motherson sumi systems ltd share price Management discussions


MANAGEMENT DISCUSSIONS AND ANALYSIS

"All our dreams can come true, if we have the courage to pursue them"

SAMIL Overview

Samvardhana Motherson International Limited hereinafter called SAMIL or the Company, is a diversified global manufacturing specialist and the worlds leading supplier to automotive OEMs as well as to customers in a range of other industries like Aerospace, Logistics, Health & Medical and Information Technology. SAMIL has over 300 facilities (Facilities includes all operational units - manufacturing plants, module & assembly centers, tech centers and representative offices) across 41 countries and five continents. The global footprint allows the Company to support the evolving needs of its customers and upcoming industrial trends across the world. SAMIL being the listed entity serves as the main hub and catalyst for growth and value creation for our customers, investors, employees, and the communities in which we work. SAMIL has built a strong foundation on three pillars of organic growth, M&A and collaboration with global technology leaders to enhance and enrich the value proposition to customers and increase content per vehicle. The Company is listed on BSE (formerly Bombay Stock Exchange) and National Stock Exchange of India Limited (NSE)-Motherson. NS, the Company has 1,027,023 shareholders (March 31, 2022: 903,614 shareholders).

The Company has a manufacturing pedigree of more than 4 decades. This is the first full year of operations post the reorganization set out in July-2020 and completed in Jan-2022 with the following strategic objectives:

• Simplifying the group structure by bringing in all the auto components and allied businesses under one umbrella

• Alignment of interest of all stakeholders

• Creating a strong platform for future growth with well-diversified product portfolio, customers, and countries

The group reorganization completed in Jan-2022 resulting in the simplification and unification of the group structure. With Motherson 2.0 the company is well geared to embark on a growth path and has created a strong platform with financial strength and capabilities to capitalize on incoming opportunities.

With Motherson 2.0, the Company has moved to a 3+1 reporting structure with focus towards business divisions instead of individual legal entities, wherein top 3 businesses contribute more than 90% of the business. This aligns well with our broader objective i.e., simplification of group structure & unified vision & also enables us to individually demonstrate and further develop capabilities in each business division.

Macro Environment & Outlook Global Economy Outlook

The global economy has faced multiple headwinds over the past couple of years, International Monetary Fund ("IMF") forecasts the world growth estimates at 2.8% for 2023 (3.4% in 2022) which is comparatively weak as compared to pre-pandemic levels with growth averaging 3.7% 2010-19. The following forces are still at play:

• Ongoing geopolitical conflict of Russia-Ukraine

• Commodity spikes and volatility in energy prices

• Soaring inflation and rising interest rates

• Financial market stress and banking instability

Economies across the world are synchronously tightening monetary policy to curb inflation and additional risks of maintaining banking stability caused by the unexpected failure of specialized regional banks in USA and loss of confidence in Credit Suisse globally. The major forces that shaped the world economy in 2022, carry on this year with varying levels of intensity with economies recovering, commodities settling at elevated levels and easing of supply chain disruptions. Institutions and policy makers continue to tackle the challenges and improve economic prospects and minimize risks.

India Economy Outlook

According to IMF, the Indian economy is expected to grow at 5.9% in 2023. The growth story for India continues to be resilient to external environment and the country remains one of the fastest growing economies in the world despite global headwinds. The upswing is supported by strong investment activity, production linked incentives in various industries and private consumption. India is emerging as a strong manufacturing hub and supplier to global requirements due to favorable government policies & external environment, demographic benefits etc. There may be sluggish spend on discretionary items due to high core inflation along with possible development of El Nino weather conditions as a risk for agriculture related production and income. The reforms and incentivization by the government towards self-reliance and potential for India to be a key part of the global supply chain will continue to aid the growth trajectory.

Industry Developments

The Companys performance is primarily dependent on the automotive production in key geographies that it operates in. The production is directly linked with vehicle sales and consumer confidence. Over and above, there are multiple general economic and industry specific factors which have a bearing on the performance of the company.

While we continue to navigate these challenges, we remain cautiously optimistic. During FY22-23, global automotive production volume has seen good recovery as compared to previous year aided by visible easing in supply chain and better availability of semi-conductor and automotive components. We continue to adapt to changes in the business environment by breathing with the market and to ensure that our business model is sustainable and continues to generate long term value for all our stakeholders.

Covid-19 Pandemic

The world has changed significantly since the outbreak of covid-19 pandemic in 2020. We now live in a post-vaccine world and are constantly recalibrating and adapting to the new normal. While significant progress has been made to ensure the health and safety of people around the world, new variants and macro factors have resulted in situations where the countermeasures have not been sufficient to combat the virus in certain geographies such as China.

The world is moving towards endemicity, and we continue to adapt and find solutions to challenges and lingering effects on health and safety of people, supply chains and normalization of business. Covid has taught us many learnings including virtual working, rationalisation towards travels etc.

Our focus remains on the health and safety of our associates and the community. The resilience of our teams and hard work is demonstrated in our performance.

Semiconductor supply update

Supply chain related headwinds continue to impact chip pricing and volumes resulting in operational inefficiencies with production lines start / stop and OEM based chip allocation to production programs. The lifting of covid- related restrictions has resulted in easing supply chain pressure and better availability of semi-conductors supporting the recovery in automotive volumes. We expect that demand supply lag is improving, however this is yet to fully normalize. Furthermore, the consumer preference has shifted towards high-end / premium variants of vehicles supporting the growth of the industry.

Supply Chain

The supply chain has largely normalized to pre-covid levels with global trade resuming business as usual. The price of a 40ft Container has reached normalized levels of -1,700 USD per container from a peak of -10,000 per container during covid resurgence and restrictions.

Energy Prices

The geo-political conflict resulted in an energy crisis in Europe with a sharp rise in energy prices disrupting global trade, in the latter half of FY23 the energy prices have reduced from record highs and settling at elevated levels. The company is continuously monitoring the situation to minimize the risk.

Given the volatility of spot rates across Europe, the company is proactively evaluating short and long-term measures such as power purchase agreements and open contracts as well as incorporating efficiency measures across plants such as heating optimization, energy measuring & monitoring systems, reduction in energy usage etc.

Geo-political disruptions

The geo-political conflict continues to shake the foundation of international peace and security resulting in a large humanitarian crisis - We hope for the safety of people that are impacted and return to peace and stability. We remain subject to various pressures & challenges - inflationary pressures, elevated energy costs, disruption in the supply of various commodities and overall supply chain. As a result, the OEMs decisions to suspend or fully halt their production in Russia and disruption in the supply of various commodities, our operations though very limited in Russia were also impacted. As a matter of conservatism an impairment of our assets in Russia is recognized in the financial year and is detailed in below sections.

Inflationary Pressures

The recurring episodic shocks on account of various challenges have resulted in the global economy adjusting to the new normal. We continue to operate in a high inflation and interest rate environment with higher input costs for raw material, energy, freight, labour, capital and other related elements. While some of the elevated pressures have subsided, the higher cost structure will inherently have to be built into the business. This pressure will also be prevalent at our supplier level. Accordingly, customer support, repricing of existing orders and continuous product and process improvements for operational efficiencies will remain a priority for the Company.

Automotive Industry Outlook

The automotive Light Vehicle production in FY23 clocked in at -83.5 Mn with normalizing supply chains representing a growth of 9% over the corresponding previous year. While the industry is on the path to recovery, Automotive production is still approximately 10 -15% behind pre-covid levels.

Global Light Vehicle Production by Key Regions (Units in Million)3

Region FY2018319 FY2019320 FY2020321 FY2021322 FY2022323
Europe 21.8 20.2 16.6 15.1 16.5
North America 16.8 15.9 12.9 13.0 14.6
India 4.7 3.9 3.5 4.2 5.2
China 26.1 21.9 26.2 25.2 25.9
Others 23.4 21.9 18.2 19 21.3
Global 92.8 83.8 77.4 76.5 83.5

Automotive production for light vehicles in all the key geographies have recovered over the last financial year mainly led by North America (YoY 12.3%), Europe (YoY 9.9%) and India (YoY 23.8%) supported by economic growth and robust consumer demand. While there was growth in China (YoY 2.8%) it remained subdued due to resurgence of covid in certain regions during the second half of the year.

