Maruti Suzuki India Ltd Management Discussions.

Overview

The year 2020-21 started amidst the nationwide lockdown to contain the spread of COVID-19 pandemic. This once-in-a-century public health emergency led to temporary closure of economic activities, leading to overall supply side shock creating an uncertainty, which dented consumer confidence inducing a steep fall in domestic demand. As a consequence, Indian economy plunged into deep contraction during Q1 FY 2020-21.

The government and the Reserve Bank of India (RBI) quickly stepped in to put the economy back on track in the quickest possible time and undertook multi-dimensional policy interventions to minimise the impact of the crisis. Along with moderation in the spread of the virus and scaling down of the lockdown restrictions, the Indian economy progressed on the path of recovery demonstrating remarkable resilience. A strong rural demand, robust government expenditure and pent-up demand supported this recovery process. To further strengthen overall domestic manufacturing sector and make India self-reliant, the government announced a mega stimulus package under its flagship programme, ‘Atmanirbhar Bharat Mission. The government has also relaxed the fiscal target and accorded utmost priority to economic recovery. Towards the end of FY 2020-21, a second wave of COVID-19 in the country intensified. It appears to be emerging as a hurdle in maintaining the pace of economic recovery.

The auto-sector was witnessing a structural slowdown even before the pandemic struck. During FY 2019-20, the Passenger Vehicle industry witnessed its sharpest demand contraction in the last two decades. During FY 2020-21, the pandemic further accentuated the contraction in sales volume in the Passenger Vehicle Industry.

During FY 2020-21, Passenger Vehicle market posted a decline despite the recovery in sales volume in the second half of FY 2020-21.

From the graph, it can be clearly seen that the Passenger Vehicle demand in FY 2020-21 has just recovered to FY 2015-16 levels.

Source: SIAM

During FY 2020-21, the Companys sales volume in the domestic passenger vehicle market declined by 8.5%. Including the sales of Light Commercial Vehicles (LCVs), the overall sales in the domestic market for the Company declined by 7.8%.

FY 2020-21 began with the national-wide lockdown enforced by the Government to keep the pandemic in check. As a result, the Company couldnt sell any vehicle in the domestic market in April20.

This resulted in severe cash flow challenges for the Companys suppliers and dealer partners. The Company immediately provided cash flow support to all the suppliers and dealer partners to ensure sustainability of their businesses. It was enough to meet their need till they become self-sufficient with increasing sales and sufficient working capital support from financiers. Such kind of support could have been very challenging if the Company did not have adequate cash surplus kept specially to deal with such unanticipated circumstances.

At the request of Government of India, the Company along with its supplier partners took a challenge of increasing the production of Masks, Protective gowns and ventilators in the shortest possible time. In such trying times, the Company alongside its suppliers and other stakeholders remained committed to serve the society and the nation at large. The Company also donated 280 ventilators to the government. During the initial phases of the lockdown, the Company supported local communities by providing dry food ration kits and provided ~5,400 cooked food parcels every day during the lockdown.

The Company faced the twin challenges of ensuring safety of health of all the people across its value chain and ensuring continuity of operations to put the business quickly back on track. It accorded utmost priority to ensure the safety of health of all the people across its value chain. The Company collaborated with its stakeholders and jointly prepared detailed Standard Operating Procedures (SOPs) catering to specific needs of every member of the value chain partners.

The Company implemented stringent engineering and administrative controls, over and above the governments stipulated guidelines to prevent the spread of the virus. SOPs were formulated to restart plants and machineries after a long shutdown to prevent any untoward safety incident. The Company extensively used Artificial

Intelligence (AI) technology to proactively identify and prevent the entry of people suspected of any infection into the plant/office premises. Besides, continuous education of the workforce was done to observe high degree of self-discipline to minimise the risk.

To ensure the continuity of operations the Company introduced

‘Work from Home and increasingly adopted the use of digital technologies wherever possible. Hyper-local marketing, online smart financing programme, online service job card opening, online approval system for vehicle repairs, e-commerce website for accessories, virtual meetings and e-learning platforms for capability building were some of the initiatives undertaken by the Company to ensure business continuity and safety of its stakeholders.

The Company also faced business continuity challenges due to supply constraints caused by both local and global issues such as state-wise lockdown restrictions, global semi-conductor shortages, natural disasters such as US-Polar vortex and geopolitical tensions, among others. With meticulous planning, the

Company was able to manage the supply disruptions and could maintain the continuity of operations during the year.

With the gradual easing of lockdowns, improvement in supply conditions and ease in the availability of manpower, the Company slowly and steadily improved its production level. During the second half of FY 2020-21, the Company operated at nearly 100% capacity utilisation period.

Led by pent-up demand as well as increased preference towards personal mobility, along with favourable macro-economic factors such as low interest rates and ease of credit availability, demand improved for passenger vehicles during the later half of the year. The better demand condition helped lower sale promotion expenses during the year.

In export markets, the pandemic impacted the Companys sales. During FY 2020-21, export sales volume declined by 5.9%.

During the year under review, the Company also started supplying an additional product to another OEM. This arrangement of supplying vehicles to another OEM generated incremental volume for the Company.

The prices of Commodities such as Precious Metals, Steel and others increased suddenly and steeply throughout FY 2020-21. Given the fact that demand for passenger vehicles was just recovering in the domestic market and due to the uncertainty in the sustenance of the demand the Company undertook a cautious approach in raising the prices of cars.

