You should read the following discussion of our financial condition and results of operations together with our Restated Financial Information, which are included in this Draft Red Herring Prospectus. The following discussion and analysis of our financial condition and results of operations for the FY 2019, 2020 and 2021 based on our Restated Financial Information, including the related notes and reports, which have been prepared and presented in accordance with Ind AS, in each case restated in accordance with the requirements of Section 26 of the Companies Act, 2013 read with Rule 4 of Companies
(Prospectus and Allotment of Securities) Rules 2014, as amended, the SEDR Regulations and the Guidance Note on "Reports in Company Prospectus (Revised 2019)" issued by the ICAI (the "Guidance Note"). IndAS differs in certain material respects from IFRS, U.S. GAAP and GAAP in other countries. Accordingly, the degree to which our Restated Financial Information will provide meaningful information to a prospective investor in countries other than India is dependent on the readers level of familiarity with Ind AS.
This discussion and analysis contains forward-looking statements that reflect our current views with respect to future events and our financial performance, which are subject to numerous risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. As such, you should also read "Risk Factors" and "Forward Looking Statements" beginning on pages 23 and 21, respectively, which discuss a number of factors and contingencies that could affect our business, financial condition and results of operations.
Unless otherwise stated, or the context otherwise requires, the financial information used in this section is derived from our Restated Financial Information included in this Draft Red Herring Prospectus on page 205.
IndAS differs in certain respects from Indian GAAP, IFRS and US GAAP and other accounting principles with which prospective investors may be familiar. Please also see "Risk Factors Significant differences exist between Ind AS and other accounting principles, such as US GAAP and IFRS, which may be material to investors assessments of our financial condition." on page 43.
Our fiscal year ends on 31 March of each year. Accordingly, all references to a particular fiscal year, or "fiscal", are to the 12 months ended 31 March of that year.
Overview of our Business
We are a leading diversified automotive dealership in India in terms of revenue (Source: CRISIL Report), with a presence across the automotive retail value chain, including sale of new passenger and commercial vehicles, services and repairs, spare parts distribution, sale of pre-owned passenger vehicles and facilitation of sale of third-party financial and insurance products. We operate passenger vehicle dealerships of Maruti Suzuki India Limited ("Maruti Suzuki"), Honda Cars India Limited
(" Honda") and Jaguar Land Rover India Limited ("JLR") and the commercial vehicle dealership of Tata Motors Limited
("Tata Motors (Commercial)"). We are the sixth largest passenger vehicle dealership for Maruti Suzuki, the fifth largest passenger dealership for JLR, the sixth largest passenger vehicle dealership for Honda and the third largest commercial vehicle dealership group for Tata Motors (Commercial), in terms of sales by volume, across India as of March 31, 2021.
As a diversified and fully integrated automotive dealership company, we cater to the complete life-cycle of vehicle ownership, right from operating driving schools, retailing new vehicles, servicing and repairing vehicles, distributing spare parts, to facilitating sale or exchange of pre-owned vehicles and facilitation of sale of third-party financial and insurance products. In addition to benefiting from the inherent synergies arising out of such complementary business verticals, our diversified income streams also contribute to higher profitability margins at our dealerships and help mitigate the cyclicality that has historically impacted some elements of the automotive sector. Our profit after tax registered a growth from 213.74 million in FY 2019 to 324.55 million in FY 2021. With the services and repair segment being a key driver for automobile dealership profitability, our strong capabilities in the services and repair segment has helped us achieve a growth in total EBITDA from 1,424.73 million in FY 2019 to 1,748.53 million in FY 2021and profit margins. During FY 2021, we were ranked second, third, third and second, in terms of volume of services handled for Maruti Suzuki (Arena and Nexa), Honda, JLR and Tata Motors (Commercial), respectively. Further, our authorised service centres contributed to 14.50%, 14.60% and 10.10% of our total revenue and 51.00%, 53.00% and 36.00% of our EBITDA during FY 2021, 2020 and 2019, respectively; and our spare parts distribution vertical contributed to 6.20%, 5.50% and 5.80% of our EBITDA during FY 2021, 2020 and 2019, respectively..
As of March 31, 2021, we operate through our expansive network of 59 showrooms, 99 sales outlets and booking offices, 83 authorised service centres, 29 retail outlets, and 25 warehouses located across all 14 districts of Kerala, in Bengaluru, Mysuru, Mangaluru, Hubballi, Hosapete, Vijayapur and Shivamoga in Karnataka and in Chennai, Chengalpet, Dharmapuri, Krishnagiri and Thiruvallur in Tamil Nadu. Kerala and Tamil Nadu are amongst the top contributors to the national passenger vehicle sales. For the first nine months (9M) of FY 2021, Kerala and Tamil Nadu contributed 11.50% to the overall passenger vehicles sales and 13.00% of the domestic commercial vehicles sales in India (Source: CRISIL Report). Our dealerships contributed to 16.00% and 4.00%, respectively, of the total passenger vehicles sales and commercial vehicles sales in Kerala and Tamil Nadu during (9M) of FY 2021.
Our Company categorises its business into four key segments, namely passenger cars, luxury vehicles, commercial vehicles and others, as per "Management approach" defined in Ind AS 108, which contributed to consolidated revenues of 19,262.73 million, 1,442.00 million, 6,906.66 million and 1,323.86 million, respectively, during FY 2021.
Our key business verticals comprise new passenger vehicle sales, new commercial vehicles sales, services and repair, sale of pre-owned passenger vehicles, spare parts distribution, facilitation of sale of third party financial and insurance products.
New Passenger Vehicle Sales: Maruti Suzuki and Honda, together accounted for approximately 52.00% of the new passenger vehicles market share in India in FY 2021 (Source: CRISIL Report). Including JLR, our offerings cover the complete spectrum of passenger vehicles ranging from economy to luxury passenger vehicles and help in catering to the varied preferences of customers and retaining customers as their requirements evolve. We believe our product and brand mix is well-suited to what customers demand in the markets we serve. During FY 2021, we sold a cumulative of 28,393 new passenger vehicles across our dealerships.
The first ever dealership for Maruti Suzuki vehicles in Kerala was awarded to our Company in 1984 and formed part of the first batch of dealerships awarded by Maruti Suzuki across India. We operate the sixth largest selling Maruti Suzuki dealership in India under the Arena network (by volume) and the eleventh largest selling Maruti Suzuki dealership in India under the Nexa network (by volume), as of March 31, 2021. The agreement with Maruti Suzuki for the operation of our Nexa dealerships is in the process of being renewed. Our Maruti Suzuki dealerships are operated under the ‘Popular brand and offer economy to premium passenger vehicles under the Maruti Suzuki brands - ‘Arena and ‘Nexa, respectively. Maruti Suzuki was the highest contributor to sales of passenger vehicles in Kerala and Tamil Nadu, accounting for 48.00% and 44.00%, respectively, of the total sales volume mix in these states for (9M) of FY 2021 (Source: CRISIL Report). During (9M) of FY 2021, we contributed to the sale of 25.00% and 8.00% of the total Maruti Suzuki vehicles sold in Kerala and Tamil Nadu, respectively. We have 14 showrooms, 70 sales outlets and booking offices, 48 authorised service centres and 22 dedicated showrooms and outlets for pre-owned passenger vehicles under our Maruti Suzuki dealerships spread across all 14 districts of Kerala and in Chennai, Tamil Nadu, as of March 31, 2021.
Our Honda dealerships are operated under the ‘Vision brand, through seven showrooms, one sales outlet and seven authorised service centres located in Kerala, as of March 31, 2021 and cater to the premium segment of our offerings. Honda accounted for 4.00% of the total sales volume mix in Kerala for (9M) of FY 2021 (Source: CRISIL Report). During (9M) of FY 2021, we contributed to the sale of 32.00% of the total Honda vehicles sold in Kerala.
Our JLR dealership, which caters to the luxury segment, is operated under the ‘Marqland brand through three showrooms and three service centres in Karnataka as of March 31, 2021.
We have recently entered the electric vehicle segment in FY 2021. We are in the process of entering into arrangements with an OEM to operate dealerships for their three-wheeler electric vehicles in Ernakulam. We are also in discussions with other electric vehicle manufacturers to set up dealerships for two-wheeler electric vehicles. Our electric vehicle dealerships are proposed to be operated under the ‘Ecomarq brand.
New Commercial Vehicles Sales: We are the largest commercial vehicle dealership of Tata Motors (Commercial) in Kerala in terms of sales volumes for FY 2021 (Source: CRISIL Report). We were awarded our first Tata Motors (Commercial) dealership in 1997, when we decided to strategically expand into the commercial vehicle dealership sector. Tata Motors (Commercial) contributed to 19.00% and 37.00%, respectively of the total commercial vehicles sales volumes in Kerala and Tamil Nadu, respectively, for (9M) of FY 2021 (Source: CRISIL Report). During (9M) of FY 2021, we contributed to the sale 85.00% and 25.00% of the total Tata Motors (Commercial) vehicles sold in Kerala and Tamil Nadu, respectively. We also commenced sale of Maruti Suzuki commercial vehicles in February 2019. During FY 2021, we sold 6,504 new commercial vehicles through our network of 13 showrooms, 28 sales outlets and 25 service centres for commercial vehicles in Kerala and Tamil Nadu.