Indian Automotive Production-2W, Passenger Vehicles & Commercial Vehicles

(Units in Thousands)4

Category FY2018-19 FY2019-20 FY2020-21 FY2021-22 FY2022-23
Passenger Vehicle 4,028 3,425 3,062 3,651 4,575
Three Wheelers 1,269 1,133 614 759 856
Two Wheelers 24,500 21,033 18,350 17,714 19,459

Global Medium and Heavy Commercial Vehicles (MHCV) Production Highlights (Units)5

Category FY2019/20 FY2020/21 FY2021/22 FY2022/23
Heavy Truck 316,816 222,161 269,501 330,977
Medium Truck 283,970 237,773 249,207 261,743
North America 600,786 459,934 518,708 592,720
Heavy Truck 425,072 377,671 435,221 463,722
Medium Truck 78,662 76,505 75,680 77,063
Europe Total 565,106 502,813 562,605 593,452
Heavy Truck 89,535 77,498 125,616 123,528
Medium Truck 22,917 21,115 32,459 26,388
Brazil Total 139,979 116,219 177,481 181,732
Heavy Truck 1,142,193 1,906,097 1,024,654 630,884
Medium Truck 131,594 205,570 147,734 86,721
China Total 1,402,025 2,217,665 1,267,392 808,248
Others 603,590 487,829 668,700 731,500
Global Heavy Duty & Medium Duty Trucks 3,094,349 3,612,219 3,028,772 2,732,526

The truck (Medium-duty & Heavy-duty trucks) volumes recovered in North America (YoY 14%) and Europe (YoY 5%) however the decline in China (YoY -36%) contributed to the degrowth at a global level.

Key regional drivers for financial year 2023

Volume recovery in Europe with supply chain easing and softening of energy prices

Oversupply of previous generation trucks due to change in regulation from July 2023 with more stringent emission norms and resurgence of Covid-19 in certain regions of China

Pent-up capital investments in North America supporting recovery.

Change in regulations in Brazil resulting in inventory build-up of Euro-V vehicles impacting sales of Euro-VI. Trend towards zero emission vehicles and hybrids6:

As the world moves towards a carbon net zero society, the automotive industry is also evolving with new technology geared towards electric, autonomous and shared mobility. There is also a shift in consumer preferences and behaviour to more sustainable modes of transport. As automotive OEMs realign their strategy and introduce zero emission vehicles (EVs or FCEVs), the de-carbonization trend may not be the same across all regions. Developed markets will have a faster adoption of EVs with the availability of infrastructure however emerging markets (excl. China) may have a higher demand for Hybrids and alternative vehicles as infrastructure to support electrification is still evolving in those geographies.

Premiumization and SUV Trend6-12

There is a trend of increasing content per vehicle with change in consumer preferences resulting in most OEMs realigning their product portfolios with an increased line up of SUVS and inclusion of premium features across segments.

Various agencies are forecasting global light vehicle production volumes to rebound to 89 Mn units by FY25 with Global Medium and Heavy-Duty Truck volumes to 3.4 Mn Units. This implying further downside in production volume may be limited, and the industry is on the path to recovery aided by normalization of production schedules and trend of premiumization, SUVs and Electrification.

SAMIL A Platform for Growth - Strategy Overview

Vision 2025

Our Vision is "to be a globally preferred sustainable solutions provider", with aim to build a Company for the long term and future generations. We are halfway through the sixth 5-year plan called Vision 2025, with below targets:

• Revenues of USD 367 Billion in FY2024-25 with 40% ROCE (consolidated)

• 3CX10: No country, customer or component should contribute more than 10% to our revenues

• 75% of revenues from automotive industry, 25% from new divisions

• Upto 40% of consolidated profits as dividend

All our targets are interlinked and are aimed at ensuring development of a strong company that can consistently create value for all stakeholders.

In this endeavor to achieve Vision 2025, we continue to follow our Prudent Financial Policies

• Leverage: Net Debt to EBITDA ratio to be maintained below 2.5x on a sustainable basis (-12 Months)

• Liquidity: Maintain diversified sources of funding with a large portion of long-term facilities. Cash and committed undrawn facilities to be at more than 15 days of sales.

• M&A: Robust evaluation framework for strategic fit and internal investment thresholds. Synergies such as vertical integration, access to technology, process and best practices form key metrics in our selection process. We aspire to achieve a steady state ROCE of 40% in all investments.

SAMIL Automotive Booked Business

Our complete automotive gross booked business3 is approx. USD 69.1 Bn as on 31st March 2023. This comprises booked business of Wiring Harness, Modules & Polymer, Vision Systems, Lighting & Electronics, Precision Metals & Modules and Elastomers divisions. 20% of the booked business is towards Electric Vehicles "EV"3 platforms. The booked business consists of both Passenger and Commercial vehicles, with an average life of five to six years providing a good run rate visibility on future revenues.

M&A

M&A is a key pillar of our growth strategy. The high interest rate and challenging business environment has resulted in many opportunities with customers looking for strong and healthy partners to support their supply chain. Most of our acquisitions are at customers behest and their support. In FY2022-23 the Company announced 6 transactions, the full growth potential of which will be unlocked in the near future. The combined gross revenue of announced transactions is approx. USD 4.9 Bn (Gross10) and USD 1.1 Bn (Net) with approximately 40 facilities and 8,000 employees.

The company has also announced 5 strategic transactions up till 15th July 2023, the combined revenue of approx. 900 Mn USD.

• YMAT is a Joint venture company with Youngshin Components Co. Ltd Korea engaged in manufacturing and assembly of auto clutch products, SAMIL has increased its stake from 50% to 80% basis which full benefits of future growth will accrue to the company. Transaction was closed in June 2023.

• Cirma is engaged in manufacturing and sale of Electrical Wiring & Interconnect Systems (EWIS) for aerospace, shipbuilding and allied Industries based out of France. SAMIL has acquired 100% stake in Cirma, the transaction is expected to be completed by Q3FY24.

• Yachiyo is engaged in manufacturing of Sunroofs, Plastic Fuel Tanks and Resin products. SAMIL has entered into an agreement and strategic partnership with Honda Motor to acquire 81% stake in Yachiyo 4W Business. Transaction is expected to be completed by Q1FY25.

• Prysm is engaged in design development, manufacturing and sale of large format touch enabled display screens with embedded collaborative software developing Gen-3 prototype. Upon successful delivery of Gen-3 prototype as per agreed specification and associated conditions, which is expected by Q4FY24, the Company would further invest USD 20 Million and convert secured note to equity for majority stake i.e., not less than 72% on a fully diluted basis.

• Roll-on Hydraulics is engaged in the manufacturing, sub-assembly and supply of high precision turned parts, spools, and other machined components with critical engineering applications. The company has acquired 100% stake in Roll-On Hydraulics, the transaction is expected to close by Q2FY24.

Diversification with 3CX10

Our core strategy of 3CX10, where in no country, customer or component should contribute more than 10% of our consolidated revenues enables us to de-risk the business and demonstrate resilient performance. We have successfully achieved 3CX10 on the customer side. We are continuously working on further diversifying our component and geographic mix.

Charts below presents the 3CX1011-12-13 performance for the financial year 22-23

* Under Modules and Polymer Products business division

Equal Exposure to Developed & Emerging Markets

SAM IL follows a globally local strategy with the ability to manufacture and supply to customers in the same region. With an equal footing in both developed and emerging markets, the Company is well positioned to innovate technologies, products and features in developed markets, whilst emerging markets provide the upside of best cost countries and talent pool with younger demographics to provide unique solutions. The Company does see higher growth coming out of economies like India and intend to set up 7 new green-fields of which 6 are being setup in India: 3 for automotive (Wiring Harness -2 and Modules & Polymer -1) and 3 for non-automotive in Aerospace, Technology & Solutions and Healthcare with 1 new greenfield in China.

Strong Balance Sheet

The Company continues to focus on financial discipline, Net debt for the year ended 31st March 2023 was INR 91,005 Mn (including lease liabilities INR 16,266 Mn) with a Net Debt to EBITDA ratio of 1.4x in comparison to 31st March 2022 with Net Debt of INR 91,372 Mn (including lease liabilities of INR 13,688 Mn) with Net Debt to EBITDA ratio of 1.9x. The Company has significantly deleveraged over the last six quarters, despite having a challenging business environment, unfavorable foreign exchange movement and continued levels of higher inventory on account of carrying safety stock for customers due to supply chain issues and volatility in customer production schedules. The decline in net debt is partially offset by unfavorable foreign exchange movement.

This is reflected in our ratings by various agencies.