In the second half of the FY 2020-21 despite

(a) favourable operating leverage driven by increased capacity utilisation (b) lower sales promotion expenses (c) reduced overhead expenses (d) price hikes taken towards the end of year,

the quantum of high increase in commodity prices and adverse foreign exchange fluctuation still adversely impacted the operating margin.

Passenger vehicles

The FY 2020-21 began with no sales in the domestic market for

April 2020. With the gradual easing of the lockdown restrictions, the Company improved its sales volume by according utmost priority to safety of health of all its stakeholders in the value chain.

The Company realised that the pandemic is here to stay for some time and has the potential to change the way the business is done. To ensure the safety of employees and customers, and to ensure business continuity, the Company reengineered the business processes at dealerships and the customer journey inside the showroom. Digitalisation was one of the focus areas.

While the Company had been on the journey of digitalisation of sales process over the last 3 years, it stepped-up its efforts in the wake of the pandemic. The customers quickly adopted to digital ways of interaction. The following graph shows the increase in enquiries through the digital medium.

Once the lockdown restrictions were relaxed, the demand for cars started to recover quickly. While pent-up demand of the past year was one of the reasons, lack of public transportation and the risk of infection also added to the recovery. At a time when customers were unsure about their future economic condition, owning a car contrarily became a necessity for some. The Company understood customer concerns and partnered with financiers to come up with innovative financing schemes such as step-up EMI schemes, Balloon-EMI schemes and others. These innovative financing schemes were highly appreciated by customers and helped improve the sales.

To further digitise the car buying process, the Company recently launched the Maruti Suzuki Smart Finance service and became Indias first OEM to offer an online, end-to-end, real-time car finance service facility. As on 31st March 2021, 13 financiers across 30 cities are offering Maruti Suzuki Smart Finance services to customers.

As lockdown restrictions eased, non-urban markets became bright spots of economic recovery because of relatively lower spread of infection, bumper harvest of Rabi crops, good monsoon and economic stimulus provided by the Government in those markets. The Company focused more on these markets leveraging favourable conditions. During FY 2020-21, retail sales in non-urban markets grew by about mid-single digit while the sales in urban markets declined, as a result the contribution of the non-urban markets in overall sales increased by ~2.5% to 40.9% in FY 2020-21.

During the year, consumer profile also underwent some changes.

Driven by the increasing need for personal mobility, the participation of first-time buyers went up. Also, given the dip in economic activity and uncertainty about growth in incomes, customers continued to hold-on to their existing cars, leading to lower replacement demand during FY 2020-21.

During the year, the customer acceptance towards CNG vehicles increased. Despite a decline in overall sales in the domestic market of 7.8%, the sales of CNG vehicles grew by nearly 50% Consequently, the CNG vehicles share in overall domestic sales of the Company has increased to nearly 12%.

Good monsoon, bumper harvest of Kharif crops, easy availability of credit and controlled COVID-19 infection just before the festive period lifted consumer sentiments and provided impetus to demand recovery. With the improvement in supply of vehicles, the Company achieved highest-ever sales in the festive period and also registered highest-ever quarterly sales volume in Q3 FY2020-21. Fortunately, the demand continued to be good in Q4 and as a result the Company posted highest-ever half yearly sales in the period H2 FY2020-21. During FY 2020-21, seven out of the top ten best-selling models in India came from the Company.

With the pursuit of being closer to customers for better convenience and experience, the Company added 34 sales outlets primarily in non-urban markets during FY 2020-21, despite weak market conditions.

Although second half of FY2020-21 witnessed good demand recovery, domestic sales volume in FY 2020-21 declined by ~8%.

Light Commercial Vehicles (LCVs)

The Company sold 29,556 units of Super Carry during the year. With switchover to BS-VI, the Company launched Indias first

Gasoline powered mini-truck in the market which is largely dominated by diesel vehicles. The Company also offers CNG powered Super Carry vehicle. The Customers liked the high power, low acquisition and maintenance cost offering by the

Company. As a result, the sales of Super Carry not only grew by

35.7% in FY 2020-21 but also the Company was able to increase the market share in Super Carry segment by nearly ~8% to 23% during the year.

Pre-owned car sales

During FY 2020-21, demand for pre-owned car saw an increase.

However, supply of used cars remained insufficient due to low replacement demand. Consequently, the Companys True Value channel sales declined. The Company firmly believes in the future growth potential of used cars in India. During FY 2020-21, the Company added 26 independent True Value sales outlets, thus further bolstering its presence across the country and reaching near the customer.

Service

During the pandemic it is more important to be highly receptive to stakeholder concerns and address them with utmost priority. In one such initiative to address customers need, the Company extended the warranty period of its vehicles wherever the period was getting lapsed during the lockdown. This helped customers not to lose warranty benefit due to the lockdown. While the lockdown restrictions were gradually eased, in the initial period there were several constraints in bringing the service business back to normalcy. The confidence of customers in getting their vehicles serviced was lower and service workshops faced multiple challenges due to reduced working hours and limited manpower. The Company addressed these challenges by maximising the use of digital technology, revising the business processes at workshops, focusing on multi-skilling of service personnel, and promoting the use of flagship ‘Service-on-

Wheels programme to provide vehicle repair and maintenance at the customers doorstep.

In order to continue with the capability development of the workshop personnel, the Company adopted digital training mode and trained over 94,000 workshop personnel.

