1. INDUSTRY STRUCTURE & DEVELOPMENT
1.1 Overview on Economic and Business Environment: Global Economy and
Outlook
Prospects for a robust recovery of global economic situation remain dim
amid stubborn inflation, rising interest rates,
financialsectorturmoil,highinflation,andheighteneduncertainties.Theworldeconomyfacestheriskofaprolonged
periodoflowgrowthasthelingeringeffectsoftheCOVID-19pandemic,theever-worseningimpactofclimatechange
and macroeconomic structural challenges remain unaddressed. The major forces that shaped
the world economy in 2022, seem set to continue into this year, however with lower
intensities. Debt levels remain high, limiting the ability of fiscal policymakers to
respond to new challenges. Commodity prices that rose sharply following Russia-Ukraine war
have moderated, but the war continues, and geopolitical tensions are high. In light of
this, IMF in its latest report has
forecastedthatGlobalgrowthisprojectedtofallfromanestimated3.5percentin2022to3.0percentinboth2023and
2024, which will be below the historical average of 3.8 percent.
According to IMF, the global economy is poised for a gradual recovery
from the powerful blows of the pandemic, Russia – Ukraine crisis, slowdown in China
and other geopolitical disorders. China is rebounding strongly following the reopening of
its economy. Supply-chain disruptions are unwinding, while the dislocations to energy and
food markets caused by the war are receding. Simultaneously, the massive and synchronous
tightening of monetary policy by most central banks should start to bear fruit, with
inflation moving back toward its targets.
Global GDP Growth and Forecasts
Particulars |
2021 |
2022 |
2023 |
2024 |
|
Projections |
| World Output |
6.1 |
3.5 |
3.0 |
3.0 |
| Advanced Economies |
5.2 |
2.7 |
1.5 |
1.4 |
| United States |
5.7 |
2.1 |
1.8 |
1.0 |
| Euro Area |
5.4 |
3.5 |
0.9 |
1.5 |
| Emerging Market and Developing Economies |
6.8 |
4.0 |
4.0 |
4.1 |
| China |
8.1 |
3.0 |
5.2 |
4.5 |
| India |
8.7 |
7.2 |
6.1 |
6.3 |
| Japan |
1.7 |
1.1 |
1.4 |
1.0 |
| United Kingdom |
7.4 |
4.1 |
0.4 |
1.0 |
| Brazil |
4.6 |
2.9 |
2.1 |
1.2 |
Source: IMF World Economic Outlook July 2023
Indian Economy
India continue to be rated as a fastest growing major economy by most
of the agencies worldwide. Backed by strong measures, higher capital spending and
increasing private demand due to large consumer base, the economy has shown greater
resilience to global shocks. Staging a broad based recovery across sectors post pandemic,
the Indian economy is poised to grow at 6.1 percent for the year 2023, which will be
followed by growth of 6.3 percent in FY 2024. (Source: IMF World Economic Outlook
– July 2023 edition)
Going forward, Indian economy is expected to significant rebound
propelled by multiple factors including revived business scenario, improved trade
activity, structural reforms across industry and increasing Domestic Consumption. The
fundamentals of the Indian economy seems sound in the near future. With the current
encouraging economic recovery and positive signs of revival it may be construed that there
is light at the end of the tunnel.
Industry Review Company Overview
Your Company is engaged in the business of manufacturing of high
precision engineering components / assemblies for industrial consumption, primarily for
Auto Industry. The Company operates in a single reportable segment i.e. Manufacturing of
Components for Auto Industry.
Further, its wholly owned subsidiary namely ‘Gurgaon Infospace
Limited is engaged in the business of developing and operating Special Economic Zone
(SEZ), primarily IT/ ITES SEZ.
Automobile components Industry
Indias auto component industry is an important sector driving
macroeconomic growth and employment. The industry can be broadly classified into organised
(OEM) and unorganised sectors. The organised sector caters to original equipment
manufacturers (OEMs) and consist of high-value precision instruments while the unorganised
sector comprises low-valued products and caters mostly to the aftermarket category.
The industry includes 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 provided direct employment to 1.5
million people. The automobile component sector will contribute 5-7% of Indias GDP
by 2026. The industry is expected to stand at US$ 200 billion by FY26. According to a
report by ICRA, Auto ancillaries revenue is estimated to increase by 8-10% in FY23.