Domestic Ratings (SAMIL)
Category ICRA CRISIL India Research & Ratings
Short Term Rating - A1+ -
Long Term Rating - AA+ / Stable AAA /Stable
Commercial Papers A1+ - A1+
Non-Convertible Debenture - - AAA / Stable
Issuer Rating - - AAA / Stable
Corporate Credit Rating - AA+/ Stable -

 

International Ratings

Category S&P Fitch Moodys
Issuer Credit Rating (SMRP B.V) BB/Stable BB/Stable -
Senior Secured Bonds (SMRP B.V) BB BB+
Corporate Family Rating (SAMIL) - - Ba1/Stable

Key Developments in FY2022-23

M&A Transactions

Acquisition of DICV Frame & Assembly Business - Sept 2022: SAMIL acquired the assets of frame & assembly operations from Daimler India Commercial Vehicles Pvt. Ltd ("DICV") With addition of certain key assets and machinery, this provides a vertical integration opportunity pairing well with existing business of body in white (BIW) and cold stamped products for the customer. This is a testament of the long-standing relationship with Daimler. SAMIL will be the sole supplier for the next 10 years to DICV for Frame and Assembly. The transaction closed on 27th February 2023.

Acquisition of Ichikoh Industries - Sept 2022: SAMIL via its subsidiary SMRP B.V (SMR UK step down subsidiary) has entered into share purchase agreement with Ichikoh industries ("Ichikoh") for the acquisition of 100% equity shares of Misato Industries Co. Ltd, Japan and Ichikoh (Wuxi) Automotive Parts Co ltd, China. The target has 3 facilities across 2 countries supported by approx. 700 employees. The acquisition is in line with our strategy of 3CX10 with increased geographic footprint and increased penetration with Japanese OEMs and will further provide R&D & manufacturing capabilities for the vision systems division. The deal is expected to close by Q2FY24 subject to completion of all conditions precedents.

Acquisition of Saddles-Jan 2023: SAMIL forays into automotive upholstery business with the acquisition of 51% stake in Saddles International Automotive and Aviation Interiors Private Limited ("Saddles"). Saddles is engaged in manufacturing of premium upholstery (Seat covers, cover for gear knobs and wrapping of door panels) for passenger vehicle applications with 7 facilities and -2,000 employees across India. With entry into this product segment, Motherson is poised to gain from evolving trends of increased features and upscale automotive interiors, shift towards SUVs and premium vehicles and increased focus on safety related regulations. The deal is closed in July 2023.

Acquisition of SAS Autosystemtechnik GmbH - Feb 2023: Motherson further strengthens its position as a tier 0.5 supplier with the announced acquisition of SAS Autosystemtechnik GmbH ("SAS"). The acquisition further adds the core competency of assembly operations and managing complex logistics for us to be further entrenched in the automotive supply chain as module specialist. SAS had a gross revenue (on principal basis) of EUR 4.4 Bn and net revenue of EUR896Mn in FY22 with 24 manufacturing facilities and approx. 5,000 headcounts across 12 countries, the transaction is expected to close by Q2FY24.

Acquisition of FMCEL- Mar 2023: SAMIL acquired balance 50% shares of Fritzmeier Cabin Engineering Pvt Ltd (FMCEL) from its Joint Venture partner F Holdings GmbH Austria. FMCEL is engaged in the development and manufacturing of operator cabins, cover assemblies and fabrications for off-highway applications. The agricultural and construction equipment industry in India is poised for significant growth and all benefits will fully accrue to SAMIL now with FMCEL being a 100% wholly owned subsidiary. Transaction closed on 20th March 2023.

Acquisition of BOLTA - Mar 2023: The Company (via SMP Alabama) has acquired Bolta US Ltd, engaged in manufacturing chrome plated exterior and interior polymer components in US. The Company filed for bankruptcy under chapter 11 of the United States Bankruptcy Code. With this transaction we were able to ensure continuity of supply chain to OEMs and vertical integration by adding new products in the portfolio. This is in line with our strategy of offering more value to customers by combining functional and aesthetical parts. Transaction closed on 16th April 2023.

Consolidation & Amalgamation

Merger of Wholly Owned Subsidiaries of the Company-Jan 2023: To further simplify the structure, the Company approved the scheme of Amalgamation of four wholly owned subsidiaries-Motherson Consultancies Services Limited (MCSL), Motherson Invenzen Xlab Private Limited (Mi-Xlab), Samvardhana Motherson Polymers Limited (SM PL), MS Global India Automotive Private Limited (MSGI) with the Company and their respective shareholders and creditors under sections 230 to 232 and other provisions of the Companies Act 2013. The consolidation of assets and liabilities will result in the following benefits:

• Streamlining and further simplification of the corporate structure

• Elimination of duplicate administrative functions across the transferor companies

• Reduction in legal and regulatory compliance costs coupled with reduced time and multiple record keeping

• Greater synergies by enabling optimal utilization of resources and pooling of management

The merger will not result in any change in the share capital of SAMIL or any kind of dilution for SAMIL shareholders. The transaction was approved by the board on 27th January 2023 and filed with NCLT in March 2023 with all regulatory processes and ROC filings to close by September 2023.

Further Investment in MTSL-Mar 2023: SAMIL made additional investment of INR 1,252 million in Motherson Technology Services Limited (MTSL) (Information technology vertical of Motherson) resulting in increase in holding from 62.92% to 90.44% of total share capital. MTSL is an existing subsidiary of SAMIL and acquisition of additional equity shares is by way of rights issue of MTSL at the price applicable for all existing shareholders.

100% ownership in SMR Jersey - Mar 2023: The

Company via its material subsidiary SMRP B.V acquired additional 1.55% shares of Samvardhana Motherson Reflectec Group Holdings Limited (SMR Jersey) for purchase consideration of EUR 18.4 Mn from an independent third-party. The SMR Jersey, which owns most of the Vision vertical, is now a 100% subsidiary of SMRP B.V.

Capital Market Actions

NCD Issuance of6,000 INR Mn: The board of directors on 08th August 2022, gave an in-principle approval for issuance of Rated, Listed, Unsecured, Redeemable Non- Convertible Debentures of face value of INR 10,00,000/- for an aggregate principal of 1,000 Crores on a private placement basis in one or more tranches to certain eligible investors , out of which INR 600 Crores were allotted in Jan 2023 for cash on private placement basis to be listed on wholesale debt market segment of BSE Limited and NSE Limited.

SAMIL Consolidated Financial Performance Consolidated Income statement

Figures in INR Million
Results (Continuing Operations) FY 2021-22 FY 2022-23 % change % of revenue (FY22) % of revenue (FY23)
Total revenue from operations 637,740 787,007 23.4%
Cost of material 367,363 453,174 23.4% 57.6% 57.6%
Employee cost 153,746 179,314 16.6% 24.1% 22.8%
Other expenses 69,637 92,442 32.7% 10.9% 11.7%
EBITDA* 48,393 63,944 32.1% 7.6% 8.1%
EBITDA Margin % 7.6% 8.1%
Finance costs 5,426 7,809 43.9% 0.9% 1.0%
Depreciation and amortisation expense 29,582 31,358 6.0% 4.6% 4.0%
Profit before tax from continuing operations 14,243 24,048 68.8% 2.2% 3.1%
PAT (concern share) 5,096 14,956 193.5% 0.8% 1.9%
Earnings per share 0.97 2.21 126.9%

*Before dividend income and interest income.

Amount of erstwhile Samvardhana Motherson International Limited and its subsidiaries are considered only for three months during FY2021-22 and for full year during FY2022-23.

Financial Highlights

a. Revenues: In FY2022-23, The Company reported highest yearly revenues from operation amounting INR 787,007 Mn against INR 637,740 Mn in FY2021- 22, representing a 23.4% change year on year. The increase is on account of ~9% recovery in global automotive volumes, due to new launches and ramp-up of new programs supported by content increase per vehicle due to premiumization trends.

b. Cost of material: For the financial year 2023, the cost of goods sold was INR 453,174 Mn vs INR 367,363 Mn in the corresponding previous year. As a % of revenue, cost of material was 57.6% (57.6% in FY22) which is same as previous year, despite sharp increase in commodity prices. On a comparative basis the cost increased by INR 85,811 primarily on account of:

o higher sales, material and associated costs

o volatility in commodities & production inputs at elevated price levels (Copper, Resin, Glass)

Cost of material includes purchase of raw materials (including commodities, bought out parts and various finished components), purchase of goods and tools for resale, discounts for prompt payment, purchase returns and similar transactions, volume discounts, change of inventories, consumption of other supplies and purchase of traded goods. These are primarily variable in nature based on the product mix sold during the period.

c. Employee Cost: Employee costs have increased to INR 179,314 crores in FY23 as compared to INR 153,746 crores in FY22. There is an increase of 16.6% in Employee cost compared to previous year due to

o increased production levels thereby employing more direct manpower

o general wage / salary inflation

o rise in minimum wages in certain countries like Brazil, Mexico, Poland, Serbia, Lithuania etc.

