India Market Overview
Economy
The Financial Year 2022-23 (FY23) was a watershed year for India as it became the fifth
largest economy in the world, surpassing the UK. It also assumed the presidency of the G20
forum for the first time, highlighting the global spotlight on India. The macroeconomic
fundamentals of the Indian economy are under control and showing signs of an inclusive,
broad-based recovery across industries, as the country eyes on India@100, a journey
towards her centennial as a modern, fastest growing, industrialized nation. Despite the
ongoing global headwinds caused by external factors like post-pandemic spill overs, supply
chain disruptions due to the escalating Russia-Ukraine conflict and potential recessionary
pressures facing developed economies, the Indian economy continued to move ahead and
weathered the global economic crisis and headwinds. Multiple initiatives by the government
including PLI schemes, national logistic reforms, increased spending on infrastructure,
robust local demand, conducive domestic policy environment, digitisation, etc. has helped
the country to race past other economies and be the fastest-growing economy among the
seven largest emerging markets and developing economies (EMDEs).
India seems to be in a bright spot with the overall growth remaining at robust level.
According to the Second Advance estimates released by the Ministry of Statistics and
Programme Implementation, Indias GDP may grow 7% for FY23 even as it gets back the crown
of the fastest growing major economy.
Auto segment
Industry Structure and Developments
The Tyre demand in India is expected to grow stronger in view of rebounding economic
activities and the big push by the Government. of India for infrastructure growth in the
nation. The industry has completed investment of Rs35,000 crore in the last three years in
new capacity addition and debottlenecking, spanning across all key Tyre segments with
major beneficiaries being truck and bus radials (TBR) and passenger car radials (PCR)
Tyres manufacturing.
According to a statistical report by the Rubber Board, Govt. of India for
April-September 2022 period, the Tyre industry cumulatively produced more than 98 million
units as against 90 million units during the period. The production of PV Tyres (both
radial and bias) grew 16% as compared to the same period a year-ago. Meanwhile, the Truck
& Bus and LCV segment witnessed a modest growth of 3.4%. The production volumes of
two-wheelers also increased by 5.7% when compared with the same period a year ago.
Adding to the complexities for the Tyre industry, the fiscal witnessed a 10% increase
in the raw material cost, touching all time new peaks. The first half of the year
experienced significant raw material cost push which was partially mitigated in the later
half of the year.
The Crude based raw materials – Carbon Black, Synthetic Rubber, Fabric, Chemicals
also experienced high input cost inflation during the fiscal.
SWOT ANALYSIS
Strengths
• Tyre manufacturing facility leased to Apollo Tyres Ltd.("ATL").
• Fixed income from lease rent of the Tyre unit.
• ATL has the advantage of a diversified market base across geographies and
therefore, it is not completely dependent on the Indian market alone. Further, the Company
is working towards establishing and growing operations in other large markets, including
ASEAN and North America
• ATL is powered by well-established product brands in its key markets –
Apollo and Vredestein.
• Increased spends on building the corporate brand has made Apollo a stronger
brand in India and a recognised one globally.
Weaknesses
• No direct presence in the Tyre market.
• Dependence on ATL.
• Any impact on margins and revenue of ATL might force ATL to renegotiate the
Lease Agreement.
Opportunities
• Diversification into other sector through new investments.
• Manufacturing process of ATL leading to technology up gradation.
Threats
• Economic downturn or slowdown in the key markets of ATL (India and Europe) can
lead to decreased volumes and capacity utilisation by the leasee.
• The continuing lockdown situation due to COVID-19 pandemic in many parts can
have a significant impact on the business of the Company.
• A weak Indian currency can result in pressure on margins of the ATL, since the
ATL is a net importer.
Segment-wise performance
The truck-bus, cross ply Tyres manufactured at the Companys plant leased to Apollo
Tyres Ltd. - under the brand name ‘Apollo are mostly sold/exported by Apollo Tyres
Ltd.
Outlook
The economic outlook for Financial Year 24 is continues to be one of uncertainty as the
Russian-Ukraine war continues and the chances for further economic disruptions still
prevalent. The biggest setback can be the risk of shortages, lasting inflation, elevated
oil and energy prices and rising interest rate environment.
According to data from IMF, the global economy growth is expected to fall from 3.4% in
2022 to 2.8% in 2023, before inching up to 3.0% in 2024. Advanced economies are expected
to see an especially muted growth from 2.7% in 2022 to 1.3% in 2023. Euro Area will
continue to move the global slowdown as its growth drops to 0.8% in 2023 and then move
upwards to 1.4% in 2024.
Risk and Concerns from the point of view of the organization
The Company has in place a robust risk management framework that identifies and
evaluates business risks and opportunities. The Company recognizes that these risks need
to be handled effectively and mitigated to protect the interest of the shareholders and
stakeholders, to achieve business objectives and create sustainable value and growth. The
Companys risk management processes focus on ensuring that these risks are identified
promptly and a mitigation action plan is identified and monitored periodically to ensure
that the risks are being addressed accordingly. The Companys risk management framework
operates with the following objectives:
• Proactively identify and highlight risks to the right stakeholders.
• Facilitate discussions around risk prioritization and mitigation.
• Provide a framework to assess risk capacity and appetite; develop systems to
warn when the appetite is getting breached.