Due to competitive advantage and cost effectiveness, India is emerging
as a global hub for auto component sourcing and exports. The Indian auto component
industry is set to become the 3rd largest globally by 2025. Strong international demand
and resurgence in the local original equipment and aftermarket segments are predicted to
help the Indian auto component industry grow by 20-23% in near future.
Development and Operation of IT/ITES SEZ
IT/ITES Sector has been one of the major growth catalysts for the
Indian economy, contributing significantly to the overall growth. India continue to
remains the worlds largest sourcing destination with largest qualified talent pool
of technical graduates in the world. Having proven capabilities in delivering both
on-shore and off-shore services to global clients, the Indian IT / ITES sector provides a
range of end-to-end customized software development, digital services, IT business
solutions, research and development services, technology infrastructure services, business
process services, consulting and ancillary support functions at a low cost as compared to
other major contributing economies across the world. The Industry has led the economic
transformation of the Country and altered the perception of India globally. Due to high
potential and growth prospect the, IT sector in India is attracting huge investments
indigenously as well as by global player. The IT industry accounted for 7.4% of
Indias GDP in FY22, and it is expected to contribute 10% to Indias GDP by
2025. According to NASSCOM, the Indian IT industrys revenue touched US$ 227 billion
in FY22, a 15.5% YoY growth. The IT industry added 2.9 lakh new jobs taking the
industrys workforce tally to 5.4 million people in FY23.
(Source: IBEF.org)
Opportunities and Threat and Future Outlook Auto Component Industry
The core business of your company is the manufacturing of High
Precision Components for Auto Industry. Over the last few years, the Auto Component
Industry has seen a rapid growth driven by strong growth in the domestic market and
increasing exports. Despite geopolitical disorder and other challenges, the Automobile
sector remained stable backed by demand, both domestic and international, Government
initiatives and policies, infrastructure development initiatives, upgradation of
technology etc. With governments Make in India campaign and ease of doing business
initiative, India has become favorable destination for various Global players.
With the rapidly globalising world is opening up newer avenues for the
industry, especially while it makes a shift towards alternate source of fuel like
Compressed Natural Gas (CNG), electric, electronic and hybrid vehicles. Over the next
decade, this will lead to newer verticals and opportunities for auto-component
manufacturers and the industry would need to adapt to the change via systematic research
and development, continual technology upgradation etc. The Indian auto-components industry
is set to become the third largest in the world by 2025. This brings in tremendous
opportunities to the industry both in the domestic as well as Overseas Markets.
The rapid growth in the Industry also brings in stiff competition both
from the domestic and International manufacturers who have the potential for the large
scale production and give price competition. New technology coming-in through the global
players and large domestic companies, makes the environment challenging for smaller size
companies. Further, tightening money supply, volatility in the price of raw materials and
other inputs, currency fluctuations, stringent emission norms are other major threats
faced by the Industry.
Disturbance in Europe due to ongoing Russia-Ukraine war, slowdown in
China and other challenges has added supply chain problem to auto sector at large. Despite
all odds the auto component sector in India set to grow at a faster pace in the coming
years. Although the uncertainty prevails in the short term, the sector is optimistic in
the medium and long term and the prospects are encouraging for the Indian Automobile
Component Segment.
Development and Operation of IT/ITES SEZ
With the aim to Infrastructural Development, promoting export and
creating employment, the Government is promoting the development of SEZs specifically for
IT / ITES sector. The sector enjoys tax holidays and exemptions which attracts IT / ITES
companies to operate in SEZs. Over the past decade the IT/ITES sector has witness a
tremendous growth in India and is expected to its growth at higher pace.
As a result of increased economic activities across the world,
companies in US, Europe and other developed economies are opening up opportunities for the
IT related service providers in India. As US is one the major market for Indian IT
Industry, any policy change with respect to out-sourcing of work by the US government may
adversely affect the IT industry in India. Current adverse situation in Europe due to
ongoing Ukraine crisis may impact the IT sector in India. In the recent past, the IT
sector has adopted to work from home culture, which may also bring threat.
However, despite these threats the Indian IT / ITES Industry has
outperformed the expectations y-o-y. The growth in IT / ITES Industry will give new
opportunities to your Company and the management is optimistic about the good performance
of the SEZ business of your Company.