With these steps, the Company increased customer confidence and concurrently ensured sustainability of service workshops.

Despite tough market conditions, keeping customer convenience in mind, the Company added 180 service workshops across the country, taking the total number of workshops to 4,044 covering 2,014 cities and towns.

Aftermarket Parts and Accessories

The Company has maintained sharp focus on the ease of availability of genuine parts and accessories for its customers throughout the country to ensure safe, trouble-free driving experience, ensuring complete peace of mind to the customer.

The pandemic affected the usual ways of working. Based on regular feedbacks from all stakeholders, various steps were undertaken to support business partners. The Company created SOPs to ensure a safe work environment and engaged in proactive and meticulous planning for over 70,000 different aftermarket parts to reach across the country to avoid customer vehicles being stranded in workshops for want of aftermarket parts.

Accurate forecasting methods, along with an Artificial Intelligence based delivery route optimisation system helped ensure more than 98% customers had immediate access to Maruti Suzuki

Genuine Parts.

In addition to the service workshops, 824 retail outlets of aftermarket parts distributors across the country assist in easy availability of genuine parts and accessories to customers located even in the farthest corners of the country.

During the year, the Company extended round-the-clock support to customer vehicles affected by Cyclone Amphan in West Bengal and floods in Hyderabad.

In the accessories business, 155 new accessories were launched under the Maruti Suzuki Genuine Accessories brand with special focus on new range of health and hygiene accessories. The Company leveraged the use of digital platforms such as its own e-commerce website for selling accessories.

Exports

During the year, the Company exported 96,139 vehicles registering a decline of 5.9% over FY 2019-20. COVID-19 pandemic posed a major challenge on the demand of passenger cars in the major export markets of the Company such as Africa, Middle East and Latin America.

The focus during the first half of FY2020-21 was to support distributors in improving the retail sales. With support from Suzuki Motor Corporation (SMC), the Company facilitated distributors in implementing Suzuki hygiene protocols and enhanced focus on digital media for sales promotion campaigns and CRM activities. These measures helped towards confidence-building and resulted in increase in digital enquires and improvement in sales. During the lockdown, the Company adopted the digital mode of training and trained the workforce of distributors to improve their sales and service capabilities.

In Janurary2021, the start of export shipments of Jimny created positive consumer sentiments in many export markets.

Further, during FY 2020-21, the Company reached a milestone of 2 million units of sale in export markets since its inception.

Some key Latin American markets witnessed a demand recovery with some shift in demand to the entry-level segment, post the easing of lockdowns there. However, a second wave of COVID-19 and continued currency fluctuations are the key impediments in the recovery process.

In Africa, despite disruptions due to COVID-19, the Company posted growth in export sales in FY 2020-21 over

FY 2019-20. South Africa emerged as the top export destination for the Company. During FY 2020-21, the Companys export to

South Africa grew by 8.9% while the overall car industry in South

Africa declined by 26.7%

Operations

The FY 2020-21 can be envisaged in three distinct phases: 1) Lockdown phase, 2) Ramp-up phase, and 3) Stabilisation phase.

In each of these phases, there were numerous challenges and the magnitude of change management required was very high. This entailed meticulous planning and careful execution to ensure safety of the workforce and quality of products. This helped in quickly achieving the desired productivity levels. In many cases, these changes were such that the workforce had to unlearn some of the past working practices and adapt to the ‘new normal.

Due to the unanticipated lockdown, the manufacturing facilitates had to be shut down abruptly for a prolonged period. Hence, the

Company thoroughly checked each and every manufacturing system and processes to avoid occurrence of any untoward safety incident once operations resumed post the lockdown. Additionally, the Company had to take measures to prevent any deterioration in the quality of raw materials and finished goods inventory. During this period, the Company also put in place sufficient safeguards in accordance with the guidelines notified by the government to ensure safety of its workforce. The Company also utilised the lockdown to train its workforce to adapt to the new working conditions.

In the ramp-up phase, availability of manpower was one of the biggest challenges for the Company. Through meticulous planning and by taking adequate contingency measures, the Company was able to minimise the uncertainty and maintain business continuity without any disruptions.

Given the seasonality in demand, rapidly changing consumer preferences and fluctuations in the economic cycle, the Company places utmost importance in ensuring its manufacturing systems are highly flexible and agile. During the year in addition to the expected shift towards petrol and CNG powered vehicles, the Company faced issues in component availability for some of its products, but was able to quickly realign its manufacturing plan to ensure continuity in operations.

Increasing features and multiple regulations lead to increase in complexity of manufacturing a vehicle. To achieve defect-free products, the Company has in place a robust process control system by leveraging new technological solutions to prevent wrong fitment of parts.

The inspection systems are increasingly being shifted to the source to prevent outflow of defects. This significantly reduces the time required for any corrective action leading to resource optimisation. The Company is progressively using Internet of Things (IoT) technology and machine vision systems for better product quality obviating human error.

To minimise the changes during the mass production of a vehicle, the accessibility of part fitment and workplace ergonomics is simulated using Virtual Reality (VR) techniques to incorporate suitable modifications during the design and development stage of the vehicle. The Company is establishing a state-of-the-art 3D scanning room to enable vehicle-level and part-level scanning for evaluation and control of critical body dimensions.

Conservation of Natural Resources and Environment Protection

The 3R (Reduce, Reuse and Recycle) principle, is a way of life for the Company. The Companys commitment to preserve resources is reflected in every step, right from product design to manufacturing process to product delivery to customers.

