Jay Ushin Ltd Management Discussions

MACRO ECONOMIC OVERVIEW

The global economic outlook for FY24 is cautiously optimistic, with the International Monetary Fund (IMF) projecting a steady growth rate of 3.1% for the year, slightly higher than the previous forecast. This improvement is attributed to the resilience shown by the United States and several large emerging market economies, along with fiscal support in China. However, the growth forecast remains below the historical average due to factors such as high central bank policy rates to combat inflation, fiscal support withdrawal amid high debt levels, and low underlying productivity growth. With sluggish improvement in inflation numbers, the central banks are cautious in their fiscal policies and are hesitant to lower the interest rates.

For India, the fiscal year 2024 (FY24) is shaping up to be a year of robust economic performance. The countrys GDP growth is expected to be around 7.6%, which surpasses estimates by global agencies! This growth is driven by strong domestic demand, particularly in investment. However, there are concerns such as declining exports and sluggish private investment that need to be addressed to sustain this momentum. Additionally, India is anticipated to retain its position as the fastest-growing large economy, with projections indicating that it could cross the $5 trillion mark and inch closer to $7 trillion over the next seven fiscals. The economic landscape is buoyed by efficiency gains, labour equation improvements, and a broad-based revival in capital expenditure, supported by ongoing reforms and advances in digital and physical connectivity.

AUTOMOTIVE INDUSTRY

The Indian automotive industry has shown a remarkable performance in FY24, with total vehicle sales rising by 12.5% to reach 23.85 million units, compared to 21.20 million units in the previous year! This growth is primarily driven by the passenger vehicle (PV) segment, which In the fiscal year 2024, the passenger vehicle (PV) segment in India experienced a sales growth of 8.45% and recorded its best-ever sales at 4.21 million units, thanks to the surging demand for utility vehicles (UVs), including SUVs and MPVs accounting for 60% of PV sales. The UVs alone saw a remarkable increase of 26% year-over-year, highlighting the strong consumer preference for this category. This has been made possible due robust rural sales, improved supply chains, excitement created by new model launches and increased preference for personal mobility. The commercial vehicle (CV) and three-wheeler segments also approached their highest sales figures since FY2019, indicating a broad recovery across the industry. Despite some challenges, the sectors performance signals a strong rebound and a positive trajectory for the future of the Indian automotive market.

In FY24, Indias electric vehicle (EV) market experienced a significant surge, with sales reaching 1.67 million units, marking a 42% increase from the previous year. The sales of electric passenger vehicles alone soared to 90,996 units, registering a 91% increase year-over-year. This growth was driven by a combination of factors, including government incentives, an expanding range of models, and increasing consumer awareness about sustainability.

FUTURE OUTLOOK

The outlook for Indias automotive industry in FY25 suggests a moderation in growth momentum across various segments. The passenger vehicle (PV) industry, after reaching an all-time high in FY24, is expected to see growth rates moderate to 3-6% due to factors such as a high base effect and diminishing pent-up demand. The commercial vehicle (CV) sector, while approaching pre-pandemic highs, may experience a mid-single digit de-growth, influenced by the model code of conduct ahead of the general elections and a high base effect. The two-wheeler (2W) segment, on the other hand, is projected to continue its gradual recovery to pre-pandemic levels with a growth of 7-10%, supported by favourable structural factors like rising per capita income and urbanization. Overall, while the underlying demand drivers remain supportive, the industry is likely to face challenges such as regulatory compliance and adherence to stringent emissions standards.

For EV market, the outlook for FY25 remains positive, with expectations of steady growth. The EV market is projected to continue expanding, albeit at a more moderate pace compared to the explosive growth in FY24. The penetration rates for electric cars are forecasted to reach 4-6%, electric three-wheelers at 14-16%, and e-buses at 11-13% by FY25. The market is likely to be influenced by ongoing improvements in charging infrastructure, advancements in battery technology, and supportive government policies. However, challenges such as the high initial cost of EVs and consumer range anxiety may still need to be addressed to sustain the growth momentum.

COMPANY REVIEW OF THE INDUSTRIAL SEGMENT

The company, using its innovation and in-house R & D expertise, continues to focus on new product development to address import substitution under various Make in India initiatives. With favourable regulatory developments, importance to indigenization, the company is well placed to cater various industrial segment.