The overall employee cost as a % of revenue, declined by 130 basis points from 24.1% in FY22 to 22.8% in FY23. Employee cost includes direct and indirect cost.

d. Other Expenses: Other expenses increased by INR 22,805 Mn to INR 92,442 Mn in FY23 as compared to INR 69,637 Mn in FY22. The increase is primarily due to

o full year impact of erstwhile Samvardhana Motherson International Limited and its subsidiaries as compared to three months consolidation during FY2021-22.

o higher input costs for energy in Europe, because of which overall electricity, water and fuel costs have increased from 2.0% of total revenue during FY22 to 2.7% of total revenue during FY23.

o Increased legal and professional fee on account of multiple M&A transactions evaluated.

Other expenses include costs related to general administrative expenses, energy, repair and maintenance, rental and lease, freight & forwarding, legal & professional fees, auditors remuneration, net foreign exchange gain / (loss) and other miscellaneous items.

e. Finance Cost: During the year ended March 31st 2023, finance costs amounted to INR 7,809 Mn a 43.9% increase over the corresponding previous year despite reduction in gross debt. Increase in finance cost is largely attributable to

o the overall increase in benchmarks rates like Euribor, Libor impacting the existing debt and

o partly due to the increased interest rates on the new borrowings done during the year.

Finance costs includes interest expense on borrowings, finance leases, loan processing fees, commitment charger, Mark to market loss/(gain) on fair value hedge and foreign exchange loss / (gain) on long-term loan facilities.

f. Depreciation and Amortization Expenses: For the fiscal year ended March 31st 2023, Depreciation & Amortization expenses were INR 31,358 Mn in comparison to INR 29,582 Mn in FY2022. Increase in depreciation and amortization is due to

o capex for new plants and to support launch of new programs.

o depreciation, amortization and impairment expenses of erstwhile Samvardhana Motherson International Limited and its subsidiaries was consolidated for three months during FY2021- 22 and for full year during FY2022-23 which also contributed to increase in absolute terms.

o depreciation and amortization also include INR 431 Mn on account of impairment provision during the year.

During FY2022-23, the Group recognized impairment loss of INR 431 Mn for Property, plant and equipment and Intangible assets with respect to its subsidiaries in Russia. The impairment was triggered due to ongoing geopolitical conflict in Russia and related sanctions, as a consequence OEMs have limited, halted or fully exited their business activities.

While the Group continues to explore alternate business opportunities going forward, impairment loss of PPE and intangible assets are recognized in the financia statements and disclosed as "Exceptional expenses" in Consolidated statement of profit and loss.

Depreciation & Amortization refers to the amount recognized in the income statement reflecting the amortized cost of the tangible and intangible assets on a straight-line basis over the estimated useful life of the assets. This also includes depreciation on right to use assets recognized under INDAS-116 in respect of lease contracts.

g. Share of Profits from associates and joint ventures:

Groups share in net profit / (loss) of associates and joint ventures accounted for using the equity method has decreased from profit of INR 160 Mn in FY2021-22 to loss of INR 437 Mn during FY2022- 23, primarily on account of loss in one of the Indian Joint Venture Kyungshin Industrial Motherson Private Limited to the tune of INR 5,849 Mn in FY23.

During FY2022-23 the Group has recognized an impairment loss amounting to INR 359 million for Goodwill included in the carrying value of investments in two of its joint venture entities accounted using the equity method. Impairment impact is disclosed under share of profit / (loss) of Associates and joint ventures in the Consolidated statement of profit and loss.

h. Income Taxes: Net tax expense for FY2022-23 was INR 7,352 Mn as compared to INR 6,069 Mn in FY2021-22 primarily due to increase in taxable income. Hence, weighted average applicable tax rate also reduced from 42.6% in FY2021-22 to 30.6% in FY 2022-23. There have been no significant changes in tax rates applicable to the Groups subsidiaries during the year, but recognition of deferred tax assets in certain green field and other locations which was not recognized in past year due to conservative approach reduced consolidated weighted average tax rate.

i. Earnings: Earning per share (PAT Concern Share) increased to 2.21 in FY23 from 0.97 in FY22.

Consolidated Balance Sheet

Figures in INR Million
Financial Position 31-Mar 22 31-Mar-23 % change
Property, plant, and equipment 145,252 156,445 7.7%
Right-to-use assets 16,031 19,181 19.7%
Capital work-in-progress 12,488 14,222 13.9%
Investment properties 5,241 4,993 -4.7%
Goodwill 33,743 37,726 11.8%
Other intangible assets (including intangible assets under development) 14,454 13,681 -5.4%
Other assets
- Inventories 64,417 78,228 21.4%
- Trade receivables 80,247 98,379 22.6%
- Cash & bank balances 49,994 46,987 -6.0%
- Other assets 140,834 148,676 5.6%
Total assets 562,701 618,517 9.9%
Liabilities of continuing operations (other than borrowings and lease liabilities) 197,758 236,825 19.8%
Net assets 364,943 381,692 4.6%
Source of funding:
Net worth 204,220 222,852 9.1%
Reserve on amalgamation 1,663 1,663 -
Non-controlling interests 17,763 19,254 8.4%
Loans outstanding:
- Long-term loans payable within one year 10,551 33,345 216.0%
- Short-term loans (other than payable within one year) 32,051 22,130 -31.0%
- Long-term loans 85,007 66,183 -22.1%
- Lease liabilities 13,688 16,266 18.8%
Total loans including lease liabilities 141,297 137,924 -2.4%
Cash & bank balance (excluding unpaid dividend) 49,925 46,919 -6.0%
Loans (net of cash and bank balances) 91,372 91,005 -0.4%
Net Debt (excluding lease liabilities) 77,684 74,739 -3.8%

Capital Expenditure

Figures in INR Million

Segment FY2021-22 FY2022-23
Wiring Harness Division 4,794 4,140
Modules & Polymer Products 15,740 12,524
Vision Systems 2,495 3,359
Emerging Divisions 1,334 1,805
Total 24,363 21,828

The capex for the fiscal period is primarily on account of maintenance capex of new programs and productivity improvements. During the year, the Company incurred capital expenditure of INR 21,828 Mn primarily financed from internal accruals and external borrowings.

Consolidated Cash Flow Statement

Figures in INR Million

Consolidated Cash Flow (Including discontinuing operations till effective date of composite scheme of arrangement) FY2021-22 FY2022-23
Cash flow from operations 32,951 54,965
Taxes paid (8,324) (8,535)
Cash flow from operating activities 24,627 46,430
Capital Expenditure (net of disposals) (24,363) (21,828)
Proceeds from sale / (payment for purchase) of investments (net) 135 (279)
Consideration paid on acquisition of subsidiaries net of cash balance acquired (1,081) (2,592)
Dividend received 793 1,982
Interest received 1,157 690
Cash flow from other investing activities 240 (422)
Cash flow from Investing activities (23,119) (22,448)
Proceeds & (repayments) of borrowings 2,456 (10,562)
Dividend paid (6,457) (3,308)
Interest paid (5,528) (8,083)
Cash flow from other financing activities (2,645) (5,389)
Cash flow from Financing activities (12,174) (27,342)
Net Increase/(Decrease) in Cash & Cash Equivalents (10,666) (3,359)
Net Cash and Cash equivalents at the beginning of the year 59,366 48,775
Cash and cash equivalents as at current year closing* 48,700 45,416

*(including exchange difference on bank balances in foreign currency with banks)

Operating Activities:

Net cash generated from operating activities has increased from INR 24,627 Mn in FY2021-22 to INR 46,430 Mn in FY2022-23. Cash flow generated from operating profits before working capital changes and income tax paid was INR 61,810 Mn in FY2022-23 as compared to INR 53,736 Mn in FY2021-22. Cash used in working capital was INR 6,846 Mn in FY2022-23 as compared to INR 20,785 Mn in FY2021-22 and tax paid has largely remained the same i.e., INR 8,535 Mn in FY2022-23 as compared to INR 8,324 Mn in FY2021-22.

Investing Activities:

Net cash used in Investing activities was INR 22,448 Mn in FY2022-23, primary towards capital expenditure amounting to INR 21,828 Mn, INR 2,592 Mn for consideration paid for acquisition of subsidiaries (CIM Tools Private Limited including step down subsidiary and JVs & Fritzmeier Motherson Cabin Engineering Private Limited) partly offset by received of dividend from Joint ventures amounting to INR 1,982 Mn.

Financing Activities:

Net cash used in financing activities was INR 27,342 Mn in FY2022-23, primarily on account of net repayment of borrowings (including lease liabilities) amounting to INR 14,498 Mn, dividend payment amounting to INR 3,308 Mn and interest paid amounting to INR 8,083 Mn.

