Pritika Auto Industries Ltd Management Discussions.

Forward looking statement

Statements in this Management Discussion and Analysis of Financial Condition and Results of Operations of the Company describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events.

The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Company assumes no responsibility to publicly amend, modify or revise forward looking statements, on the basis of any subsequent developments, information or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include changes in government regulations, tax laws, economic developments within the country and such other factors globally.

The financial statements are prepared as per the IND AS guidelines and comply with the Accounting Standards notified under Section 211(3C) of the Act read with the Companies (Accounting Standards) Rules, 2015. The management of Pritika Auto Industries Limited has used estimates and judgments relating to the financial statements on a prudent and reasonable basis, in order that the financial statements, reflect in a true and fair manner, the state of affairs and profit for the year.

The following discussions on our financial condition and result of operations should be read together with our audited consolidated financial statements and the notes to these statements included in the annual report. Unless otherwise specified or the context otherwise requires, all references herein to "we", "us", "our", "the Company", "Pritika" are to Pritika Auto Industries Ltd.

ECONOMIC OVERVIEW Indian Auto-Components Industry

The auto components industry in India has been growing over the past several years. Barring intermittent slowdowns such as that in 2019, the industry has grown at a CAGR of over 10% during the last decade to USD 56.52 billion in FY2019. Comparatively, the industry was worth USD 35 billion in 2014. Some of the factors driving investments in this sector include a large domestic market (rise in working population), a stable and supportive government framework and rising development in infrastructure. This sector alone accounts for about 2.3% of the countrys GDP, driven by the automotive industry which is Indias fourth largest industry.

The Indian auto-components industry can be broadly classified into the organized and unorganized sectors. The organized sector caters to the Original Equipment Manufacturers (OEMs) and comprises high-value precision instruments while the unorganized sector consists of low-valued products and caters mostly to the aftermarket category.

The Indian automotive industry witnessed a substantial slowdown during the previous year due to various factors including financing difficulties across the supply chain. However, this slowdown was partially offset by rise in exports. As per the Automobile Component Manufacturers Association (ACMA), exports in the auto components sector have grown at a CAGR of 8.34% during 2014-19, to USD 15.17 billion, and are further projected to reach USD 80 billion by 2026. India exports auto components to several parts of the world, the major markets being developed countries such as the US, Germany and the UK. Some of the important Asian markets for auto components include Sri Lanka, Bangladesh and Thailand.

ACMA forecasts the Indian auto components industry to register a turnover of USD 100 billion by 2020, backed by strong exports. This bodes well for the industry which has been under pressure since the last few quarters.

Source: IBEF, https://www. ibef.ors/industry/autocomvonents-india.asvx

Indian Agriculture Industry - an overview

Agriculture plays a vital role in Indias economy. It is the primary source of livelihood for about 58% of Indias population. Agriculture, along with fisheries and forestry, are key contributors to the countrys Gross Domestic Product (GDP). The Gross Value Added (GVA) by agriculture, forestry and fishing is estimated at INR 18.55 lakh crore (USD 265.51 billion) in FY2019.

During 2019 crop year, food grain production is estimated to have been 283.37 million tons. In 2019-20, Government of India is targeting food grain production of 291.1 million tons.

This growth is being driven by strong domestic demand (owing to rising population) as well as global exports. Total agricultural exports from India grew at a CAGR of 16.45% over FY2010-18 to reach USD 38.21 billion in FY2018, and further to USD 38.54 billion in FY2019. Spices, tea and coffee exports from India have also been on the rise during this period.

Consequently, investments into this sector have grown significantly. FDI into the Indian food processing sector in 2018-19 alone stood at USD 628.24 million. The industry has cumulatively attracted FDI inflow of about USD 9.41 billion between April 2000 and June 2019. For instance, Nestle recently announced plans to invest Rs. 700 crore to construct its ninth factory in Gujarat. Agri-food start-ups in India received funding worth USD 1.66 billion between 2013-17 in 558 deals.

