ip rings ltd Management discussions

THE INDIAN AUTO INDUSTRY

India is the worlds third-largest Automobile market and the year 2022-2023 saw a robust growth of vehicle sales at 22% over previous year, the vehicle sales surpassed the pre-covid sales of 2019 for the first time in 2023 and is estimated to grow to $300 billion by 2026

The Automobile industry produced a total 27.08 Mn vehicles including Passenger Vehicles, Commercial Vehicles, Three Wheelers, Two Wheelers, and Quadricycles in April 2022 to March 2023. The Indian Government has demonstrated its commitment to the industry by introducing PLI scheme and this is expected to drive the industry further

REVIEW OF BUSINESS OPERATIONS

The year 2022-2023 started on a high-note as the Chip related issues plaguing the auto industry slowly started easing leading to a good demand in both local and export market and your company achieved a sale turnover of Rs 323 cr vs Rs 272 cr last year a growth of 20%.

Profitability was under pressure primarily due to Raw material cost inflation, increasing Manpower cost and a variety of new products were efficiencies are yet to be established. The Number of new products and new customers augur well for your company in the near future

OPPORTUNITIES AND THREATS

OPPORTUNITIES:

The Government of India has introduced CAFE 2 norms with tighter CO2 targets with BS6 stage 2 from 2023 and this will necessitate the usage of increasingly sophisticated coating technologies on Piston Rings. Your companys access to global technologies through its relationship with NPR of Japan and its locally developed innovative design solutions augur well for the future.

The new CAFE 2 norms and the BS6 stage 2 standards will also push for light-weighting as more OEMs will move towards Hybrids, EVs and this will necessitate near net shaped precision forged components to reduce the weight, noise, vibrations and improve efficiency. Your companys innovative use of the unique Orbital Cold Forming technology and Cold coining technology places it in a strong position to leverage these opportunities.

On Indian and International markets your companys fully integrated design, engineering and manufacturing capabilities are being leveraged to look at upcoming EV (Electric Vehicle) projects which are right now in the nascent stage and is expected to explode in the coming future.

THREATS:

The Russia-Ukraine conflict has added to concerns across all economies and could affect the auto sales both locally and internationally.US economy is close to recession with low growth & high inflation and many of our products go to the US market this remains a cause of concern and finally the interest rates are at all-time high to curb inflation and this could reflect in a dip in auto sales

SEGMENTWISE /PRODUCT WISE PERFROMANCE

Your company operates in a single segment that is automotive, but the company has 4 products namely Piston Rings, Forgings, Crank Pin and Tooling. On the performance, Forgings contribute to 67 % of the sale followed by Piston rings 22 %, Crank pin 7 % and finally tooling with 1.5 %. The Forgings sales includes both local and export sales. All the products are supplied either to the OEM directly or to Tier-1 who in turn supply to the OEM. Your company supplies to all types of vehicles ranging from two wheelers to Medium and Heavy commercial vehicles and to a Niche and high end vehicles.

OUTLOOK:

The outlook for the next year is positive and your company expects to grow in line with the market. Your company is constantly working on new products to grow its topline and is well poised to grow in the upcoming year with business won with top OEM in India for their upcoming vehicle and with new products in the export market. On the cost and efficiency front your company continues to launch new products and work on many continuous improvement projects to improve its cost competitiveness.

RISK AND CONCERNS:

Our risk management procedures consider both external and internal threats to devise effective mitigation strategies. Risk identification, analysis, mitigation and monitoring are undertaken periodically by the Management.

The key risk on the sales front are the ongoing geo-political tension, Recession in the U.S.A and raw material price movement. Your company is actively working on entering new markets and diversifying its business to mitigate the risk. On raw material prices, your company is actively working with its suppliers and customers to reduce the impact.

INTERNAL FINANCIAL CONTROL SYSTEM:

Your company has a strong and well-ingrained internal controls framework. The internal audit plan is developed in consultation with the operating management / Statutory Auditors with focus on critical risks that matter and is aligned to the business objectives of the Company. The Audit Committee meets every quarter and reviews the key internal / statutory audit findings and the management actions emanating from internal audit reviews. The Audit and Assurance function reassures the Board about the adequacy and efficacy of internal controls the risks involved and helps in anticipating/mitigating emerging and evolving risks.

FINANCIAL PERFORMANCE

PARTICULARS	FY 22-23	FY 21-22
REVENUE FROM OPERATIONS	32329.56	27271.49
EBITDA (BEFORE EXCEPTIONAL ITEMS)	2920.39	3541.50
PROFIT/(LOSS) AFTER TAX	173.60	821.48
CASH PROFIT	1768.39	2255.66
EARNINGS PER SHARE	1.37	6.48
CASH EPS	13.95	17.79
NET WORTH	11098.60	11185.39
CAPITAL EMPLOYED	20690.98	21990.56
FIXED ASSETS (INCLUDING CAPITAL WORK IN PROGRESS (CWIP)	15580.39	15866.33

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

Our Company continues to focus on the development of its human resources to improve its performance. As on 31^st Mar2023, the company currently has approximately 1400 employees including contract labour. IP Rings strives to provide a conducive work environment that empowers people to excel. The human resource team implemented several programmes such as Training, learning and development, employee engagement, performance management and talent retention. The Company prioritises safety, health and overall wellbeing of all employees including the contract workforce.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS, ALONG WITH DETAILED EXPLANATIONS

PARTICULARS	FY 22-23	FY 21- 22	CHANGE (%)	SIGNIFICANCE
INVENTORY TURNOVER RATIO	5.74	5.45	5.4	Not Significant
CURRENT RATIO	0.99	1.05	-5.3	Not Significant
DEBT EQUITY RATIO	0.91	1.01	-9.9	The ratio has decreased due to increased borrowings including new lease agreement entered during the period.
RETURN ON INVESTMENT	0.01	0.00	13.3
DEBT SERVICE COVERAGE RATIO	0.82	1.35	-38.9	The ratio has decreased due to lower profit during the period.
RETURN ON EQUITY RATIO	0.02	0.08	-80.4	The ratio has decreased due to lower profit during the period.
NET CAPITAL TURNOVER RATIO	(217.74)	46.08	-572.5	The ratio has decreased due to negative working capital.
NET PROFIT RATIO	0.01	0.03	-82.2	The ratio has decreased due to drop in contribution.
RETURN ON CAPITAL EMPLOYED	0.06	0.09	-34.9	The ratio has decreased due to lower profit during the period.
TRADE RECEIVABLE TURNOVER	4.52	4.41	2.7	Not Significant
RATIO