Motherson Sumi Wiring India Ltd Management Discussions

BUSINESS BACKGROUND AND UPDATE

Motherson Sumi Wiring India Limited (MSWIL or the Company) was incorporated on July 02, 2020. This is the second complete year of operation for MSWIL after scheme of Demerger of Domestic Wiring Harness business by Samvardhana Motherson International Limited (SAMIL) (then known as Motherson Sumi Systems Limited) to MSWIL was given effect. MSWIL benefits from strong parentage and lineage provided by both Sumitomo Wiring Systems, Ltd. (SWS) and Samvardhana Motherson International Limited, with holding of 33.43% by SAMIL and 25.34% by SWS. Company is focused on Wiring Harness for Indian Automotive OEMs.

SAMIL is one of the fastest-growing global automotive suppliers who offers a wide range of solutions for OEMs globally. MSWIL not only benefits from a seasoned and strong professional management team advice from SAMIL with years of entrepreneurial experience, operational expertise and deep industry knowledge, but also gets access to global solutions from SAMILs business segments relevant to MSWILs Indian wiring harness customers.

SWS, a 100% subsidiary of Sumitomo Electric Industries Japan, is a world leader in producing wiring harnesses, harness components and other electric wires. Company has benefitted from the vast wiring harness expertise of SWS due to technical knowledge and specialisation provided in R& D Areas.

The collective backing of SAMIL and SWS establishes a robust framework for MSWILs sustained business and growth within the Indian automotive market.

The focus of MSWIL is on offering a wide variety of wiring harnesses for different category of vehicles including passenger and commercial vehicles, two and three-wheelers, farm equipment and off-road vehicles in the Indian market. We have the capability to accompany our customers throughout their entire product lifecycle journey. Our capabilities encompass 3D computer-aided design (CAD), printed circuit board (PCB) design and routing, 3D printing, prototyping, virtual and physical validation and technology implementation support. This enables us to delight our customers every step of the way. The Company portfolio consists of products manufactured using state-of- the-art technology and automation of products and processes wherever possible.

MSWIL remains focused on meeting customer requirements with its focus on operational excellence, quality, design and delivery. With the long-standing relationships and unwavering support of Customers, MSWIL is strategically well positioned to capitalise on opportunities and favorable industry tail winds.

The automotive sector was moving towards a global supply chain model, but the pandemic has resulted in OEMs looking to mitigate supply chain risks & move towards a more localized production ecosystem as a way forward. Our proximity to our customers also aligns us with sustainability goals. OEMs are seeking further localization as an environment friendly & more secure option compared to imports which strengthens supply chain synergies, cut costs & reduce lead times for components.

The increasing demand for customisation leads to more wiring harnesses per vehicle, increasing content per vehicle. More connectivity features in a vehicle lead to the demand for high-value SMART harness components. MSWIL is in a favourable position to capitalise on the rapidly evolving trends in the automotive market. Through continuous efforts for advancement, MSWIL has cemented its reputation as a trusted provider of comprehensive system solutions.

With the demand rising for sustainable technologies, advanced safety and emission norms coming into force, the value per harness increase and so do the electronics and EV solutions offered by the company.

Further the company is fully equipped to provide newer high- voltage solutions, wiring harnesses and components for electric vehicles/ alternative powertrains.

MSWIL Key Strengths

Strong Parentage with access to technology and experienced management:

MSWIL as a company has a very rich heritage and parentage. Formed as a strategic partnership between Sumitomo Wiring Systems and Samvardhana Motherson International Limited (formerly Motherson Sumi Systems Limited), which spans over 4 decades. The growth of the company is closely linked with the vibrant Indian automotive market since the launch of the first affordable car Maruti Suzuki 800. Today the company is a dominant player in the industry. SWS provides access to world class technology and R&D capabilities for wiring harness, wires and components that are well suited for changing industry dynamics. SAMIL provides strategic guidance and direction that is well aligned with Vision 2025. SAMIL further extends the manufacturing and operational excellence by way of QCDDMSES. The experienced and professional management supports the growth of the company and at the same time provide shared services and support for various functions such as sourcing of wires, components, investments in land and building. An outcome of this collaboration is that MSWIL is developing capabilities to produce wiring harness for alternative powertrains such as EV and Hybrids, having recently designed and developed high-voltage wiring harness and connectors and components for EV powertrains and Battery Management Systems (BMS).