Ratio Analysis

Key Ratios FY2021-22 FY2022-23
Current Ratios (in times) 1.07 1.11
Debt- Equity Ratio (in times) 0.69 0.61
Debt Service Coverage ratio (in times) 2.66 1.38
Return on Equity ratio (in %) 4.93% 7.76%
Inventory Turnover ratio (in times) 6.42 6.35
Trade Receivable Turnover Ratio (in times) 7.91 8.75
Trade Payable Turnover Ratio (in times) 3.38 3.64
Net Capital Turnover Ratio (in times) 39.62 39.09
Net Profit ratio (in %) 1.3% 2.1%
Return on Capital Employed (in %) 5.8% 8.7%
Return on Capital Employed excluding fair valuation impact** (in %) 7.2% 10.8%
Return on Investment (in %) 0.5% -0.7%

Calculation of Key Indicators (Ratio Analysis)

EBITDA Profit before exceptional items, share of net profit of investments accounted for using equity method and tax + Finance costs + Depreciation and amortization expense - interest income - dividend income
PBT Profit before exceptional items, share of net profit of investments accounted for using equity method and tax
Trade Receivable Turnover Revenue from contract with customers
Average trade receivables
Trade Payable Turnover Ratio Purchase of goods
Average trade payable
Inventory Turnover Cost of goods sold
Average inventories
Debt service Coverage Ratio (Earnings before interest, depreciation, dividend income, interest income, loss on sale of FA and exceptional items but after tax)
(Interest expense on short term and long-term borrowings + scheduled principal repayment of long-term borrowing during the year)
Net Capital Turnover Ratio (Revenue from contract with customers)
(Average working capital)
Return on Investment [(Dividend income + Groups share in net profit (loss) of associates and joint ventures accounted for using the equity method)
(Average Investment)
Return on Equity ratio [Net Profits after Taxes:
Average Shareholders Equity
Current Assets
Cut \6t it Ratio Current liabilities - Current maturities of long term borrowings
Debt Equity Ratio (Long term borrowing including current maturities + short term borrowing + lease liabilities)
Shareholders equity
Net Profit Ratio Profit / (loss) for the period
Revenue from operations
Return on Capital Employed (Earnings before interest and taxes)
(Average capital employed)

Performance SAMIL Standalone

Standalone Income Statement

Figures in INR Million

Results (continuing operations) FY 2021-22 FY 2022-23 % Change
Revenue from operation 54,163 73,550 35.8%
Cost of goods sold 33,927 46,230 36.3%
Employee cost 6,077 7,995 31.6%
Other expenses 7,426 11,130 49.9%
EBITDA* 7,345 8,949 21.8%
EBITDA/6 13.6% 12.2%
Finance costs 1,411 1,446 2.5%
Depreciation and amortization expense 2,042 2,313 13.2%
Profit before tax from continuing operations 9,198 9,092 -1.2%
PAT (concern share) 7,996 7,735 -3.3%
Earnings per share 1.53 1.14 -25.5%

* Before dividend and interest income

Standalone Balance Sheet

Figures in INR Million

Financial Position 31-Mar 22 31-Mar 23 % Change
Property, plant, and equipment 11,123 13,120 18.0%
Right-to-use assets 1,793 2,552 42.3%
Capital work-in-progress 538 658 22.3%
Investment properties 4,748 4,536 -4.5%
Other intangible assets 14 25 78.6%
Other assets
- Inventories 6,877 9,178 33.5%
- Trade receivables 11,215 14,647 30.6%
- Cash & bank balances 6,317 2,189 -65.3%
- Other assets 334,922 340,486 1.7 %
Total assets 377,547 387,391 2.6%

 

Figures in INR Million

Financial Position 31-Mar 22 31-Mar 23 % Change
Liabilities of continuing operations (other than loans and lease liabilities) 14,074 15,320 8.9%
Net assets 363,473 372,071 2.4%
Source of funding:
Net worth 307,537 312,633 1.7%
Reserve on amalgamation 1,773 1,773 -
Loans outstanding:
- Long-term loans payable within one year 7,489 27,528 267.6%
- Short-term loans 750 - -100.0%
- Long-term loans 45,213 28,690 -36.5%
- Lease liabilities 711 1,447 103.5%
Total loans including lease liabilities 54,163 57,665 6.5%
Cash & bank balance (excluding unpaid dividend) 6,246 2,122 -66.0%
Loans (net of cash and bank balances) 47,917 55,543 15.9%
Net Debt (excluding lease liabilities) 47,206 54,096 14.6%

Standalone Ratio Analysis

Key Ratios FY2021-22 FY2022-23
Current Ratios (in times) 2.28 3.68
Debt- Equity Ratio (in times) 0.18 0.18
Debt Service Coverage ratio (in times) 0.70 0.26
Return on Equity ratio (in %) 4.24% 2.48%
Inventory Turnover ratio (in times) 5.46 5.76
Trade Receivable Turnover Ratio (in times) 6.46 5.58
Trade Payable Turnover Ratio (in times) 5.06 5.74
Net Capital Turnover Ratio (in times) 3.96 2.51
Net Profit ratio (in %) 14.76% 10.52%
Return on Capital Employed (in %) 17.33% 18.34%
Return on Investment (in %) 28.70% 4.22%

* Investment and loan given is excluded from capital employed for calculation of return on capital employed since return from those assets are not considered in EBIT.

Key indicators are mentioned at the end of management discussion and analysis

Standalone Cash Flow Statement

Standalone Cash Flow (Including discontinuing operations till effective date of scheme of arrangement) FY2021-22 FY2022-23
Cash flow from operations 6,202 4,181
Taxes paid (2,519) (1,290)
Cash flow from operating activities 3,683 2,891
Capital Expenditure (net of disposals) (2,582) (3,976)
Dividend received from subsidiaries & Joint ventures 4,549 2,752
Proceeds from sale / (payment for purchase) of investments (net) - (6,128)
Loan (to)/repaid by related parties (net) 5,500 1,818
Cash flow from other investing activities 1,406 966
Cash flow from Investing activities 8,873 (4,569)
Proceeds & (repayments) of borrowings (1,817) 2,713
Dividend paid (4,731) (2,938)
Interest paid (2,654) (2,063)
Cash flow from other financing activities (191) (227)
Cash flow from financing activities (9,393) (2,516)
Net lncrease/(Decrease) in Cash & Cash Equivalents 3,163 (4,193)
Net Cash and Cash equivalents at the beginning of the year 2,867 6,246
Cash and cash equivalents acquired consequent to Composite Scheme of Amalgamation and Arrangement 145 -
Cash and cash equivalents as at current year closing* 6,175 2,053

Note: Segment spilt is based on the gross numbers i.e., before elimination of inter segment Revenues and EBITDA, includes 100% revenue of joint ventures and associates accounted for as per equity method. Facilities include all operational units (manufacturing plants, module centres, assembly centres, units for service businesses), tech centres and representative offices.

Wiring Harness Division

Figures in INR Million

FY2021-22 FY2022-23 Growth
Revenue 219,698 265,013 20.6%
EBITDA 19,130* 22,785 19.1%
EBITDA Margin 8.7% 8.6%

Performance Overview:

• This division has demonstrated a strong growth of 20.6% in FY23 as compared to corresponding previous year which is largely in line with the growth in Indian passenger vehicle market and CV market in North America and Europe.

• During the year EBITDA has also increased by 19.1% in line with growth in revenue as compared to corresponding previous year whilst navigating an inflationary environment.

• EBITDA margin declined by 10 bps from 8.7% in FY22 to 8.6% in FY23, the key elements of the same as a percentage of revenue is given below:

o 10 basis points increase in cost of material due to increase in copper price and unfavourable movement in exchange rates of bought out parts etc

o 80 basis points increase in employee benefit expenses due to rise in minimum wages across multiple geographies.

o 80 basis points decrease in other expenses

• The division incurred capital expenditure of INR 4,140 Mn ("14% lower than PY)

Modules & Polymer

Figures in INR Million

FY2021-22 FY2022-23 Growth
Revenue 354,200 422,557 19.3%
EBITDA 24,482 27,239 11.3%
EBITDA Margin 6.9% 6.4%

Performance Overview:

• This division has demonstrated a strong growth of 19.3% in FY23 as compared to corresponding previous year despite marginal recovery in global production volumes of approximately 9% as compared to previous year.

• During the year EBITDA has also increased by 11.3% as compared to corresponding previous year despite elevated commodity and energy prices coupled with high inflation cost.

