product wise volume distribution

No of Pcs in Lacs

2017-2018 2016-2017
product types Domestic Exports Domestic Exports
Rear Axle Sha3 s 14.12 8.61 11.79 6.11
Spindes 0.77 2.93 0.42 2.51
Drive Sha3 s 2.11 0.90 1.71 0.85
Total 17.00 12.44 13.92 9.47

Segment - wise volume distribution

No of Pcs in Lacs

2017-2018 2016-2017
Segment Domestic Exports Domestic Exports
O3 Highway 13.82 2.94 11.24 2.67
Commercial Vehicles 3.18 9.50 2.68 6.80
Total 17.00 12.44 13.92 9.47

(Rs in Crs)

Geography wise revenue 2017-18 2016-17
Domestic 369.82 279.43
Exports 300.31 233.98
Total 670.13 513.41

FINANCIAL PERFORMANCE

The Company posted a net operating revenue growth of 30.53% this year up from 51340.96 lacs in FY2016-17 to 67013.52 lacs in FY2017-18.

The Company posted an EBITDA growth of 27.08% this year up from 8334.78 lacs in FY2016-17 to 10591.96 lacs in FY2017-18. The Company reported a PAT growth of 71.92% this year, up from 2959.73 lacs in FY2016-17 to 5088.43 lacs in FY2017-18. With the overall support and good performance by team GNA the production and the sales volumes touched new peaks couples with the improvement in all spheres. The operating revenues grew by 30.53 % touching 67013.52 Lacs and the net profi t jumped 71.92 % to cross the 5000.00 lacs milestone. The production volumes increased on the back of increased demand for all the product segments of the Company both globally and domestically. During the year we successfully installed new capacities and also debo3 lenecked our production facilities.

Our Export volumes growth was on the led by robust demand of the Commercial Vehicles in Europe and North America which are our key export markets. As India sold a record number of tractors touching 7,11,000 units in the year 2017-2018 helped the Company to grow its sales domestically as well. As we have always focused on quality and timely delivery to our customers, we were able to meet our customers demand and were up to their expectations leading to achieving ever highest sales both domestically and in the export markets.

For the year 2018-2019 we are focusing on the following parameters to achieve our targets:-

- Increasing our capacities to meet the enhanced demand.

- To increase our market share in both Domestic and Export Markets.

- To Strengthen our operational e3 ciencies.

- To penetrate into newer markets and new customers.

We are looking to further strengthen our relationship with our Customers both in the Tractor segment and Commercial Vehicle Segment in India and overseas and are also working to establish our foot print in the new segment i.e SUV Axle Sha3 s. As we are operating in the Auto Component Industry our performance is dependent on the fortunes of the auto Industry. Indian Automobile sector is on a growth path and is poised to grow on the back of growing Incomes in the rural areas and the growth impetus given by the Government to the Rural Economy. The Commercial Vehicle segment is also poised to perform well due to increased infrastructure and economic activity in the country. The commercial vehicle industry in North America and Europe is faring well and the growth of the same is also expected to continue in the future years also.

Any downtrend in the abovesaid sectors can hamper the growth momentum of the Company. To mitigate this risk, the Company has decided to venture into a new segment of SUV Axle Sha3 s. The Construction of the factory shed is complete for the said Unit and the machineries have started arriving and the management expects to start the commercial production from the said unit in the fi scal 2019-20. GNA has certain key customers which are core for its business and its growth and while the business with key customers has increased, the Company, as in the past, has been trying to mitigate the risk of its dependence on certain customers by making its customer base broad and also diversifying its product portfolio.

QUALITY, EFFICIENCY & DELIVERY

During the year, we undertook various measures to refl ect our strong endeavour towards quality commitment, e3 ciency and deliveries.

• Focus on quality: ISO/TS-16949:2009 certifi cations obtained for both manufacturing units. Applicable to organisation sites manufacturing customer specifi ed parts

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

• Trained and certifi ed several employees with Six Sigma Certifi ed Black Belts (Level I)

• Improving forging e3 ciency to increase capacity utilisation

• Be3 er 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 products packaging to meet customers requirements. Due consideration given to the mode of transportation and destination, ensuring timely deliveries.

TECHNOLOGY AND AUTOMATION

The Company took active steps towards be3 er utilisation of resources and maximising e3 ciency. This was done by increasing automation in the forging and machining processes. We use IT-enabled business processes such as advanced computer aided design and analysis capabilities. These help us provide a variety of customer specifi cations. The forging facilities are supported by robots. We intend to invest in automation for most stages of production process. This will help ensure optimal use of resources, reduction of industrial risk to human workers, economies of scale and signifi cantly higher accuracy in the overall manufacturing and design of products.

HUMAN RESOURCE

The Company believes in cra3 ing a workspace where people from diverse background can thrive and come together to contribute. The ever-changing customer needs is one of the key factors that dictates the direction of the People framework. The Company constantly works towards providing the best suited framework in partnership with business leadership. We have utilised the insights from the current, past and potential employees. These have helped us cra3 the employee value proposition for the organisation. The Company is committed towards its peoples development. We have now institutionalized the people review process across the organisation. It encourages, promotes and supports developmental conversations across all levels. Within the overall people framework, we have placed priorities while creating a strategic workforce planning. This has helped us create a long-term roadmap for gaining and managing future capabilities in the most optimum manner.

INTERNAL CONTROL SYSTEMS

The internal controls of the Company operate through standard operating procedures, policies and process guidelines. The Company has an adequate system of Internal Financial Control commensurate with its size and nature of business which helps in ensuring orderly and e3 cient conduct of its business.

Policies have been laid down for operation, approval and control of expenditure. Investment decisions involving capital expenditure are subject to formal detailed appraisal and review by appropriate levels of authority. Capital and Revenue expenditure are monitored and controlled with reference to pre-approved budgets and forecasts.

Signifi cant internal audit observations are reported to the Audit Commi3 ee on a quarterly basis. The Audit Committee reviews the observations and assesses the adequacy of the actions proposed as well as monitors their implementation. Internal Auditors conduct a quarterly follow up for implementation/ remediation of all audit recommendations and the status report is presented to the Audit Committee regularly. The management takes appropriate actions and all these steps are reviewed periodically.

CAUTIONARY STATEMENT

Statements in this Management Discussion and Analysis Report describing the Companys objectives, estimates etc. may be "Forward looking statements" within the applicable laws and regulations. Actual results may vary from these expressed or implied; several factors that may a3 ect Companys operations include, Government policy and several other factors. The Company takes no responsibility for any consequences of the decisions made, based on such statement and holds no obligation to update these in future.