porwal auto components ltd share price Management discussions


Annexure- VI

CAVEAT

Statements in the Management Discussion and Analysis, expressed by the management may contain certain forward-looking statements in the current scenario, which is extremely dynamic and increasingly fraught with risks and uncertainties. Actual results, performances, achievements or sequence of events may be materially different from the views expressed herein. Further, shareholders are cautioned that certain data and information external to the Company is included in this section. Though these data and information are based on sources believed to be reliable, no representation is made on their accuracy or comprehensiveness. Furthermore, utmost care has been taken to ensure that the opinions expressed by the management here in contain their perceptions on most of the important trends having a material impact on the Companys operations, no representation is made that the following presents an exhaustive coverage on and of all issues related to the same. Therefore, Shareholders are hereby advised to conduct their own investigation and analysis of the information contained or referred to in this section before taking any action with regard to their own specific objectives.

INDUSTRY STRUCTURE AND DEVELOPMENTS:

Indias auto components industrys market share has significantly expanded, led by increasing demand for automobiles by the growing middle class and exports globally. The automobile industry emerged as a shining light to catalyze Indias Gross Domestic Product (GDP) and the economy as a whole. Automobile industry looks to sustain growth momentum in 2023 embracing clean technology amid the lurking speed breakers of rising interest rates and cost increases due to new emission and safety norms. The industry anticipates a good year with rising vehicle prices and increased EV adoption which has already started taking root in 2022.

Due to the remarkable growth in demand for Indian auto components, several Indian and international players have entered the industry. Indias auto component industry is broadly classified into organised and unorganised sectors. While the unorganised sector consists of lowvalued items and mostly serves the aftermarket category, the organised sector serves OEMs and includes high-value precision instruments.

The Indian auto-components industry has experienced healthy growth over the last few years. The auto-components industry expanded by a CAGR of 8.9% over the next 10 years (2022 to 2032).The turnover of the automotive component industry grew 34.8% to Rs. 2.65 Lakhs Crores (US$ 33.8 billion) during April-September 2022 compared to the first half of the previous year.

As per the Automobile Component Manufacturers Association (ACMA) forecast, auto component exports from India is expected to reach US$ 30 billion by 2026. The auto component industry is projected to record US$ 200 billion in revenue by 2026.

The rapidly globalising world is opening newer opportunities for the transportation industry, especially while it makes a shift towards electric, electronic and hybrid cars, which are deemed more efficient, safe, and reliable mode of transportation. Over the next decade, this will lead to newer verticals and opportunities for auto-component manufacturers, who would need to adapt change via systematic R&D.

In the first half of 2022-23, the auto components sector witnessed steady growth both in the domestic and international markets, as vehicle sales across all segments reached pre-pandemic levels and supply-side issues, such as the availability of semiconductors, high input raw material costs, and non-availability of containers moderated. With major categories of vehicles registering robust sales in the domestic market in 2022-23, the Indian automotive components industry is anticipating sustained momentum in 2023-24, expecting up to 15% YoY growth in the next financial year.

By 2026, India is expected to become the worlds third-largest automotive market Indian Automotive Industry will grow 3.5 - 4 times in value to about INR 16-18 Lakhs Crores by 2026.

FAVOURABLE POLICY MEASURES AIDING GROWTH

1. Production Linked Scheme(PLI):

The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi announced the Production-Linked Incentive (PLI) Scheme in the Automobile and Auto Components sectors. The PLI scheme (outlay of $3.5 Bn) for the automobile sector proposes financial incentives of up to 18% to boost domestic manufacturing of advanced automotive technology products and attract investments in the automotive manufacturing value chain. Incentives are applicable for determined sales of products manufactured in India from April 1, 2022, for a period of five consecutive years.

2. Ministry of Heavy Industries:

The government had originally introduced the FAME II scheme in 2019. Further the revised FAME II scheme offers 50% more subsidy at^15,000 per kWh on electric bikes and scooters in India. The new FAME II subsidy aims to encourage faster adoption and manufacturing of electric vehicles in India.