Services and Repair: During FY 2021, we were ranked second, third, third and second in terms of volume of services handled for Maruti Suzuki, Honda, JLR and Tata Motors (Commercial), respectively. Our maintenance and repair services under each of our dealerships include warranty work, customer paid work, running repair and collision repair services. During FY 2021, we serviced 549,023 passenger vehicles and 97,257 commercial vehicles through our network of 83 authorised service centres for all the vehicle brands that we represent in India.
Sale of Pre-Owned Passenger Vehicles: We have been named the No.1 Pre Owned Car Dealer in India in True Value certified vehicles in terms of sales by volume for FY 2021 by Maruti Suzuki. During FY 2021, we sold a cumulative of 9,413 pre-owned vehicles through 22 dedicated pre-owned vehicle showrooms and 23 of our new passenger vehicles showrooms in Kerala, Tamil Nadu and Karnataka, operated under our passenger vehicle dealerships. Our pre-owned passenger vehicles vertical, together with our new passenger vehicles vertical, helps us cater to all customer price points ranging from sub 100,000 at our Maruti True Value showrooms to more expensive luxury offerings of up to 30.00 million through our JLR dealership.
Spare Parts Distribution: We commenced our spare parts distribution business in 2005. As on March 31, 2021, our spare parts and distribution business was operated through 54 touch points comprising of 29 retail outlets, 25 warehouses and offices in Kerala and Karnataka and catered to around 10,000 customers including active retailers, independent workshops, authorised service centres and vehicle dealers.
Facilitating sale of third-party financial and Insurance products: As part of our bouquet of offerings, we also facilitate the sale and placement of various third-party finance and insurance products, extended warranty and maintenance contracts, as well as replacement and aftermarket automotive products. During FY 2021, we have facilitated the sale of 32,297 and renewal of 201,956 third-party insurance policies aggregating to a gross premium of 1,882.80 million and facilitated financial assistance aggregating 13,380.66 million to our customers from our empanelled lenders.
The profit after tax for the company in FY 2021, 2020 and 2019 is 324.55 million, 124.91 million and 213.74 million respectively. The contribution to total volume, revenue and EBITDA from our key income streams for FY 2021, 2020 and 2019 is as set out below:
(in million) |
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| Segment | FY 2021 | FY 2020 | FY 2019 | ||||||||||||
| Volume | Revenue | % of total revenue | EBITDA | % of total EBITDA | Volume | Revenue | % of total revenue | EBITDA | % of total EBITDA | Volume | Revenue | % of total revenue | EBITDA | % of total EBITDA | |
| New | |||||||||||||||
| Passenger Vehicles Sales | 28,393 | 14,724.58 | 50.43% | 391.33 | 22.38% | 31,434 | 16,476.48 | 51.80% | 73.40 | 5.28% | 44,953 | 23,467.12 | 59.92% | 573.30 | 40.24% |
| New Commercial Vehicles Sales | 6,504 | 6,135.26 | 21.01% | 243.61 | 13.93% | 8,031 | 6,556.53 | 20.61% | 212.33 | 15.27% | 10,132 | 7,945.23 | 20.29% | 300.84 | 21.12% |
| Pre-Owned Passenger Vehicles Sales | 10,115 | 2,459.48 | 8.42% | 58.06 | 3.32% | 12,181 | 2,389.84 | 7.51% | (0.35) | -0.02% | 11,448 | 2,292.89 | 5.85% | 6.97 | 0.49% |
| Services and Repair | 646,280 | 4,231.48 | 14.49% | 889.16 | 50.85% | 817,961 | 4,650.49 | 14.62% | 739.62 | 53.20% | 732,549 | 3,961.89 | 10.12% | 510.85 | 35.86% |
| Spare Parts Distribution | NA | 1,545.67 | 5.29% | 108.36 | 6.20% | NA | 1,688.67 | 5.31% | 76.74 | 5.52% | NA | 1,360.85 | 3.47% | 82.16 | 5.77% |
| Other Income | NA | 98.85 | 0.34% | 58.00 | 3.32% | NA | 44.41 | 0.14% | 288.50 | 20.75% | NA | 135.70 | 0.35% | (49.51) | (3.48)% |
The Kuttukaran Group (i.e. the group of entities and business operated by our Promoters and their family members) has over 69 years of experience in the automotive industry. John K. Paul, our Managing Director and one of our Promoters has over 44 years of experience in the automobile sector. He is currently the President of the Kerala Automobiles Dealers Association. Francis K Paul, our Executive Director and one of our Promoters has over 44 years of experience in the automobile sector. Naveen Philip, our Non-executive Director and one of our Promoters has over 24 years of experience in the automobile industry. Our senior management team is also experienced in the automobile dealership industry. The majority of our heads of departments have spent more than 15 years each in our Company. We believe that the experience, depth and diversity of our management team and our Promoters and the long standing presence of the Kuttukaran Group in the automotive industry have enabled us to become valued partners of each of our OEMs giving us a distinct competitive advantage in the industry in which we operate.
Significant factors affecting our financial condition and results of operations
Our financial condition and results of operations are affected by numerous factors and uncertainties, including those discussed in the section titled "Risk Factors" beginning on page 23. The following is a discussion of certain factors that have had, and we expect will continue to have, a significant effect on our financial condition and results of operations.
Market and economic conditions
The automotive retail industry is sensitive to changing economic conditions and various other factors. General economic factors that can affect demands in the automotive retail industry, include, among others:
• global oil prices, which impact the automotive sectors; global and local economic or fiscal instability;
• global and local political and regulatory measures and developments, such as tax incentives or other subsidies, environmental policies, the phasing out of older vehicles or other developing trends, such as the move towards electrification and emissions reduction;
• global and local fiscal and monetary dynamics, such as rises or falls in interest rates (resulting in greater or lesser ability by customers to borrow money, including for automotive purchases), foreign exchange rates and inflation rates;
• general levels of GDP growth in India or the regions in which we operate, and growth in personal disposable income in India or the regions in which we operate; demographic conditions and population dynamics, such as the absolute size of a market, the growth rates of the population and rate of employment in that market; and
• economic development, shifting of wealth in India, in particular growth in the middle class, and change in customer preferences in favour of more fuel efficient and environmentally friendly vehicles.
The cyclical nature of general economic conditions and, therefore, of the automotive retail industry means that our results of operations can fluctuate substantially from period to period. We expect that these economic factors and conditions in our industry, particularly changes in consumer confidence, employment levels, fuel prices, consumer spending on passenger and commercial vehicles, urbanisation, changes in customer preferences, government policies and interest rates and introduction of new technologies will continue to be the most important factors affecting our revenues and results of operations. Other factors, such as competitiveness, quality and pricing and the regular launch of new models of our OEMs, quality of after sales support have an effect on our ability to win customers in competitive situations.
Domestic passenger vehicles sales are expected to increase by a CAGR of 10%-12% over FY 2021-2026. Over the short-to-mid-term, it is expected that the COVID-19 pandemic will lead to increased demand for personal mobility and boost passenger vehicles sales. Over the mid-to-long-term, it is expected that moderate macroeconomic growth, increasing disposable income, relatively stable cost of vehicle ownership, and lower fuel prices are likely to drive demand for passenger vehicles. However, increasing congestion in metro cities and rising popularity of shared mobility services are could restrict passenger vehicles sales in the long term (Source: CRISIL Report). Domestic commercial vehicles sales are expected to register a CAGR of 13%-15% between FY 2021 and 2026. Rising domestic consumption, improving rural incomes, increasing exports, governments focus on infrastructure investments and initiation of commercial mining in India are likely to aid domestic demand for commercial vehicles. (Source: CRISIL Report). Indias pre-owned passenger vehicle segment is expected to grow at a CAGR of 12%-14% between FY 2021 and FY 2026 and reach 6.8-7.3 million vehicles by FY 2026Increased need for personal mobility, change in customer perceptions, rising aspirations of customers, growing disposable income, lowering replacement cycles and increasing financial penetration is expected to drive this growth. (Source: CRISIL Report). The onset of the COVID-19 pandemic has caused people to switch from public transport to personal vehicles. This phenomenon is expected to support the already growing demand for passenger vehicles and younger customers are expected to opt for a pre-owned passenger vehicles (Source: CRISIL Report).
In the event that there is an overall downward trend in the purchase of vehicles, or a trend towards types of vehicles that we do not offer, this could adversely impact our business and results of operations.
Ability to renew and maintain our dealership agreements, and the ability of our OEM partners to maintain their business operations
We have entered into dealership agreements with four OEMs pursuant to which we have been authorized as a dealer of such OEMs products on a non-exclusive and non-transferable basis, in the identified geographies/markets. We are among the top six dealerships in India, in terms of sales by volume, as of March 31, 2021, with respect to each of our passenger and commercial vehicles dealerships. Further, we have also entered into dealership agreements for spare parts distribution with various OEMs.
Since our ability to sell new vehicles is dependent on the ability of our OEMs to produce and allocate an attractive and desirable product mix to our showrooms, the success of our dealerships is dependent on the success and continued financial stability our OEMs, namely Maruti Suzuki, Honda, JLR and Tata Motors (commercial vehicles). We would expect successful new model launches by our OEMs to increase our revenues and results of operations. For instance, Maruti Suzuki dominated the domestic sales market with 48% share of domestic sales for FY 2021 (Source: CRISIL Report). New launches have helped OEMs expand their market presence. The launch of Vitara Brezza helped Maruti Suzuki further its dominance in FY 2019 and 2020 (Source: CRISIL Report).
