MANAGEMENT DISCUSSION AND ANALYSIS REPORT
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
India has become the fastest-growing economy in the world in recent
years. This fast growth, coupled with rising incomes, boost in infrastructure spending and
increased manufacturing incentives, has accelerated the automobile industry. Significant
demand for automobiles also led to the emergence of more original equipment and auto
components manufacturers. As a result, India developed expertise in automobiles and auto
components, which helped boost international demand for Indian automobiles and auto
components. Hence, the Indian automobile industry has a considerable impact on the auto
component industry. 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. The industry is a leader in exports and
provides jobs to over 3.7 crore people.
Due to a shift in supply chains, India can possibly increase its share
in the global auto component trade to 4-5% by 2026. By 2026, Indias auto component
industry is expected to reach US$ 200 billion, and the aftermarket of the industry is
expected to reach US$ 32 billion. This growth will be backed by strong export demand which
is expected to rise at an annual rate of 23.9% to reach US$ 80 billion by 2026. The auto
components industry is expected to become the third-largest in the world by 2025.
The growth of global original equipment manufacturers (OEM)
sourcing from India & the increased indigenization of global OEMs is turning the
country into a preferable designing and manufacturing base. The global move towards
electric vehicles will generate new opportunities for automotive suppliers. The mass
conversion to electric vehicles may generate a US$ 300 billion domestic
market for electric vehicle (EV) batteries in India by 2030. By 2025, 4 million EVs could
be sold each year and 10 million by 2030. By 2026, India will need 4 lakh charging
stations.
From FY16-FY22, the industry registered a CAGR of 6.35% and was valued
at US$ 56.50 billion in FY22. Due to the high development prospects in all vehicle
industry segments, the auto component sector is expected to see double-digit growth in
FY22.
According to the Automotive Component Manufacturers Association of
India (ACMA), the auto-components industry of India is expected to grow by 10-15% in FY24,
which would be driven by both domestic and export market demand. The auto components
industry which clocked a turnover of US$ 56.5 billion in FY22 with a growth of 23% over
the previous year is expected to end FY23 with a growth of 15%.
Source: https://www.ibef.org/industry/autocomponents-india https://www.ibef.org/download/1673935026_Auto-Components-November-2022.pdf
Indian Agriculture Industry – an overview
India is one of the major players in the agriculture sector
worldwide and it is the primary source of livelihood for about 58% of Indias
population. Agriculture sector in India holds the record for second-largest agricultural
land in the world generating employment for about half of the countrys population.
Thus, farmers become an integral part of the sector to provide us with means of
sustenance. According to Inc42, the Indian agricultural sector is predicted to increase to
US$ 24 billion by 2025. Indian food and grocery market is the worlds sixth largest,
with retail contributing 70% of the sales. The rising income levels in rural and urban
areas, which have contributed to an increase in the demand for agricultural products
across the nation, provide additional support for this. In accordance with this, the
market is being stimulated by the growing adoption of cutting-edge techniques including
blockchain, artificial intelligence (AI), geographic information systems (GIS), drones,
and remote sensing technologies, as well as the release of various e-farming applications.
India has the largest livestock population of around 535.78 million,
which translates to around 31% of the world population.
The agriculture sector also receives significant support from the
Government of India, some of the recent initiatives include:
- In the Union Budget 2022-23:
- Rs. 1.24 lakh crore (US$ 15.9 billion) has been allocated to Department of Agriculture,
Cooperation and
Farmers Welfare.
- Rs. 8,514 crore (US$ 1.1 billion) has been allocated to the Department of Agricultural
Research and Education.
- In July 2022, PM Formalisation of Micro food processing Enterprises (PMFME) scheme was
launched for providing financial, technical and business support for setting up/
upgradation of micro food processing enterprises in the country with an outlay of Rs.
10,000 crore (US$ 1.27 billion).
- The Indian government is planning to launch Kisan Drones for crop assessment,
digitization of land records, spraying of insecticides and nutrients.
- NABARD will assist the creation of a blended capital fund with a focus on the
agricultural start-up ecosystem which will be used to fund agriculture and rural
enterprise startups that are related to the farm product value chain.
- A network of 729 Krishi Vigyan Kendras has been established at the district level across
the country to ensure that newer technologies such as improved variety seeds of crops, new
breeds/ strains of livestock and fish, and improved production and protection technologies
reach farmers.
Union Agricultural Minister Mr. Narendra Singh Tomar stated that wheat
worth US$ 1.42 billion (Rs 11,728.36 crore) was exported during the months of April to
January in FY23.According to second advance estimates for the agricultural year 2022-23,
the countrys wheat production is expected to be 112.18 million tonnes, which is
4.44 million tonnes more than the production achieved during the crop
year 2021-22 (July-June).