FAME-II was launched to support the production of 1 million EV two-wheelers and 7,000 electric buses and 35,000 four wheelers in India.

3. Automotive Mission Plan 2016-26 (AMP 2026):

AMP 2026 aims to propel the Indian Automotive industry to be the engine of the "Make in India" programme as it is amongst the foremost drivers of the Manufacturing sector:

Indian Automotive sector is likely to contribute in excess of 12% of the countrys GDP and compromise more than 40% of its manufacturing sector.

The Automotive industry has achieved the target of incremental employment creation of 25 million jobs and shall generate an additional 65 million jobs in the future.

4. Union Budget 2022-23:

The Government announced opening up of the defence R&D sector to private manufacturers, which opened up a new growth segment for auto component companies in India and will help them with new revenue and growth area.

5. National Automotive Testing and research and development (R&D) Infrastructure Project (NATRiP):

The chief aim of the project is:

a. To generate core global competencies, state-of-art, four green field automotive testing, homologation and R&D infrastructure facilities.

b. To enable seamless integration by driving the automobile component industry in India into global automotive excellence.

National Automotive Testing and R&D Infrastructure Project (NATRiP), is a fully Government of India funded project with a total project cost of Rs. 3727.30 crore. The key focus lies in providing low-cost manufacturing and product development solutions.

COMPANYS OVERVIEW:

Porwal Auto Components Ltd is a diversified auto-components company with presence across many processes/ product lines and customers and involved in manufacturing and marketing of S.G. (Ductile) Iron, Grey Cast Iron and Steel Castings and Components for the Automobile, Engineering &Railway Applications for past 30years. Your Company is known for its relentless customer-focussed strategies, consistent value addition bound by excellence and superior technology. The Company delivers best-in-class auto components to its customers. Having a diversified business model, the Company supplies to multiple product categories to its customers.

Your Company responded to the customers need by developing a new project called lost foam process. Our engineers took on the project by researching, experimenting, and developing the manufacturing system to efficiently produce high-quality castings. Lost foam is advantageous for complex castings that would normally require cores.

• Dimensionally Accurate

• Maintains an excellent surface finish

• Requires no draft

• Has no parting lines

• The foam is easy to manipulate, carve, and glue which allows for consolidating many foam pieces into one complex component that is cast as a single part.

Your Company is constantly pushing the boundaries of possibilities to create products and technology led services that enable our customers and stakeholders to rise. By focusing on customer centricity, delivering accessible technology, innovation and enhancing people capabilities, we continue to drive growth in the domestic market while pursuing global expansion.

OPPORTUNITIES AND THREATS:

OPPORTUNITIES:

The goal is clear: to promote Indias ‘Atmanirbharta by establishing a globally competitive manufacturing industry. The Government launched the Production Linked Incentive (PLI) Scheme for the Automobile and Auto Components Industry and approved the sector directly with PLI for advanced technology, auto components, green vehicles, and advanced chemistry cells, and indirectly with PLI for semiconductors and electronics. The Indian automotive OEM industry is already in a strong position. Globally, it is at the forefront of many segments. The industry aspires to nearly triple vehicle sales by 2026, across segments. These could be definitive tailwinds for the Indian automotive components industry, which has ambitions of its own by 2026 i.e. to double the contribution to manufacturing GDP with a four-fold growth in size and a six-fold growth in exports. The automobile industry participates highly in global value chains. The growth of this sector has been on the back of strong government support which has helped it carve a unique path among the manufacturing sectors of India. Increased buying power, huge domestic market and fast developing infrastructure have together fuelled steady growth in the Indian automotive components manufacturing segment for the last few years. There are the opportunities emerge for the auto component industry are as follows:

1. Pursue export opportunities aggressively.

2. Enhance import substitution.

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

4. Focus on component categories that will contribute more to vehicle costs in the future.

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

6. Offer "rising star" components which could take off in the long run due to an increase in EV sales.

7. Offer new or modified features that will be in demand with increase in shared mobility penetration.

8. Develop data-enabled services and solutions.

9. Form partnerships and ecosystems to create and capture value.

10. Expand portfolio to serve adjacent industries.

11. Exports present a significant opportunity for the Company to expand its customer base beyond the domestic market, tapping into the growing global demand for automotive components