The agriculture sector has also received significant support from the Government of India, some of the recent initiatives include:

• As per Union Budget 2020-21, allocation of Rs 2.83 lakh crore (USD 40.06 billion) was made for the Ministry of Agriculture. Ministry of Food Processing has been allocated Rs 1,233 crore (USD 176.42 million).

• In September 2019, the Prime Minister launched National Animal Disease Control Programme (NADCP), expected to eradicate certain diseases in livestock.

• In May 2019, NABARD announced an investment of Rs 700 crore (USD 100 million) venture capital fund for equity investments in agriculture and rural-focused start-ups

• In Budget 2019-20, Pradhan Mantri Samman Nidhi Yojana was introduced under which a minimum fixed pension of Rs. 3,000 would be provided to eligible small and marginal farmers, subject to certain exclusion clauses, after 60 years of age.

• As per the Union Budget 2019-20, the Central and State Governments would work together to allow farmers to benefit from e-NAM (electronic National Agriculture Market).

• Under the Pradhan Mantri Kisan Samman Nidhi Yojana (PM-Kisan), the PM disbursed Rs. 2,021 crore to over 10 million beneficiaries in February 2019.

• The government came out with a Transport and Marketing Assistance (TMA) scheme to provide financial assistance for transport and marketing of agriculture products to boost agriculture exports.

Source: IBEF, https://www. ibef.ors/industry/asriculture-india.aspx

Indian Tractor Industry

The tractor industry, a part of the farm equipment market, has been growing significantly in India. Demand for tractors has risen in tandem with increasing mechanization in farming across India. As per industry estimates, the tractor market in India registers annual sales of 600,000 - 700,000 units on an average.

As per industry estimates, tractor sales in India are estimated to have grown 8-10% in 2019. Unit sales are expected to reach one million by mid of the next decade, growing at a CAGR of 6-7%. However, despite general productivity improvement in the agricultural sector, the overall industry may witness single digit growth in the near term.

As per statistics from the Tractor Manufacturers Association (TMA), tractor production and sales have grown over the first two months of 2020. Tractor production and sales stood at 69,280 and 64,937 units respectively in February 2020, a rise of 16.5% and ~20% year-on-year.

Overall, the industry is forecast to grow at a CAGR of 8-10% during 2017-22. A sustained focus by the government on the promotion of farmer welfare and rural development along with mechanization in agriculture would support this growth trajectory.

Moreover, the budgets emphasis on doubling farmers income by 2022, loan waivers and finance availability, as well as rising use of tractors in construction and other fields, would augur well for the production and sale of tractors going forward.

Source: http://www. /0/en/ Indian-Asricultural-Tractor- Market-Report-2019-2023-with-a-Focus-on-Kev-Industrv-Plavers. html

https: / / auto. economictimes. indiatimes. com / news/commercial-vehicle/indian-tractor-market-to-srow-8-10-in-fv19/64483327IBEF,https://www.ibef.ors/bloss/india-strons-in-tractor-manufacturins Government Initiatives

The Government of Indias Automotive Mission Plan (AMP) 2006-2016 has come a long way in ensuring growth for the sector. The Indian Automobile industry is expected to achieve a turnover of USD 300 billion by 2026, and would grow at a CAGR of 15% from its current revenue of around USD 74 billion.

The Government has drafted the Automotive Mission Plan (AMP) 2016-26 which will help the automobile industry to grow and will benefit Indian economy in the following ways:

• Contribution of auto industry in the countrys GDP will rise to over 12%

• More than 65 million jobs will be created

• End of Life Policy would be implemented for old vehicles

Crisil, IBEF, https: / /www. ibef. ors/industrv/autocomponents-india. aspx About Pritika Auto Industries Ltd.