The future outlook of the Agriculture & Allied Industry looks on
track with pandemic easing out. The agriculture sector in India is expected to generate
better momentum in the next few years due to increased investment in agricultural
infrastructure such as irrigation facilities, warehousing and cold storage. Furthermore,
the growing use of genetically modified crops will likely improve the yield for Indian
farmers. India is expected to be self-sufficient in pulses in the coming few years due to
concerted effort of scientists to get early maturing varieties of pulses and the increase
in minimum support price.
Source: https://www.ibef.org/news/india-exports-wheat-worth-us-1-42-billion-rs-11-728-crore-during-apr-jan-of-
this-fiscal-government
https://www.ibef.org/download/1673934872_Agriculture-and-Allied-Industries-November-2022.pdf
https://www.ibef.org/industry/agriculture-india
Indian Tractor Industry
The Indian tractor industry is one of the largest in the world,
with India being the largest tractor market globally. The industry has grown significantly
in recent years, driven by increasing demand from both the agricultural and
non-agricultural sectors.The India tractor market size was valued at $7,540.8 million in
2020, and is expected to reach $12,700.8 million by 2030, with a CAGR of 7.9% from 2021 to
2030. The COVID-19 outbreak had a positive impact on the growth of the India tractor
industry owing to increase in demand for agricultural produces such as cereals,
vegetables, and fruits in the country.
The Indian tractor industry smashed a couple of records in FY23 -
producing over a million units for the first time ever and also achieving their highest
ever domestic sales. FY23 saw 12% growth in domestic tractor volumes, with 945,311 units
compared to 842,266 in FY22, according to Tractor & Mechanization Association (TMA).
In Q4, domestic tractor sales grew 19 per cent to 210,858 units
compared with 177,608 units in Q4 FY22. In March this year, sales increased to 82,856
units (72,888 units in March 2022), while production was also higher at 83,948 units.
In FY23, the total tractor production in the country stood at 1,071,310
(9.61 lakh in FY22 and 9.65 lakh in FY21). After witnessing buoyant demand in FY22,
exports moderated during FY23 and reported a marginal decline to 124,542 units compared
with 128,636 units in the previous fiscal.
Source: https://swarajyamag.com/news-brief/record-breaking-year-for-indian-tractor-industry-over-1-million-
units-produced-in-fy23
https://www.alliedmarketresearch.com/india-tractor-market-A14232 https://www.thehindubusinessline.com/companies/tractor-industry-clocks-highest-ever-domestic-sales-in-
fy23/article66720760.ece
Government Initiatives
The Indian Automobile industry is expected to reach a turnover of
approximately $300 billion by 2026, growing at a CAGR of 15% from its current revenue of
around $74 billion.
The Government of India encourages foreign investment in the automobile
sector and has allowed 100% FDI under the automatic route. The India passenger car market
was valued at US$ 32.70 billion in 2021, and it is expected to reach a value of US$ 54.84
billion by 2027, while registering a CAGR of over 9% between 2022-27.
The electric vehicle (EV) market is estimated to reach Rs. 50,000 crore
(US$ 7.09 billion) in India by 2025. A study by CEEW Centre for Energy Finance recognised
a US$ 206 billion opportunity for electric vehicles in India by 2030. This will
necessitate a US$ 180 billion investment in vehicle manufacturing and charging
infrastructure
The governments AMP 2016-26 will help the automotive industry
grow and will benefit the economy in the following ways:
- The auto industrys GDP contribution will rise to over 12%.
- Additional ~65 million direct and indirect jobs will be created.
- End-of-life policy will be implemented for old vehicles.
Source: https://www.ibef.org/industry/india-automobiles https://www.ibef.org/download/1673935142_Automobile-Nov2022.pdf
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 consolidated capacity exceeding
50,000 metric tons per annum (MTPA) in FY23.
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.
CONSOLIDATED FINANCIAL OVERVIEW –
The consolidated performance of the Company for the financial year ended March 31,
2023, is as follows:
Total revenue from operations at Rs. 362.03 crore for the year ended
March 31, 2023, as against Rs. 271.23 crore (net of GST) for the corresponding previous
period, an increase of 33.48%, mainly on account of post- COVID recovery and pick-up in
demand for tractors from Agri-sector.
The EBIDTA (earnings before interest, depreciation and tax, excluding
other income) was Rs. 41.53 crore for the year ended March 31, 2023, as against Rs. 29.88
crore for the corresponding previous period, an increase of 38.99%.
The PAT (profit after tax excluding exceptional gains) was Rs.
15.69crore for the year ended March 31, 2023, as against Rs. 8.53 crore for the
corresponding previous period, a rise of 83.94%.
EPS was at Rs. 1.77, YoY growth of 9.26% (1.62 in FY22).
RESOURCES AND LIQUIDITY
As on March 31, 2023, the consolidated net worth stood at Rs. 161.3 crore and the
consolidated debt was at Rs.
94.84 crore.
The net debt to equity ratio of the Company stood at 0.59 as on March 31, 2023.