Indias auto industry has rapidly grown into a leading global manufacturing hub, with consistent year-on-year growth. India is home to over a dozen key automotive original equipment manufacturers (OEMs) and ancillary manufacturers. The expanding involvement of multinational car Original Equipment Manufacturers (OEMs) in the Indian auto components business has resulted in a considerable increase in component localisation. Indias automotive sector accounts for 7% of its GDP, making it one of its most important industries.

The Union Budget 2023 announced by the Government rolled out several measures that will benefit the Auto Component Industry, these include:

1. Enhanced allocation of Capex

2. EV Battery Policy

3. Support for MSMEs

4. Emphasis on rural economy

Growing global automotive market: The global auto components market is expected to witness significant growth in the coming years, creating opportunities for auto component manufacturers to expand their customer base and increase sales.

Technological advancements: The autocomponents industry is experiencing rapid technological advancements, such as the development of electric and autonomous vehicles. This presents an opportunity for auto component manufacturers to develop and supply components for these new technologies.

Increasing demand for fuel-efficient vehicles: With growing concerns about environmental sustainability, there is a rising demand for fuel-efficient vehicles. Auto component manufacturers can capitalize on this trend by developing and supplying components that improve fuel efficiency.

Emerging markets: Emerging markets, such as India, China, and Brazil, are witnessing a surge in automobile sales. This presents an opportunity for auto component manufacturers to enter these markets and establish a strong presence in other countries.

THREATS:

The Automotive components manufacturing industry is undergoing a period of mass disruption and transformation. A convergence between technology companies and auto manufacturers is blurring industry lines and expanding the bounds of the traditional automotive company.

The key challenges in the auto component industry are as follows:

1. Manufacturing shutdowns accentuated the already existing automotive industry challenges of excess production and resource shortage

2. Lack of sales has led to excess inventory, high levels of debt, and demand uncertainty.

3. Many companies resorted to massive layoffs, which emerged as one of the crucial challenges of the automotive market.

4. Production shutdowns and slumping sales gradually led to heavy financial losses, with OEMs operating on minimal liquidity.

The major threats faced by the Company during the year are:

Intense competition: The auto component industry is highly competitive, with numerous players vying for market share. This can lead to price wars and margin pressures, posing a threat to the profitability of auto component listed companies.

Volatile raw material prices: Auto components require various raw materials, such as steel, aluminum, and plastics. Fluctuations in the prices of these raw materials can impact the cost of production and profitability of auto component manufacturers.

Economic downturns: During economic downturns, consumer spending on automobiles tends to decline, leading to a decrease in demand for auto components. This can negatively affect the revenue and profitability of auto component listed companies.

Trade barriers and regulations: The automotive industry is subject to various trade barriers and regulations imposed by different countries. These barriers can restrict the export/import of auto components, impacting the global expansion plans of listed companies in this sector.

Global crises: such as pandemics, economic downturns, or geopolitical tensions could impact demand for vehicles and disrupt global supply chains. It is therefore important for the Company to have contingency plans and diversification strategies in place to mitigate the impact of such crises on its operations and finances

OUTLOOK:

