Pavna Industries Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENTS:

Pavna Industries Limited is a manufacturer and supplier of high-quality reliable auto mobile parts such as Ignition Switches, Fuel Tank Caps, Latches, Auto Locks, Handles Bar Switches, Oil Pump, Chain Tensioner, Decomp Assembly, Pressure relieve Valve, Fuel Pump, Water Pump, Fuel Cocks, Casting Components & Different Components for Electric Vehicle, serving automobile, agricultural and other applications worldwide. All PAVNA units have been certified with IATF & OHSAS.

Production

The industry produced a total of 2,59,31,867 vehicles including Passenger Vehicles, Commercial Vehicles, Three Wheelers, Two Wheelers, and Quadricycles in April 2022 to March 2023, as against 2,30,40,066 units in April 2021 to March 2022.

Domestic Sales

Total Passenger Vehicle Sales increased from 30,69,523 to 38,90,114 units. Sales of Passenger Cars also increased from 14,67,039 to 17,47,376, Utility Vehicles from 14,89,219 to 20,03,718 and Vans 1,13,265 to 1,39,020 units, in FY-2022-23, compared to the previous year.

The overall Commercial Vehicles sales increased from 7,16,566 to 9,62,468 units. Sales of Medium and Heavy Commercial Vehicles increased from 2,40,577 to 3,59,003 units and Light Commercial Vehicles increased from 4,75,989 to 6,03,465 units, in FY-2022-23, compared to the previous year.

Sales of Three Wheelers increased from 2,61,385 to 4,88,768 units, in FY-2022-23, compared to the previous year.

Two Wheelers sales increased from 1,35,70,008 to 1,58,62,087 units, in FY-2022-23, compared to the previous year.

Exports

In April 2022 to March 2023, Passenger Vehicle Exports increased from 5,77,875 to 6,62,891 units while Commercial Vehicle Exports decreased from 92,297 to 78,645, Three-Wheeler Exports decreased from 4,99,730 to 3,65,549 and Two Wheelers Exports decreased from 44,43,131 to 36,52,122 units over the same period last year.

Automobile Production Trends

(In Numbers)

Category	2018-19	2019-20	2020-21	2021-22	2022-23
Passenger Vehicles	4,028,471	3,424,564	30,62,280	36,50,698	45,78,639
Commercial Vehicles	1,112,405	756,725	6,24,939	8,05,527	10,35,626
Three Wheelers	1,268,833	1,132,982	6,14,613	7,58,669	8,55,696
Two Wheelers	24,499,777	21,032,927	18,349,941	1,78,21,111	1,94,59,009
Quadricycles	5,388	6,095	3,836	4,061	2,897
Grand Total	3,09,14,874	2,63,53,293	2,26,55,609	2,30,40,066	2,59,31,867

Automobile Domestic Sales Trends

(In Numbers)

Category	2018-19	2019-20	2020-21	2021-22	2022-23
Passenger Vehicles	33,77,389	27,73,519	27,11,457	30,69,523	38,90,114
Commercial Vehicles	10,07,311	7,17,593	5,68,559	7,16,566	9,62,468
Three Wheelers	7,01,005	6,37,065	2,19,446	2,61,385	4,88,768
Two Wheelers	2,11,79,847	1,74,16,432	1,51,20,783	1,35,70,008	1,58,62,087
Quadricycles	627	942	-12	124	725
Grand Total	2,62,66,179	2,15,45,551	1,86,20,233	1,76,17,606	2,12,04,162

Automobile Exports Trends

(In Numbers)

Category	2018-19	2019-20	2020-21	2021-22	2022-23
Passenger Vehicles	6,76,192	6,62,118	4,04,397	5,77,875	6,62,891
Commercial Vehicles	99,933	60,379	50,334	92,297	78,645
Three Wheelers	5,67,683	5,01,651	3,93,001	4,99,730	3,65,549
Two Wheelers	32,80,841	35,19,405	32,82,786	44,43,131	36,52,122
Quadricycles	4,400	5,185	3,529	4,326	2,280
Grand Total	46,29,049	47,48,738	41,34,047	56,17,359	47,61,487

OPPORTUNITIES AND THREATS

Opportunities

1) Opportunities for creating sizeable market segments through innovations

Mahindra & Mahindra (M&M) is planning to implement innovative digital technology in the automobile business.

• Hyundai is planning to enter the hybrid vehicles segment to explore alternative fuel technology and to avail government incentives.

• In 2022, Tata Motors filed for 125 patents in India, the highest in its history.

