Hindustan Hardy Ltd Management Discussions

a. Industry structure and developments.

• Sales are primarily to 4 customer segments - domestic OEMs, export customers, industrial customers and aftermarket. In FY 24-25, the Companys largest market segment was Domestic OEMs, followed by Export, Aftermarket and industrial customers.

• The Company serves 4 sectors - commercial vehicle, agricultural, off-highway and construction equipment and industrial.

b. Opportunities and Threats.

• The Indian propeller shaft market is dominated by 4 major players who all jostle for market share amongst the major commercial vehicle manufacturers, the differentiating factor being price competitiveness. As a result, margins, are shrinking which is exacerbated by the commodity increases. The only way to combat this is by positioning oneself as a technology leader and therefore R&D and continuous improvement of the product are a must.

• There is also increasing consolidation amongst overseas competitors which can be both an opportunity and a threat. Some foreign manufacturers are putting up plants in India and therefore cost competitiveness and manufacturing excellence are of utmost importance to be able to compete.

• The domestic after-sale market is also crowded by a number of low-cost suppliers supplying unbranded generic components at low prices. The Company was a late entrant to the after sales market and is yet to achieve the brand recognition that can command a significant price premium. However, sales and marketing efforts are paying off and gradually the brand is being recognised as a quality product.

• In the export market, Indian manufacturers have a cost advantage compared to their European and American counterparts. Manufacturing costs in China have increased considerably which has reduced the cost advantage of China. Many companies are now looking to India as part of their global sourcing initiative. Several companies have recently set up global sourcing departments in India and are looking to increase their overall Indian spend. However quality standards are very stringent and monetary penalties for rejections or product failures is very high.

• Many companies are now adopting a China + 1 strategy in wake of the tariffs imposed by the US which is an attractive opportunity for India. However the impact of US tariffs on India remains to be seen which has created considerable uncertainty for exporters.

• Several Indian companies are now taking steps to indigenize components that were previously imported which provides an attractive opportunity for Indian manufacturers.

c. Segment-wise or product-wise performance.

• The company operates in a single segment.

• Total revenue from operations in FY 24-25 was Rs. 8196.68 Lakh as compared to 6814.00 Lakh in FY 23-24.

Sales increased steadily throughout the year. Q1 was the lowest, Q2 and Q3 were roughly the same and Q4 was the highest driven by both export and domestic sales.

Key Financial Ratios	FY 2024-25	FY 2023-24	Increase/ Decrease (in % terms)
Debtors Turnover Ratio (Times)	4.06	4.43	-8.45
Debtors Collection Period (Days)	90	82	9.23
Inventory Turnover (Times)	5.66	5.68	-0.47
Interest Coverage Ratio (Times)	51.11	28.23	81.03
Current Ratio (Times)	1.71	1.64	4.43
Debt Equity Ratio (Times)	0.26	0.18	47.68
Operating Profit Margin (%)	11.13	10.04	10.89
Net Profit Margin (%)	8.14	7.15	12.51
Return on Net Worth (%)	22.32	20.90	6.80

• Debtors turnover ratio reduced slightly compared to the prior year due to higher export sales and overall considerably higher sales in the fourth quarter. Payment terms of most OEM customers are now 90 days and therefore the collection period is what is expected. Additionally the Company counts the number of days from the date of invoice whereas customer payment cycle starts when the goods are inwarded. Payment terms for aftermarket and industrial customers are more favourable and in certain cases are against proforma invoice.

• Overall inventory increased during the year due to longer lead times for forgings due to steel availability. In order to increase efficiency, management took a conscious decision to increase safety stock of certain long lead time items where the company had faced repeated shortages.

• Interest coverage ratio increased due to higher profitability.

d. Outlook

• The global outlook is somewhat uncertain due to continued (though softening inflation), high interest rates and geopolitical tensions.There is a slight improvement over the previous financial year but elections in most major economies is further adding to the uncertainty.

• The Indian economy continues to grow and the monsoon is forecasted to be normal or above normal which will boost agricultural sales.

• Infrastructure spending will likely continue to be high given government indications

• Commodity prices, namely steel and petroleum have stabilized.

• The company is continuing its efforts to expand its product offering and target new customers. Production costs have increased and increase in efficiency and volume growth is important to remain competitive.

• The acceptance of Indian products globally has increased and India is now viewed as a very viable option for global sourcing. However the playing field is vast with competition from the far east as well as Turkey and Eastern Europe. Additionally the requirements are very stringent and monetary penalties onerous in case of quality or delivery related issues.

e. Risks and concerns.

• Globally inflation has moderated somewhat and there are signs of a mild economic recovery in the US and the Eurozone but geopolitical tensions pose a big risk. Additionally, there is considerable economic and policy uncertainty in many major economies.

• India remains a bright spot in an otherwise gloomy global economy.

• Increasing competition and rising costs are also putting downward pressure on margins. The Company is trying to counter this by focusing on operational efficiencies.

• There is consolidation amongst global competitors and many are also setting up factories in India.

• The move to electrification could pose a threat in the long term if commercial vehicles become electric with e-axles and wheels directly driven by motors.

f. Internal control systems and their adequacy.

• The adequacy of control systems is reviewed monthly by the management and assessed quarterly by the internal auditor and the Board.

• The internal control systems in place are more than adequate.

g. Discussion on financial performance with respect to operational performance.

• The Companys cost reduction initiatives have yielded results as the profitability ratios of the Company improved compares to the previous financial year.

• Efforts to further improve efficiency continue at all levels and across all departments.

h. Material developments in Human Resources /Industrial Relations front, including number of people employed.

• Total number of employees decreased to 110 from 117 at the end of the prior financial year. Several employees who had been with the company since inception retired in the financial year.