Menon Bearings Ltd Management Discussions.

Indian Economy Overview:

India is emerging as one of the fastest growing economies in the World. Government push in the form of its robust initiatives along with measures such as implementation of GST , Make in India move, revision of Corporate tax, revisions with respect to FDI & FII policy & other key reforms have propelled faster economic development.

It is expected that India is poised to soar, higher than many fast-growing large economies over the next decade. At the same time, automotive original equipment manufacturers (OEMs) and component manufacturers in the country aspire to achieve global eminence.

However, due to outbreak of the novel coronavirus (Covid-19) across globe, which World Health Organisation (WHO) has declared same as Global Pandemic, the viral outbreak comes at a difficult time for the Indian economy which has further slowed down the already struggling economy. To combat with COVID- 19, on 24th March, 2020 ,Indian Government declared nationwide lockdown for the entire country until 3rd May, with a conditional relaxation after 20th April for the regions where the spread had been contained. Covid-19 no doubt disrupted human lives across globe. The revised Gross Domestic Product(GDP) is estimated for India for the fiscal year 2020 as 4.8% as compared to 6.8% in F.Y. 2018-19. However, we cant ignore that post COVID-19, some economies are expected to adopt de-risking strategies and shift their manufacturing bases from China. This can create opportunities for India.

Industrial Review:

The Indian automotive OEM industry is already in a strong position. Globally, it is at the forefront of many segments—leading in two-wheelers, segment a cars, and tractors.

The rapidly globalising world is opening up newer avenues for the transportation industry, especially while it makes a shift towards electric, electronic and hybrid cars, which are deemed more efficient, safe and reliable modes of transportation. Over the next decade, this will lead to newer verticals and opportunities for autocomponent manufacturers, who would need to adapt to the change via systematic research and development. The Indian auto component market is segmented by products (engine parts, body and chassis parts, drive transmission and steering parts, suspension and braking parts, electrical parts, equipment, and others).

The auto component industry, in tandem, posted a somewhat subdued performance over the last fiscal as per the reports published by the Automotive Component Manufacturers Association (ACMA). It is mainly due to subdued vehicle demand, recent investments made for transition from BS 4 to bS 6, liquidity crunch, lack of clarity on policy for electrification of vehicles, among others, have also had an adverse impact on the expansion plans of the auto component sector, ACMA said in a press release.

As per Automobile Component Manufacturers Association (ACMA) forecasts, automobile component exports from India are expected to reach US$ 80 billion by 2026.

The Indian auto-components industry is set to become the third largest in the world by 2025. Indian autocomponent makers are well positioned to benefit from the globalisation of the sector as exports potential could be increased by up to US$ 30 billion by 2021E.

Achievements :

Following are the achievements of the government in the past four years:

• In April-December 2019, 5,40,384 units of passenger vehicles were exported from India.

• The FAME - India Scheme formulated by Department of Heavy Industry led to a continuous increase in registered OEMs and vehicle models. In February 2019, the Government of India approved the FAME-II scheme with a fund requirement of Rs. 10,000 crore (US$ 1.39 billion) for FY 20-22.

• Under National Automotive Testing and R&D Infrastructure Project (NATRIP) various facilities including passive safety labs comprising of crash core facility and crash instrumentations including dummies were established at ICAT-Manesar & ARAI-Pune.

Futuristic Outlook:

Keeping pace with the automotive industry, Indias auto component industry has been flourishing.

Few trends that are favourable for the industry are as below:

• Growing working population and expanding middle class are expected to remain key demand driver.

• Relative to competitors, India is geographically closer to key automotive markets like the middle East & Europe.

• Exports will account for as much as 26 percent of the market by 2021.

• 100 percent FDI allowed under automatic route for auto component sector.

• Under new GST regime, GST on electric vehicles is reduced from 12% to 5%.

• A cost-effective manufacturing base keeps costs lower by 10-25 percent relative to operations in Europe and Latin America.

The Opportunities Ahead :

• Pursue export opportunities aggressively.

• Enhance import substitution.