OPPORTUNITIES

The automotive industry in India is poised for significant growth and presents numerous opportunities. With the country expected to become the worlds third-largest passenger-vehicle market, theres a strong push for increased annual production. The governments Automotive Mission Plan aims to boost the industrys GDP contribution from 7% to 12%. Factors such as rapid urbanization, rising incomes, and a growing consuming class are set to drive demand. Additionally, the industry is likely to benefit from new segments like compact SUVs, sedans, and luxury vehicles. More and more product launches in Electric Vehicle space and government focus on charging infrastructure will fuel this segment. Government initiatives like the National Electric Mobility Mission Plan (NEMMP) are also in place to support the industrys growth and reduce emissions and oil dependence.

CHALLENGES

Key issues faced by the Indian automotive industry as it navigates through FY25 include adapting to stringent sustainability targets that influence policies and drive organizations towards greener initiatives. Technological disruptions and evolving consumer demands are reshaping the market, requiring companies to innovate continuously. A labour shortage is expected to impact costs and productivity. Geopolitical tensions and the resulting supply chain disruptions pose significant risks. Additionally, the threat of cyber-attacks is becoming more prominent as vehicles become increasingly connected. These challenges require strategic planning and adaptation to ensure the industrys resilience and sustained growth.

FINANCIAL & OPERATIONAL PERFORMANCE

The net revenue from operations for the financial year ended March 31, 2024 is Rs. 72,625.19 Lakhs as against Rs. 73,447.09 Lakhs in the previous financial year. Profit before tax is Rs.1,629.79 Lakhs as compared to Rs. 1,816.48 Lakhs in the previous financial year. Earnings before Interest, Depreciation and Taxes (EBIDTA) is Rs. 4,081.92 lakhs as compared to Rs. 4,690.93 lakhs during the preceding year. Going forward, the management is focused on further improvements in operations performance and cost control.

Imports would continue to be a challenge for the Company in view of volatility in foreign exchanges and also fluctuations in geo- political environment. On the other side, this would be an opportunity for us to push localisation in India and become self-sufficient to meet our demand. The Company has continued its efforts to improve the level of localisation of imported parts. Various activities were initiated along with active participation of suppliers to improve efficiency of operations. This has contributed greatly in reduction of material cost and exposure to foreign exchange fluctuation

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

In the opinion of the Management, the Company has adequate internal audit and control systems to ensure that all transactions are authorized, recorded and reported correctly. An independent internal audit function is an important element of the Companys internal control systems. This is supplemented with an extensive internal audit programme and periodic review by the management and the Audit Committee.

The Corporate Governance practices instituted by the Company are discussed in detail in the chapter on Corporate Governance which forms part of this Annual Report.

RISKS AND CONCERNS

The Indian automotive industry, while poised for growth, faces several risks and concerns. Strict environmental and safety regulations are becoming increasingly stringent, requiring significant investment and adaptation by manufacturers. Issues such as semiconductor chip shortages and import restrictions can lead to production delays and increased costs. Changes in government policies or political instability or economic downturn can affect the sales and profitability of the companies and hence impact the industrys strategic planning. Also, fiscal policies and cautious lending practices can affect consumer purchasing power and overall demand.

These factors contribute to a complex operating environment that requires careful navigation to ensure sustained industry growth.

HUMAN RESOURCES

Human resources play a pivotal role in the automotive industry, which is characterized by rapid technological advancements and intense competition. Effective HR management is crucial for attracting, developing, and retaining a skilled workforce that can adapt to changing industry dynamics. Fostering a culture of continuous learning and innovation is essential for maintaining a competitive edge. Also need to address challenges such as skill gaps, diversity, and evolving labour laws, ensuring the workforce is aligned with the companys strategic objectives. The company maintains a strong focus on human resources by enhancing employee engagement, optimizing talent management, and driving organizational performance.

Cautionary Statement

Certain statements in the Management Discussion and Analysis Report describing the Companys objectives, projections, estimates, expectations or predictions may be "forward looking statements" within the meaning of applicable securities, laws and regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include raw material availability and prices, cyclical demand and pricing in the markets, exchange rate variations, global economic, social & demographic factors, changes in Government regulations, tax regimes, economic developments within India and the countries in which the Company conducts business and other incidental factors.