Diversified footprint across the country and supporting all segments of the Indian automotive Industry

MSWIL supports its marquee customer base from 26 facilities spread across the country. The operating units are located in close proximity to our customer facilities to ensure just in time (JIT) and just in sequence (JIS) deliveries. The Indian automotive market is poised to gain both from volume and value growth on the back of automotive mega trends of premiumization, SUVs and transition towards zero emission vehicles. Many of the OEMs have announced phased increase in capacities. MSWIL works in close collaboration with all its customers and always ensure there is sufficient capacities to meet the production requirements. As a general thumb rule as soon as there is 80% capacity utilization, the plan to expand based on firm orders from customers is initiated. As of now two new Greenfields are being setup in Pune, Maharashtra and Navagam, Gujrat that will come onstream in FY2025.

Well positioned to gain from industry transition towards clean mobility

The product portfolio of MSWIL is well positioned to gain as the industry transitions towards clean mobility and zero emission vehicles. The company has very recently designed, developed and localized high-voltage (400v and 800v) wiring harness for EVs as well as complex integrated systems required for mild to strong hybrid vehicles. Further there is a significant content increase from ICE to EV/Hybrid vehicles due to the change in components required and complexity of wiring harness.

Well Capitalized with a strong balance sheet

MSWIL has a strong balance sheet as it follows the prudent financial policies. As a result of which the company has negative net debt. The company focuses on absolute profitability which is well demonstrated in the consolidated ROCE of 48% for FY2023- 24. MSWIL has generated over INR 10,000 Mn cash from operations (pre-tax). The company is well positioned to support our customers as they grow and move towards their objective of clean mobility. It is important to highlight we are a zero-leveraged company with strong FCF generation.

Partner of choice for customers, involved in the complete product lifecycle

MSWIL benefits immensely from association with SWS, a global leader in the manufacture of wiring harnesses, harness components, and other electric wires. Through these partnerships, we have access to cutting-edge technology from other wiring harness companies within the global Motherson Group.

Our consistent performance over the years has cultivated long- term relationships with our customers, built on a foundation of trust. We are dedicated to following our customers wherever they need us, ensuring that we are always nearby to provide the best solutions for their requirements. Currently, we support our customers from 26 facilities strategically located in all major automotive hubs across north, west, and south India.

At MSWIL, we take pride in being a trusted partner to our customers, supporting them through every phase of the product lifecycle. As a full system solutions provider, we are dedicated to meeting our customers needs from the initial stages of product design and validation, through tool design and manufacturing, to finishing, processing, assembly, and production. Our expertise extends to creating integrated, cutting-edge Electrical & Electronic Distribution Systems for power supply and data transfer across vehicles, as well as sequencing in-line supplies. We understand the importance of collaboration and strive to work closely with our customers to ensure that their requirements are met at each step of the supply chain. By focusing on delivering quality and innovation, we aim to contribute to the success of our customers projects, ensuring their products meet the highest standards of performance and reliability. Our team is committed to continuous improvement and remains humble in our pursuit of excellence, always placing our customers needs at the forefront of our efforts.

Our expertise extends to creating integrated, cutting-edge Electrical & Electronic Distribution Systems for power supply and data transfer across vehicles, as well as sequencing in-line supplies.

We understand the importance of collaboration and strive to work closely with our customers to ensure that their requirements are met at each step of the supply chain. By focusing on delivering quality and innovation, we aim to contribute to the success of our customers projects, ensuring their products meet the highest standards of performance and reliability. Our team is committed to continuous improvement and remains humble in our pursuit of excellence, always placing our customers needs at the forefront of our efforts.

Indian Economy outlook

According to IMF, Indian economy is expected to grow at 7% in 2024. India continues to be one of the more vibrant economies in emerging markets and the fastest growing in the world while being insulated from global headwinds. The robustness in Indian economy is driven by strong domestic demand, substantial investments by public and private sectors into infrastructure, and a resilient financial sector. This is further enhanced by increased levels of digital services and automation across sectors, such as the Unified Payment Interface (UPI). India with its young demographics and cost-effective talent pool, along with favourable economic incentives and policies, is becoming an attractive location for investments and diversifying supply chains. This reinforces its potential as a global manufacturing hub.

Despite elevated headline inflation, projections suggest it is expected to decline to an average of 5.3% in FY 2024-25 aided by easing global commodity prices and some moderation in domestic demand. To combat inflation, the Reserve Bank of India has withdrawn accommodative measures and raised the policy interest rate. Indias financial sector also remains strong, with improvements in asset quality and robust private-sector credit growth.

