jullundur motor agency delhi ltd share price Management discussions

The statements contained in this section describing the Companys objectives, projections, estimates, expectations may be considered to be ‘forward looking statements which the management believes are true to the best of its knowledge at the time of preparation within the meaning of applicable laws, rules and regulations. Actual results may differ materially from those expressed or implied. The Company assumes no responsibility to amend, modify or revise any forward looking statements on the basis of any subsequent development, information or events.

OVERVIEW

The Company is engaged in the business of distribution of auto spares parts across India through network of branches since 1927. The Company deals in products such as brakes, bearings, clutches, cooling system, engine components, suspension, power steering, oil & lubricants, filters etc. Most of Companys suppliers are original equipment manufacturers ("OEMs) to vehicle manufacturers.

The Company is predominately in a single reportable segment viz., distribution of auto parts.

INDUSTRIAL STRUCTURE AND DEVELOPMENT OVERVIEW

With the GDP expected to grow in Financial Year 2023-2024 there might be continued movement in the commercial vehicle segment. Supply chain constraints with respect to the semi-conductors chips will continue to restrict the full capacity of the OEMs, leading to continued use of older vehicles.

The second half of FY 2022-2023 was relatively slower than the First half and the same reflection can be seen in the financial results. The supply in all vehicle segments including cars, bi-wheelers and tractors, could have been even better if it was not for semi-conductor chips shortage. With the increase in interest rates, increasing cost of ownership of vehicles and continued shortage in the semi-conductor chips, people might continue to hold on to their older vehicles.

The start of the first quarter of FY 2023-24 will not be as encouraging as last year. The second half of FY 2022-2023 was relatively slower as compared to the first half and that shall continue into Q1 of FY 2023-2024. The inventory levels of the entire distribution channel are higher as compared to last year due to overheated supply in the aftermarket and for turnover discount purposes to help maintain the Gross Profit. Raw material pricing is expected to be stable, and thereby the increase in revenue due to price increases will be minimal in the current year.

Most automobile vehicles and spare parts are attracting the highest rate of Goods and Services Tax i.e., 28%. Transport has become an integral part of our daily activities. We are hopeful that the GST council may take steps earlier to bring down the GST rates from 28% to 12% / 18% to give much needed relief to the automobile industry.

FINANCIAL REVIEW

The Company registered a turnover of 40,868.86 lakhs at a growth rate of 13.19% in F.Y. 2022-2023. The profit before tax was 3,034.23 lakhs which is 6.93% higher as compared to 2,837.54 lakhs in last financial year. The Company is a debt free company. A chart containing the details of financial performance in past 6 years is appended with this Annual Report.

FUTURE PLANS & OUTLOOK

The Company is in the process of adding more products / lines in product mix and focusing to open of new outlets/ sales units in potential tier-II & tier-III cities / towns across the country to cater to the areas which have remained uncovered so far. The Company will continue to invest in technology to help increase efficiency.

With the OEMs not being able to operate at 100% capacity due to supply chain issues, we see an opportunity in increase in consumption of spare parts for old vehicle which may lead to higher sales / volume of parts in which your Company deals.

Also, the agriculture sector is showing positive signs and given normal monsoons we can expect further improvement in the commercial vehicle movement. With the increased investment in infrastructure, vehicular movement is expected to increase which will lead to increase in sale of spare parts.

OPPORTUNITIES

The management of the Company expects that there would be an increase in demand on account of normalcy in the market, coupled with supply chain constraints for new vehicles, this will lead to an increase in requirement of auto parts both on Commercial vehicles and passenger vehicles.

THREATS AND RISKS

After market demand of spare parts / auto components in secondary market is going down due to aggressive posture shown by OEMs. Post pandemic, many additional players are coming in (new entrants or expansion of product lines for existing players) thereby, leading to increased competition. Working capital has become extremely tight for us and our customers, due to higher prices and larger range of products thereby affecting the cash flows in the market.

There is continued uncertainty with respect to local spread of the pandemic which might force the branches to shut down for short periods of time or curtail the attendance of the colleagues. Due to the irregular supply of semi-conductor chips, the OE schedules are somewhat unpredictable; which sometimes leads to temporary shortages in certain products.

With the continuous improvement in technology and quality of parts, the replacement window for aftermarket spares is only widening. Coupled with wider acceptance of working from home or hybrid form of working could mean reduced mileage on a long-term basis as well.

SUBSIDIARY AND ITS PERFORMANCE

As at 31st March, 2023, your Company has one material subsidiary Company i.e. JMA Marketing Limited, which is engaged in the business of distribution of auto spare parts in different regions of India. During the year under review, the sales turnover of the material subsidiary Company was 8,669.55 Lakhs and it managed to earn Net Profits (after tax) of 507.18 Lakhs. The Company has bagged the supply rights of one of the key products in the Western region of the country.

KEY FINANCIAL RATIOS

During the year under review, there was no significant change (i.e. change of 25% or more as compared to the immediately previous financial year) in the key financial ratios. Key financial ratios, along with detailed explanations thereof are given in notes to accounts of annual audited financial statements forming part of this Annual Report.

RETURN ON EQUITY

There is a marginal fall in Return on Equity from 13.96% to 13.42% as compared to last fiscal year on account reduction in gross margin.

INTERNAL CONTROL SYSTEMS

The Company has an adequate and effective control system to commensurate with its size and complexity. The internal control system is supplemented through an extensive internal audit program and periodic review by management and audit committee.

DISCLOSURE OF ACCOUNTING TREATMENT

In the preparation of the financial statements, the Company has followed the Indian Accounting Standard (IND AS). The significant accounting policies which are consistently applied are set out in the Notes to the Accounts.

RISK MANAGEMENT

The Company monitors and reviews the risk management activities on regular basis. There are checks and balances which are embedded in the ERP system.

CORPORATE SOCIAL RESPONSIBILITY

The Company is committed to make contribution to the society as part of our social initiatives. Special focus made on the education to overcome the illiteracy in small cities and villages. The Company is contributing to different NGOs and organizations which are progressively working on education programs in small cities / villages and contributing towards welfare of abandoned senior citizens and disabled people and promoting Rural/National/Olympic Sports.

HUMAN RESOURCE DEVELOPMENT AND INDUSTRIAL RELATIONS

The Company had extensively focused on leadership development and employee engagement initiatives. During the period under review, multi-product and sales training program were conducted across the Company. Employees were encouraged to participate in sports and other fitness related programmes to promote individual wellness and to achieve a sense of balance life. Total Employees on Payroll of the Company are 546.