2) Small car manufacturing hub

• Nissan and Toyota announced plans to make India their global hub for small cars.

• With Maruti Suzuki and Hyundai leading, the Indian passenger vehicle market is dominated by small cars.

• Strong export potential in ultra-low-cost cars segment (to developing & emerging markets).

3) India is fast emerging as a global R&D hub

• Strong support from the Government; setting up of NATRIP centres.

• Private players such as Hyundai and Maruti Suzuki are keen to set up an R&D base in India.

• In January 2021, EV manufacturer Tesla set up an R&D centre in Bengaluru and registered its subsidiary as Tesla India Motors and Energy Private Limited.

• India accounts for 40% of global engineering and R&D spending of US$ 31 billion. The automobile sector accounts for 8% of the countrys R&D spending.

Growth drivers

Policy support

• Initiatives like Make in India, the Automotive Mission Plan 2026, and NEMMP 2020 will give a huge boost to the sector.

• The government introduced a battery swapping policy, which will allow drained batteries to be swapped with charged ones at designated charging stations, thus making EVs more viable for potential customers.

• To install electric vehicle supply equipment (EVSE) infrastructure for EVs, various public sector firms, ministries, and railways have come together to create infrastructure, and manufacture components.

Growing demand

• Rising income and a growing young population.

• Greater availability of credit and financing options.

• Demand for commercial vehicles increasing due to the high level of activity in the infrastructure sector Support infrastructure and high investment

• In November 2022, Mahindra & Mahindra announced that they had tied up with three electric vehicle infrastructure partners - Jiobp, Statiq, and Charge+Zone - to offer charging solutions for their range of passenger electric vehicles.

• In July 2021, India inaugurated the national automotive test tracks (NATRAX), which is Asias longest high-speed track to facilitate automotive testing.

• From April 2000-December 2022, the automobile sector received around 5.45% (US$ 34.11 billion) of the total equity FDI inflows to India.

• As of July 15, 2022, under the FAME India Scheme I & II, a total of 532 EV charging stations have been installed by oil companies under the Ministry of Petroleum and Natural Gas (MoPNG).

• In September 2021, eBikeGo announced that they would install 1 lakh IoT-enabled charging stations in India. According to the company, the charging station named eBikeGo Charge will be providing the most economical IoT-enabled smart charging solution.

Growing demand

Rise in middle-class income and young population may result in strong growth.

• Indian automotive industry is targeting to increase the export of vehicles by five times during 201626.

• In March 2023, the total production of passenger vehicles*, three wheelers, two wheelers, and quadricycles was

• 20,04,592 units.

• In FY23, total automobile exports from India stood at 47,61,487.

• The global EV market was estimated at approximately US$ 250 billion in 2021 and by 2028, it is projected to grow by

• 5 times to US$ 1,318 billion.

Threats

• The automotive industry is witnessing a significant technological disruption which can make many products obsolete. To grow in this highly competitive business scenario, we must develop and produce new innovative products or enhanced versions of existing products to meet our customers demands in a timely manner.

• An inability to meet competitive pressure could adversely impact Companys business.

• An inability to pass on any cost increase to customers could adversely impact Companys business.

OUTLOOK Business Strategy

We have set our mission to become one of the worlds best and technologically advanced component suppliers to global OEMs. To achieve this objective, we have formulated an exhaustive strategy spread across various key factors of the Companys operations.

Increase customer penetration and diversification

We have been continuously strengthening our existing relationships with OEM customers, while simultaneously pursuing opportunities to develop new OEM relationships. With respect to our existing customers, we aim to continue to maintain our track record of continuous and new orders as well as expand and strengthen our relationships with our customers as part of our organic growth efforts.

Increase exports and expand international operations

Our products have been exported to customers across 10 countries. We believe that there are significant growth opportunities in the international markets for die casting components and wire harnessing solutions. Accordingly, we will continue to focus on developing and increasing our product portfolio for die casting components and wire harnessing solutions.

Enhanced Focus on developing technologically advanced products

The entire automotive value chain across OEMs, Tier-1 manufacturers and component suppliers are undergoing significant re-alignment due to technological advancement, stricter emission norms, rapid development around electrification, deeper penetration of information technology, vendor consolidation and safety norms.