Automotive Industry

The performance of the Indian automobile industry during the last five years is as follows:

Category	FY 2019-20	FY 2020-21	FY 2021-22	FY 2022-23	FY 2023-24
Passenger Vehicles	3,425	3,062	3,651	4,587	4,902
Delta % [y-o-y]	-15%	-11%	19%	26%	7%
Commercial Vehicles	757	625	806	1,036	1,066
Delta % [y-o-y]	-32%	-17%	29%	29%	3%
Three Wheelers	1,133	614	758	856	993
Delta % [y-o-y]	-11%	-46%	23%	13%	16%
Two Wheelers	21,033	18,350	17,714	19,459	21,469
Delta % [y-o-y]	-14%	-13%	-3%	10%	10%

All figures are production volumes in thousands

Source: Society of Indian Automobile Manufacturers

(12/04/2024)

The highlights of the Indian automotive industry together with future trends are as follows:

• Since the last year, staggered growth has been observed across segments/subsegments in the Indian automotive industry. The market has now surpassed pre-Covid levels of functioning, an extremely positive sign.

• Three wheelers registered the highest growth, with a 16% year-on-year increase in production compared to the previous fiscal year, followed by Two Wheelers at 10% and Passenger Vehicles at 7% vis-a-vis numbers from the last fiscal year.

• Passenger car, the market is now functioning well above pre-pandemic levels & the forecast for the upcoming years look promising for India, which is defined as a key emerging market till 2027 by S&P Global Mobility. The passenger vehicle segment is bolstered by the improving preference for personal mobility and improved customer confidence in rural and semi-urban markets. The PV industry posted record high of 4.9 Mn units in FY23-24.

• Commercial Vehicles: In FY2023-24 the commercial vehicle segment which comprises of buses, heavy and medium duty trucks reached 1,066 thousand units recording a 3% growth. The development of large-scale infrastructure projects initiated by the government are supporting the demand for commercial vehicles in particular trucks.

• An increase in the electrification of vehicles and the banning of fossil fuel vehicles by 2040 is expected to boost the Indian passenger cars market in the future. The governmental subsidies for BEV along with norms, continued encouragement of BEV adoption among private auto owners is making BEV the fastest growing segment in passenger car sales in India.

• Various international auto manufacturers are developing new models to capture customer attention in the Indian automobile market. Such new launches are expected to attract customers, further enhancing the passenger cars market across India.

REVIEW OF FINANCIALS

Financial results:

The Companys financial results are summarized in the table below:

INR in million

Heads	FY 2022-23	FY 2023-24	% Change
Total revenue from operations	70,680	83,282	17.8%
Cost of goods sold	46,317	54,537	17.7%
Employee cost	11,831	13,551	14.5%
Other expenses	4,612	5,062	9.8%
EBITDA*	7,980	10,133	27.0%
Finance costs (Net of Interest income)	221	205	-7.2%
Depreciation expense	1,237	1,473	19.1%
Profit before tax, before exceptional items	6,522	8,455	29.6%
Profit before tax	6,522	8,455	29.6%
PAT	4,870	6,383	31.1%
Earnings per share	1.10	1.44	30.9%

* Earnings before interest income, interest expense, tax, depreciation and exceptional items

Sourcing and other arrangements:

Over the years of operations & the vertical integrations, joint venture partners have achieved various synergies in the wiring harness business such as high quality, timely delivery, knowledge enhancement, research & development etc. MSWIL is also having vertical integrations with various businesses of Samvardhana Motherson International Limited (SAMIL) and Sumitomo Wiring Systems Limited, Japan (SWS). MSWIL sources wires, connectors, terminals, PVC tubes, rubber parts etc. from SAMIL. It also sources a large number of child parts from Sumitomo Wiring Systems Limited, Japan.

In continuation to the above, SAMIL and MSWIL have a central team for some of the key functions in the areas of design and development services, procurement engineering services, human resource and infrastructure support etc. The cost of these central teams is housed in SAMIL and is shared (other than directly attributable) between MSWIL and SAMIL.

Further, as part of the reorganisation scheme, the Company has entered into long-term leasing arrangements for taking land as well as premises on lease to operate factories. The lease rentals for these land and premises have been accounted for as per valuation by independent valuer and by following Accounting Standard Ind AS 116.

The Company has diverse customer portfolio in the domestic market and is serving different segments of the industry. The segment wise breakdown of Companys revenues for the year 2023-24 is as follows:

S.No. Segment	% Breakdown
1 Passenger car market	58%
2 Commercial vehicles	12%
3 Two wheeler	14%
4 Special products groups such as off road vehicles, tractors etc.	10%
5 Others including tier 1/ 2 suppliers	6%
Total	100%

Major cost contributors Cost of Material

For the financial year ended March 31, 2024, the cost of materials was INR 54,537 million against INR 46,317 million for the corresponding previous financial year ended March 31, 2023.