In a bid to conserve natural resources, the Company uses solar power in its overall energy mix. During the year, the Company started the installation of a 20 MW solar power plant at Manesar, Haryana. In phase-1, 4.1 MW capacity was installed. With this addition, the total solar power used in manufacturing of cars now stands over 10 MW(P). During FY 2020-21 this resulted in 6,500

 tonnes of lower CO2 emissions.

Towards environment protection, the Company not only conforms to laws and regulations, but also strives to stay ahead. The Company has adopted the globally acclaimed International Material Data

Systems (IMDS) tool for controlling the use of Substance of Concern (SoC). With IMDS, it will be able to quantify the recoverable and recyclable materials in its vehicles. During the year, the Company took measures to extend IMDS to 8 more products taking the total count to 11 products. The Company aims to confirm compliance for all its products by FY 2021-22.

Besides commitment to environment protection, the Company promotes yield improvement activities to optimise the usage of resources such as steel, aluminium and other materials.

As a step towards circular economy, with an aim to promote recycling of steel and other commodities, the Company, together with the Toyota Tsusho Group, is setting up a vehicle dismantling and recycling joint venture. The facility is almost ready to be operationalised and will be announced soon.

The Companys Sustainability Report elaborates on the initiatives undertaken in this section.

Safety

The Companys vision on safety is ‘Zero Incident Zero Human Injury Zero Fire. In line with this, a three-tier committee under direct supervision of the MD & CEO is making constant progress towards the improvement of safety systems and compliance to achieve the Companys safety vision. The Company also promotes a culture of safety across its value chain. The Company carries out periodic risk assessment of fire safety, water logging and human injuries at its supplier and dealer facilities.

During the year, the Companys primary focus was to ensure the safety and well-being of its employees from the pandemic. During the lockdown, the Company updated its safety protocols based on government advisories and other best global practices. Diligent planning outlining even the minutest action was done with a focus on frequency, accountability and ownership. The implementation of these COVID-safety protocols was monitored by the top leadership. The MD & CEO constantly communicated with the workforce and kept emphasising on the importance of following COVID safety protocols and not to let the guards down. This also helped build confidence among the workforce and COVID safety protocols became a ‘way of life. Rigorous training was conducted to ensure adherence to SOPs. Regular monitoring and audits were conducted to keep checking for gaps and fixing them. The Company collaborated with various stakeholders and kept improving its COVID safety protocols. By ensuring widespread communication, the Company was able to successfully sensitise the workforce on the precautions that needed to be taken. These measures ensured overall safety of the workforce.

On ensuring road safety discipline and imbibe safe driving practices, the Company took up various initiatives to promote and create awareness among its workforce. These awareness measures will be continued with all stakeholders, including supplier and dealer partners to promote road safety. During FY

2020-21, the Company also migrated from OHSAS 18001 to ISO 45001 certification. The Company conducted various sessions to create awareness about this new safety management system.

Quality

The pandemic brought forth many challenges in terms of maintaining high-quality standards. The Company carried out various activities in different phases during the year to ensure defect-free products.

During the lockdown, the Company collaborated with supplier partners to evolve SOPs for ensuring proper parts storage and equipment upkeep. It prepared a part-category-wise check sheet and shared it with supplier partners, which helped them in restarting work post the lockdown. The Company also conducted dry runs to ensure that quality was not compromised. Additionally, multiple training sessions were conducted through digital platforms to support supplier partners to implement the new guidelines and also provided technical support.

Further to ensure quality stabilisation during the production ramp-up, extensive virtual engagement with all vendors, and plant visits were conducted. When operations resumed post lockdown, during the initial stages, the Company significantly stepped up its inspection of incoming components.

Amid managing the pandemic-related challenges, the Company continued its ongoing quality improvement programmes as mentioned below to ensure improved quality of products:

Reinforcement of zero-defect philosophy

During the year, a series of sensitisation workshops by the Company encouraged suppliers to enhance their knowledge and implement best practices to achieve zero-defect production lines.

The Company has put in place an organisation that exclusively supports supplier partners to continuously improve their quality levels.

Among the many thrust areas to achieve world-class quality, the broad areas of quality management are highlighted below:

A) New Model Quality Improvement

The Company has implemented concepts such as front loading, Peak Production Verification Trial (PPVT) and initial flow management to ensure defect-free production of new models.

Front-loading concept helps in arresting the defects at design and development stage while PPVT and initial flow management concept help prevent defects during mass production of new model.

Besides, the Company uses its state-of-the-art testing facility in Rohtak, Haryana to rigorously evaluate the new models for quality performance.

B) Quality Management during Mass Production

To maintain high-level quality standards during mass production, the Company has in place various measures such as DOJO centres, 10 cycle check method and regular maintenance of equipment and tools. In DOJO centres— (set-up at suppliers facilities—) training is provided in simulated production conditions to equip workforce to do a high-quality job on the production lines.

The method of ‘10 cycle check helps identify the reasons for human error. Besides, the Company constantly reinforces a culture of identification of root cause. Every quality feedback from market is carefully investigated. Once the right root cause is identified, prompt corrective actions are taken to prevent recurrence.

The Company is also implementing part traceability system to correctly identify the affected vehicles with a potential quality defect.

Human Resource

Our philosophy

The Company always strives to promote a safe, healthy and happy workplace. It creates and instils a culture of partnership among its employees.