Further, in the event that the brand or reputation of our OEMs is adversely affected, the demand for the products of our OEMs may decline. In addition, if there is a decline in demand for the spare parts of any or all of these OEMs, it may adversely impact our spare parts distribution business. Any or all of these events may result in a decline in our revenues and performance of our business.
Further, while our dealership agreements have been executed for fixed periods of time,, the respective OEMs are entitled to unilaterally terminate such dealership agreements without cause. Any breach by us of the terms of the dealership agreements could also result in a termination of the agreements. In the event that our association with any OEM ceases, we may not be able to substitute such arrangement with another OEM, immediately or at all. The loss of any OEM including as a result of a dispute with or termination or non-renewal of dealership agreements by them may materially affect our business and results of operations.
Working capital management
Our working capital management efficiency plays a key role in determining our capital efficiency and profitability across all segments of our business. Our purchases of stock in trade for FY 2021, 2020 and 2019 amounted to 24,573.83 million,
26,110.20 million and 35,175.46 million. Further, we had trade receivables (current) of 1,607.27 million, 1,088.91 million and 2,629.33 million, respectively, as of March 31, 2021, 2020 and 2019 from counter-parties we believe are well established, including our OEMs, and trade payables of 408.71 million, 1,341.27 million and 745.42 million, respectively, as of March 31, 2021, 2020 and 2019.
Our ability to successfully manage our working capital will depend on accurately predicting stock in trade requirements for new vehicles, spare parts and accessories and used vehicles, requirements across our segment of operations, as well as managing our debtors days and creditor days. Successfully anticipating inventory requirements will enable us to cater to our customer requirements in a timely manner, while reducing our debtor days will improve our cash flow cycle and enable us to redeploy working capital in an efficient manner.
Pricing policy
We are the sixth largest passenger vehicle dealership for Maruti Suzuki, the third largest commercial vehicle dealership group for Tata Motors (Commercial), the sixth largest passenger vehicle dealership for Honda and the fifth largest passenger vehicle dealership for JLR, in terms of sales by volume, across India as of March 31, 2021. Further, during FY 2021, we were ranked second, third, third and second in terms of volume of services handled for Maruti Suzuki (Arena and Nexa), Honda, JLR and Tata Motors (Commercial), respectively.
Sales of new passenger vehicles, sales of commercial vehicles, sales of pre-owned passenger vehicles and services and repairs contributed to 22.38%, 13.93%, 3.32% and 50.85%, respectively of our total EBITDA for FY 2021. Our pricing policy for new vehicles is based on the pricing policy of our OEMs. Further, any discounts or incentives provided by us are also linked to the schemes and incentives offered by our OEMs. The pricing policy for pre-owned vehicles is determined by us, based on the sales required for a particular product. We have limited price variations in relation to each vehicle dealership and the prices of spare parts and accessories. Some of our OEMs also prescribe guidelines on pricing of services offerings and fix the per hour labour charges for services and repair work undertaken by us which varies from city to city. We are therefore subject to any fluctuations in the pricing policies of our OEMs.
Given that the pricing policy for our business of sale of new vehicles and servicing and repairs of vehicles is driven by our OEMs, our ability to manage our operating costs would determine our profitability and growth. Further, in the case of pre-owned vehicles, our ability to pass on increased operating costs to our customers in the form of increased prices, while balancing customer expectations would enable us to achieve better operating results.
Operating costs and service revenues
Given the nature of our business, managing operating costs and efficiencies are critical to maintaining our competitiveness and profitability. We believe that we are uniquely positioned to leverage our scale of operations to achieve competitive operating margins by centralizing and streamlining various business processes. For example, our profit after tax increased by 159.83% to
324.55 million for FY 2021 from 124.91 million for FY 2020, reflecting the efficiencies in management of operating costs that we have implemented.
We continually undertake efforts to streamline our costs, such as undertaking centralised purchase of, inter alia, lubricants and paint from our vendors, centralisation of our human resources department, finance department and the information technology department. We are also able to capitalise on our economies of scale in purchasing lubricants, paint, etc. through pan-India vendor relationships. Additionally, we are able to improve financial controls and lower servicing costs by maintaining administrative activities in our dealerships main office. Our ability to optimize our operating costs in line with customer demand is subject to risks and uncertainties, as our costs depend, in part, on external factors beyond our control, including the pricing of passenger and commercial vehicles determined by our OEMs.
Our sizeable and growing service revenues help insulate us from downturns in vehicle sales in the short-term. We offer fully integrated services and repair offerings through our authorised service centres that contribute to higher-margin revenues at our dealerships and our presence across the customer vehicle ownership lifecycle helps mitigate the cyclicality that has historically impacted some elements of the automotive sector. Our authorised service centres contributed to 14%, 15% and 10% of our total revenue and 51%, 53% and 36% of our EBITDA during FY 2021, 2020 and 2019, respectively. Despite a decline in revenues from operations between FY 2019 and FY 2021, in line with industry trends, our operations have demonstrated a growth in EBITDA from 1,424.73 million in FY 2019 to 1,748.53 million in FY 2020, primarily attributable to higher margin revenues generated through our authorised service centres. As service revenues will continue even during a decline in sales of new vehicles, our overall performance and results of operations will in part be determined by how successful we are in maintaining our service offerings and quality levels, as well as our ability to leverage other revenue streams such as distribution of spare parts and sales of third party financial products.
Lease rental agreements for our dealership network
We have a deep penetration in the markets in which we operate. Our vehicle dealership network is spread across all the 14 districts of Kerala, in Bengaluru and Mangaluru in Karnataka and in Chennai, Chengalpet, Dharmapuri, Krishnagiri and Thiruvallur in Tamil Nadu. Further, our spares and parts distribution dealerships are located across Karnataka and Kerala. Kerala and Tamil Nadu. As of March 31, 2021, our network comprised of 23 showrooms and 71 sales outlets and booking offices for sale of new passenger vehicles, 14 showrooms and 28 sales outlets for sale of commercial vehicles; 58 authorised service centres for servicing and repair of passenger vehicles and 25 authorised service centres for servicing and repair of commercial vehicles; and 22 dedicated showrooms for sale of pre-owned passenger vehicles. Further, as on March 31, 2021, our spare parts and distribution business operated through 54 touch points which comprises of 29 retail outlets, 25 warehouses and offices.
Most of our showrooms, sales outlets and service centres are situated on leased premises, and in addition certain of our warehousing facilities are also situated on leased premises. Typically, we enter into lease arrangements of an average period of 10 years and have suitable provision in such arrangements for renewal of the term of the lease period. Further, typically our lease arrangements include rent escalation of approximately, 5% per annum. Our rent expense is generally affected by the availability of suitable locations and has been increasing in-line with macro-economic trends in India. The continued availability of suitable locations and premises for our retail stores, at commercially viable terms, will directly impact our ability to expand our dealership network in the manner that we plan.
Competition
We operate in a competitive automobile dealership landscape and face competition in each of our business verticals from several companies that operate numerous automotive retail stores, including online platforms for sale of new and pre-owned vehicles. We also compete with other dealerships that sell the same vehicle brands that we sell, as well as dealers and certain manufacturers that sell other vehicle brands that we do not represent in a particular market. We also compete with independent automobile service shops and service centre chains. We believe that the principal competitive factors in the parts and service business are price, location, expertise with the particular vehicle lines, and customer service. We also compete with a broad range of financial institutions in our business of facilitating sale of finance and insurance products. We believe that the long standing presence of the Kuttukaran Group in the automotive industry, and the trust enjoyed by us with our customers has enabled us to become valued partners of each of our OEMs which is a distinct competitive advantage in the industry in which we operate.
Acquisitions and their successful integration
Our business strategies are focused on enhancing our market position by penetrating deeper into markets in which operate and expanding into new markets through a combination of organic growth and inorganic acquisitions. We generally seek to acquire dealerships with high-growth automotive brands which may or may not be part of our existing portfolio in highly concentrated or growing demographic areas that will benefit from our management expertise, manufacturer relations and scale of operations, as well as smaller, single location dealerships that can be effectively integrated into our existing operations. For instance, we acquired passenger vehicles sales showrooms of an existing dealership in Ernakulam and Muvattupuzha in Kerala in FY 2016. We also acquired Tata Motors (Commercial) dealership in North Kerala in 2015. Further, as part of our strategic plans to expand our business into other territories and states, we acquired the entire operations of a sizeable a spare parts distributorship in Karnataka, in FY 2019, which helped us gain established business channels and a steady foothold in Karnataka with a presence in Bengaluru, Hubballi, Vijayapur, Hosapete, Shivamoga, Mysuru and Mangaluru. We continue to evaluate inorganic growth opportunities to grow our business. Each new acquisition that we complete, and our ability to successfully integrate it into our existing business, may materially affect our overall results of operations and financial profile.
Impact of COVID-19 on our operations and financial results
An outbreak of COVID-19 was recognized as a pandemic by the WHO on March 11, 2020. In response to the COVID-19 outbreak, the governments of many countries, including India, have taken preventive or protective actions such as imposing country-wide lockdowns, as well as restrictions on travel and business operations. In India, some of these measures have been lifted and partial travel has been permitted. A rapid increase in severe cases and deaths where measures taken by governments have failed or are lifted prematurely, may cause significant economic disruption in India and in the rest of the world. The scope, duration and frequency of such measures and the adverse impact of the COVID-19 pandemic remain uncertain and could be severe. The COVID-19 pandemic and the related preventive and protective actions impacted our business through complete suspension of activities at our showrooms, sales outlets and booking offices and service centres, which were shut.