• Plan activities towards Govts make in india appeal & focus to manufacture everything from start to end locally & thereby take benefit of Govts subsidies & boosters.

• Attract foreign direct investments as many global Companies are presently looking at India as next destination to set up their plants & businesses as a shift from China after Covid-19 pandamic.

• Offer premium features at "Indian costs" more rapidly than before.

• Focus on component categories that could contribute more to vehicle costs in the future.

• Expand aftermarket offerings to capture value from existing vehicle parc and aftermarket exports.

• Offer new or modified features that could be in demand with an increase in shared mobility penetration.

• Develop data-enabled services and solutions.

• Form partnerships and ecosystems to create and capture value.

• Expand portfolio to serve adjacent industries.

Future Challenge:

Multiple trends could shape the future of the automotive and the auto component industry:

1) Constantly shifting market dynamics

2) Changing OEM needs

3) Technological improvements and discontinuities that are already starting to change revenue pools, trigger new competition and invite new forms of cooperation

4) Evolving regulatory and trade environment

5) Constantly shifting market dynamics due to changing manufacturing locales, customer demands, operating models and priorities

6) Expedited enforcement of emission and safety standards

Financial Performance:

Year Income (Rs. in Lakhs)
2016 11191.14
2017 12422.18
2018 14678.20
2019 17541.38
2020 14035.59
Year PBT (Rs. in Lakhs)
2016 2332.88
2017 2753.91
2018 3233.51
2019 3610.20
2020 1960.67
Year PAT ( Rs. in Lakhs)
2016 1489.06
2017 1909.88
2018 2107.35
2019 2529.68
2020 1439.80
Year EPS ( in Rs. )
2016 3.19
2017 3.4
2018 3.76
2019 4.51
2020 2.57

Internal Control System & Adequacy:

The Company has an adequate Internal Audit System that promotes reliable financial reporting, safeguards assets, encourages adherence to fair management and ethical conduct. The strong Internal Control Systems have been designed in a way that, they not only prevent fraud and misuse of the Companys resources but also protect shareholders interest. The Audit Committee of Board of Directors, on regular intervals and in coordination with Internal and Statutory Auditors, reviews the adequacy of Internal Control Systems within the Company.

Based upon the recommendations of the Audit Committee, an Annual Audit Plan (AAP) is prepared and is reviewed periodically by the top management and the Audit Committee. The internal audit focuses on compliance as well as on robustness of various business processes. A feedback on non-conformities along with recommendation for process improvements is directly provided to the top management of the Company. Compliance on audit findings and tracking of process improvements is regularly carried out.

Development in Human Resources:

The Company strives to develop the most superior workforce so that it can accomplish along with the individual employees, their work goals & services to its customers & stakeholders. Our fundamental belief in immense power of human potential and team work is epitomised in our WE approach. To us, WE represents a strong collective energy. A transformational force that stimulates enterprise accelerates our constant pursuit of excellence and empowers our people to realise their full potential. The Company also believes human resources as the supporting pillars for the organizations success. As on 31st March, 2020 the Company had 236 permanent employees.

Development & Up-gradation of Technology:

All the staff members working in manufacturing departments have been advised to take different projects to;

1. Reduce rejection and wastage in raw materials and consumables,

2. To reduce setting time and to focus on production,

3. To optimize production activities to reduce electrical energy per unit of production,

4. To work on packing to enhance preservation and safety,

5. To develop new items in shortest possible time to have early business,

This is ongoing process and projects are getting completed one by one and new projects are being undertaken. This has given increase in top as well as bottom line.

Global Approach:

The Company trusts its capabilities to capture every opportunity of business in the global arena. Your Company is globally positioned with business activities spanning 24 Countries around the globe. Exporting about 30% of its production, it enjoys strong brand equity among leading OEMs all over the world.

Forward Looking Statements:

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 therein. Important factors that could make a difference include raw material availability and prices thereof, cyclical demand and pricing in the Companys principal markets, changes in Government regulations and tax regime, economic developments within India and the countries in which the Company conducts business and other incidental factors.