hindustan hardy spicer 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 22-23, 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.

• 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. However quality standards are very stringent and monetary penalties for rejections or product failures is very high. Export to the US and Europe has significant potential; and many companies are now looking to India as part of their global sourcing initiative.

• Additionally, 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 22-23 was Rs. 6368.05Lakh as compared to 6273.03Lakh in FY 21-22. Sales in FY 21-22 were up 40% relative to FY 20-21. Export sales in FY 22-23 reduced due to the economic situation in Europe and also inventory rationalization by both

domestic and overseas customers. Export customers had all increased inventory levels during the pandemic to minimize production disruptions but reduced inventory levels as shipping dislocations eased and the pandemic abated. Domestic customers also reduced inventory levels which also affected sales.

• Sales were considerably stronger in the second half of the year compared to the first half - the increase was over 20%.

Key Financial Ratios	FY 2022-23	FY 2021 -22	Increase / Decrease (in % terms)
Debtors Turnover Ratio (Times)	3.78	3.88	-2.58
Debtors Collection Period (Days)	96	94	2.65
Inventory Turnover (Times)	6.39	6.64	-3.80
Interest Coverage Ratio (Times)	13.69	16.89	-18.96
Current Ratio (Times)	1.80	1.59	13.30
Debt Equity Ratio (Times)	0.21	0.43	-51.96
Operating Profit Margin (%)	8.90%	8.51%	4.56
Net Profit Margin (%)	6.03%	5.87%	2.65
Return on Net Worth (%)	20.70%	24.61%	-15.90

• Debtors collection period remained pretty much the same as the prior financial year. 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.

• Closing inventory increased as certain export shipments were not as one customer requested to delay shipment until April. Therefore closing inventory increased. Had this been dispatched, inventory turnover would have been even higher.

• Interest turnover ratio reduced as interest costs increased due to higher interest rates.

d. Outlook

• The global outlook is somewhat gloomy with high inflation and slowing growth across all developed economies.

• The Indian economy is stable and the monsoon is forecasted to be normal or above normal which will book agricultural sales.

• Infrastructure spending will likely be high due to the fact that we are going into an election year.

• 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.

e. Risks and concerns.

• Globally inflation has moderated somewhat but it remains high despite high interest rates. Growth has slowed across all the developed economies and experts are warning of stagflation across the US, UK and Eurozone.

• 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.

f. Internal control systems and their adequacy.

• The adequacy of control systems is reviewed on a monthly basis 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 Company was profitable despite the sharp increase in commodity prices.

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

h. Ma terial developments in Human Resources / Indus trial Rela tions front, including number of people employed.

• Total number of employees decreased to 134 from 168 at the end of the prior financial year. Several employees who had been with the company since inception retired in the financial year.

DETAILS OF MEETINGS OF BOARD OF DIRECTORS AND COMMITTEES HELD AND ATTENDED BY DIRECTORS

MEETING OF THE BOARD OF DIRECTORS

The date of the meeting was - 26.05.2022, 10.08.2022, 14.11.2022, 30.01.2023

Name of the Director	No. of Board Meetings attended
Mr. S. C. Saran	04
Mr. Jehangir H. C. Jehangir	04
Ms. Devaki Sanjaya Saran	04
Mr. Richard George Koszarek	02
Mr. Vijay Pathak	04
Mr. Navroze Marshall	03
Mr. Sanjiv Bhasin	02

*Appointed as an Additional Director w.e.f. 11.02.2022 AUDIT COMMITTEE

The date of the meetings was -26.05.2022,10.08.2022,14.11.2022, 30.01.2023

Composition	Meetings attended
Mr. Richard Koszarek	02
Mr. S.C. Saran	04
Mr. Jehangir HC Jehangir	04
Mr. Navroze Marshall	03
Mr. Sanjiv Bhasin	02

NOMINATION AND REMUNERATION COMMITTEE

The Date of the Meetings were - 26.05.2022

Composition	Meetings attended
Mr. Richard Koszarek	0
Mr. S.C. Saran	01
Mr. Jehangir H.C. Jehangir	01
Mr. Navroze Marshall	01

STAKEHOLDERS RELATIONSHIP COMMITTEE

The date of the Meetings was - 26.05.2022, 14.11.2022, 30.01.2023

Composition	Meetings attended
Mr. S.C. Saran	03
Mr. Richard Koszarek	01
Mr. Jehangir H.C. Jehangir	03
Ms. Devaki Saran	03
Mr. Navroze Marshall	02