The empowerment of the human resource to acquire knowledge and build capability, grow and prosper in a healthy work environment is the guiding philosophy of the Companys HR policies. With people centric policy interventions, a constant two-way communication led by the MD & CEO to promote participative decision-making and various welfare measures that are taken from time to time, the Companys motivated human resource has been making strong contribution to the best of its ability in responding to business challenges successfully.

Employee Well-Being

The Company puts paramount importance on employee health and well-being. During the year, it was even more important to ensure the well-being of employees. The Company also strengthened its medical teams to provide timely support and round-the-clock assistance to all the people. By leveraging the use of technology, the Company was successfully able to monitor health status of its workforce and undertake necessary interventions to ensure their well-being.

Along with challenges in ensuring physical well-being, this year posed new challenges towards mental and emotional well-being as well. In an endeavour to help employees maintain strong mental health, the Company organised a series of sessions on areas like emotional, spiritual, psychological and physical well-being, work-life balance and other such topics. A total of 25 wellness sessions and over 220 Yoga sessions were organised virtually covering close to 12,000 participants.

Training and Sensitisation on COVID-19 Safety Protocols

The Company focused on sensitising its workforce on proper COVID safety precautions. Continuous communication led by the top leadership, along with constant awareness drives were conducted throughout the year. Special video training modules were developed for ease of understanding of COVID safety protocols. Internal communication was beefed up significantly to keep reinforcing the importance of following the COVID safety protocols.

Digitalisation

Working from home was not a common concept in the manufacturing setup. However, in view of pandemic, the

Company adapted to ensure well-being of employees while maintaining business continuity.

Industrial Relations Environment

The Company strives for stable and cordial industrial relations through effective communication, participation of employees across levels in important decisions and various employee welfare programmes. A regular two-way communication led by the MD & CEO with the employees across various levels keeps them informed on the overall business scenario, providing them with a strong platform for exchange of views.

Capability Development

Adapting to the requirements of the new normal, the Company resorted to online training, which includes e-Gurukul platform (which has 700+ hours of in-house content), virtual instructor-led training sessions, webinars and also online courses through Learning Experience Platforms (LXPs).

Post the lockdown, the Company is focusing on developing a hybrid learning model, which is based on the 80-20 principle wherein 80% are web-based training and 20% are classroom training.

The shift to digital platforms provided employees with a convenient option to upskill themselves and as a result, during the year, a total of 270,000 person-hours of training were imparted in FY 2020-21.

Apart from regular training programmes for capability building, employees are given opportunity for career growth through higher education programme. For this, the Company has tied up with renowned academic institutions and eligible employees completing the higher education programme are considered for promotion to take up higher responsibilities.

Courses Courses taken by Number of employees being benefited under higher education programme offered by the Company
Diploma programme Workmen 175
B.Tech programme Supervisors 155
Part-time MBA programme Managers 64
Total 394

Employee Welfare

Along with industry leading benefits, making an employee own a house has been a major area of intervention by the Company, right from its first housing project in 1989. Continuing with this practice, this year also another set of flats was delivered to employees in a housing society in Dharuhera, Haryana. The

Company has facilitated the entire process from selecting land, negotiating the price and appointing a real estate firm for ensuring quality and timely construction of houses. The Company also

Apartments in Maruti Suzuki Enclave

The Company values its employees, who have devoted their lives for its progress. The Company contributes 1% of the

Profit After Tax of the previous year to a fund that is exclusively earmarked for the welfare of the employees. The fund is used to provide social security measures such as post-retirement medical benefits and welfare measures like educational support for employees children and developing common infrastructure facilities in housing projects.

Multi-layered Connect

For larger connect and welfare of the families of employees, the Company has a calendar of events, which includes expert career counselling for employees children, a gala family day, and plant visits for family members. In engaging with families of the employee, communication through an in-house magazine and

MD & CEO messages on special occasions play an important role. (Note: Some of the above mentioned initiatives which requires large public gathering such as Family day etc. have been temporarily put on hold because of pandemic.)

Gender Diversity and Inclusion

The Company promotes gender diversity and provides equal opportunity to all. Various welfare measures are taken to support and encourage our female employees.

Grievance Redressal Mechanism

To address any grievance of its workmen, including temporary workforce, the Company has a well-structured grievance redressal mechanism. Periodic grievance redressal camps are organised to address these issues of the workmen.

Supporting Business Partners

The Company has put in place an exclusive organisation to improve the human resource and industrial relations practice at the supplier partners. Regular audits are conducted for suppliers to identify the areas to be improved and workshops are organised to share the best practices.

Customised training courses are also carried out for supplier partners.

Understanding the lack of skilled personnel in the country in the field of tool and die maintenance engineering, the Company undertook a multi-stakeholder initiative with State Board of Technical Education, Haryana and Government Polytechnic

Educational Society (GPES), Manesar, to start a new academic course in Tool and Die Engineering at GPES, Manesar. The supplier partners will immensely benefit from this arrangement. The first batch comprising 60 students started in November 2020.

The Company also believes in ensuring road safety for employees and the workforce of its supplier partners such as truck drivers. The Company imparts training to all its incoming truck drivers from its supplier partners on road safety. This year, more than 6,400 truck drivers were trained.