As a result of the complete suspension of commercial activities (excluding essential services), due to lockdown restrictions in India and globally, followed by partial and gradual easing of the lockdown, we experienced overall low consumer demand in the automotive markets, and consequently reduced footfalls at our showrooms and service centres during the first quarter of FY 2021. We experienced improved business conditions and improved financial results in the third and fourth quarter of FY 2021. We faced a de-growth of 70% and 17%, respectively in the first and second quarters of FY 2021. Improved business conditions in the third and fourth quarter of FY 2021, enabled us to register a 7% and 64% growth, respectively. We ended FY 2021 with an overall de-growth of 8%.
In response to the lock-down restrictions, we shifted our focus to digital and on-line channels. We facilitated enquiries through our websites, social media platforms and also contacted customers through video conferencing means. We modified certain business practices to conform to government restrictions and best practices by implementing enhanced sanitsation procedures, deep cleaning of facilities, enforcing social distancing guidelines, and taking precautions to safeguard the health and safety of our employees and customers, including providing for PPEs, masks, hand sanitizers, and gloves to employees in our facilities and staggered working shifts at our facilities. We have also taken various measures to reduce such as requesting for reduction of rental expenses for showrooms and service centres taken on lease and optimization of administrative, sales, marketing and travel costs.
The pandemic impacted production levels of our OEMs, resulting in lower inventory levels for certain models of vehicles. While production levels have improved, inventory levels continue to remain low for certain models of commercial vehicles. We began to receive additional incentives and support from our OEMs in the first quarter of FY 2021 in the form of cash support on unsold stock as of April 2020, modifications in qualifying conditions for trade discount and dealer cash back schemes etc. The OEMs also extended support to customers by introducing various measures including extension of warranties, providing free services for services falling due between March 15, 2020 and June 30, 2020, exempting penal interest on overdue invoices, etc.
The business disruption relating to the COVID-19 pandemic has negatively impacted the global economy and has resulted in a loss of revenues and certain cost increases to us. As the situation evolves, we continue to adjust our operations to conform to regulatory changes and consumer preferences in the evolving environment. While we believe that there is pent up demand for vehicle sales, and that the impact of COVID-19 will be restricted to the short term, our ability to successfully anticipate the situation, change our operational parameters in line with applicable restrictions and enhance our digital and online channels will play a key role in determining our future performance and results of operations.
Basis of preparation of financial statements
The Restated Financial Information has been prepared and presented in accordance with Ind AS, in each case restated in accordance with the requirements of Section 26 of the Companies Act, 2013 read with Rule 4 of Companies (Prospectus and Allotment of Securities) Rules 2014, as amended, the SEBI ICDR Regulations and the Guidance Note.
Significant accounting policies Property, plant and equipment Recognition and measurement
Items of property, plant and equipment are measured at cost, which includes capitalized borrowing costs, less accumulated depreciation and accumulated impairment losses, if any.
Cost of an item of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, any directly attributable cost of bringing the item to its working condition for its intended use and estimated costs of dismantling and removing the item and restoring the site on which it is located.
The cost of a self-constructed item of property, plant and equipment comprises the cost of materials and direct labor, any other costs directly attributable to bringing the item to working condition for its intended use, and estimated costs of dismantling and removing the item and restoring the site on which it is located.
If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss.
Advances paid towards the acquisition of fixed assets, outstanding at each balance sheet date are shown under long-term loans and advances. The cost of fixed assets not ready for its intended use at each balance sheet date are disclosed as capital work-in-progress.
Borrowing costs directly attributable to the acquisition, construction of production or those fixed assets that necessarily take a substantial period to get ready for their intended use, are capitalised. Other borrowing costs are accounted as an expense in the statement of profit and loss.
Subsequent expenditure
Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Group.
Depreciation
Depreciation is calculated on cost of items of property, plant and equipment less their estimated residual values over their estimated useful lives using the straight-line method, and is generally recognised in the profit or loss. Leasehold improvements are amortized over the lease term or useful lives of assets, whichever is lower. Freehold land is not depreciated.
The estimated useful lives of items of property, plant and equipment are as follows:
| Class of assets | Useful life* |
| Building owned | 60 |
| Motor cars | 8 |
| Motor cycles and trucks | 10 |
| Office Equipment | 5 |
| Plant and machinery | 15 |
| Tools and Equipment | 5 |
| Electrical fittings | 10 |
| Furniture and fittings | 10 |
| Computer equipment | 3 |
* The useful life of items of property, plant and equipment is in line with the Schedule II of the Companies Act 2013.
Depreciation method, useful lives and residual values are reviewed at each financial year end and adjusted, if appropriate.
Intangible assets and goodwill
Intangible assets other than goodwill:
Intangibles assets are stated at cost less accumulated amortization and impairment. Intangible assets are amortised over their respective individual estimated useful lives on a straight-line basis, commencing from the date the asset is available to the Group for its use and is included in amortisation in profit or loss.
The estimated useful lives are as follows:
| Class of assets | Years |
| Software | 3 |
| Brand | 15 |
Amortisation method, useful lives and residual values are reviewed at the end of each financial year and adjusted if appropriate.
The estimated useful life of an identifiable intangible asset is based on a number of factors including the effects of obsolescence, demand, competition and other economic factors (such as the stability of the industry and known technological advances) and the level of maintenance expenditures required to obtain the expected future cash flows from the asset.
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognized in profit or loss as incurred.
Goodwill:
For measurement of goodwill that arise from business combination see note 3.1 (i) above. Subsequent measurement is at cost less any accumulated impairment loss.
Employee benefits
Short-term employee benefits
Employee benefits payable wholly within 12 months of receiving employee services are classified as short term employee benefits. These benefits include salaries and wages, bonus and ex-gratia. Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid e.g., under short-term cash bonus, if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the amount of obligation can be estimated reliably.
Post-employment benefits
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. The Group makes specified monthly contributions towards Government administered provident fund scheme. Obligations for contributions to defined contribution plans are recognised as an employee benefit expense in profit or loss in the periods during which the related services are rendered by employees.
Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.
Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. Our net obligation in respect of defined benefit plan is calculated by estimating the amount of future benefit that employees have earned in the current and prior periods and discounting that amount and deducting the fair value of any plan assets, if any
The calculation of defined benefit obligation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan
(‘the asset ceiling).
Re-measurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised in other comprehensive income (OCI). We determine the net interest expense on the net defined benefit liability for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability, taking into account any changes in the net defined benefit liability during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.
Other long term employee benefits
The employees can carry forward a portion of the unutilised accrued compensated absences and utilise it in future service periods or receive cash compensation on termination of employment. Since the compensated absences do not fall due wholly within 12 months after the end of the period in which the employees render the related service and are also not expected to be utilised wholly within 12 months after the end of such period, the benefit is classified as a long term employee benefit. The Group records an obligation for such compensated absences in the period in which the employee renders the services that increase this entitlement. The obligation is measured on the basis of independent actuarial valuation using the projected unit credit method.
Provisions
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows (representing the best estimate of the expenditure required to settle the present obligation at the balance sheet date) at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost. Expected future operating losses are not provided for.
A contract is considered to be onerous when the expected economic benefits to be derived by the Group from the contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision for an onerous contract is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before such a provision is made, the Group recognizes any impairment loss on the assets associated with that contract.
Revenue
Sale of products
Revenue on sale of vehicles, spare parts and accessories is recognised when the risk and rewards are transferred to the customer and is accounted net of goods and services tax and trade discounts, if any. Revenues are recognised when collectability of the resulting receivable is reasonably assured.
The Group generates revenue from sale of vehicles, services, spare parts and accessories and other operating avenues. It replaced IAS 18 Revenue, IAS 11 Construction Contracts. Under Ind AS 115, revenue is recognised when a customer obtains control of the goods or services.
Rendering of services
Revenues from services, including income from the driving school are recognised when services are rendered and related costs are incurred.
Commission, discount and incentive income
Commission income is recognised when services are rendered and in accordance with the commission agreements.
Discounts and incentive income is recognised when the services are rendered and as per the relevant scheme/ arrangement provided by the manufacturer. In respect of other heads of income, the Group follows the practice of recognising income on an accrual basis.
Inventories
Vehicles New and used vehicles
Inventories are carried at lower of cost and net realisable value. Cost comprises purchase price, cost of conversion and other costs incurred in bringing the inventory to its present location and condition. The cost is calculated on specific identification basis.
The comparison of cost and net realisable value of inventory is made on an item by item basis. Spares, lubricants, accessories and other supplies are not written down below cost except in cases where material prices have declined and it is estimated that the cost of the goods will exceed their net realisable value.
The provision for inventory obsolescence is assessed annually and is provided as considered necessary.
Financial instruments
Recognition and initial measurement
Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument.
A financial asset or financial liability is initially measured at fair value plus, for an item not at fair value through profit and loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue.
Classification and subsequent measurement
Financial assets
On initial recognition, a financial asset is classified as measured at either at amortized cost, FVTPL or fair value in other comprehensive income (FVOCI).
Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Group changes its business model for managing financial assets.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:
- the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and - the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investments fair value in OCI (designated as FVOCI equity investment). This election is made on an investment by investment basis.