As a percentage of revenue, the cost of materials was 65.5% for the financial year ended March 31, 2024, which is in line with 65.5% for the previous year ended March 31, 2023.

During the FY 2023-24, the industry witnessed:

• The key raw material for Wiring Harness is Copper and the price of the same is linked to LME (London Metal Exchange). Company witnessed a variations in copper prices during the year. However, the Company has a pass- through arrangement for copper with a time lag, mostly a quarter.

• Further, the Company faced pricing pressure from component suppliers for increasing the prices due to increased commodity prices and inflationary pressures in developed countries.

• Shipping industry suffered with port closures and congestions, labour shortages, difficulties with capacity utilization, as well as a lack of new shipping containers due to wars and Red Sea route issue. Through efficiency in operations and localisation of imported child parts, the Company was able to reduce purchases and was able to minimise the impact of such freight cost increases.

Further, the Company has been continuously working with customers for offsetting the increase in the landed cost of child parts, including customer nominated parts, in addition to working on localisation and alternate sourcing of some of the parts.

Employee cost

Overall employee cost for the year ended March 31, 2024 is 16.3% of the revenue which shows productivity improvement as compared to 16.7% of revenue for the previous year. The employee cost has increased in absolute amount; with increase in head counts on account of increase in capacity due to expansion in existing plants, and revision in minimum wages in many of the states. For the year ended March 31, 2024, the Company reimbursed / shared with SAMIL its share of common expenses of INR 522 million (March 31, 2023: INR 419 million) at cost.

Employee cost is the second largest contributor after raw materials in the total cost structure. What determines this cost is the size of operations, geographical reach and skill requirements including for future developments.

Other Expenses

The other expenses, mainly include expenses on electricity and power, repairs to plant & equipment, building as well as consumables, insurance etc. For the year 2023-24, other expenses were 6.1% which has improved from 6.5% in previous year. The expenses also include purchases of stores and spares due to new launches of customer models. For the year 2023- 24, the Company reimbursed / shared with SAMIL its share of common expenses of INR 423 million at cost (March 31, 2023: INR 451 million). These expenses were either directly attributable to MSWIL or were allocated on suitable basis, mainly in the ratio of sales of domestic and non-domestic wiring harness business in India. During the year 2023-24, the company has provided, an amount of INR 475 million (March 31, 2023: INR 395 million) towards management fees to SAMIL, equivalent to the amount of royalty to SWS.

Finance Costs

Finance costs consist primarily of interest expenses on borrowings and finance leases. Total finance costs (net of Interest income) of INR 205 million for FY 2023-24 (INR 221 million for FY 2022-23) included finance costs of INR 226 million in FY 2023- 24 (INR 199 million in FY 2022-23) provided for in respect of operating lease (including costs relating to lease arrangements with SAMIL in respect of premises used by MSWIL).

Depreciation Expenses

Depreciation refers to the amount recognized in the income statement reflecting the amortized value of the tangible and intangible assets on a straight-line basis over the estimated useful life of the asset and includes depreciation on Right of Use Assets recognized under Ind AS 116 in respect of leasing contracts.

For the financial year ended March 31, 2024, depreciation expenses were INR 1,473 million in comparison to INR 1,237 million for the previous year ended March 31, 2023.

Income Taxes

The provision for current tax for the FY 2023-24 amounted to INR 2,144 million (INR 1,703 million in FY 2022-23) and after providing for deferred tax credit of INR 72 million in FY 2023-24 (INR 51 million in FY 2022-23), the total tax charged to P/L account amounted to INR 2,072 million in FY 2023-24 (INR 1,652 million in FY 2022-23).

Financial position:

INR in million

Financial Position	March 31, 2023	March 31, 2024
Property, plant and equipment	3,065	3,769
Capital work-in-progress	270	237
Right-to-use assets	2,727	2,228
Other assets
- Inventories	12,096	11,399
- Trade receivables	8,004	8,959
- Cash & cash equivalents	361	1,670
- Other bank balances	7	1,013
- Other assets	2,447	2,114
Total assets	28,977	31,389
Liabilities (other than loans)	11,946	12,030
Net assets	17,031	19,359
Source of funding:
Net worth	13,305	16,768
Debt outstanding
- Short-term loan	740	-
- Long-term loan	78	86
External debt	818	86
Less: cash & cash equivalents	(361)	(1,670)
Less: fixed deposits with banks	-	(1,000)
Net external debt	457	(2,584)
- Lease liabilities	2,908	2,505
Total debt including lease liability	3,365	(79)
Capital expenditure (Net of disposals)	1,977	1,111

Incremental working capital and CAPEX requirements have been funded with internal accruals. All other movements are in line with increase in revenue or operations of the company.