India remains one of the fastest growing economy in the world despite decelerating global demand and tightening of monetary policy to control inflation. India stands tall and steadfast, emerging as a beacon of resilience in the global economy. In FY 2023, the Indian auto industry showed double digit growth across all segments. This fast growth, coupled with rising incomes, boost in infrastructure spending and increased manufacturing incentives, has accelerated the automobile industry. Automobile production achieved robust growth of 13% in FY 2022-23 with growth witnessed across all vehicle categories. Indias auto component industry is an important sector driving macroeconomic growth and employment. The industry comprises players of all sizes, from large corporations to micro entities, spread across clusters throughout the country. The auto components industry accounted for 2.3% of Indias GDP and provided direct employment to 1.5 Million people. By 2026, the automobile component sector will contribute 5-7% of Indias GDP. India is also a prominent auto exporter and has strong export growth expectations for the near future. The long-term prospect for the auto industry remains highly optimistic. India embraced the challenges faced in the past few years and now it is at the cusp of rapid growth over the next decade. Indian consumer approach and behavior is changing considerably towards mobility. Considering the growth prospects some of our customers have also announced large capacity expansion. This augurs well for the entire auto industry. With PACE which is personalization, autonomous, connected and electrification as core of its existing and future product roadmap we are well placed to capture growth opportunities in the sector. Domestic OEM demand constitutes almost 50 per cent of sales for the Indian auto component industry. This is likely to remain healthy in FY 2024, with high single-digit growth expected across segments except for tractors. Interaction with large auto component suppliers indicates that the expected demand uptick and technological changes would result in a capex upcycle in FY 2024.

As per Automobile Component Manufacturers Association (ACMA), Auto Components industry export is expected to grow at an annual rate of 23.9% to reach $80 bn by 2026. The long-term prospects for automotive component exports from India remain positive, mainly due to the increasing share of critical and high-value components such as engines and gearboxes in total exports, accounting for around 64% in fiscal 2023, up from 50% in fiscal 2020. This growth in critical and high-value component exports bodies well for the sectors future export growth. India has a very strong position in the international market.

Your Company is pursuing several strategic initiatives in all key areas of business to survive in this challenging face. The key elements of strategy include strengthening the product portfolio, refresh and update existing products and strengthen research & development (R&D) and technology capabilities. Further, Your Company is taking several initiatives to uplift the sales and Profit and believe that Company is likely to witness strong growth, commodity price increase and face near term challenges for the industry and are key monitorable. With aim to remain competitive in the market and sustain leadership, your Company continues to invest in new product development, technology upgrades, increasing channel reach, and the focus on delivering customer centric products, services and build brand. Your Company is continuously evaluating its product portfolio and its technological readiness for the future, in the face of challenges posed by both emerging and disruptive technologies. Your Companys "Lost Foam Casting" project has come into use full fledgedly this year. This technology helps the Company to produce complex parts with high dimensional accuracy and superior surface finish and other benefits including Cost-Effectiveness, improving quality of products, Production Efficient and Environmental Sustainability.

The Companys central focus is to capture export opportunities, which would help to open the doors in new geographies. This could nurture and sustain relationships with potential business clients or partners. Exports must be the cylinder on which growth is fired for the foreseeable future. The Company may expand its share in the global auto component trade in the upcoming years emphasizing the targeted export expansion programme for key components by keeping in mind clarion call of Prime Minister of India for Atmanirbhar Bharat.

Your Company has also introduced new machinery for the smooth functioning. We also have a long standing relationship with all our customers, our built on the years of remarkable responsiveness, to their ever changing needs. The Company offer the best-in-class products to our existing and potential customers and partners for sustained performance.

OPPORTUNITIES & OPTIMISM

The auto industry is all set to accelerate into 2024 with cautious optimism amid concerns over muted economic growth, high to moderate inflation and rising interest rates. A low base (even post a 7-9% growth YoY in FY2023) is expected to aid a moderate y-o-y growth (i.e., 10-12%) for the industry in FY 2024.

Indias Automotive Industry is valued worth US $222 Bn and contributes 8% of the countrys total export. It also accounts for 7.1% of Indias GDP. It is expected to be a market worth US$300 Bn by 2030. The key growth drivers are:

Growing income: Economic progress towards the US $5 Tr benchmark will significantly increase disposable income in the hand of the burgeoning middle class.

Youngest Nation by 2025: India to become the youngest nation by 2025 with an average age of 25 years.

Vehicle penetration: Expected to reach 72 vehicles per 1000 people by 2025. Expanding R&D hub: India accounts for 40% of the total $31 Bn of global engineering and R&D spend. 8% of the countrys R&D expenditure is in the automotive sector.