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Financial assets: Business model assessment
The Group makes an assessment of the objective of the business model in which a financial asset is held at investment level because this best reflects the way the business is managed and information is provided to management. The information considered includes:
- the stated policies and objectives for each of such investments and the operation of those policies in practice. - the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; - the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity.
Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, consistent with the Groups continuing recognition of the assets.
Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL.
Financial assets: Assessment whether contractual cash flows are solely payments of principal and interest
For the purposes of this assessment, ‘principal is defined as the fair value of the financial asset on initial recognition. ‘Interest is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:
- contingent events that would change the amount or timing of cash flows;
- terms that may adjust the contractual coupon rate, including variable interest rate features; - prepayment and extension features; and
- terms that limit the Groups claim to cash flows from specified assets (e.g. non-recourse features).
Financial assets: Subsequent measurement and gains and losses
| Financial assets at FVTPL | These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss. |
| Financial assets at amortised cost | These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss. |
| Equity investments at FVOCI | These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are not reclassified to profit or loss. |
Financial liabilities: Classification, subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held for trading, or it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on de recognition is also recognized in profit or loss.
De recognition
Financial assets
The Group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control of the financial asset.
If the Group enters into transactions whereby it transfers assets recognized on its balance sheet, but retains either all or substantially all of the risks and rewards of the transferred assets, the transferred assets are not derecognized.
Financial liabilities
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.
The Group also derecognizes a financial liability when its terms are modified and the cash flows under the modified terms are substantially different. In this case, a new financial liability based on the modified terms is recognized at fair value. The difference between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognized in profit or loss.
Off setting
Financial assets and financial liabilities are offset and the net amount presented in the balance sheet when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
Impairment
Impairment of financial instruments
The Group recognises loss allowances for expected credit losses on financial assets measured at amortized cost.
At each reporting date, the Group assesses whether financial assets carried at amortized cost are credit impaired. A financial asset is ‘credit impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Loss allowances for trade receivables are always measured at an amount equal to lifetime expected credit losses. Lifetime expected credit losses are the expected credit losses that result from all possible default events over the expected life of a financial instrument.
In all cases, the maximum period considered when estimating expected credit losses is the maximum contractual period over which the Group is exposed to credit risk.
Measurement of expected credit losses
Expected credit losses are a probability weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive).
Presentation of allowance for expected credit losses in the balance sheet
Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets.
Write-off
The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write off.
Impairment of non- financial assets
The Groups non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amount is estimated.
For impairment testing, assets that do not generate independent cash inflows are grouped together into cash-generating units (CGUs). Each CGU represents the smallest group of assets that generates cash inflows that are largely independent of the cash inflows of other assets or CGUs.
The recoverable amount of a CGU (or an individual asset) is the higher of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the CGU (or the asset).
An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss.
In respect of assets for which impairment loss has been recognized in prior periods, the Group reviews at each reporting date whether there is any indication that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. Such a reversal is made only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
Leases
Determining whether an arrangement contains a lease
At inception of an arrangement, it is determined whether the arrangement is or contains a lease. At inception or on reassessment of the arrangement that contains a lease, the payments and other consideration required by such an arrangement are separated into those for the lease and those for other elements on the basis of their relative fair values.
Group as a lessee
The Group accounts for each lease component within the contract as a lease separately from non-lease components of the contract and allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components. The Group recognises right-of-use asset representing its right to use the underlying asset for the lease term at the lease commencement date. The cost of the right-of-use asset measured at inception shall comprise of the amount of the initial measurement of the lease liability adjusted for any lease payments made at or before the commencement date less any lease incentives received, plus any initial direct costs incurred and an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset or restoring the underlying asset or site on which it is located. The right-of-use assets is subsequently measured at cost less any accumulated depreciation, accumulated impairment losses, if any and adjusted for any remeasurement of the lease liability. The right-of-use assets is depreciated using the straight-line method from the commencement date over the shorter of lease term or useful life of right-of-use asset. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant and equipment. Right-of-use assets are tested for impairment whenever there is any indication that their carrying amounts may not be recoverable. Impairment loss, if any, is recognised in the statement of profit and loss. The Group measures the lease liability at the present value of the lease payments that are not paid at the commencement date of the lease. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the Group uses incremental borrowing rate. The lease payments shall include fixed payments, variable lease payments, residual value guarantees, exercise price of a purchase option where the Group is reasonably certain to exercise that option and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.
The lease liability is subsequently remeasured by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payments made and remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in substance fixed lease payments. The Group recognises the amount of the re-measurement of lease liability due to modification as an adjustment to the right-of-use asset and statement of profit and loss depending upon the nature of modification. Where the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Group recognises any remaining amount of the remeasurement in statement of profit and loss.
The Group has elected not to apply the requirements of Ind AS 116 Leases to short-term leases of all assets that have a lease term of 12 months or less. The lease payments associated with these leases are recognized as an expense on a straight-line basis over the lease term.
Group as a lessor
At the inception of the lease the Group classifies each of its leases as either an operating lease or a finance lease. The Group recognises lease payments received under operating leases as income on a straight- line basis over the lease term. In case of a finance lease, finance income is recognised over the lease term based on a pattern reflecting a constant periodic rate of return on the lessors net investment in the lease. When the Group is an intermediate lessor it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short term lease to which the Group applies the exemption described above, then it classifies the sub-lease as an operating lease.
If an arrangement contains lease and non-lease components, the Group applies Ind AS 115 Revenue from contracts with customers to allocate the consideration in the contract.
Recognition of interest income or interest expense
Interest income or expense is recognized using the effective interest method.
The ‘effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to the gross carrying amount of the financial asset or the amortized cost of the financial liability.
In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-impaired) or to the amortized cost of the liability.
Income tax
Income tax comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to an item recognized directly in equity or in other comprehensive income.
Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. Minimum Alternative Tax (MAT) under the provisions of the Income-tax Act, 1961 is recognized as current tax in the profit or loss. The amount of current tax reflects the best estimate of the tax amount expected to be paid or received after considering the uncertainty, if any, related to income taxes. It is measured using tax rates (and tax laws) enacted or substantively enacted by the reporting date.
Current tax assets and current tax liabilities are offset only if there is a legally enforceable right to set off the recognized amounts, and it is intended to realize the asset and settle the liability on a net basis or simultaneously.
Deferred tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for taxation purposes. Deferred tax is also recognized in respect of carried forward tax losses and tax credits.
Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which they can be used. The existence of unused tax losses is strong evidence that future taxable profit may not be available. Therefore, in case of a history of recent losses, the Group recognizes a deferred tax asset only to the extent that it has sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profit will be available against which such deferred tax asset can be realized. Deferred tax assets unrecognized or recognized, are reviewed at each reporting date and are recognized/ reduced to the extent that it is probable/ no longer probable respectively that the related tax benefit will be realized.
Deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on the laws that have been enacted or substantively enacted by the reporting date. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
Borrowing cost
Borrowing costs are interest and other costs(including exchange differences relating to foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs) incurred in connection with the borrowing of funds. Borrowing costs directly attributable to acquisition or construction of an asset which necessarily take a substantial period of time to get ready for their intended use are capitalized as part of the cost of that asset. Other borrowing costs are recognized as an expense in the period in which they are incurred.
Earnings per share
The basic earnings per share is computed by dividing the n e t profit after tax for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year.
The number of shares used in computing diluted earnings per share comprises the weighted average number of shares considered for deriving basic earnings per share and also the weighted average number of equity shares that could have been issued on the conversion of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as of the beginning of the period unless issued at a later date. In computing dilutive earning per share, only potential equity shares that are dilutive i.e. which reduces earnings per share or increases loss per share are included.
Cash-flow statement
Cash flows are reported using the indirect method, whereby net profit before tax is adjusted for the effects of transactions of a non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from regular revenue generating, investing and financing activities of the Group are segregated.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and on hand and short-term deposits with an original maturity of three months or less which are subject to insignificant risk of changes in value.
Non-current assets classified as held for sale
Assets are classified as held for disposal and stated at the lower of carrying amount and fair value less costs to sell. To classify any Asset as "Asset held for sale" the asset must be available for immediate sale and its sale must be highly probable. Such assets or group of assets are presented separately in the Balance Sheet, in the line "Assets held for sale". Once classified as held for sale, intangible assets and Property Plant Equipment are no longer amortised or depreciated.
Principle components of income and expenditure
Income
Revenue from operations
Our revenue from operations comprises: (a) sale of products; (b) sale of services; and (c) other operating revenues
Sale of products
Our revenue from sale of products comprises of sales of new vehicles, sale of spare parts and accessories and sale of pre-owned vehicles. We generate revenue from sale of new passenger and commercial vehicles of our OEMs through our dealership network, and through sale of dealer approved spare parts and accessories to our customers. Further, we also generate revenue from sale of pre-owned vehicles, through our dealership network.
Sale of services
Our revenue from sale of service comprises of the revenue generated from servicing and repair of vehicles manufactured by our OEMs. Further, any sale of products, including spare parts or accessories during servicing of vehicles is included in revenue from sale of products (sale of spare parts and accessories).
Other operating revenues
Our revenue from other operating revenues comprises of income from schemes and incentives offered by our OEMs from time to time in relation to the sale of their vehicles, finance and insurance commission which is received by our Company from third party finance companies and insurance providers for marketing their financing and insurance products to customers who purchase new and pre-owned vehicles from our dealership network and income from driving school, which is operated by our Company, under the Maruti Suzuki dealership.