Continue to focus on cost efficiencies and improve operational efficiency

As an integral part of our continuing efforts targeted at ensuring cost efficiencies, we have undertaken a number of SMIT Visit initiatives aimed at improving operational efficiencies and optimizing our manufacturing operations including reduction in lead-time in manufacturing processes, leveraging our sourcing networks to control raw material costs through bulk purchases, improving inventory management to optimize transportation costs and expedite raw materials procurement and product delivery, and controlling consumption and wastage through effective supervision of manufacturing processes. We intend to continue to improve the efficiency of our operations and reduce our cost base by taking advantage of our international presence and economies of scale as well as by targeting savings in our administrative, procurement and production processes.

RISK AND CONCERNS

The Board of Directors of the Company has implemented a Risk Management policy to monitor the Risk Management plan for the Company. The Head of Departments is responsible for assessing the risk management strategies and safeguarding their effectiveness and report the same to the Board of Directors. All Strategic Risks, Compliance Risks, Operational Risks, Financial Risks & Reputational Risks are systematically addressed through mitigating actions on a continuous basis.

Some of business operational risk are as follows- Geo-Economic Risks

The Company has a presence across various countries. Any unexpected regulatory changes in the region or volatility in economic development could impact the business of the Company. Mitigation: Though the Company has no control over systemic risks such as fluctuations in economic growth of the regions where the Company operates, it has diversified its presence by venturing into newer geographies.

Exchange Rate Risk

The Company has operations across international locations and is actively engaged in sale of products to customers globally. Therefore, Company revenues and profitability is to fluctuations in foreign currency exchange rates Mitigation: The Company keeps track of currency risk and takes appropriate position.

Technology Innovation Factor

The automobile industry is currently going through a sea change in terms of introduction of newer technologies where many existing products can become redundant. Mitigation: The Company has always been focused towards innovation and also has been a pioneer in introducing many new technologies. We have been investing heavily in R&D and to further strengthen our R&D team.

Raw Material and Supply Risk

The Company procures raw materials and components from external sources globally. Any nonavailability of raw material or significant price fluctuation can have an adverse impact on the Companys business operations and profitability. Mitigation: The Company tracks the changes in the prices of raw materials and maintains an inventory for the operating cycle to avoid purchasing them at high prices. The Company also has back to back arrangements with most of its customers for change in the commodity price

INTERNAL CONTROL SYSYTEMS AND THEIR ADEQUACY

The Company has a well-established framework of internal controls in place across all areas which include suitable monitoring procedures and competent qualified professionals. The systems maintain strict accounting control, optimum utilization of resources and efficiency in operations as well as financial reporting, compliance with policies, applicable laws, rules and regulations. The internal controls are designed to maintain the transparency and adequacy of the financial and other records, which are reliable resources for preparing financial reports and other data. We have continued our efforts to align all of our processes and controls with global best practices.

Some significant features of the internal control of systems are:

- The Audit Committee of the Board of Directors, comprising of independent directors and regularly reviews adequacy and effectiveness of the Companys internal control environment and monitors the implementation of audit recommendations, including those related to strengthening of the Companys risk management policies and systems.

The Committee regularly meets to review the progress of the internal audit initiatives, significant audit observations and the action plans. The Company conducts its business with integrity and high standards of ethical behaviour and in compliance with the laws and regulations that govern its business.

- Detailed business plans for each 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;

- The Board takes responsibility for the overall process of risk management throughout the organisation. The Business risk is managed through cross-functional involvement and communication across

businesses. The results of the risk assessment are presented to the senior management. The audit Committee reviews business risk areas covering operational, financial, strategic and regulatory risks.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCE INCLUDING NUMBER OF EMPLOYEE

Our Human Resource (HR) initiatives are focused towards further strengthening and nurturing our vast and diverse employee base which currently stands at over 1300 permanent employees. Because of our well-crafted and employee friendly HR policies, we enjoy a very cordial relationship with our employees and have not experienced any major work stoppages due to labour disputes or cessation of work in the last five years.

We continue to enhance safety and security at the workplace by prescribing policies and procedures, creating awareness and imparting trainings. In addition to the above, we have mechanism in place to foster a positive workforce environment, free from harassment of any nature. We have institutionalized the Anti-Sexual Harassment Initiative framework, through which we address complaints of sexual harassment at the workplace.

Our HR practices are aimed at recruiting talented individuals, ensuring continuous development and addressing their grievances, if any, in a timely manner. We are also in process of centralizing the HR processes at our group level, which we believe will have both long-term tangible and intangible benefits

DISCLOSURE OF ACCOUNTING TREATMENT

The Company has followed all the treatments in the Financial Statements as per the prescribed Accounting Standards.

NEW CUSTOMER

The Company has introduced new Customer on Board i.e. TVS and many more Electric Vehicle Manufacturer.