The list of key risks and opportunities identified by the Management are the following:
• Demand-supply situation must remain in favour of the industry to enable it to
undertake price increases.
• Demand in the Tyre industry is dependent on economic growth and/or
infrastructure development. Any slowdown in the economic growth across regions impacts the
industry.
• Companys premises is leased to a single customer. In case of non-renewal of
lease agreement, Company will be exposed to significant business risk.
• Company has invested Rs188 Crore approx. in the Market in ATL Shares , which is
subject to market risk.
Internal Controls and Systems
The Company believes that Internal Control is one of the key pillars of governance,
which provides freedom to the management within a framework of appropriate checks and
balances. It has a robust internal control framework, which has been instituted
considering the nature, size and risks in the business. The framework comprises, inter
alia, a well- defined organization structure, roles and responsibilities, documented
policies and procedures, financial delegation of authority, etc. Information Technology
(IT) policies and processes also ensure that they mitigate the current business risks.
These policies are complimented by a management information and monitoring system, which
ensures compliance with internal processes, as well as with applicable laws and
regulations.
The Companys internal control environment ensures efficient conduct of operations,
security of assets, prevention and detection of frauds/errors, accuracy and completeness
of accounting records and the timely preparation of reliable financial information. The
Company uses SAP – an Enterprise Resource Planning (ERP) software – as its core
IT system. The systems and processes are continuously improved by adopting best-in-class
processes and automation and implementing the latest IT tools. The operating management is
not only responsible for revenue and profitability, but also for maintaining financial and
commercial discipline. The Company has a well-established independent Internal Audit
function that is responsible for providing assurance on compliance with operating systems,
internal policies and legal requirements, as well as suggesting improvements to systems
and process.
The Company has also identified and documented key internal financial controls for
critical processes across all plants, warehouses and offices wherein financial
transactions are undertaken. The financial controls are evaluated for operating
effectiveness through managements ongoing monitoring and review process, and
independently by Internal Audit.
The Internal Auditor reports functionally to the Audit Committee and administratively
to the Chairman of the Company. Key internal audit findings are presented to the Audit
Committee at its meetings.
Discussion On Financial Performance with Respect to Operational Performance
Rsin Lakhs
S. No. |
Particulars |
Year Ended |
|
|
31.03.2023 |
31.03.2022 |
| 1. |
Revenue from operations |
6,434.11 |
6,322.15 |
| 2. |
Other income |
418.98 |
419.68 |
|
Total |
6,853.09 |
6,741.83 |
| 3. |
Expenditure |
|
|
|
a) Employee benefit expenses |
316.35 |
270.21 |
|
b) Other expenses |
325.12 |
354.83 |
|
Total |
641.47 |
625.04 |
| 4. |
Operating Profit (EBITDA including other income) |
6,211.62 |
6,116.79 |
| 5. |
Finance cost |
672.61 |
731.00 |
| 6. |
Depreciation and amortization expense |
205.20 |
180.82 |
| 7. |
Profit Before Exceptional Item And Tax |
5,333.81 |
5,204.97 |
| 8. |
Exceptional items |
|
- |
| 9. |
Profit Before Tax |
5,333.81 |
5,204.97 |
| 10. |
Provision for tax |
|
|
|
- Current tax |
1433.51 |
1,399.35 |
|
- Deferred tax |
(27.33) |
3.16 |
|
- Income tax charge/(credit) for earlier years |
1600 |
503.58 |
|
Total |
3,006.18 |
1,906.09 |
| 11. |
Profit after tax |
2,327.63 |
3,298.88 |
MATERIAL DEVELOPMENT IN HUMAN RESOURCES/INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER
OF PEOPLE EMPLOYED
The Company workers are the key drivers for its sustained growth and success. The
Company nurtures and trains its employees to further enhance their management and
leadership skills, while at the same time rewarding them for high performance; this is
done to attract and retain the best talent within the Company. The industrial relations
for the year under consideration, by and large, were cordial. The number of permanent
employees on the rolls of the Company are 621.
DETAILS OF SIGNIFICANT CHANGES (I.E. CHANGES OF 25% OR MORE AS COMPARED TO IMMEDIATELY
PREVIOUS FINANCIAL YEAR) IN KEY FINANCIAL RATIO, ALONG WITH DETAILED EXPLANATIONS
THEREOF:
Particulars |
2022-23 |
2021-22 |
Explanation |
Current ratio |
0.25 |
0.90 |
Decrease in current ratio is mainly attributable to decrease in Bank
and Other bank balances at year end. |
| Interest Coverage Ratio |
|
|
N.A. |
| Debt Equity Ratio |
0.07 |
0.17 |
N.A. |
Net Profit Margin |
36.18 |
52.18 |
Decrease in Net profit margin is due to exceptional gain on sale of
land in previous year |
DETAILS OF ANY CHANGE IN RETURN ON NET WORTH AS COMPARED TO THE IMMEDIATELY PREVIOUS FY
ALONG WITH DETAILED EXPLANATION THERE OF.
Particulars |
2022-23 |
2021-22 |
| Return on net worth |
3.63% |
5.60% |
Explanation: The Decrease in return on net worth was mainly attributable to
exceptional net profits in the previous year.
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