A majority of our revenue in these segments arises from our sale of new vehicles through our dealerships and sale of spare parts and accessories. In FY 2021, 2020 and 2019, revenue from sale of new vehicles and sale of spare parts and accessories contributed 67.03%, 66.22% and 73.20% and 13.08%, 13.08% and 10.26%, respectively, of our revenue from operations.
Other income
Our recurring other income includes interest on fixed deposits with banks, interest income based on rent deposits, gain on sale of property, plant and equipments (net), gain on sale of non-current investment (net), while our non-recurring other income includes liabilities/ provisions no longer required written back, net gain on financial assets measured at fair value through profit and loss, interest on income tax refund, lease concession received, gain on de-recognition of right of use assets, and other non-operating income.
Expenses
Total expenses includes (i) purchases of stock-in-trade; (ii) change in inventories of stock in trade; (iii) employee benefits expense; (iv) finance costs; (v) depreciation and amortisation; (vi) impairment loss on trade receivables and contract assets; and (vii) other expenses.
Purchases of stock-in-trade
Purchase of stock-in-trade represents the cost of acquisition of new vehicles, pre-owned vehicles and spare parts, lubricants and accessories from our OEMs for onward sale to our customers.
Change in inventories of stock in trade
Change in inventories of stock reflects the change in inventory maintained by us during each fiscal year.
Employee benefits expense
Employee benefits of our Company and Subsidiaries include salaries and allowances paid to our staff, contribution to provident fund and other funds and staff welfare expenses borne by us.
Finance costs
Our finance cost includes interest on borrowings (term loans and working capital loans) of our Company and Subsidiaries from banks for our business operations, interest on lease liability and other borrowing costs, which comprise of commission on bank guarantees, processing charges and other interests paid.
Depreciation and amortisation
Depreciation and amortisation expenses include depreciation on property, plant and equipment of our Company and Subsidiaries, depreciation on right of use assets and amortisation on intangible assets.
Other Expense
Other expenses primarily include rent expenses for our dealership network, advertising and sales promotion expenses, consumables, repairs and maintenance (including of plant and machinery and building), power, water and fuel and travelling, conveyance and housekeeping, security, office expenses, communication, refurbishment charges on pre-owned vehicles, loss on sale of property, plant and equipment (net), pre-delivery inspection charges, transportation charges, insurance, bank charges, management fee on pre-owned vehicles, legal and professional fees, impairment liss on investment, etc.
Results of Operations
The following table sets forth certain information with respect to our results of operations for the periods indicated:
| Particular | Financial Year | |||||
| 2021 | 2020 | 2019 | ||||
| ( In million) | Percentage of total income (in %) | ( In million) | Percentage of total income (in %) | ( In million) | Percentage of total income (in %) | |
| Income | ||||||
| Revenue from Operations | 28,935.25 | 99.12 | 31,716.22 | 99.72 | 39,019.62 | 99.63 |
| Particular | Financial Year | |||||
| 2021 | 2020 | 2019 | ||||
| ( In million) | Percentage of total income (in %) | ( In million) | Percentage of total income (in %) | ( In million) | Percentage of total income (in %) | |
| Other income | 257.27 | 0.88 | 88.34 | 0.28 | 143.77 | 0.37 |
| Total Income | 29,192.52 | 100.00 | 31,804.56 | 100.00 | 39,163.39 | 100.00 |
| Expenses | ||||||
| Purchases of stock-in-trade | 24,573.83 | 84.18 | 26,110.20 | 82.1 | 35,175.46 | 89.82 |
| Change in inventories of stock in trade | (243.55) | (0.83) | 704.02 | 2.21 | (1,405.65) | (3.59) |
| Employee benefits expenses | 2,035.07 | 6.97 | 2,385.71 | 7.50 | 2,341.70 | 5.98 |
| Finance costs | 551.10 | 1.89 | 698.94 | 2.20 | 626.06 | 1.60 |
| Depreciation and amortisation expense | 724.91 | 2.48 | 610.93 | 1.92 | 482.13 | 1.23 |
| Impairment loss on trade receivables and contract assets | 24.76 | 0.08 | 37.62 | 0.12 | 30.84 | 0.08 |
| Other expenses | 1,053.88 | 3.61 | 1,438.45 | 4.52 | 1,596.31 | 4.08 |
| Total Expenses | 28,720.00 | 98.38 | 31,985.87 | 100.57 | 38,846.85 | 99.19 |
| Profit/(Loss) before tax and exceptional item | 472.52 | 1.62 | (181.31) | (0.57) | 316.54 | 0.81 |
| Exceptional item | - | - | 261.28 | 0.82 | - | - |
| Profit before tax | 472.52 | 1.62 | 79.97 | 0.25 | 316.54 | 0.81 |
| Income tax expense | ||||||
| Current tax | 99.86 | 0.34 | 33.11 | 0.10 | 155.28 | 0.40 |
| Deferred tax charge/ (credit) | 48.11 | 0.16 | (78.05) | (0.25) | (52.48) | (0.13) |
| Total tax expense/ (income) | 147.97 | 0.51 | ( 44.94) | (0.14) | 102.80 | 0.26 |
| Profit after tax for the year | 324.55 | 1.11 | 124.91 | 0.39 | 213.74 | 0.55 |
| Other comprehensive income | ||||||
| Items that will not be reclassified subsequently to profit or loss | ||||||
| Remeasurement of net defined benefit plan income/ (loss) | 9.09 | 0.03 | 37.57 | 0.12 | (4.68) | (0.01) |
| Income tax charge/ (credit) relating to the above | 1.34 | 0.00 | 13.24 | 0.04 | (1.23) | (0.00) |
| Other comprehensive income/ (loss) for the year, net of income tax | 7.75 | 0.03 | 24.33 | 0.08 | (3.45) | (0.01) |
| Total comprehensive income for the year | 332.30 | 1.14 | 149.24 | 0.47 | 210.29 | 0.54 |
| Earnings per share (equity share of face value of 10 each) | ||||||
| Basic (in Rs) | 25.88 | 9.96 | 17.42 | |||
| Diluted (in Rs) | 25.88 | 9.96 | 17.42 | |||
FY 2021 compared to FY 2020
Our results of operations during FY 2021 were significantly impacted by the COVID-19 pandemic and the corresponding lockdowns imposed across various parts of the country during this period. Related preventive and protective actions included complete suspension of activities at our showrooms, sales outlets and booking offices and service centres, which were shut for parts of FY 2021.
Revenues
Our total income for FY 2021 was 29,192.52 million, as compared to 31,804.56 million for FY 2020, reflecting a decrease of 8.21%, mainly owing to a decline in the volume of sale of new vehicles and sale of services during this period as a result of prevailing economic conditions and the ongoing impact of the COVID-19 pandemic.
Revenue from operations
Sale of products
Sales of new vehicles Our revenue from sales of new vehicles for FY 2021 was 19,395.41 million, as compared to 21,002.12 million for FY 2020, reflecting a decrease of 7.65%, primarily due to a reduction in the sales of new vehicles of our OEMs during this period. This was mainly a result of the impact of the COVID-19 pandemic and associated lockdowns across the country during FY 2021.
Sale of spare parts and accessories Our revenue from sale of spare parts and accessories decreased by 8.77% to 3,783.64 million for FY 2021 from 4,147.33 million for FY 2020. The decrease was in line with the impact of the COVID-19 pandemic during this period.
Sale of pre-owned vehicles Our revenue from sale of pre-owned vehicles decreased marginally by 0.65% to 2,473.08 million for FY 2021, as compared to 2,489.22 million for FY 2020. This marginal decline was in line with prevailing economic conditions and the impact of the COVID-19 pandemic during this period.
Sale of services
Our revenue from sale of services decreased by 8.78% to 1,822.97 million for FY 2021 from 1,998.48 million for FY 2020, corresponding with prevailing conditions and the impact of the COVID-19 pandemic.
Other operating revenues
Income from schemes and incentives Our income from schemes and incentives decreased significantly by 33.15% to 991.02 million for FY 2021 from 1,482.39 million for FY 2020, primarily owing to a decline in sales as a result of the COVID-19 pandemic and a corresponding decline in schemes and incentives offered to us by our OEMs.
Finance and insurance commission Our revenue from finance and insurance commission decreased by 20.48% to 455.99 million for FY 2021 was , as compared to 573.44 million for FY 2020, in line with the decline in our sales of new and pre-owned vehicles during this period.
Income from driving school Our income from driving school for FY 2021 was 13.14 million, as compared to 23.24 million for FY 2020, reflecting a decline of 43.46% owing to the restrictions imposed as a result of the COVID-19 pandemic and associated lockdowns across the country.
Other income
Other income increased by 191.23% to 257.27 million in FY 2021 from 88.34 million in FY 2020 primarily due to lease concessions received amounting to 70.35 million on account of the COVID-19 pandemic and gain on derecognition of right-to-use assets amounting to 28.10 million during FY 2021, which was in relation to premature closure of certain rented premises.
Expenses
Our total expenses decreased by 10.21% to 28,720.00 million for FY 2021 from 31,985.87 million for FY 2020, primarily owing to a decline in our sales of vehicles during this period and a corresponding decline in our purchases of vehicles from OEMs as well as certain cost optimisation measures initiated by us such as rationalising discretionary spending and employee expenses.