For its dealer partners workforce, the Company has put an organisation in place to impart relevant skills training. Besides, this year the Company has collaborated with Sri Vishwakarma Skill University (SVSU) to start a unique undergraduate degree programme (BBA) in Retail Management. The programme has been designed on ‘Earn while Learn models. The initiative aims to make youth job ready for automotive retail industry. In November 2020, the degree programme was started for a pilot batch of

29 students with SVSU University and Delhi-NCR dealers. The

Company plans to expand this programme across different parts in of the country in FY 2021-22.

During FY 2020-21, the Company imparted over 436,164 person-hours of training for its employees and for the workforce of its business partners.

Engineering

The pandemic impacted the new model development plans of the Company. To maintain the continuity in designing, the Company adopted to ‘work from home by using digital platforms like virtual simulation, Augmented and Virtual Reality technologies. As the testing facilities remained closed during the lockdown some of the development activities got delayed.

During FY 2020-21, the Company with the technological support from SMC launched new S-Cross with bigger engine capacity, along with Suzukis flagship Smart Hybrid powertrain technology The Company also launched a facelift of New Swift during the year with advance powertrain and safety features such as

Electronic Stability Program (ESP) with Hill Hold assist function in the AGS variants.

The increase in customer preference towards CNG fuel technology made the Company extend its product offering with CNG technology.

Key highlights of Research and Development (R&D) efforts during FY 2020-21 are discussed in detail in Annexure D of the Board Report.

R&D Strategy

A car is a highly complex machine and requires significant resources in terms of capital, people, time, decades of expertise and technological prowess to design and develop. The R&D has been getting more demanding with the advent of new-age technologies (electrification of powertrain, telematics and others), increasing pace of implementation of product regulations and increasing customer demand for feature-rich cars in low-price segment.

The development time and cost to achieve these requirements are so large and it is difficult for the Company to invest in all of them simultaneously on its own. Therefore, the Company is adopting the following multiple paths to effectively and meet the increasing R&D intensity.

a) Technology support from SMC

b) Improving indigenous design and development capability with the support of SMC c) Making use of SMCs alliance with Toyota Motor Corporation in sourcing relevant technology

Powertrain Strategy of the Company:

The Company always chooses the strategy that is best placed to serve the needs of its customers as well as to meet the national priorities of reducing vehicular emissions and enhance energy security. Besides the Company chooses the technology option which is quickly scalable to large population of cars. To this end, the Company will pursue wide range of powertrain options, including

A) Fuel- efficient Internal Combustion Engines:

The Company, with the support of its parent - Suzuki Motor Corporation (SMC), has been able to progressively improve the fuel efficiency of the Internal Combustion engines. The new generation K-series powertrain is more fuel efficient, thanks to superior technology support from SMC

B) Promoting environment-friendly CNG powertrain technology

CNG vehicles are environment friendly vehicles with higher fuel efficiency and lower running cost, are best placed in not only meeting the consumers interest but also helps achieve substantial savings in oil import bill of the country. With the increased focus of the government towards expanding the CNG distribution infrastructure across the country the demand for CNG vehicles is growing.

During the year, while overall sales of the Company in domestic market declined by ~8%, the sales of CNG vehicles grew by ~50%. Consequently, the contribution of CNG vehicles in overall sales of the Companys domestic passenger vehicle sales has increased to nearly 12%. This clearly indicates the growing interest of customers in CNG vehicles

C) Electrification of Powertrain

The Company has a well laid out plan in electrification of its powertrain ranging from smart hybrids to strong hybrids to electric vehicles. Suzuki Motor Corporation is making all possible efforts in providing these technologies to the Company including leveraging its partnership with Toyota Motor Corporation.

Besides, Suzuki Motor Corporation is also developing the battery manufacturing ecosystem in India. Some measures include, investing in Indias first cell-level lithium battery manufacturing, skilling people on battery manufacturing, recycling of lithium-ion batteries and others.

The Company is offering Smart Hybrid versions in XL6, Ciaz, Brezza, Ertiga and Baleno models. During FY 2020-

21 while the overall sales in the domestic passenger vehicle market declined by ~8.% for the Company, the sales of

Smart Hybrid vehicles grew by 18%.

Rigorous testing of over 50 EV prototype across the length and breadth of the country in various terrains and in different climatic conditions is helping the Company gather critical inputs based on actual consumer use and will help it to develop a reliable and suitable electric vehicle for the Indian market.

Supply Chain Management

The pandemic brought an enormous challenge in maintaining a continuous supply of components.

The first challenge which the Company faced after the lockdown was to prepare its supplier partners to restart with full safety precautions. The Company collaborated with its supplier partners and jointly created a detailed manual on restart guidelines. The Company then monitored the implementation of these guidelines at all the supplier plants through rigorous virtual audits.

Another challenge the Companys supply chain partners faced was the availability of manpower during the restart. The Company handheld its supply partners in managing the manpower availability issue. Regular joint meetings with all the suppliers helped them learn from each others experiences.

Due to the ever-changing nature of lockdown restrictions, the Company undertook various initiatives such as increasing stock of raw materials and components, hiring buffer manpower to increase production, shifting production to alternate plant of same supplier in a different state and 2nd source development to ensure production continuity.

During the later part of the year, global events such as the shortage of semiconductors, the US polar vortex and other such uncertainties posed significant challenges. Despite the dynamic and evolving nature of these disruptions, the Company was able to maintain an un-interrupted flow of raw material and parts to ensure production continuity.

The Company managed its international supply chain through meticulous advance planning, constant communication with top management of suppliers and by developing alternate source for parts and raw materials.