• During the year EBITDA margin has declined by 50 bps from 6.9% in FY22 to 6.4% in FY23, the key elements of the same as a percentage of revenue is given below:

o 70 basis points increase in cost of material due to increase in commodity prices like Resin etc.

o 200 basis points as a percentage to revenue decrease in employee benefit expenses due to operating leverage.

o 180 basis points increase in other expenses primarily due to increase in power & fuel and freight cost.

The division has incurred a capital expenditure of INR 12,524 Mn (20.4% lower than PY) to remain prudent.

Vision Systems

Figures in INR Million

FY2021-22 FY2022-23 Growth
Revenue 134,976 165,688 22.8%
EBITDA 12,889 17,110 32.7%
EBITDA Margin 9.5% 10.3%

Financial Update:

• The division continues to grow on the back of recovery in global production volumes demonstrating a strong growth of 22.8% in FY23 as compared to corresponding year.

• Absolute EBITDA has also increased by 32.7% as compared to corresponding previous year despite supply chain related challenges and elevated commodity prices supported by customers on sharing of inflationary cost structures

• During the year EBITDA margin has increased by 80 bps from 9.5% in FY22 to 10.3% in FY23, the key elements of the same as a percentage of revenue is given below:

o 160 basis points increase in COGS due to increase in commodity price like Aluminium and resin prices and change in product mix

o 200 basis points decrease in employee benefit expenses

o 40 basis points decrease in other expenses primarily due to economies of scale

• Strong growth momentum as the business continues to expand having incurred capex of INR 3,559 Mn (34.6% higher than PY) to support new customer programs and launches.

Emerging Businesses

Figures in INR Million

FY 2021-22

Division Revenue EBITDA EBITDA Margin Revenue EBITDA EBITDA Margin
Lighting & Electronics 10,316 1,427 13.8% 29,530 4,294 14.5%
Precision Metals & Modules 5,621 799 14.2% 17,263 2,708 15.7%
Elastomer 4,835 696 14.4% 6,729 824 12.2%
Aerospace - - - 2,451 552 22.5%
Logistics Solutions 237 -21 -8.9% 1,250 35 2.8%
Technology & IT solutions 1,585 -104 -6.6% 7,870 -150 -1.9%
Health & Medical - - - 133 -241 -181.2%
Services 3,236 -519 -16.0% 4,440 -318 -7.2%
(Elimination and central support cost) -163 27 -1,397 24
Total 25,668 2,306 9.0% 68,269 7,728 11.3%

Subsidiaries and joint venture of erstwhile Samvardhana Motherson International Limited was consolidated only for three months during FY 2021-22 and for full year during FY 2022-23, hence the financials of the segment are not strictly comparable.

Debt Position and Liquidity

The Companys comparative debt position for the last two years is as follows:

Particulars (INR in Million)

Consolidated

March 31, 2022 March 31, 2023
Long term debt 95,077 78,239
Long term debt due in one year 14,169 37,555
Short term debt 32,051 22,130
Gross debt* 141,297 137,924
Cash and Bank Balance 49,925 46,919

 

Particulars (INR in Million)

Consolidated

March 31, 2022 March 31, 2023
Net debt* 91,372 91,005
Includes lease liabilities 13,688 16,266
In Long term debt 10,070 12,056
In long term debt due in one year 3,618 4,210

Risk Management

The Company has a global presence and decentralised management structure. The financial year 2022-23 saw multiple external and internal challenges continuing to shape the overall risk profile of the company. Macroeconomic and geo-political risks had an impact throughout the year. At the macro level, the Company is exposed to risks associated with global organisations and the automotive industry in particular. Mitigating risks from all directions is one of the challenges that the Company targets.

Risks are an integral part of business growth, but not all risks are created equal. Management and mitigation efforts must be calibrated according to the likelihood of exposure and the potential downside of an incident. The Company is exposed to various risks within each of its business segments and products.

The first step for risk management is in creating an effective risk-management system to understand the qualitative distinctions among the types of risks that organisations face. The Company has set up a Risk Management Committee (RMC) at the Board level to periodically, inter-alia, review Operating Risks, financial & account Risks, Regulatory Risks, Strategic Risks and IT & Information Security Risks in the business and their mitigating factors.

RMC has formulated Risk Management Policy for the Company which was approved by the Board. RMC considers a holistic understanding of the risks that can potentially impact the operations as well as takes actions on how to effectively mitigate those risks to protect their assets and to keep operations running smoothly. The policy formulated outlines the risk management framework to help minimise the impact of uncertainty on the Companys strategic goals.

The framework enables a structured and disciplined approach to risk management. The guidelines developed cover risk controlling and the use of financial instruments. These guidelines contain a clear allocation of duties. Risks are controlled and monitored by means of operational and financial measures.

The diverse businesses with different geographical exposure makes it critical to identify and mitigate risks at the key level of business divisions and operating units which might impact the overall group performance. The risk management policy ensures that the business divisions remain aligned with global risk management for the company.

As the group grows with Motherson 2.0 and keeping Vision 2025 in perspective with the changing business landscape and unexpected risks and uncertain events, the group has adopted a bottom-up approach to risk management in order to capture and manage risk at operating levels which may impact the group performance. Each vertical is responsible for own risk assessment with a defined team structure and engagement with continuous monitoring.

As a part of this structure, each division has a nominated risk officer responsible risk monitoring, policy making and process control. Further there are identified risk leaders responsible for identification, evaluation and mitigation of risks within the scope of designated functions such as Sales, HR, IT, Finance, Operations etc.

The divisions conduct half yearly meetings to assess and update the risk ratings, discuss progress on mitigation plans and its effectiveness or required course correction. This is a continuous exercise aligned with the Companys Risk Management Committee.

The Company follows a robust process of risk management by following 3 step approach

1. Step 1: Risk Identification (which includes education on the identification of risk, probability evaluation as to likelihood and finally consequence evaluation as to the impact/financial losses to determine the size of risk),

2. Step 2: Risk Evaluation and

3. Step 3: Action to mitigate or eliminate the risk with a monitoring mechanism in place.

In addition to RMC meetings, during the regular management meetings at all management levels, opportunities, risks and optimisation measures are reviewed in detail. Any exceptional situations having potential risks are identified and treated at the early stage to minimise their impact on financial and income positions. Also RMC reviews the risks for all key verticals of Motherson Group, i.e., Wiring Harness Vertical, Modules & Polymers Vertical and Vision Vertical.

Based on analysis and evaluation, RMC assesses various risks in the following categories:

1. Operating Risks:

The Operating Risks can be arising from internal factors and/or external factors. Further, the operating risks includes the following:

(a) Internal Factors:

• Sourcing and supplies for changes in raw material prices; shortage of raw material and components; supplier issues; and energy availability and pricing.

• Revenue for continuous pressure from OEM to reduce prices; reliance on single customer / market; and increased directed sourcing and multi-supplier sourcing by OEMs.

• Quality & Product liability

• Managing Manufacturing capacities

• Processes - Internal control

• Effective training of employees.

(b) External factors:

• Future growth-industry trend & preferences

• Social, Political and Economic risk

• Reputation Risk

• Act of GOD

• Natural factors (COVID-19)

• Geo-political risk

• Environment, Social Policy and Governance (ESG)

Motherson has a strategy of 3CX10 for Vision 2025, which means that no customer, no component and no country should contribute more than 10% to the overall business. Further, as part of Vision 2025, Motherson aims to achieve new segments contributing to 25% of revenues of US $ 36 billion target. If we are unable to effectively implement or manage our growth strategy and strategy to deliver competitive business efficiency, our business, prospects, financial condition and results of operations could be materially and adversely affected.

2. Financial & Accounting Risks:

This includes risks in terms of capital structure, forex risks such as currency risks, interest risks as well as financial obligations including liquidity, financial and other obligations under financing arrangements etc. As part of the overall strategy, the Company has facilities across globe, close to the customer, minimising the currency risks (other than translation). The Company has expanded the investors base since 2020 by doing 6(Six) series of Non-convertible Debentures (NCDs) issuance in Indian market.

3. Regulatory Risks:

This includes risks with respect to multiple jurisdiction laws and regulations, intellectual property, patents etc. Motherson as a global organization, has to comply with a complex regulatory landscape across multiple jurisdictions, covering areas such as Employment and Labour, Taxation, Foreign Exchange and Export Control, Sanctions restrictions, Environment, Health and Safety, Anti-Bribery and Anti-Corruption, Data Privacy and so on. The laws and regulations are continuously evolving, increasing in number and complexity. This has resulted in greater compliance risk and cost of compliance for the Company. As a mitigation tool, Motherson has also formulated Code of Conduct for best ethical practices and other best practices as part of Global Policies applicable to all associates of the Motherson Group on uniform basis. The Company conducts training(s) and an annual affirmation programme for its associates through a specialized developed digital platform.