Purchase of stock-in-trade Our purchase of stock-in-trade decreased by 5.88% to 24,573.83 million for FY 2021 from
26,110.20 million for FY 2020. This was primarily a result of a decrease in purchase by us of new vehicles to 19,035.03 million for FY 2021 from 20,207.49 million for FY 2020, corresponding to prevailing economic conditions, which was partially offset by an increase in purchase of pre-owned vehicles to 2,366.22 million for FY 2021 from 2,233.97 million for FY 2020.
Change in inventories of stock in trade In relation to change in inventories of stock in trade, we saw an increase in our closing inventory of 243.55 million for FY 2021, compared to a decrease in closing inventory of 704.02 million for FY 2020. This was primarily a result of the slowdown in sales during FY 2021 arising out of the impact of the COVID-19 pandemic and short supply of certain models of vehicles from OEMs.
Employee benefits expense Our employee benefits expense decreased by 14.70% to 2,035.07 million for FY 2021 from 2,385.71 million for FY 2020, owing primarily to a decrease in salaries and allowances to 1,794.21 million for FY 2021 from 2,096.49 million for FY 2020, which corresponded with a decline in our headcount and employee-related expenses during this period as a result of the impact of the COVID-19 pandemic.
Finance cost Our finance cost decreased by 21.15% to 551.10 million for FY 2021 from 698.94 million for FY 2020, owing primarily to a decrease in interest on bank borrowings to 237.62 million for FY 2021 to 390.64 million for FY 2020. The decrease in interest on bank borrowings was primarily owing to lower utilization of inventory funding facilities and reduction in interest rates.
Depreciation and amortisation expense Our depreciation and amortisation expense increased by 18.66% to 724.91 million for FY 2021 from 610.93 million for FY 2020, primarily owing to the addition of new service centres and new addition to right-of-use asset.
Other expenses Our other expenses decreased by 26.74% to 1,053.88 million for FY 2021 from 1,438.45 million for FY 2020, primarily owing to decreases in our rent, advertising and sales promotion, consumables and travelling and conveyance charges, corresponding to the impact of the COVID-19 pandemic on our business and operations.
Profit/ (loss) before tax As a result of the foregoing, our profit before tax increased by 490.87% to 472.52 million for FY 2021 from 79.97 million for FY 2020. This was largely driven by the increase in segment profits before income tax from sale of passenger cars, amounting to 664.72 million for FY 2021 as compared to 290.26 million for FY 2020. Further, improved margins and better product mix from our OEMs coupled with reduction in fixed costs and borrowings cost resulted in higher profits for this period.
Tax expenses Our total tax expense for FY 2021 was 147.97 million compared to an income from tax of 44.94 million for FY 2020.
Profit/ (loss) for the year Our profit after tax increased by 159.83% to 324.55 million for FY 2021 from 124.91 million for FY 2020, reflecting the efficiencies in management of operating costs that we implemented during FY 2021.
FY 2020 compared to FY 2019
Revenues
Our total income for FY 2020 was 31,804.56, as compared to 39,163.39 million for FY 2019, reflecting a decrease of 18.79%, owing mainly to a decline in sale of new vehicles during this period.
Revenue from operations
Sale of products
Sale of new vehicles Our revenue from sale of new vehicles for FY 2020 was 21,002.12 million, as compared to 28,561.80 million for FY 2019, reflecting a decrease of 26.47%, in line with the lockdown during second half of March 2020 and nationwide economic slowdown in automobile industry.
Sale of spare parts and accessories Our revenue from sale of spare parts and accessories increased marginally by 3.56% to
4,147.33 million for FY 2020 from 4,004.76 million for FY 2019.
Sale of pre-owned vehicles Our revenue from sale of pre-owned vehicles for FY 2020 was 2,489.22 million, as compared to
2,324.55 million for FY 2019, reflecting an increase of 7.08%, primarily owing to better realisation of revenue for each pre-owned car sold by our dealerships as well as an increase in volume of sales by 6% during this period.
Sale of services
Our revenue from sale of services increased by 14.36% to 1,998.48 million for FY 2020 from 1,747.48 million for FY 2019. This increase was primarily owing to an increase in volume of services delivered by us during this period as well as the addition of new service centres during this period.
Other operating revenues
Income from schemes and incentives Our income from schemes and incentives decreased by 17.39% to 1,482.39 million for FY 2020 from 1,794.42 million for FY 2019, primarily owing to a reduction new passenger vehicles sales on account of the economic slowdown and the COVID-19 induced nation-wide lock down commencing from the last week of March 2020.
Finance and insurance commission Our revenue from finance and insurance commission increased marginally by 2.39% to 573.44 million for FY 2020 from 560.04 million for FY 2019, primarily owing to increase in number of insurance policies renewed during this period.
Income from driving school Our income from driving school for FY 2020 was 23.24 million, as compared to 26.57 million for FY 2019.
Other income
Other income decreased by 38.55% from 143.77 million in FY 2019 to 88.34 million in FY 2020. A significant portion of our other income for FY 2019 included insurance income received on account of the floods in Kerala in August 2018.
Expenses
Our total expenses decreased by 18% to 31,985.87 million for FY 2020 from 38,846.85 million for FY 2019, primarily arising from a decrease in purchases and administrative expenses.
Purchase of stock-in-trade Our purchase of stock-in-trade decreased by 25.77% to 26,110.20 million for FY 2020 from 35,175.46 million for FY 2019, owing primarily to a decrease in purchase of stock-in-trade for new vehicles to 20,207.49 million for FY 2020 from 29,347.30 million for FY 2019 which was driven by a decline in the demand for new vehicles during this on account of the economic slowdown and the COVID-19 induced nation-wide lock down commencing from the last week of March 2020.
Change in inventories of stock in trade In relation to change in inventories of stock in trade, we saw a decrease in our closing inventory by 704.02 million for FY 2020, compared to an increase in closing inventory by 1,405.65 million for FY 2019. This was primarily a result of a decline in the demand for new vehicles during this period and the non availability of commercial vehicles due to transition from Bharat Emission Stage IV compliance to Bharat Emission Stage VI.
Employee benefits expense Our employee benefits expense increased marginally by 1.88% to 2,385.71 million for FY 2020 from 2,341.70 million for FY 2019, owing primarily to an increase in salaries and allowances to 2,096.49 million for FY 2020 from 2,015.40 million for FY 2019. The increase in employee benefits expense was owing to an increase in our headcount during FY 2020 as a result of addition of new facilities.
Finance cost Our finance cost increased by 11.64% to 698.94 million for FY 2020 from 626.06 million for FY 2019, owing primarily to an increase in interest on lease liability to 268.83 million for FY 2020 from 200.33 million for FY 2019.
Depreciation and amortisation expense Our depreciation and amortisation expense increased by 26.71% to 610.93 million for FY 2020 from 482.13 million for FY 2019 on account of addition of new service centres and the addition of a new right-of-use asset.
Other expenses Our other expenses decreased by 9.89% to 1,438.45 million for FY 2020 to 1,596.31 million for FY 2019, primarily owing to decreases in rent, advertising and sales promotion and miscellaneous expenses during this period.
Profit/ (loss) before tax As a result of the foregoing, our restated profit before tax amounted to 79.97 million for FY 2020, compared to a profit before tax of 316.54 million for FY 2019.
Tax expenses Our total tax income for FY 2020 was 44.94 million compared to an total tax expense of 102.80 million for FY 2019 on account of a lower current tax for the period due to lower profitability and receipt of deferred tax benefits on account of change in the tax rates applicable to our Subsidiaries.
Profit/ (loss) for the year Our profit after tax decreased by 41.56% to 124.91 million for FY 2020 from 213.74 million for FY 2019.
Liquidity and Capital Resources
Cash flows
| (in million) | |||
| Particulars | FY | ||
| 2021 | 2020 | 2019 | |
| Net cash generated from/(used in) operating activities | 951.84 | 3,392.95 | (470.84) |
| Net cash generated from/(used in) investing activities | (66.50) | (275.69) | (503.02) |
| Net cash (used in)/generated from financing activities | (706.86) | (2,989.98) | 843.89 |
| Net increase/(decrease) in cash and cash equivalents | 178.48 | 127.28 | (129.97) |
| Cash and cash equivalents at the beginning of the year | 374.93 | 247.65 | 377.62 |
| Cash and cash equivalents at the end of the year | 553.41 | 374.93 | 247.65 |
Operating Activities
FY 2021
The net cash generated from operating activities for FY 2021 was 951.84 million, which consisted of operating cash flow before working capital changes amounting to 1,552.06 million. Working capital changes primarily consisted of increase in inventories of 243.55 million and trade receivables of 543.12 million, arising as a result of the slowdown in our sales and the lockdown during second half of March 2020 resulting in delayed recovery of trade receivables as a result of the COVID-19 pandemic, and a decrease in liabilities and provision of 423.00 million, which were partially offset by a decrease in loans and other financial assets and other assets of 604.90 million. The losses incurred due to the COVID-19 induced lockdown have been partially offset by rent waivers and various other cost control measures including rationalizing discretionary spending and employee costs. The market improved substantially in the third and fourth quarter of FY 2021 due to pent up demand of vehicles, increase in customer preferences for personal vehicles, thus resulting in an increased cash flow.
FY 2020
The net cash generated from operating activities for FY 2020 was 3,392.95 million, which consisted of operating cash flow before working capital changes amounting to 1,094.72 million. Working capital changes primarily consisted of decrease in inventories of 704.02 million and trade receivables of 1,488.61 million, and an increase in liabilities and provision of 638.40 million, which were partially offset by an increase in loans and other financial assets and other assets of 449.09 million. The market decline in FY 2020 was further escalated by the COVID-19 induced nationwide lock-down in the last week of March 2020 resulting in an over all de-growth of 18% in FY 2020.