Pritika Auto Industries Ltd. is a flagship company of the Pritika Group of Industries which was set

up in 1974 by Mr. Raminder S. Nibber, manufacturing small forgings. Over the last four decades and under Mr. Nibbers visionary leadership, the Company has established itself as a robust and reliable brand in its market, specializing in machined castings and automotive components. A quality driven organization, Pritika produces world class components from modern facilities. The merger process of Pritika Autocast Ltd. and Nibber Castings Pvt. Ltd (Wholly owned subsidiaries of Pritika Auto Industries Ltd.) was approved by the Honorable NCLT bench, Chandigarh in February 2019. Pritika has manufacturing facilities situated at Derabassi and Hoshiarpur (Punjab), and Tahliwal (Himachal Pradesh) with a total capacity exceeding 50,000 metric tons per annum (MTPA) in FY19.

Catering primarily to tractors and commercial vehicles, Pritika focuses on expanding and diversifying its product portfolio. The Company manufactures a wide range of products such as axle housings, wheel housings, hydraulic lift housings, end cover, plate differential carrier, brake housings, cylinder blocks, and crank cases, among others. Pritika is one of the biggest component suppliers in the tractor segment of the automobile industry in India and supplies to OEMs like M&M Swaraj, Swaraj Engines Ltd, TAFE, Escorts, SML Isuzu, TMTL, Ashok Leyland, New Holland Tractors India Ltd., Brakes India etc., as well as exports casted products outside India. The Companys vision is to provide products which meet customers quality requirement constantly at competitive prices.


The consolidated performance of the Company for the financial year ended March 31, 2020, is as follows:

Total revenue from operations at Rs. 168.0 crore for the year ended March 31, 2020, as against Rs. 209.7 crore (net of taxes) for the corresponding previous period, a decrease of 19.9%, mainly on account of slowdown in automotive sector and the COVID-19 pandemic.

The EBIDTA (earnings before interest, depreciation and tax, excluding other income) was Rs. 21.0 crore for the year ended March 31, 2020, as against Rs. 30.2 crore for the corresponding previous period, an decrease of 30.5%.

The PAT (profit after tax) was Rs. 5.6 crore for the year ended March 31, 2020, as against Rs. 14.1 crore for the corresponding previous period, a decline of 60.5%.

EPS was at Rs. 3.15, YoY decline of 60.8% (8.03 in FY19).


As on March 31, 2020, the consolidated net worth stood at Rs. 120.4 crore and the consolidated debt was at Rs. 64.1 crore.

The net debt to equity ratio of the Company stood at 0.51 as on March 31, 2020.


Pritika registered a decline of 19.9% in revenue clocking a turnover of Rs. 168 cr in FY20. The Company produced 26,258 tons of machined casting during the year. About 92-93% of the revenue was contributed by the tractor components segment while the rest was from the commercial vehicle segment. With capacity in place, Pritika is focusing on higher production and better utilization for financial year 2020-21. The Company is also adding high-value products and trying to improve operational efficiencies, while expanding export avenues.

The Company is dealing in single segment i.e. manufacturing of Auto Components/parts. ACHIEVEMENTS IN BUSINESSES DURING THE YEAR:

• Pritika won its first export order for casted products from a US-based multi-national conglomerate. Upon completion of the first order, the Company received a repeat order of higher value from the same client, totaling USD 2 million.

• The Company won an order to supply critical parts for cylinder heads from a leading tractor manufacturer in India.

• Pritika won an incremental order from an existing large client, to supply rear axle housings.


There was no significant change i.e. 25% or more in Interest Coverage Ratio, Current Ratio, Operating Profit Margin and Debt Equity Ratio. However, there was significant change in the following Ratios as compared to immediately previous year ended 31st March 2019:

Ratios Year ended Year ended
31/3/2020 31/3/2019
Debtor Turnover Ratio 0.31 0.22
Inventory Turnover Ratio 0.35 0.26
Net Profit Margin 3.61% 7.13%
Return on Networth 4.53% 12.17%

The year ended 31st March, 2020 has been challenging and slowdown for the auto sector as well as the overall economy. The entire automotive value chain has been facing market headwinds, which was worsened by the nationwide lockdown due to COVID-19. In March, 2020 the unprecedented and unforeseeable adversity in the form of Covid-19 virus outbreak, which further worsened the challenging industry scenario. This pandemic has resulted in a significant slowdown in the overall economy impacting all business across the nation as well as of the word. Your company had been adversely affected by the slowdown in Auto sector and nationwide lockdown, which resulted in lesser turnover and decreased profit due to fixed expenses borne by the company. This caused increased Debtor Turnover Ratio, Inventory Turnover Ratio and fallen Net Profit Margin & Return on Networth.