Cost Optimisation

FY 2020-21 was a challenging year on the cost front. On the commodity front, the prices of the commodities such as Precious Metals and Steel have risen sharply this year due to demand supply imbalance. During FY 2020-21, the steep increase in commodity prices severely impacted the operating margins.

In order to partially offset this impact, several cost reduction programmes continued throughout the year. These include localisation of direct and indirect imports, value engineering and value analysis, yield improvement, logistics cost optimisation and others.

The Company has low import content but is still working on an ambitious plan to reduce it significantly to insulate the financial performance from forex fluctuations and also to maintain business continuity.

Every year, the contribution of all employees in cost reduction drives and suggestion schemes result in significant cost savings.

During the year, the Company achieved cost savings to the tune of Rs.1,686 million on account of such efforts.

Besides, as an austerity measure, operating overheads were reduced to a greater extent by reviewing discretionary activities, optimising marketing expenditure and having stricter cost control.

Financial Performance

The Company registered Net Sales of Rs.665,621 million and Profit after Tax of Rs.42,297 million, a de-growth of 25.1% over the previous year.

Abridged profit and loss account for 2020-21

Parameters 2020-21 2019-20 Change
1 Volumes (Nos.)
Domestic 1,361,722 1,461,126
Export 96,139 102,171
Total 1,457,861 1,563,297 (6.7%)
2 Vehicles 590,059 632,266
3 Spare parts/ dies & moulds/ components 75,562 84,638
4 Net sales (2+3) 665,621 716,904
5 Other operating revenue 37,704 39,202
6 Other income 29,464 34,208
7 Total revenue (4+5+6) 732,789 790,314 (7.3%)
8 Consumption of raw materials, components & traded goods 507,444 530,349
9 Employee benefit expenses 34,029 33,839
10 Finance Costs 1,008 1,329
11 Depreciation and amortisation 30,315 35,257
12 Other expenses 108,399 118,892
13 Total expenses 681,195 719,666 (5.3%)
14 Profit before tax (7-13) 51,594 70,648 (27.0%)
15 Current tax 11,556 13,748
16 Deferred tax (2,259) 394
17 Profit after tax (14-15-16) 42,297 56,506 (25.1%)

Table 2: Financial Performance – Ratios (As a Percentage of Net Sales)

Parameters 2020-21 2019-20 Change
Material cost 76.2% 74.0% 2.2
Employee benefit expenses 5.1% 4.7% 0.4
Depreciation and amortisation 4.6% 4.9% (0.3)
Other expenses 16.3% 16.6% (0.3)
Profit before tax 7.8% 9.9% (2.1)
Profit after tax 6.4% 7.9% (1.5)
Particulars FY21 FY20 Change Remarks where change more than 25%
(i) Debtors Turnover (No of Times) 44 39 13%
(ii) Inventory Turnover (No of Times) 16 16 0%
(iii) Interest Coverage Ratio 209 214 (2%)
(iv) Current Ratio 1.2 0.7 71% Current ratio is higher this year because of higher investment in short term securities
(v) Debt Equity Ratio 0.009 0.002 350% Higher loans repayable on demand from banks - cash credit and overdraft
(vi) Operating Profit Margin (%) 3.5% 5.3% (34%) Operating Profit Margin is lower as compared to previous year, mainly on account of lower sales volumes due to COVID-19 pandemic, higher commodity prices partially offset by lower operating expenses and cost reduction efforts.
(vii) Net Profit Margin (%) 6.4% 7.9% (19%)
Return on Net Worth 8.5% 11.9% (29%) Return on Net worth is lower this year due to lower Net profit as compared to last year.

Treasury Operations

The Company has efficiently managed its surplus funds through prudent and cautious treasury operations. The guiding principle of the Companys treasury investments is to keep safety and liquidity of investment over and above returns. In view of this, the Company invested its surplus funds in debt schemes of mutual funds and fixed deposits with banks. This has enabled the Company to earn reasonable and stable returns.

Table 3 lists the investment of surplus funds while Table 4 lists the return on these surplus funds.

Table 3: Investment of surplus funds

31-03-21 31-03-20
Debt Mutual Fund 405,705 358,089
Fixed Deposits 30,000 -
Total 435,705 358,089

Table 4: Income from investment of surplus fund

2020-21 2019-20
Interest on fixed deposits 94 1
Net Gain on sale of investment in debt mutual funds 411 1,503
Fair Value gain on investment in debt mutual funds 27,713 29,413
Total 28,218 30,917

Foreign exchange risk management

The Company is exposed to the risks associated with fluctuations in foreign exchange rates mainly on import of components, raw materials, royalty payments and export of vehicles. The Company has a well-structured exchange risk management policy. The Company manages its exchange risk by using appropriate hedge instruments judiciously depending on market conditions and the view on currency.

Internal controls and adequacy

The Company has a proper and adequate system of internal control to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition, and that all transactions are authorised, recorded and reported correctly.

The internal control system is designed to ensure that financial and other records are reliable for preparing financial information and other data, and for maintaining accountability of assets. The internal control system is supplemented by an extensive program of internal audits, reviews by management, and documented policies, guidelines and procedures.

Logistics

The FY 2020-21 posed several challenges in ensuring continuity of business and safety of the stakeholders. With sudden announcement of lockdown in March 2020, several trailers and trucks carrying vehicles and aftermarket parts were held up due to the closing of state borders. Through enhanced and close communication and by collaborating with various stakeholders such as logistics service providers, central and state governments, the Company was able to take care of its driver partners and deliver all consignments safely.

