1. Industry Structure and Development
The financial year 2022-23 was marked by significant global events that
had far-reaching consequences on the world economy. Inflation was seen higher than usual
in several decades resulted in tightening financial conditions in the most regions.
Escalation of the Russia-Ukraine war, Chinas decision to enforce lockdowns and its
zero-Covid policy and European market slow-down collectively created a major global supply
chain disruption. This uncertainty made it difficult for businesses to plan and prepare
costing scenarios.
Various initiatives taken by global governing bodies are expected to
moderate the pertaining economical risks. Monetary policies are expected to restore price
stability and fiscal policies expected to aim to alleviate cost pressures while
maintaining a sufficiently tight stance. Structural reforms can further support lower
inflation by improving productivity and easing supply side constraints.
Global growth is forecast to slow from 6% in 2021 to 3.2% in 2022 and
2.7% in 2023. This is the weakest growth profile since 2001 except forthe global financial
crisis and the acute phase of Covid-19 pandemic.
Russia-Ukraine conflict continues to overshadow the world economy.
Despite recent signs of improvement, recovery over the next two years is expected to be
moderate. The outlook remains fragile and downside risks renominate. High uncertainty
generated by the war could take a heavy toll on activity. Trade tensions are high and
could worsen. Concern is about financial vulnerabilities, housing markets and fiscal
balance of low-income countries. While headline inflation has started declining, it
remains elevated and could persist longer (Source- OECD).
Indian economy has staged a full recovery in FY 2022-23, ahead of many
nations and positioned itself to ascend to the pre-pandemic growth paths. However, Indian
must also cope with the challenge of controlling inflation. Fortunately, actions taken by
the Government and RBI alongwith decline in global commodity prices has lead retail
inflation levels reaching to 5.72% in November 22 and 5.88% in December 22, which are
within the RBI uppertolerancetargetof6%.
Indian economy experienced an impressive growth of 6.2% in 2022, making
it the worlds fastest growing major economy. This growth can be partly attributed to the
efforts of the private sector in enhancing transportation infrastructure, logistics and
overall business eco-system. Indias record GST collection and import figures have also
contributed to this growth.
Budgeted capital expenditure rose 2.7 times in the last seven years,
from FY 16 to FY 23, re-invigorating the Capex cycle. Structural reforms such as the
introduction of the Goods and Services Tax and the I nsol vency and Ban kru ptcy Code
enhanced the efficiency and transparency of the economy and ensured financial discipline
and better compliance.
Accordingly, to the IMFs April 2023 report, the Indian economy is
projected to grow at a rate of 5.9% in 2023 and 6.3% in 2024. It can be achieved with
vigorous credit
disbursal and unfolding of capital investment cycle with strengthening
of the balance sheets of the corporate and banking sector. Further support to economic
growth will come from the expansion of public digital platforms and path breaking measures
such as PM Gati Shakti, the National Logistics Policy and the Production Linked incentive
schemes to boost manufacturing output. As per the Indian Brand Equity Foundation (IBEF) in
FY 22, investments under PLI programmes totalled INR 47,500 Crores, which reached 106% of
the years set objective. Accordingly Indian economy has begun to prosper with greater
financial inclusion and technologically driven economic reforms.
Automotive Sector Overview
The global automotive sector is rapidly transitioning towards cleaner
and sustainable transportation with various vehicle types like electric, hybrid-electric
and natural gas, despite this diesel and petrol vehicles will continue to play a crucial
role. The global automotive industry continued to face challenges due to shortage of
semiconductors and other supply chain issues. Situation was further aggravated with lower
demand due to major economical slow-down in most of the countries. The global auto
industry is likely to witness positive momentum in calendar Year 2023 with recovery in
demand and easing of supply chain challenges. Moreover, the mobility landscape continues
to transform rapidly with new business models and autonomous, connected, electric, and
shared mobility trends which will provide next leg of growth forthe industry.
India has become the fastest growing economy in the world in recent
years. The fast growth coupled with rising incomes, boost in infrastructure spending and
increased manufacturing incentives has accelerated the automobile sector. Indian
automobile industry is presently the fifth largest in the world and is expected to become
third largest by 2030. The industry contributes around 7.1 % of Indias GDP and 49 % of
its manufacturing GDP. It provides direct and indirect employment to over 19 million
people. The USD 222 billion automobile industry in expected to reach USD 300 billion by
2026. The growth of the sector can be accredited to factors such as increasing disposable
incomes, availability of credit and financing options and sense of owning vehicle after
pandemic. Further, the Indian Government industry-friendly policies and initiatives are
expected to play a significant role in fuelling these developments.
