PTL Enterprises Ltd Management Discussions

Global Economy

The global economy demonstrated remarkable resilience for Calendar Year (CY) 2023. The year was marked by significant events, including supply-chain disruptions, a conflict in Ukraine leading to a global energy and food crisis, increased uncertainties in the Middle East impacting the shipping lines in the Red Sea area, and a substantial surge in inflation, prompting coordinated monetary policy tightening worldwide.

According to data from the International Monetary Fund (IMF), in CY23, Advanced Economies (US, Euro Area, Japan, etc) further slowed down and grew by 1.6% as compared to 2.7% for CY22. The Euro Area was particularly impacted, with growth plummeting from 3.5% in CY22 to 0.4% in CY23, while the US economy saw a resurgence, posting a growth of 2.5% compared to 2.1% in CY22.

The traditional global growth engines ‘Emerging Markets and Developing Economies collectively posted a growth of 4.3% in CY23 as against a 4.5% growth in CY22. India and China led the growth posting 7.8% and 5.2% respectively.

Overall, the global economy witnessed a growth of 3.2% for CY23 as against a 3.4% for CY22.

The robust performance of the manufacturing and construction sectors fueled Indias GDP growth with double-digit expansion in manufacturing and solid growth in construction. However, the agriculture sector contracted by 0.8% in the December quarter, attributed to poor monsoon conditions and El-Nino impact. The country saw improved capital flows to bolster private investment.

One of the factors for the stellar growth in the economy has been due to evolving consumer spending trends, particularly the growth of the middle-income demographic. Amid fluctuating post-pandemic spending growth, theres a notable shift towards luxury and high-end products, outpacing demand for essentials. With rising disposable incomes expected among middle- to high-income households, this trend is poised to intensify, propelling overall private consumer expenditure growth.

Auto segment Industry

Amidst a robust economic expansion of 7.6%, the Indian Automobile industry exhibited a commendable performance, witnessing a domestic industry growth of 12.5% during the last fiscal year. According to data from Society for Indian Automobile Manufacturers, (SIAM), total vehicle sales, encompassing all categories, touched 23.8 million units from 21.2 million units in the previous fiscal year. The fiscal saw passenger vehicle sales surging by 8.4%. This was primarily driven by the SUV category as preference for SUVs continued and the SUV segment registered a stellar growth of over 25% and today exceeds 50% of the total market. Of course, the growth paled in comparison to the remarkable increases seen in three-wheeler sales (0.7 million units), soaring by 41.5%, and two-wheeler sales, rising by 13.3% to 17.8 million units. One of the prominent trends observed in the two-wheeler category was the escalating demand for executive and premium range vehicles, particularly those exceeding 110cc and 150cc. Additionally, the surge in sales of Electric two-wheelers, recording a remarkable 33.3% increase in the fiscal, underscored the evolving preferences of consumers towards sustainable mobility solutions.

Tyre Segment

The tyre industry plays a pivotal role in the automotive sector, particularly in the original equipment manufacturer (OEM) segment. Additionally, the replacement segments performance is closely tied to the overall economic activity within the country. According to data from the Automotive Tyre Manufacturers Association (ATMA), the industry witnessed a modest growth of 4% for six-months period from April 2023 to September 2023. Notably, scooters and motorcycle tyre categories emerged as the frontrunners, boasting growth rates of 9% and 7%, respectively.

SWOT ANALYSIS

• 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.

Weaknesses

• No direct presence in the Tyre market.

• Dependence on ATL.

• Any impact on margins and revenue ofATL might force ATL to renegotiate the Lease Agreement.

Opportunities

• Diversification into other sector through new investments.

• Manufacturing process ofATL 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.

• Continuing high inflation and raw material cost escalation will add to pressure on margins ofATL.

• 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 FY25 continues to be one of uncertainty as the Russian-Ukraine and Middle East conflict shows no sign of resolution and hence chances of economic disruptions will still be prevalent.

According to estimates by IMF, the world economy is forecasted to maintain a 3.2% growth rate in both 2024 and 2025, similar to 2023. While advanced economies may accelerate slightly, from 1.6% in 2023 to 1.7% in 2024 and 1.8% in 2025, emerging market and developing economies might experience a modest slowdown from 4.3% in 2023 to 4.2% in both 2024 and 2025. In terms of inflation, a steady decline is expected, with global inflation decreasing from 6.8% in 2023 to 5.9% in 2024 and further to 4.5% in 2025.

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.

• 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.

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

MATERIAL DEVELOPMENT IN HUMAN RESOURCES/INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED

The Company employees 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 574.

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:

DETAILS OF ANY CHANGE IN RETURN ON NET WORTH AS COMPARED TO THE IMMEDIATELY PREVIOUS FY ALONG WITH DETAILED EXPLANATION THEREOF.