FY 2019
The net cash used in operating activities for FY 2019 was 470.84 million for FY 2019, which consisted of operating cash flow before working capital changes amounting to 1,395.87 million. Working capital changes primarily consisted of increase in inventories of 1,405.65 million and trade receivables of 521.27 million, which were partially offset by an increase in liabilities and provision of 490.19 million and in loans and other financial assets and other assets of 226.49 million.
Investing Activities
FY 2021
The net cash used in investing activities for FY 2021 was 66.50 million, which primarily comprised of purchase of property, plant and equipment including capital advances of 273.41 million primarily comprising of amounts invested in purchase/ leasing of buildings, machinery, vehicles and furniture which was partially offset by proceeds from sale of property, plant and equipment of 130.25 million, and sale of investments of 81.85 million.
FY 2020
The net cash used in investing activities for FY 2020 was 275.69 million, which primarily comprised of purchase of property, plant and equipment including capital advances of 576.63 million primarily comprising of amounts invested in purchase/ leasing of buildings, machinery, vehicles and furniture, which was partially offset by proceeds from sale of property, plant and equipment of 390.38 million primarily comprising of proceeds from the sale of freehold land and building owned by us.
FY 2019
The net cash used in investing activities for FY 2019 was 503.02 million, which primarily comprised of purchase of property, plant and equipment including capital advances of 576.59 million primarily comprising of amounts invested in purchase/ leasing of buildings, machinery, vehicles and furniture, which was partially offset by proceeds from sale of property, plant and equipment of 62.60 million primarily comprising of proceeds from the sale of freehold land owned by us.
Financing Activities
FY 2021
The net cash used in financing activities for FY 2021 was 706.86 million, which primarily comprised of lease payments during the year of 468.40 million and short-term borrowings repaid of 404.92 million, which were partially offset by long-term borrowings availed of 638.99 million. The increase in borrowings was mainly due to ECLGS loans availed by us during this period.
FY 2020
The net cash used in financing activities for FY 2020 was 2,989.98 million, which primarily comprised of short-term borrowings repaid of 2,061.26 million, long term borrowings repaid of 513.38 million and lease payments during the year of 467.56 million, which were partially offset by long-term borrowings availed of 481.61 million. The decrease in borrowings was mainly due to repayment of long term loans as per the repayment schedule and reduction in inventory levels.
FY 2019
The net cash flow generated from financing activities for FY 2019 was 843.89 million, which primarily comprised of short-term borrowings availed of 1,481.86 million and long-term borrowings availed of 486.96, which was partially offset by interest paid of 424.40 million, long term borrowings repaid of 360.39 million and lease payments during the year of 346.01 million.
Indebtedness
As at March 31, 2021, we had total borrowings of 3,530.42 million which primarily consisted of secured and unsecured short term loans from banks and financial institutions, term loans from banks and financial institutions and vehicle loans from banks and financial institutions. For details of our borrowings as on June 30, 2021, see "Financial Indebtedness" on page 292.
Our loan agreements generally contain covenants, including limitations on the use of proceeds and restrictions on indebtedness, liens, asset sales, investments, transfer or ownership interests and certain changes in business. These covenants may limit our ability to pay dividends or make loans or advances to us, subject to the lenders waiver or consent. There were no defaults in repayment of principal or interest to lenders during FYs 2021, 2020 and 2019.
Contingent Liabilities and Commitments
As of March 31, 2021, we had the following contingent liabilities and commitments:
| Particulars | As of March 31, 2021 |
| (in million) | |
| Contingent Liabilities | |
| Claims against the Group not acknowledged as debts | |
| Service tax related matters | 16.80 |
| KVAT related matters | 127.67 |
| Income tax matters | 96.09 |
| Employees state insurance / provident fund demand | 7.95 |
| Customer claims | 83.15 |
| Commitments | |
| Estimated amount of contracts remaining to be executed on capital account (net of advances) and not provided for | 180.41 |
| Corporate guarantees | - |
Contractual Obligations
Except as disclosed as part of our contingent liabilities and commitments, we did not have any contractual obligations as of March 31, 2021.
For further information, see our Restated Financial Information on page 205.
Except as disclosed in our Restated Financial Information or this Draft Red Herring Prospectus, there are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that we believe are material to investors.
Capital Expenditures
Our historical capital expenditures were, and we expect our future capital expenditures to be, primarily for purchase of plant and equipment. In FYs 2021, 2020 and 2019, our capital expenditures (comprising of payments for acquisition of property, plant and equipment, intangibles and capital work in progress including capital advances) were 294.28 million, 588.92 million and 580.03 million, respectively.
Related Party Transactions
We enter into various transactions with related parties in the ordinary course of business. These transactions principally include remuneration to directors and key managerial personnel, payment of rent to our Promoters etc. For details, see "Related Party Transactions" on page 266.
Recent Accounting Pronouncements
As of the date of this Draft Red Herring Prospectus, there are no recent accounting pronouncements, which would have a material effect on our financial condition or results of operations.
Quantitative and qualitative disclosures about market risk
Market risk is the risk of loss related to fall in revenues from change in the demand of passenger and/or commercial vehicles manufactured by our OEMs and sold through our dealerships. In the normal course of business, we are exposed to certain market risks including credit risk, liquidity risk and market risk (fluctuations in interest rate).
Credit Risk
Credit risk is the risk that the counterparty will not meet its obligation under a financial instrument or customer contract, leading to financial loss. The credit risk arises principally from our operating activities (primarily trade receivables) and from our investing activities, including deposits with banks and financial institutions and other financial instruments.
Credit risk is controlled by analysing credit limits and creditworthiness of customers on a continuous basis to whom credit has been granted after obtaining necessary approvals for credit. The collection from the trade receivables are monitored on a continuous basis by the receivables team. As of March 31, 2021, our trade receivables amounted to 1,607.27 million.
Impairment analysis
The aging of trade receivables is as follows:
| Particulars | As at March 31, 2021 |
| Less than 1 year | 1,630.11 |
| 1-2 years | 22.19 |
| 2-3 years | 5.47 |
| More than 3 years | - |
| Total | 1,657.77 |
Liquidity risk
Liquidity risk is the risk that the company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Companys approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Companys reputation.
We believe that the working capital is sufficient to meet its current requirements. Accordingly, no liquidity risk is perceived.
The table below provides details regarding the undiscounted contractual maturities of significant financial liabilities as of March 31, 2021:
| Particulars | Payable within 1 year | More than one year | Total |
| Trade payables | 408.71 | - | 408.71 |
| Borrowings | 2,637.13 | 893.29 | 3,530.42 |
| Lease liabilities | 304.35 | 2,665.08 | 2,969.43 |
| Other financial liabilities | 411.62 | - | 411.62 |
Cash flow and fair value interest rate risk
The Companys main interest rate risk arises from long-term borrowings with variable rates, which expose the Company to cash flow interest rate risk. The interest rate on the Companys financial instalments is based on market rates. The Company monitors the movement in interest rates on an ongoing basis.
Significant economic changes that materially affect or are likely to affect income from continuing operations
Our business has been subject, and we expect it to continue to be subject, to significant economic changes that materially affect or are likely to affect income from continuing operations identified above in "Significant Factors Affecting our Results of Operations" and the uncertainties described in the section titled "Risk Factors" on page 269 and 23, respectively.
Unusual or Infrequent Events or Transactions
Except as described in this Draft Red Herring Prospectus, there have been no other events or transactions that, to our knowledge, may be described as "unusual" or "infrequent".
Known trends or uncertainties
Our than as described in the section "Risk Factors" on page 23, to our knowledge, there are no known trends or uncertainties that have or had or are expected to have a material adverse impact on revenues or income of our Company from continuing operations.
Future relationship between cost and income
Other than as described in the sections "Risk Factors", "Our Business" and "Managements Discussion and Analysis of
Financial Condition and Results of Operations" on pages 23, 142 and 267 respectively, to our knowledge there are no known factors that may adversely affect our business prospects, results of operations and financial condition.
Significant dependence on single or few customers
Given the nature of our business, no single customer accounted for more than 10% of our revenue. Accordingly, we believe that our business is dependent on any single or a few customers.
Seasonality of business
We are impacted by seasonal variations in sales volumes, which may cause our revenues to vary significantly between different quarters in a FY. Typically, there is an increase in our business during the second and third quarters of each FY. Therefore, our results of operations and cash flows across quarters in a FY may not be comparable and any such comparisons may not be meaningful, or may not be indicative of our annual financial results or our results in any future quarters or periods. For details see, "Risk Factors Internal Risk Factors - Our passenger vehicles and commercial vehicles sales is subject to seasonality, which may contribute to fluctuations in our results of operations and financial condition" on page 35.
Competitive conditions
We operate in a competitive environment. Please refer to the sections "Our Business", "Industry Overview" and "Risk Factors" on pages 142, 97 and 23, respectively for further information on our industry and competition.
Significant developments after March 31, 2021 that may affect our future results of operations
No circumstances have arisen since the date of the last financial statements disclosed in this DRHP which materially and adversely affect or are likely to affect, our operations or profitability, or the value of our assets or our ability to pay our material liabilities within the next 12 months:
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