Atmanirbhar Bharat Abhiyaan - Self Reliant India: Make-in-India initiative aimed at promoting domestic manufacturing and reducing dependence on imports. Government announced D20 lakh crore special economic and comprehensive package.

Government initiatives: The PLI scheme (outlay of $3.5 Bn) for the automobile sector proposes up to 18% financial incentives to boost domestic manufacturing of advanced automotive technology products and attract investments in the automotive manufacturing value chain. The Governments plan to reserve funds to replace old vehicles and ambulances will likely boost new vehicle sales.

RISKS AND CONCERNS

The Companys business is exposed to many internal and external risks and it has consequently put in place robust systems and processes, along with appropriate review mechanisms to actively monitor, manage and mitigate these risks. With limited room to cut fixed costs, some OEMs have low liquidity to power through a long period of missing revenues. Decreases in market capitalization will likely accelerate industry consolidation and without securing additional funding, some players risk going out of business. Some of the risks foreseen in the industry are as follows:

1. Dependence on the automotive industry: The auto components industry is highly dependent on the health and growth of the automotive industry. Any downturn or slowdown in the automotive sector can have a significant impact on the demand for auto components, leading to reduced sales and profitability.

2. Global competition: The auto components industry is highly competitive, with numerous players operating at both domestic and international levels. Global competition can lead to pricing pressures, reduced profit margins, and the need for continuous innovation and cost optimization.

3. Technological advancements: Rapid advancements in technology, such as electric vehicles, autonomous driving, and connectivity, are transforming the automotive industry. Auto components manufacturers need to invest in research and development to keep up with these technological changes. Failure to adapt to new technologies can result in obsolescence and loss of market share.

4. Supply chain disruptions: The auto components industry relies on a complex global supply chain. Any disruptions, such as natural disasters, political instability, or trade disputes, can lead to supply shortages, increased costs, and production delays.

5. Regulatory compliance: Auto components manufacturers need to comply with various regulations and standards related to safety, emissions, and quality. Non-compliance can result in penalties, recalls, damage to reputation, and legal liabilities.

6. Shift towards electric vehicles: The increasing adoption of electric vehicles poses a risk to traditional auto component manufacturers who primarily produce parts for internal combustion engines. They need to adapt their product offerings and manufacturing processes to cater to the growing demand for electric vehicle components.

7. Environmental concerns: The auto components industry is under scrutiny for its environmental impact, particularly regarding emissions and waste generation. Companies need to invest in sustainable practices, such as recycling and reducing carbon footprint, to mitigate environmental risks and meet consumer expectations.

8. Intellectual property theft: Auto components manufacturers invest significant resources in research and development to create innovative products. However, there is a risk of intellectual property theft by competitors or unauthorized entities, which can lead to lost competitive advantage and revenue.

9. Volatile raw material prices: Fluctuations in raw material prices, such as steel, aluminum, and rubber, can significantly impact the profitability of auto components manufacturers. Companies need to manage their procurement strategies, including hedging and supplier relationships, to mitigate price volatility risks.

10. Changing consumer preferences: Consumer preferences and buying patterns are constantly evolving, driven by factors such as changing demographics, economic conditions, and technological advancements. Auto components manufacturers need to anticipate and adapt to these changing preferences to stay relevant and competitive in the market.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has a proper and adequate internal control system to ensure that all the assets of the Company are safeguarded and protected against any loss. It ensures that all transactions are authorised, recorded and reported correctly and all the transactions are properly authorized and recorded. It monitors compliance to internal processes and provide timely and reliable information to management.

The Chief Internal Auditor reports directly to the Chairman of the Board. The Internal Audit function develops an audit plan for the Company, which covers, inter alia, corporate, core business operations, as well as support functions. The Audit Committee reviews the annual internal audit plan.

Significant audit observations are presented to the Audit Committee, together with the status of the management actions and the progress of the implementation of the recommendations.

The Audit Committee reviews the adequacy and effectiveness of the Companys internal control environment and monitors the implementation of audit recommendations. During the year, the Company has taken steps to review and document the adequacy and operating effectiveness of internal controls. Nonetheless, your Company recognises that any internal control framework, no matter how well designed, has inherent limitations and accordingly, regular audits and review processes ensure that such systems are reinforced on an ongoing basis.