The domestic sale of Automobiles during the financial year 2022-23
vis-a-vis 2021-22 experienced a strong recovery across segments except two wheelers as
under:
| Segment |
2022-23 Nos. |
2021-22 Nos. |
Growth |
| Passenger Vehicle |
38,90,114 |
30,69,523 |
26.73% |
| M & H Commercial vehicle |
3,59,003 |
2,40,577 |
49.23% |
| Light Commercial vehicle |
6,03,465 |
4,75,989 |
34.32% |
| 3 wheelers |
4,88,768 |
2,61,385 |
86.99% |
| 2 Wheelers |
1,58,62,087 |
1,35,70,008 |
19.89% |
Passenger vehicle segment grew by 27% with strong underlying demand
fuelled by new launches and need for personal mobility post second COVID wave. There was a
remarkable growth in Medium & Heavy Commercial vehicle segment by 49% with decent
demand in the infrastructure and construction sectors, improving fleet utilisation,
freight availability / rates and better financing along with increasing demand for
e-commerce & last-mile delivery. Light Commercial Vehicles (LCV) segment reported
volume increase of 34% supported by e-commerce, agriculture, and FMCG segment. In the
Two-wheelers segment share of scooters and premium motorcycles has been increasing due to
strong demand from mid / higher income customers and this trend is expected to persist. EV
penetration stands at 5% in FY 23 , and it is expected to further increase to 9% in FY 25
with more models options and favourable cost of ownership in comparison with ICEs.
Indian auto-component industry
Indias auto component industry is an important sector driving
macroeconomic growth and employment. Significant demand for automobiles also led to the
emergence of more original equipment and auto components manufacturers. As a result, India
developed expertise in automobiles and auto components which helped boose internal demand
for Indian components.
The industry comprises players of all sizes, from large corporations to
micro entities, spread across clusters throughout the country. The auto components
industry accounted for 2.3% of Indias GDP and provide direct employment to 1.5 million
people. By 2026, the auto component sector will contribute 5.7% of Indias GDP. The
overall Indian auto component industry is set to become the 3rd Largest
globally by 2025. The Government of Indias Automotive Mission Plan (AMP) 2006-26 has been
instrument in ensuring growth for the sector.
2. Opportunities and threat
Infrastructure development is a key focus for government with
substantial investments being made towards constructing roads, bridges, highways, rail
connections, airport and ports. As a result, there is significant increase in demand for
commercial vehicles which plays a vital role in transportation and logistics.
As the income levels continue to rise and the number of affluent
consumers also increases, the demand for premium passenger vehicles has significantly
risen. These consumers are willing to pay more for vehicles advanced safety features,
superior comfort and advance information system. In response to this trend, automakers are
introducing premium models and variants of their popular passenger vehicle models,
effectively catering to Indias growing demand.
Indian governments concerted efforts to promote electric vehicles are
catalyzing a major transformation in the countrys passenger vehicle market. In response
to this growing demand, automakers are rolling out electric vehicles in Indian market,
while the government is offering incentives to encourage their widespread adoption. India
is projected to emerged as the largest market for electric vehicle worldwide by 2030,
highlighting the significant moment in the countrys electric vehicle ecosystem.
The Commercial vehicle industry is likely to experience a substantial
boost by implementing government policies, including incentives to encourage the adoption
of electric vehicles, scrappage programs aimed at phasing out older vehicles and
regulations regarding load-carrying capacity. These policies can directly help the growth
and progress of the commercial vehicle industry. The Government can create a more
sustainable and efficient transport system by providing incentives that stimulate the
adoption of electric vehicles and elimination of old vehicles. Additionally, regulation
concerning load capacity can help improve road safety and reduce wear and tear on
infrastructure. Implementation of these policies can continue to a more prosperous and
sustainable commercial vehicle industry. Industry is facing few threats as under:
• Rising geo-political tensions over the past few years resulting
supply chain disruption and high levels of inflation.
• Shortage of semiconductors continues and poses further
challenge.
• Weaking of Indian rupee, though lower than many other currencies
• High interest rate and rising fuel costs may act as dampener.
• Real time driving emission norms from April 23 and safety
regulations could pose additional challenges to auto OEMs as it will further increase the
cost of vehicles.
• Global slowdown may contract the export business for automotive
ancillary players.
At HCL, we took all necessary steps to minimize the impact of price
rise with coverage of major raw materials, maintaining higher inventory. We have chosen
areas of opportunity within the larger framework of the current challenges. The company
has significantly improved its position in OEM, aftermarket and rail segment and reported
a sales growth of 29% over the last year.
In the investment segment, the Companys funds are invested in various
asset classes including debt and equity. The volatility in the market may adversely affect
returns due to Mark to Market losses. To overcome this risk, the Investment Committee
reviews the investments on a regular basis and takes appropriate decisions. The portfolio
is managed with the advice of professional fund managers.
3. Segment-wise or product-wise performance
The Company operates in two segments viz. composite products and
investment. During the year under review, the revenue from composite products stood at Rs.
23,537 Lakhs (previous F.Y. Rs. 18,592 Lakhs) and in the investments segment this stood at
Rs. 4,732 Lakhs (previous F.Y.Rs. 4,672 Lakhs).
The segment result before unallocable expenses, interest and tax from
Composite products was Rs. 1,064 Lakhs (previous- F.Y. Rs. 291 Lakhs) and Investments was
Rs. 3,603 Lakhs (previous F.Y. Rs. 3,496 Lakhs).