In the latter part of FY 2020-21, due to sudden spurt in global demand there was a severe shortage of containers which led to an unexpected and unforeseen delay in the arrival of sea vessels. Despite these challenges the Company was able to successfully manage its business continuity. The Company ensured complete digitalisation of container tracking from country of origin till the Companys manufacturing facilities. This provided real-time visibility of shipment status, which helped in better production planning.

During the year, the vehicle dispatches through rail mode grew by 6%, despite the decline in overall dispatches. As a result, the contribution of vehicle dispatches through rail-mode increased to 13.2% during FY 2020-21. The increasing use of rail transport

 over road transport has helped avoid over 3,800 MT of CO2

emissions in the past seven years as it saved over 120,000 truck trips and over 137 million litres of fuel.

To further maximise the dispatches through the Railways, the Company has formed joint ventures with the governments of

Gujarat and Haryana, for setting up in-plant railway sidings at

Manesar and the Gujarat manufacturing plants. These sidings will facilitate car loading directly from the plants, enhancing operational efficiency and are expected to be ready by FY 2022-23.

The Company accords high priority to the well-being of its driver partners. Regular training on driving simulators to enhance driver skills in various conditions, behavioural training to inculcate safe driving habits and periodical medical check-up camps are year-round activities conducted by the Company. Several training programmes covering over 65,873 people were conducted during the year.

Risk Management

While few risks are discussed hereunder, risk management is covered in greater detail in the Integrated Report section of the report.

Management of COVID-19-related risks to ensure human health and safety

The Company places utmost importance to the health and safety of all people across its value chain. It collaborated with various stakeholders and worked together to implement measures across its value chain to keep the spread of COVID-19 in check. For more information on the measures taken by the Company to overcome the threat posed by pandemic, kindly refer to the earlier sections in this MD&A report.

Cyber security

Over the past several years the Company has made conscious and concerted efforts to counter the threat of cyber security to its business. During the year, the Company further strengthened its measures towards cyber security in view of implementing ‘work from home and increasingly digitalising its business processes across the value chain.

Ensuring continuity in component supplies

Throughout the year, the Company faced component availability issue for one or the other reasons. As explained in an earlier section, the Company was able to manage this risk very effectively and ensured continuity of operations. Besides, the Company is also working on an ongoing programme called Vendor Comprehensive Excellence Programme to improve the capability of suppliers in various business functions, including risk management. A few areas covered under comprehensive supplier assessment are ensuring fire safety, industrial relations management, quality improvement, financial prudence, water logging, succession planning, and minimising single location supply dependence. Besides, the Companys strong focus on localisation of components is also a part of the risk mitigation strategy.

Succession planning

To tap the growth opportunity going ahead, it is imperative for the Company to groom its employees and create a talent pool. Accordingly, the Company has put in place a systematic succession planning process to create and strengthen a talent pipeline.

Outlook

During FY 2020-21, the passenger vehicle industry saw a good recovery with easing of lockdown restrictions and the demand momentum continued throughout the year. If this trend continues, the passenger vehicle industry in FY 2021-22 may witness a good recovery from the lows of FY 2020-21. However, it remains to be seen if the domestic passenger vehicle industry could reach the peak sales of FY 2018-19. Some near term risks on supply and demand side may dampen the recovery. Resurgence of another wave of COVID across the country may slowdown the pace of economic recovery and in-turn affect automobile demand environment. Also, the passenger vehicle manufacturing has a long value chain, starting from Tier3, Tier2 and Tier1 suppliers which completes at sales and service outlets of the dealers which are spread all over the country and any local lockdown to control the spread of the pandemic would lead to discontinuity in the whole business. The other factor is global shortage of semi-conductors which may create supply side issues.

The current recovery in sales cannot be extrapolated to arrive at a long-term demand prospect, especially when the industry witnessed a structural slowdown with growth rate falling to a CAGR of 3.6% during 2010-2020 as compared to 10.3% CAGR during 2000-2010.

One of the major reasons for this underperformance is the increased cost of acquisition of vehicle on account of numerous factors like stringent product regulations, multi-year mandatory insurance policy, and increase in-road and registration taxes by various state governments.

The industry needs not only of one year but several years of double-digit growth to recoup the lost ground during the last decade. Looking at decadal underperformance of the industry, achieving a consistent, sustained double-digit growth for several years looks difficult unless the government takes certain policy initiatives like introduction of new product regulation keeping affordability of Indian consumer in mind, reduction of GST rate and road taxes, among others.

Recently, in the Union Budget, the government has expressed its intent that manufacturing sector should grow in double digits. Automobile industry is very large part of the manufacturing sector. Manufacturing sector cannot grow in double digits unless the growth of the automobile industry steps up to double digit. The government will have to think of policies which enhance competitiveness of industry and affordability of customers if the automobile industry has to grow on double-digit on a sustained basis.

Disclaimer

Statements in this Management Discussions and Analysis describing the Companys objectives, projections, estimates and expectations are categorised as ‘forward looking statements within the meaning of applicable laws and regulations. Actual results may differ substantially or materially from those expressed or implied. Important developments that could affect the Companys operations include trends in the domestic auto industry, competition, rise in input costs, exchange rate fluctuations, and significant changes in the political and economic environment in India, environmental standards, tax laws, litigation and labour relations.