CAPITAL EXPENDITURE

During the financial year 2023-24, the Company incurred capital expenditure of INR 1,111 million (INR 1,977 million in FY 2022- 23) which has been financed from internal accruals within the Company. Total capital expenditure includes INR 400 million utilised for new plants (INR 666 million in FY 2022-23), remaining INR 711 million for addition in Property Plant and Equipment (PPE) for capacity enhancement as well as other customer related/ improvement projects in existing plants (INR 1,311 million was for capacity enhancement as well as other customer related/ improvement projects in FY 2022-23).

CASH FLOW

During the financial year 2023-24, the Company generated a positive cash flow position after meeting operating expenses including capital expenditure. The operating cash flows (before working capital) for FY 2023-24 were INR 10,110 million (INR 7,935 million in FY 2022-23) and CAPEX of INR 1,111 million in FY 2023-24 (INR 1,977 million in FY 2022-23). The following table summarises the companys cash flows for the current year and the previous year.

Cash Flow statement:

INR in million

Particulars	FY 2022-23	FY 2023-24
Cash flow from operations	4,011	10,081
Taxes paid	(1,775)	(2,171)
Cash flow from operating activities	2,236	7,910
Capital Expenditure (Net of disposal)	(1,977)	(1,111)
Investment in fixed deposits	-	(1,000)
Interest received	40	32
Cash used in Investing activities	(1,937)	(2,079)
Interest paid	(272)	(268)
Proceeds / (repayments) of borrowings	649	(740)
Payment of lease liabilities	(571)	(646)
Dividend paid	(2,677)	(2,868)
Cash flow from / (used in) financing activities	(2,871)	(4,522)
Net Increase/(Decrease) in Cash & Cash Equivalents	(2,572)	1,309
Net Cash and Cash equivalents at the beginning of the year	2,933	361
Cash and cash equivalents as at the end of the year	361	1,670

Operating Activities

Net cash generated from operating activities during FY 2023- 24, was INR 7,910 million (INR 2,236 million in FY 2022-23). Cash generated from operations before changes in working capital & income tax was INR 10,110 million in FY 2023-24 (INR 7,935 million in FY 2022-23).

Investing Activities

Net cash flow utilised in investing activities during FY 2023- 24, was INR 2,079 million (INR 1,937 million in FY 2022-23). This was primarily utilised for capital expenditure and Investment in bank fixed deposit. Capital expenditure includes capital work in progress of INR 400 million for new plant (INR 666 million for new plant in FY 2022-23), INR 711 million for addition in Property Plant and Equipment (PPE) for capacity enhancement as well as other customer related/ improvement projects in existing plants, (INR 1,311 million was for capacity enhancement as well as other customer related/ improvement projects in FY 2022- 23). Investment in bank fixed deposit of INR 1,000 million made in the current year (INR Nil in FY 2022-23).Investing activities are partially set off by interest income of INR 32 million (INR 40 million in 2022-23).

Financing Activities

Net cash flow utilised in financing activities during FY 2023- 24, was INR 4,522 million (INR 2,871 million in FY 2022-23). This includes INR 2,868 million towards payment of dividend, INR 740 million as repayment of borrowings, INR 41 million as payment of interest and INR 873 million as payment of lease rent (INR 2,677 million for payment of dividend, INR 73 million as payment of interest, INR 770 million as payment of lease rent and INR 649 million as net proceed from borrowing in FY2022-23).

Ratio Analysis:

Key ratios	FY 2022-23	FY 2023-24	% Change
Trade Receivable Turnover (days)	37	37	-1.4%
Inventory Turnover (days)	84	78	-8.0%
Trade Receivable Turnover (in times)	9.62	9.76	1.4%
Inventory turnover (in times)	4.27	4.64	8.7%
Return on equity ratio (in times)	0.40	0.42	6.6%
Interest Coverage Ratio (in times)	28.71	37.12	29.3%
Current ratio (in times)	1.66	1.94	16.7%
Debt Equity Ratio (in times)	0.28	0.15	-44.8%
Operating Profit Margin (%)	9.5%	10.4%	9.0%
Net profit Margin (%)	6.9%	7.7%	11.6%
Net DebtA to EBITDA (in times)	0.4	0.1	-78.4%

A including lease liabilities

Key indicators are mentioned at the end of Management Discussion and Analysis

Reasons for change of 25% or more as compared to the immediately previous financial year:

Interest Coverage Ratio (in times) improved from 28.71 in 2022-23 to 37.12 in 2023-24. The improvement was due to increase in EBITDA by 27% in 2023-24 to INR 10,133 million from INR 7,980 million in 2022-23. On the other hand, finance cost was marginally reduced to INR 273 million in FY 2023-24 from INR 278 million in FY 2022-23.