Your Companys Management has carried out the evaluation of design and operative effectiveness of these controls and noted no significant deficiencies/material weaknesses that might impact financial statements as at the Balance Sheet date.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

During the year under review the Company has reported a turnover of Rs. 14,060.54 Lacs against the turnover of Rs. 10713.28 in the previous year, registering increment of Rs. 3,347.26 Lacs (approx). The overall expenses of the Company have also increased from Rs. 10,320.83 Lacs to Rs. 13489.15 Lacs. The Company has incurred a net loss of Rs. -103.16 Lacs as compared to profit of Rs. -15.91 Lacs in the previous year. Your Company is trying their best to uplift the profit in the coming period.

Material development in human resources/industrial relations front, including number of people employed

HUMAN RESOURCES / INDUSTRIAL RELATIONS

The human resource plays a vital role in the growth and success of an organization. The Company has maintained cordial and harmonious relations with employees across various locations. The Company has built a competent team to handle challenging assignments. As on 31st March, 2023, there were 399 permanent employees on the roll of the Company. Our Company shares good industrial relations which improves the morale of the employees. Employees work with great zeal with the feeling in mind that the interest of employer and employees is one and the same i.e. to increase production. Every worker feels that he is a co-owner of the gains of industry. Complete unity of thought and action is placed in organization. Keeping employee wellbeing foremost, we have embraced the post-pandemic way of life and work. It has increased the place of workers in the society. During the year, the Company has taken several initiatives to further strengthen its human resource base to meet its current & future growth plans. The Company strives to enhance the technical, work related and general skills of employees on a continuous basis. There was unity of purpose among the employees to continuously strive for all round improvements in work practices & productivity Industrial relations were cordial throughout the year at all locations.

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations are as follows:

Ratio Ratio in Year 2022 Ratio in Year 2023

% of Change (Compare 2022 & 2023)

Reason for Change (2023)
Debtors Turnover 9.75 22.32 128.96% The trade receivable turnover ratio in 2023 is 9.75 as opposed to 22.32 in 2022, indicating improved customer collection.
Debt Equity Ratio 0.04 0.004 -88.18% In 2023, the debt to equity ratio is 0.004 as opposed to 0.04 in 2022, indicating that the company has repaid the loan received from financial institutions.
Net Profit Margin -0.001 -0.007 394.02% The net profit margin ratio rose from - 0.007 in 2022 to -0.001 in 2023, the company was able to generate more profit per unit of revenue than it did the year before.
Return on networth and Compared to immediately previous financial year -0.003 -0.018 559.72% Ratio has improved over previous year, however company has again incurred losses, resulting in negative ratio.
Inventory Turnover Ratio 7.50 10.28 37.14% The ratio has improved over the previous year, indicating better inventory management.
Interest Coverage Ratio -0.290 -2.214 -86.89% The ratio is lower than it was in the previous year as the company has paid off the loans.
Current Ratio 1.14 1.18 3.61% Due to the significant fall in trade receivables, the current ratio has decreased from the previous year.
Operating Profit Margin Ratio -0.019 -0.002 -91.49% The company is trying to manage the rising operating cost over sale prices resulting in better ratio over previous year.

DISCLOSURE OF ACCOUNTING TREATMENT

Your Companys financial statements for the year ended 31st March, 2023 are the financial statements prepared in accordance with Ind AS notified under the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016, as applicable. During the Financial Year, there was no change in the Accounting Treatment in preparation of Financial Statements.

Date: 11th August, 2023 For and on behalf of the Board of Directors
Place: Pithampur Porwal Auto Components Limited

 

Registered office Mukesh Jain Devendra Jain
Plot No. 209, Sector No. 1, Whole time Director Managing Director
Industrial Area, (DIN - 00245111) (DIN - 00232920)
Pithampur (M.P.) 454775
CIN: L34300MP1992PLC006912