Like every business, the company faces risks, both internal and external, in the undertaking of its day-to-day operations and in pursuit of its longer-term objectives. A detailed policy drawn up and dedicated risk workshops are conducted for each business vertical and key support functions wherein risks are identified, assessed, analyzed and accepted / mitigated to an acceptable level within the risk appetite of the organization. The risk registers are also reviewed from time to time.

The Company faces the following Risks and Concerns:

Economy and Market Risk

The Companys growth is linked to that of the agricultural and automotive industry, which is cyclical in nature. The cyclical nature of the Indian commercial vehicle industry and tractor industry impacts the demand for related components. Since the automotive industry plays a major role in determining the economic growth, any slowdown in the overall economy would affect the commercial vehicle industry.

Credit Risk

To manage its credit exposure, Pritika has determined a credit policy with credit limit requests and approval procedures. Company does its own research of clients financial health and project prospects before bidding for a project. Timely and rigorous process is followed up with clients for payments as per schedule. The company has suitably streamlined the process to develop a focused and aggressive receivables management system to ensure timely collections.

Interest Rate Risk

The Company has judiciously managed the debt-equity ratio. It has been using a mix of loans and internal cash accruals. The Company has well managed the working capital to optimize the overall interest cost.

Contractual Risk

Pritika follows a meticulous process to evaluate the legal risks involved in a contract and ascertain its legal responsibilities under the applicable law of the contract. All the worst possible scenarios are considered and as a strategic priority with consultation from advisors, stringent terms are inserted to restrict liabilities to the maximum extent possible.

Competition Risk

Like in most other industries, growth opportunities lead to a rise in competition. We face different levels of competition, from domestic as well as multinational companies. Pritika has created strong differentiators in project execution, quality and delivery which make it resilient to competition. Furthermore, the Company continues to invest in technology and its people to maintain a competitive edge. A stable and long-standing client base comprising large and mid-sized companies further helps maintain a strong order book and insulate the Company from this risk. We also mitigate this risk with the quality of our infrastructure, our customer-centric approach and our ability to innovate customer specific solutions, focusing on pricing and aggressive marketing strategy, disciplined project executions, coupled with prudent financial and human resources management and better control over costs. Thus, we do not expect to be significantly affected by this risk.

Input Cost Risk

Our profitability and cost effectiveness may be affected due to change in the prices of raw materials, power and other input costs. Some of these risks that are potentially significant in nature and need careful monitoring are raw material prices, and availability of power, among others.

Liability Risk

This risk refers to our liability arising from any damage to cargo, equipment, life and third parties which may adversely affect our business. The Company attempts to mitigate this risk through contractual obligations and insurance policies.


Increasing mechanization in agriculture: With the agriculture sector witnessing significant technology enhancements, the demand for higher efficiency tractors and farm equipment is likely to increase in India as well as globally. Adoption of such equipment over traditional farming methodologies in rural parts of the country would benefit ancillary companies catering to this sector, such as Pritika.

Support from Government Policies:

- Governments aim to double farmers income by 2022 would boost demand for tractors.

- 100% FDI allowed under automatic route for auto component sector

- Establishment of special auto parks & virtual SEZs for auto components.

- Lower duties on specific parts of hybrid vehicles.

- Policies such as Automotive Mission Plan 2016-26, Faster Adoption & Manufacturing of Electric Hybrid Vehicles (FAME, April 2015), NMEM 2020, likely to infuse growth in the auto component sector of the country.

- Allocation of increased financial support for the agriculture industry in the Union Budget 2020-21


- Foreign investments in the automotive sector totaled USD 22.35 billion during 2000-19.

- With the launch of ‘Make in India initiative, the government is expected to mobilize substantial investments in the auto component sector.