Debt Equity Ratio (in times) as well as NET Debt to EBITDA (in times) improved on account of reduction in bank borrowing as well as lease liabilities in FY 2023-24 as compared to FY 2022-23.

DIVIDEND PAYOUTS

The Company has paid final cash dividend of INR 2,868 million in 2023-24 (INR 2,677 million in 2022-23). The Company proposed a dividend of INR 0.80 per share for FY 2023-24 (INR 0.65 per share for FY 2022-23) which will be paid after approval at the ensuing annual general meeting. The dividend payout ratio for FY 2023-24 is 55% of profits (59% of profits in FY 2022-23).

RISK MANAGEMENT

Risks are an integral part of business growth and mitigating risks from all the directions is one of the challenges that the company targets. It is very important to have a Risk Management process in place with an objective to create an operational environment with a systematic, enterprise risk management at all levels of organization. Risk management and mitigation efforts must be calibrated according to the likelihood of exposure and the potential downside of an incident. The Company has set up a Risk Management Committee (RMC) at a Board level with a robust framework to monitor and mitigate risks. Risk Management Committee periodically reviews operating, financial, regulatory, IT and strategic risks in the business and their mitigating factors.

Risk Management Policy, which was approved by the Board, considers a holistic understanding of the risks that can potentially impact the operations, as well as taking action on how to effectively mitigate those risks to protect their assets and to keep operations running smoothly. The policy formulated outlines for 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 control 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 Company follows a robust process of risk management by following 3 step approach

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)

Step 2: Risk Evaluation

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

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 business and financial positions.

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

1. Operating Risks which cover risks arising out of external factors which are outside the sphere of influence of the company as well as internal factors which are generated by the company and by processes/ operations. Some of the external factors include future industry trends, social, political, economic risks, environmental risks and Act of God etc.

2. Financial & Accounting risk in terms of forex risks as well as for financial reporting due to changes in various regulations.

3. Regulatory risks cover risks with respect to local laws and regulations, intellectual property, patents etc.

4. Strategic risks with respect to sourcing of various components as well as technical and other services from JV partners.

5. IT and Information security risks: These could relate to Unauthorized access and breach of Companys IT system and resources, theft of critical data etc.

The commitment to the companys code of conduct covering ethics, anti- bribery policies and newly added climate change impact analysis is core to risk evaluation and mitigation process.

INTERNAL CONTROL SYSTEMS

The Company has an adequate system of internal control commensurate with 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 in adherence to Accounting Standards.

b) Compliance with applicable statutes, corporate policies and procedures.

c) Effective usage of resources and safeguarding of assets and ensuring their authorized use.

d) With the support of technology using Data Analytics tools, the coverage and scope of internal audit has been further enhanced.

The Internal Audit function collaborates with independent internal auditors to periodically review compliance with respect to the established design of internal control and also assess the effectiveness as well as the efficiency of operations. The Company has a well-established internal audit system built on the annual risk-based Internal Audit plan as approved by the Audit Committee of the Board. The significant audit findings are reviewed at regular intervals by the Audit Committee of the Board of Directors, comprising independent directors. Further, the Audit Committee also monitors the status of management actions emanating from the internal audit reviews.

The Company is using the latest IT tools such as data analytics to enhance the scope and effect of the internal audit function. Adherence to the statutory compliances at each of the locations is also ensured by the committee through a continuous monitoring mechanism. The Company has also identified various business risks and laid down necessary procedures for mitigation of the same. 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.

Management has assessed the effectiveness of the companys internal control over financial reporting (as defined in Clause 17 of SEBI Regulations 2015 applicable to Indian entities) as on March 31, 2024

HUMAN RESOURCES

Employees: Our Valued Brand Ambassadors

At MSWIL, we take immense pride in embodying the spirit of the timeless adage, "for those who live magnanimously, the entire world constitutes but a family." Our work-family, much like any family, is a harmonious blend of individuals with diverse traits and personalities. These dedicated employees have been instrumental in our evolution into a successful company and a prominent player in the automotive industry.