For the management of Regulatory Risk, Motherson has legal experts appointed in various jurisdictions who support and provide guidance to officers ensuing compliances in various plants and other locations. Further, Regional Chairman Offices (RCOs) in different regions adopt best practices to mitigate the risks from regulatory perspective.

4. Strategic Risks:

This includes risks with respect to new business opportunities, M & A actions etc. Mothersons acquisition strategy is customers driven and has strong team to evaluate and strategise the acquisition.

5. IT and Information Security Risks:

This includes risk with respect to IT solutions and lack of awareness among employees towards IT security policy, system adequacy, protection of systems, safeguard from emerging cyber threats and data security.

The Company has well-institutionalised information security management system based on internationally recognised standards and best practices and is continually improving its cybersecurity posture to safeguard from the emerging cyber threats to its business. These momentous cyber risk management efforts are further augmented by embedding globe security governance roles in the centralised Group CIO function, and by effectively making use of innovative and new-age technology solutions to proactively detect and prevent sophisticated cyber threats.

6. Environment. Sustainability & Governance (ESG):

As a result of changing weather and seasonal patterns, there are increasing cases of seasonal diseases, epidemics and pandemics besides threat to human safety and business disruption. With globally distributed operations, the Company faces physical risks to life and property due to extreme weather events; transition risks resulting from disruptions in the market and emerging regulations, disruptions to operations due to water scarcity, e-waste and solid waste regulations. To emphasize the fundamental principles shaping the responsibility of Motherson with regard to Climate Change, the Board of Directors of the Company on August 26, 2021 inter-alia, adopted a Climate Change Policy which is available on the website of the Company at https://www.motherson.com/storage/Group- Policies/Climate-Change-Policy.pdf.

The various identified risks are further categorised on the scale and III elihood of occurrence in following categories:

(a) Extreme: This inter-alia includes risks associated with international long- term negative rating impact, significant prosecution and fines, litigation including class actions, significant injuries or fatalities to employees or third parties, such as customers or vendors etc.

(b) Moderate: This inter-alia includes risks associated with national short-term negative rating impact, report of breach to regulator with immediate correction to be implemented, widespread staff morale problems and high turnover etc.

(c) Minor: This inter-alia includes risks associated with reputational damage, reportable incident to regulator, general staff morale problems and increase in turnover etc.

The management also defines the probability and financial criteria of expected financial losses for each of the above categories which are revisited and revised considering the guidance of RMC.

This section lists forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these statements as a result of certain factors.

Internal Control Systems

As the Company has a large global footprint and presence in 41 countries, having strong and robust internal control processes is of utmost importance. The Company invests sizeable resources to ensure that the Company has a well embedded system of internal control processes which are in line with the current systems of internal financial control with the requirement of the Companies Act, 2013 and globally accepted best practices. Further, the Company has documented policies and procedures covering all financial and operating functions.

The Company has an adequate system of internal control commensurate to its size and the nature of its operations. The internal control system & process are designed to ensure:

(a) Transactions recorded are accurate, complete, authorised and are in adherence to Accounting Standards.

(b) Compliance to applicable statutes, corporate policies and procedures.

(c) Maintaining of proper accounting controls for ensuring reliability of financial reporting, monitoring of operations.

(d) Effective usage of resources and safeguarding of assets and ensuring its authorized use.

Further, some significant features of the internal control of systems are:

• Regularly reviews the audit plans, significant audit findings, adequacy of internal controls, compliance with accounting standards as well as reasons for changes in accounting policies and practices, if any.

• Robust Enterprise Resource Planning, supplier relations management and customer relations management connect our different locations, dealers and vendors for efficient and seamless information exchange.

• Detailed business plansforeach segment, investment strategies, year-on-year reviews, annual financial and operating plans and monthly monitoring are part of the established practices for all operating and service functions; and

• An ongoing programme, for the reinforcement of the Motherson Code of Conduct is prevalent across the organization. The Code covers integrity of financial reporting, ethical conduct, regulatory compliance, conflicts of interests review and reporting of concerns.

For review & testing the effectiveness of the internal control system, the Company has a well-established, independent, multi-disciplinary Internal Audit team, which operates in line with governance best practices. The Internal Audit function collaborates with independent internal auditors to periodically review compliance with respect to the established design of the internal control and assess the effectiveness as well as the efficiency of operations.

The Company also undergoes periodic audit by specialized third party consultants and professionals for business specific compliances such as arms length analysis for related party transactions, quality management, service management, information security etc.

The significant audit findings are reviewed at regular intervals by the Audit Committee of the Board of Directors, comprising majority independent directors (including the Chairman being an independent director). Further, the Audit Committee also monitors the status of management actions emanating from the internal audit reviews.

Processes in the Internal Audit function have been continuously strengthened for enhanced effectiveness and productivity including the deployment of best-in class tools for analytics in the Audit domain which has further enhanced the depth, coverage, and sharpness of the internal audits. The Company is using the latest IT tools such as data analytics to enhance the scope and effectiveness of the internal audit function. Adherence to the statutory compliances at each of the locations is also ensured through a continuous monitoring mechanism. The Company has also identified various business risks and laid down necessary procedures for mitigation of the same.

There have been no changes in our internal control over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The statutory auditors of the Company have audited the financial statements included in this Annual Report and have issued an attestation report on the Companys internal control over financial reporting (as defined in section 143 of the Companies Act, 2013).

Management has assessed the effectiveness of the Companys internal control over financial reporting (as defined in Regulation 17 of SEBI Regulations 2015 applicable on Indian entities) as on March 31,2023.

During Financial Year 2022-23, the effectiveness of the Internal Control over Financial Reporting been assessed and has determined that the Internal Control over Financial Reporting as of March 31,2023 is effective.

Human Resource

Motherson is a peoples Company and we put our people first. The Company is driven by highly motivated employees spread across the world in 41 countries. We are a family with multicultural and multilingual backgrounds. Motherson is a truly global organization that recognizes the capabilities, contributions, potential, and value of its human capital.

Motherson is committed to contributing to and respecting internationally recognized human rights. Preventing violations of human rights forms an integral part of Mothersons values. Human rights are universal. Inherent dignity and equality for all is the foundation of freedom, justice and peace all around the world. Motherson subscribes to the principle that every human being has the right to be treated with dignity, fairness and respect. Motherson upholds the dignity, fundamental freedoms and human rights of its employees, contractors and the communities in which they live and work. Motherson respects human rights and cares about its role as a good corporate citizen for the human rights of each individual. Motherson as business enterprises will comply with all applicable laws with full respect to human rights.

With the above objective, the Board of Directors of the Company on May 19, 2023 has adopted a Human Rights Policy and the same is available on the website of the Company at https://www.motherson.com/storaae/ Group-Policies/Global-Citizenship-Policv.pdf.

Building a Strong Workforce

Motherson globally employed approximately 155,000 and 168,712 employees as of March 31, 2022, and March 31, 2023, respectively.

Diversity & Inclusion

Diversity in the workplace includes inherent culture, ethnicity, race, gender, nationality, age, religion, disability, education, opinions and beliefs.

The Board of Directors of the Company on August 10, 2021, inter- alia, approved and adopted the Inclusion and Diversity Policy. The Policy outlines Companys approach and commitment to Inclusion and Diversity, which is aligned with Mothersons beliefs. The Inclusion and Diversity Policy sets out the objective to drive better business outcomes and an improved people experience through shared accountability for Inclusion and Diversity.

Inclusion and Diversity Policy approved and adopted by the Board of Directors of the Company on August 10,2021 is available on the website of the Company at https:// www.motherson.com/storaae/Group-Policies/lnclusion- and-Diversity-Policv.pdf

Our diversity is our strength. By acknowledging and valuing these differences we emerge as a stronger and better organization. At Motherson, we believe that the core of our success lies in the collaborations with our different stakeholders, which are relationships based on trust and respect for each other.

Motherson is committed to providing a safe, flexible and respectful environment for its staff and clients free from all forms of discrimination, intimidation, exploitation and harassment. The group sets a standard of zero tolerance for any kind of discrimination at work. Each person representing the Company is responsible for ensuring that all actions or behaviour that are or could be viewed as discriminatory are avoided.

By helping and supporting one another, we foster a real sense of togetherness. We celebrate the uniqueness of each of our employees, but we are One Motherson with a single vision:

to be a globally preferred sustainable solutions provider for our customers.