- The auto components sector is expected to witness investments up to USD 4.5 billion for upgradation of products and keeping up with new industry regulations.

Export Advantage: India is a leading auto exporter and has strong near-term export growth expectations. As per Automobile Component Manufacturers Association (ACMA) forecasts, automobile component exports from India are expected to reach USD 70 billion by 2026 from USD 10.9 billion in FY17. The Indian auto component industry aims to achieve USD 200 billion in revenues by 2026.

- The last years Union Budget increased duties of customs on imports of Auto Parts, which is expected to boost domestic manufacturing.

- Reduction of corporate tax for companies was announced in the Union Budget 2020.

Source: IBEF,


• Competition from domestic and multinational players

• Regulatory changes impacting the automotive and agricultural sectors

• Unfavourable volatility in labour and raw material costs

• Attraction and retention of skilled human capital

• Risk from unforeseen impediments in execution

• Market-wide slowdown in the agriculture sector


For the purposes of effective internal financial control, Pritika has adopted various policies and procedures to ensure orderly and efficient conduct of its business, including adherence to companys policies, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records, and timely preparation of reliable financial information.

There has not been any significant change in such control systems. The control systems are reviewed by the management regularly. The same are also reviewed by the Statutory Auditors and Internal Auditors from time to time. Additionally, the Company has adopted various policies and procedures to safeguard its interest. These policies and procedures are reviewed from time to time. A proper reporting mechanism has been implemented in the organization for reporting any deviation from the policies and procedures. Compliance audit is conducted from time to time by external agencies on various areas of operations.


Pritika has Human Relations and Industrial Relations policies in force. These are reviewed and updated regularly in line with the Companys strategic plans. The human relations team continually conducts training programs for talent development. The Company aims to develop the potential of every individual associated with it as a part of its business goal. Pritika leverages a mix of experienced as well as young talent to drive growth.

The company values its human resources as the principal drivers of change. The Company focuses on providing individual development and growth in a work culture that encourages team work and high performance.

As on March 31, 2020, the Company had a workforce of 855 (permanent and contractual). OUTLOOK

The tractors (and corresponding ancillary sub-sectors) industry is expected to remain flattish in the next year, recovering gradually from the industry-wide slowdown in the automotive sector. A normal/good monsoon, increased focus on infrastructure spending, and continuing favorable government policies should help the market regain momentum. The long term outlook remains positive for the automotive industry with all major global players having a base in India for engineering, manufacturing and global sourcing. New product launches by OEMs, driven by technological advancements and rising demand, is likely to bode well for overall industry growth. The new emission norms are also likely to boost new manufacturing, thereby spurring demand for components. India now supplies a range of high-value and critical automotive components to the global auto market.

Pritika is well positioned to capture new opportunities as they arise in the domestic as well as international markets. The Companys access to the US market would reduce its dependency on the domestic market, and help improve performance. Pritikas long-standing relationships with its clients demonstrates the continued faith the OEMs have in the Companys expertise and capability.

The Company continues to strive to improve utilization of its existing capacity and remains open to expand total installed capacity, based on the needs of the market. Margins would likely improve once capacity utilization recovers, supported by export opportunities, high-margin product mix and better operating efficiencies.

The industry slowdown this year gave us the opportunity to further improve internal efficiencies so that we are poised to capitalize on the market recovery going ahead. The growth potential for the Indian auto component industry is tremendous and the Company is well positioned to leverage these opportunities.

Road Ahead

The transport industry is making a gradual shift towards electric and hybrid cars, which are deemed more efficient and environment-friendly modes of transportation. Over the next decade, this is likely to give rise to newer verticals and opportunities for auto-component manufacturers, who would need to adapt to this change with R&D and product innovation.

The Indian auto-components industry is expected to become the third largest in the world by 2025. Consequently, strong export opportunities in the coming years would open up more avenues for Indian auto-component makers. We are optimistic about more export orders in the coming year, and the possibility of adding new clients.

Date: 29/08/2020 Raminder Singh Nibber
Place: Mohali Chairman