Our employees consistently go above and beyond, putting in extra hours to earn accolades from our valued customers. We place great importance on our people, striving to incorporate all aspects of the employee experience within our organizational framework.

Building Trust and Ethical Practices and Promoting Diversity

Operating within a healthy atmosphere, we strictly adhere to business ethics principles and uphold human rights standards. We are committed to operate ethically, responsibly, and sustainably and provide work environment which is free from all forms of discrimination, intimidation, exploitation and harassment. Our adherence to laws, rules, and the MSWIL Code of Conduct guides our everyday work. We foster open dialogue to address concerns and resolve issues through platforms such as "We Listen," which empower employees to raise their voices anonymously or confidentially against actions or behaviours contrary to our values. We embrace diversity in thought, experiences, values, skills, and perspectives, recognizing that this collective strength drives our success.

With diversity in work force, company leverages with a broad range of ideas and insights in decision making and business strategies.

Investing in Growth

We understand the importance of continuously upgrading the skills and competencies of our employees. MSWIL treasures its people, ensuring their holistic development through a comprehensive 360-degree learning approach. This involves acquiring knowledge not only from formal channels but also through collaborative learning among colleagues, senior management, and subordinates.

MSWILs unwavering commitment to continual improvement is ingrained in its essence. We relentlessly pursue progress, striving to enhance our employees lives through a favourable work environment characterized by fairness, discipline, safety, and clarity of roles. This cultivates trust, transparency, and accountability within our workforce, rewarding smart work based solely on merit. We take great pride in the success stories of our employees, many of whom have risen through the ranks, starting their journey on the shop floor. This approach fosters a sustainable employee outlook, mitigating risk throughout the employee lifecycle and bolstering overall business performance.

Empowering Growth and Professional Fulfilment

Our success stems from the passionate individuals who power our organization. With over 46,000 diverse employees, we leverage their knowledge and perspectives to make a meaningful impact. We take responsibility for their growth and ensure their personal goals align with their professional development. Through comprehensive training and recognition programs, we cultivate their skills, reward their efforts, and support their career aspirations which go a long way in increasing employee satisfaction and thereby increasing productivity.

At MSWIL, employees at all levels actively participate in various skill development programs. This includes comprehensive classroom training designed to enhance dexterity, memory, and quick decision-making. We have also developed a web- based e-learning platform to further augment the skills of our trained staff.

Our history boasts measures to ensure continual skill enhancement for our associates. The Annual Wiring Harness Skill Competition instills a sense of victory and motivates employees to hone their skills through constant practice. Additionally, we have devised various internal activities, rewards, and recognition programs to inspire and motivate our employees.

Fostering Collaboration and Productivity

We understand that an organizations progress relies on engaging the hearts and minds of its people. Effective employee engagement is a strategic investment in our productivity and performance. By aligning engagement practices with our vision, mission, and values, we strengthen connections among individuals, processes, and products, yielding remarkable outcomes. Quality Circles embody the spirit of teamwork and passion for problem-solving, empowering employees to present their best work to the world.

Our annual Quality Circle Convention is a platform for Quality Circles worldwide to showcase their ideas and improvement projects. This event reflects our commitment to continuous improvement and innovation. In 2023, Top 4 positions were secured by teams at MSWIL.

The winning teams also demonstrated excellent performance at customer Quality circle convention & ACMA QC Convention.

Unit Name	Quality Circle	Customer	Award Name
MSWIL Noida C14	Kirti Quality Circle	Honda Cars India Limited	Quality Circle Winner at Honda Cars
MSWIL Noida C14	Kirti Quality Circle	HIPPL (Honda India Power Product Limited)	Quality Circle Winner at HIPPL (Honda India Power Product Limited)
MSWIL Sanand	Vikas Quality Circle	Suzuki Motor	Secured 3rd Position in Quality circle competition organised by SMG
MSWIL Sec-84, DTA	Ideal Quality Circle	ACMA	Silver award in the National Level Quality Circle Competition.
MSWIL, Noida A15	Prayatna Quality Circle	MSIL	QC Competition - 1st Runners up

With their remarkable diligence to make a difference, Quality Circle teams of MSWIL have been coming off with flying colours in the various internal and external competitions they participate in.

Organization always believed that happy people are a sign of steady growth and a healthily progressing organization. And at MSWIL, we strive to continue being one!