Employee Well-being

Peoples safety and well-being are utmost priority of Motherson. Our objective is always to identify and adopt the best practices of every region in our work culture. The Human Resource function of Motherson leads from the front and leaves no stone unturned to make a positive difference in the lives of its employees.

Employee communication and engagement remained at the heart of our approach and are facilitated by technology. To foster a more connected organization, the Company has been using various tools to stay connected with the workforce, providing emotional support.

It has been about two years since we at Motherson transitioned to hybrid work, prioritizing safety and flexibility. This shift has enabled us to be more responsive to customer demands, more resilient to disruption and more productive in our work, characterized by empathy and flexibility. Today, our offices have integrated technology into their designs to deliver an experience far beyond the traditional way of working. At Motherson, our objective is to build and retain social capital among employees to enhance collaboration and innovation in a hybrid workplace. In addition, working from the office in a hybrid model promotes ideation and self-learning, which fosters self-development. Our approach to returning to work has been balanced with a focus on flexibility, employee safety and well-being and client commitments.

Learning and Development

At Motherson, our success stems from success of our people. We aim to help each employee reach their fullest potential and thus employee development strategy is aimed at creating a dynamic talent pipeline, capable of supporting the organization to meet evolving business challenges in the long run.

We educate our employees through regular training which helps them acquire new skills, increase their productivity, climb the corporate ladder and take up bigger responsibilities and above all keep them motivated and aligned to organizational goals.

A step forward in this direction has been the development of a web-based e-learning platform that has also been developed and deployed across the organization. This digital model of learning has ensured the collaboration of a larger audience while being seated and learning from anywhere.

Leadership development is important for every organization, and at Motherson we initiated a pilot programme for our leaders. The programme aims to familiarise future leaders of the group with the Motherson philosophy and to acquaint them with all main areas of expertise within the group. This programme included participants from across several continents who participated in an 18-month training and practical programme in which emphasis was placed on enhancing their knowledge of the various aspects of the business and building their leadership skills. Now the same programme is being emulated regionally across the group.

Quality Circles are another vital employee development activity where employees come together as a team and work towards solving work-related problems. They are encouraged to present their innovative project ideas and methods of implementation to the larger team.

We have been successfully involving and evolving employees in this movement for the past two decades. This is a great way to develop a solution-oriented approach in our employees and teach them different problem-solving techniques.

As of Dec 31,2022, there are 1599 Quality Circles actively operating within the Motherson Group. 4031 quality projects have been completed by the Quality Circles, in the year that has gone by.

We closely monitor the skill matrix of all our people and ensure their personal goals are mapped with their professional grooming to help them live fulfilled professional lives and better enhance their tenure at the Company.

Opportunity to grow

Motherson believes in providing Equal Growth Opportunities to all those who have the ability and willingness to perform. Meritocracy is the only criteria to rise in rank. All employees have documented key result areas for performance, which are set based on work profile and business requirements through discussion with respective reporting managers. The annual performance appraisal cycle helps to set the expectation via defined targets and objectives along with stating the development needs of the employees. Constant focus on improving over past performance is what is driving the growth in the organization.

The Company is committed to the growth and development of its employees to strengthen their functional, managerial and leadership capabilities. We have a focused approach with the objective of addressing all capability gaps and preparing our employees to adapt to the fast-changing external environment to meet the Companys strategic objective.

Motherson follows the mantra of BY-BY (By Yourself - Better Yourself), which says "Be your own benchmark, set it high and constantly beat it. Even a small improvement every day will take you to whole new levels". Continual improvement in all areas is our way of life.

Open Door Communication to Create Trust & Transparency

We harbour a culture of trust and transparency by following an Open-Door Policy. We have various policies including Whistle Blower Policy that work towards open communication and transparency. Objective of these policies are having an all-encompassing platform for both management and employees that extends to the realms of establishing a system of fair practices and guiding principles for everyone to abide.

Motherson has several ways to engage with employees. Interaction sessions, communication meetings, work councils and various forums are interactive engagement channel that enables two-way communication with employees. Various Cross-Functional Teams (CFT) are in place to collectively brainstorm on practices and improve the process and policies based on the suggestions received. To address any grievance of its workmen, including the temporary workforce, the Company has a well-structured grievance redressal mechanism.

Technology has reshaped the way we think, live, and connect. Digital engagement tools have been designed and developed for employees convenience. This group intranet is a connecting highway that facilitates mutual support to move ahead together, encourages collaboration, increases efficiency, and enables the exchange of ideas and information.

An employee engagement survey is also conducted to gauge the satisfaction levels among the workforce. Based on employee feedback, initiatives have been taken for strengthening communication and workplace improvements.

In short, employee-centric policies and communication forums ensure a safe and secure working environment for all employees.

Health & Safety

The organization regards health and safety as a high priority and a fundamental value to be upheld at all times by all persons. Inspired by the organizations philosophy of Safety First, strong processes and systems are in place to minimize risks and ensure the safety and well-being of the workforce. All employees, right from the shop floor up to the top management, are trained to execute their work safely and responsibly.

The Company is committed to creating a safe work environment where everyone feels comfortable to act and speak freely and feels encouraged to seek help and support wherever required. We are also committed to preventing and mitigating workplace risks and hazards to the safety and health of all our employees. The Board of Directors of the Company on May 19, 2023 inter-alia, adopted Occupational Health and Safety Principles Statement which is available on the website of the Company at https://www.motherson.com/storaae/ Group-Pol icies/Occupational-Health-and-Safetv- Principles-Statement.pdf.

Further, the best safety measures by the companies/units are recognized by awards, and such measures are shared on the intranet electronically amongst all the companies/ units.

Safety committees with representation from the management and associatesare formulated which ensures that safety is everybodys responsibility. Scheduled Safety Walk-Throughs, Regular Risk assessments, Corrective actions Implementations and Leadership Commitments install a safety culture in the organization. Every employee is made aware of raising the flag in case any unsafe act or situation is noticed. Our efforts to minimize the near- misses ensure that we all work safely and responsibly to have zero accidents and zero work-related fatalities.

Environmental Responsibility

Motherson Environment Stewardship conveys organisations efforts to minimize the environmental footprint. Motherson complies with regulations, advocates for progressive environmental policies, and protects workers safety as part of its corporate responsibility. The Company recognises its corporate responsibility to carry out its operations whilst minimising the impact on the environment. It also aims to comply with all applicable environmental legislation to prevent pollution and to minimise environmental damage occurring as a result of its activities. Across the Motherson Group, alongside

IATF16949 accreditation, the organisation is duly certified with IS014001:2015 accreditation across the business focusing on environmental aspects.

We are carefully monitoring all aspects of the environmental footprint of our operations and our products. From the choice of materials and product design to management of our supplier base, from energy use and waste handling to product delivery, there are great sustainability initiatives tal ing place across the group. The organisation is progressively increasing the share of solar power and wind power in its energy consumption and is graduating to energy-efficient lighting with the adoption of LED lights across its facilities.

The United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Climate agreement provide the framework of a collective commitment to minimize the effects of global warming.

The Paris Agreement acknowledges the urgent need to scale up global response to climate change. This requires international business across all industries to play their part in addressing the challenge. We at Motherson are committed in contributing to passing on to our next generation a clean environment and making every effort in preserving earths future by adopting environment friendly technologies, business practices and innovation which lead to a clean and green future.

For Motherson and our stakeholders this is an issue of very high material importance where we have the ambition to make a positive contribution.

In this respect, Motherson is actively working on following Principles to minimize the environmental impact of its current operations and supply chain, focusing on the following areas:

(a) Minimise and wherever possible eliminate the emission of greenhouse gases.

(b) Improve energy efficiency in all areas and maximise access to sources of renewable energy.

(c) Improve water utilisation efficiency and harvesting.

(d) Minimise and wherever possible eliminate waste focusing on the increased application of recycling solutions.

(e) Focus on climate positive actions and maximising economic circularity.

(f) Adapt and maintain compliance to evolving regional and country specific environmental goals.

Further, to emphasize the fundamental principles shaping the responsibility of Motherson with regard to Climate Change, the Board of Directors of the Company on August 26, 2021 inter-alia, adopted a Climate Change Policy which is available on the website of the Company at https:// www.motherson.com/storaae/Group-Policies/ Climate-Chanae-Policv.pdf

Further, the Company is also committed to passing on to future generations a clean environment and a sustainable business. The Board of Directors of the Company on May 19, 2023 inter-alia, adopted a Environment Policy which is available on the website of the Company at https:// www.motherson.com/storaae/Group-Policies/Group- Environment-Policv.pdf.