4. Outlook
Despite geo-political tensions and global slowdown, we are optimistic
about the prospects of Indian economy and the automotive segment. Indian Auto component
industry has emerged as a strong growth driver and expected to become
the third largest in the world by 2025 and component exports are
expected to grow by five times in 10 years. Keeping pace with the automotive industry,
Indias auto component industry has been flourishing and some favorable trends are as
under:
• Growing income levels and overall improved employment trend will
help increase the consumer base.
• The Indian automotive ancillary sector is estimated to grow by
14-16% in FY 2022-23. An increase in production of passenger and commercial vehicles in FY
2022-23 could help the demand form OEM to grow by 18- 20%.
• The demand growth for After-market is estimated to be 6- 7% this
fiscal.
• The export market witnesses 40 % growth in FY 2021-22 and
expected to increase 8-10 % in FY 2022-23 owing to stable demand from the European and US
markets.
• Indias EV markets have also seen strong growth with electric 2
W volumes witnessing exponential growth in the recent years.
• Allocation of large amount towards Semiconductor Mission will
help develop on indigenous semiconductor manufacturing base and reduce import dependence.
• Government of Indias Automotive Mission Plan 2006-26 has been
instrumental in ensuring growth for the sector,
• Introduction of PLI scheme in auto and auto component with an
approved financial outlay over 5-year period.
• Huge spending by Government toward infrastructure in all
segments viz road, rail, water and other sectors.
• Introduction of high-speed trains and dedicated freight corridor
(DFC)
• NBFCs are stepping up the funding of used vehicles.
The above factors will spur the demand for the Companys products used
in segments like Heavy Commercial Vehicles, tractors, railroad and industry. Our company
will remain a part of this change with appropriate products and solutions for customers.
The Company will continue to put a thrust on new product development to meet the changed
requirement of customers, provide better customer service and continue to work towards
up-gradation of technology, improvement in quality, cost rationalization, cash
preservation and digitalization. Besides, the Company will aggressively pursue
opportunities for new OEM approvals, improve market share in OE and Aftermarket, export
opportunities and additional business from the Rail and Industrial segment.
5. Risks and concerns
The Company has laid down a well-defined Risk Management Policy
covering risk mapping, trend analysis, risk exposure, potential impact and risk mitigation
process. A detailed exercise is carried out from time to time to identify and evaluate
both business and non-business risk. The Board periodically reviews the risks and suggests
steps to be taken to control and mitigate the same through a properly defined framework.
6. Internal control systems and theiradequacy
The Company has in place proper and adequate internal control systems
commensurate with the nature of its business, size and complexity of its business
operations.
Internal control systems comprising of policies and procedures are
designed to ensure reliability of financial reporting, compliance with policies,
procedures, applicable laws and regulations and that all assets and resources are acquired
economically, used efficiently and are adequately protected.
7. Discussion on financial performance with respect to operational
performance
The Companys financial performance with respect to Operational
performance is already discussed in the Directors Report which formsa part of the Annual
Report.
8. Material developments in Human Resources / Industrial Relations
front, including number of people employed
The thrust of the Companys human resource development is to create a
responsive and market-driven organization with emphasis on performance. Continuous
appraisal of personnel competence in line with job requirements, is carried out to provide
for necessary training to personnel thereby facilitating higher levels of output and
productivity. The industrial relations at Paithan and Bhandara plants remain satisfactory.
9. Details of significant changes in key financial ratios / Return on
net worth
| Particulars |
Standalone |
% of change |
Consolidated |
% of change |
| 2022-23 |
2021-22 |
2022-23 |
2021-22 |
| Debtors Turnover Ratio * |
6.08 |
4.66 |
30% |
6.14 |
4.69 |
31% |
| Inventory Turnover
Ratio |
17.37 |
14.59 |
19% |
17.37 |
14.59 |
19% |
| Interest Coverage
Ratio |
258.27 |
317.85 |
-19% |
258.27 |
317.85 |
-19% |
| Current Ratio |
2.50 |
2.38 |
5% |
2.40 |
2.29 |
5% |
| Debt Equity Ratio |
0.00 |
0.00 |
|
0.00 |
0.00 |
|
| Operating Margin Ratio |
11.54% |
10.64% |
8% |
11.54% |
10.64% |
8% |
| Net Profit Margin |
9.72% |
9.29% |
5% |
9.72% |
9.29% |
5% |
| Return on Net Worth
** |
0.71% |
11.87% |
-94% |
0.71% |
11.90% |
-94% |
* Due to increase in turnover.
** Due to changes in fair valuation.
Note: Previous years ratios have been recalculated wherever necessary
to conform to current years classification.
10. Cautionary Statement
The statement in the Management Discussion and Analysis Report cannot
be construed as holding out any forecasts, projections, expectations, invitations, offers,
etc. within the meaning of applicable securities, laws and regulations. This Report
basically seeks to furnish information, as laid down within the different headings to meet
the requirements of Securities and Exchange Board of India (Listing Obligations and
Disclosure Requirements) Regulations, 2015.
For and on behalf of the Board of Directors of Hindustan Composites
Limited
|
Raghu Mody |
| Place: Mumbai |
Chairman |
| Date: 30" June, 2023 |
DIN: 00053329 |
+91-9892691696