The Innovations Awards celebrate the most innovative technical papers based on improvements made in the past fiscal year. MSWIL encourages employees to share their feedback regarding any improvements under its Suggestion Scheme. A panel of experts reviews the ideas received and, if feasible, implements them in the workplace. Kaizens are another powerful method to enhance the thinking power of our employees.

Employee Health, Safety and Well-being:

Safety transcends mere terminology, signage, or labelling—it is a fundamental mindset ingrained within MSWIL. From the moment an employee joins our company, we prioritize inculcating safety through comprehensive induction sessions, sensitizing them to our established safety practices.

Responsibility and accountability for a secure and healthy workplace lie with each individual. Our management systems, policies, and procedures are designed to uphold a safe working environment for all employees. The collective and unwavering commitment of every employee towards safety, health, and the environment directly contributes to enhanced performance, superior service quality, and ultimately, customer satisfaction.

To ensure this commitment, MSWIL conducts various campaigns across its units to make safety non-negotiable and identify and eliminate potential hazards. Emphasizing the use of safety equipment, we foster an environment where employees prioritize not only their own safety but also the safety of their peers. These initiatives include safety quizzes, poster-making competitions, skits, and role plays.

We encourage employees to actively report any unsafe practices, procedures, or conditions to their supervisors, fostering a culture of maintaining a safe workplace. Regular safety audits and specialized training modules for new employees provide insights into safety norms and ensure adherence. Comprehensive work permits covering all safety aspects are issued to employees before, during, and after their tasks. MSWIL places great emphasis on safety management, employee training, and injury prevention. Annually, we observe Safety Week across all units, featuring programs and activities such as safety training sessions for staff, drivers, and forklift operators. We also extend safety awareness training to external contractors. Additionally, safety banners are displayed, safety badges are distributed, safety quizzes are organized, and a safety march is conducted for workers on the shop floor.

Creating a Nurturing and Supportive Workplace

MSWIL is steadfast in its commitment to creating a safe and nurturing work environment, fostering an atmosphere where employees can flourish and excel. We organize engaging events such as the Annual Cricket Tournament, Poster competitions, Rangoli competitions, and In-Sync Quiz Competition. These activities promote creativity and camaraderie while recognizing outstanding achievements in various fields.

Our Annual Day celebration unites thousands of employees from diverse units, instilling a profound sense of pride and motivating others to strive for excellence. At MSWIL, hard work is celebrated with utmost fervor, ensuring that our organization embraces a culture of jubilation and togetherness. As we forge ahead on our growth trajectory, the well-being and triumph of our employees will forever remain at the forefront of our priorities. Their invaluable contributions continue to shape our success, and we are immensely proud to have them as part of our remarkable journey.

OPPORTUNITIES AND FUTURE PROSPECTS

Indian automotive sector is very dynamic in terms of safety, following global standards, green energy, environment friendly, customer satisfaction, price sensitivity and to achieve the same objective, MSWIL brings platform to offer solutions to OEMs in India, with technical support from Sumitomo Wiring Systems Limited, Japan and functional support from SAMIL. With the support from both JV partners and customers confidence earned with consistent performance on QCDDMSES, MSWIL is well positioned to convert changing trends into an opportunity.

The automobile sector in India gradually moving towards manufacturing of electric vehicles which is a favourable opportunity for the Company and Infrastructure as well as capacities are being enhanced according to the customer orders.

Calculation of Key Indicators (Ratio Analysis)

EBITDA	Profit before tax + Finance costs (net of interest income) + Depreciation expense
PBT	Profit before tax
Trade Receivable Turnover (days)	[Average trade receivables / (Gross credit sales - Sales return)] x 360 Average trade receivables = (opening trade receivables + Closing trade receivables)/2
Inventory Turnover (days)	[Average inventory / Cost of goods sold] x 360 Average inventory = (Opening inventory + Closing inventory)/2
Trade Receivable Turnover (in times)	[(Gross credit sales - Sales return) / Average trade receivables]
Inventory turnover (in times)	[Cost of goods sold / Average inventory]
Return on equity (in times)	[Net profits after tax / Average total equity]
Interest Coverage Ratio	[EBITDA/Finance Costs]
Current Ratio	[Current assets / Current liabilities]
Debt Equity Ratio	[Total Debt (Long term borrowing including current maturities + short term borrowing + Lease liabilities) / Total equity]
Operating Profit Margin	[(Profit before tax + Finance costs - Interest income)/ (Total sales - Sales return)] x 100
Net Profit Margin	[Net Profit / (Total sales - Sales return)]
Net Debt to EBITDA	Net Debt (Total Debt - Cash and cash equivalents) / EBITDA