Operational Performance
The operating revenue of your company marginally decreased to Rs.
2,604.96 Lacs against Rs. 2,758.97 Lacs achieved in the previous year. The Earnings before
interest, depreciation, tax & amortizations (EBIDTA) stood at Rs. 1,251.99 Lacs as
against Rs. 1,546.66 Lacs in the previous year. The net profit after tax (PAT) for the
year also increased to Rs. 921.48 Lacs as compared to Rs. 1,202.04 Lacs in the previous
year. The Earnings Per Share (EPS) for the year was Rs. 6.67 per share as against Rs. 8.00
per share recorded in the previous year.
The Operational income of wholly owned subsidiary of the Company,
namely Gurgaon Infospace Limited during the year 2022-23 was Rs. 9,502.09 Lacs as against
Rs. 9,764.22 Lacs during the previous year and the Net Profit after tax was Rs. 7,352.92
Lacs as against Rs. 8,664.28 lacs during the previous year.
Risk and Concerns and its Management
Stiffcompetitionbothfromdomesticandoverseasautocomponentmanufactures,uncertaintyarisingfromcurrencyvolatility,
rise in input cost, low-priced imports and counterfeit auto parts available at cheap price
are some of the external risks
associatedwiththebusiness.Operationalriskslikeshortageofpowerwhichleadstoincreaseincostofproduction.Continues
upgradation of technology due to existence major international players, rapid
technological advancement are few major
concernforthebusiness.Inaddition,thegrowthoftheCompanydependentontheautomobilesectorwhichmakesthemarket
uncertain at times. General economic conditions also effect the performance of the
Company. Change in regulatory environment always and government policy may also impact the
Industry.
The industry efforts to mitigate the above risks along with policy
measures of the government would determine the impact of the above risks on the industry
going forward.
Risk Management is a process of identifying the risks, analysis of its
effect on the business operations of the Company, measures to be taken to mitigate such
risks. As a business enterprise the Company is exposed to various risk some of which are
identifiable and can be mitigated through defined Internal Control Mechanism. However,
there are certain risks
whichcannotbepredicatedandareunascertainableatagivenpointoftime.Thesecanbemitigatedthroughtheexperience
inherited by the Company and its management over the period. The Company has inherent
system for identifying and
mitigatingtheRiskassociated.Theseniormanagementmeetsperiodicallytodiscussvariousoperationalmattersandrisks
involvedtherein.
Internal Control and their Adequacy
InternalControlSystemsinherentintheCompanyareadequateandcommensuratewiththesizeandnatureofthebusiness.
The inherent systems ensure that the resources of the Company are used efficiently and
effectively, all assets are
safeguardedandprotectedagainstlossfromunauthorizeduseordispositionandthetransactionsareauthorised,recorded
andreportedcorrectly,financialandotherdataarereliableforpreparingfinancialinformationandotherdataandformaintaining
accountabilityofassets.TheeverimprovingInternalControlSystemsarewellcomplementedwiththeinternalauditsystem,
documentedpolicies,guidelinesandproceduresandarereviewedbythemanagementonregularbasis.Thisensurestimely
detection of any irregularities and early remedial steps being taken by the Company.
HumanResource
TheCompanybelievesthattheHumanResourcesareoneofitsbiggestassetsandstrivestoachievemaximumemployee
satisfaction.Itisbelievedthatthehealth,safetyandsecurityofeveryonewhoworksfortheCompanyiscriticaltothesuccess
ofthebusinessoperations.ConstantHumanResourcetraininganddevelopmentisimportantforthegrowthoftheCompany.
Employees relations continue to be harmonious and positive.
Cautionary Statement
Certainrepresentationsandstatementsmadeunderthe‘ManagementDiscussionandAnalysisarebasedontheCompanys
viewsabouttheindustry,presentmarketconditions,expectations/predictions,objectives,etc.andmaybeforwardlooking
statementwithinthemeaningofapplicablelawsandregulations.Actualresultsmaydifferfromthoseexpressedorimplied
inthesestatements.YourCompanysoperationsmay,inter-alia,beaffectedbythesupplyanddemandsituations,inputprices
and availability, changes in government regulations, tax laws, government or court
decisions and other factors such as industry relations and economic developments etc. in
the Country. The Investors should bear the above in mind.
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