BUSINESS PERFORMANCE
Pritika registered a growth of 33.48% in revenue clocking a
turnover of Rs. 362.03 cr in FY23. The Company produced 39,116tons 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
2023-24, based on a good order
book. The Company is also adding high-value products and trying to
improve operational efficiencies, while expanding export revenues.
The Company is dealing in single segment i.e. manufacturing of Auto
Components/parts.
DEVELOPMENTS IN BUSINESSES DURING THE YEAR:
- Company announced plans to raise Rs. 30.40 cr. by issuance of 1,60,00,000 fully
convertible warrants to non-promoter category on preferential basis, at Rs. 19/- per
warrant.
- Successfully issued IPO for subsidiary, Pritika Engineering Components Ltd., for Rs.
9.42 cr. – issue was oversubscribed ~150 times. The IPO proceedings to be used for
capacity expansion and product diversification.
KEY FINANCIAL RATIOS:
EBITDA margin and PAT (excluding exceptional gains) Margins
improved 40 bps and 119 bps, respectively, in the year ended 31st March, 2023,
as compared to the immediate previous year.
Return on Equity has increased from 8.48% in FY2022 to 10.05% in FY2023
due to higher rate of growth in profit after tax.
RISKS AND CONCERNS
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 policy is 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 itslegal 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.
OPPORTUNITIES
- 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:
- 100% FDI allowed under automatic route for auto component sector
- Establishment of special auto parks & virtual SEZs for auto components.
- Strong support for R&D and product development by establishing NATRiP centres
- A dedicated policy FAME II was launched to incentivize electric vehicle consumption and
support manufacturing.
- The Indian government has outlined US$ 7.8 billion for the automobile and auto
components sector in production-linked incentive (PLI) schemes under the Department of
Heavy Industries.
- Production Linked Incentive (PLI) schemes on automobile and auto components are expected
to bring a capex of Rs. 74,850 crore (US$ 9.58 billion) in the next five years.
- Lower excise duty on specific parts of hybrid vehicles.
- Policies such as Automotive Mission Plan 2016-26, Faster Adoption & Manufacturing of
Electric Hybrid Vehicles (FAME), 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
- Increasing FDI in the auto sector
- 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 higher investments 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 increase to$70 billion
by 2026.
- The last years Union Budget increased duties of customs on imports of Auto Parts,
which is expected to boost domestic manufacturing.
- Reduction of corporate tax for companies was announced in previous Union Budget.
- India has a competitive advantage in auto components categories such as shafts, bearings
and fasteners due to large number of players. This factor is likely to result into higher
exports in coming years.
- Auto component exports from India is expected to reach US$ 30 billion by 2026.
Source: https://www.ibef.org/industry/autocomponents-india
https://www.ibef.org/download/1673935026_Auto-Components-November-2022.pdf
THREATS
- Competition from domestic and multinational players
- Economic fluctuations and regulatory changes impacting demand and profitability.
- Technological advancements leading to the obsolescence of existing products.
- The agricultural sector could be affected by unfavorable monsoons and weather conditions
- Unfavorable 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
INTERNAL CONTROL SYSTEMS AND ADEQUACY
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.
HUMAN RESOURCES
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, 2023, the Company had a workforce of 1145 (permanent
and contractual).
OUTLOOK
The tractors (and corresponding ancillary sub-sectors) industry has
been recovering well from the slowdown induced by the COVID-19 pandemic. While the
immediate-term scenario remains uncertain due to the third wave of the pandemic and its
potential impacts in various regions, overall the market is recovering quickly. This is
based on a good monsoon, leading to robust agri-sector growth, coupled with favorable
government policies.
The automotive sector is also witnessing rapid recovery after the
COVID-19 pandemic. Long-term outlook remains buoyant with several 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. New emission norms and increase in the Electrical
Vehicles (EV) market 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 poised to capitalize on new opportunities as they arise in
the domestic and 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 to deliver.
The Company continues to strive to improve utilization of its existing
capacity and based on anticipated demand, is planning to expand production capacity in the
coming year. This would enable the Company to address a larger target market and increase
market share. Moreover, the Companys merger with Pritika Industries Ltd. is expected
to lead to better profitability, thereby benefiting the Company.
The Indian auto-components industry is expected to become the third
largest in the world by 2025, and Pritika is well positioned to capitalize on the coming
opportunities.
Pritika Auto Industries has a strong foundation in the automotive
component industry with a diversified product portfolio, experienced management team, and
well-established manufacturing facilities. Despite
challenges in the domestic market due to the pandemic and unfavorable
economic conditions, the company is well-positioned to capitalize on opportunities in
emerging technologies and expanding into international markets. The companys focus on
quality and customer satisfaction remains a key driver of growth, and investment in
research and development will help to drive innovation and competitiveness. With a solid
financial position and strategic partnerships, Pritika Auto Industries is poised for
sustained growth and continued success in the years ahead.
For and on behalf of the Board of Directors
Sd/-
Date: 29.11.2023 Raminder Singh Nibber
Place: Mohali Chairman
+91-9892691696
