Rane Engine Val. Management Discussions

1. Company Overview

Rane Engine Valve Limited (REVL) is a manufacturer of engine valves, guides and tappets for Passenger Cars (PC), Commercial Vehicles (CV), Farm Tractors, Stationary Engines, Railway / Marine Engines and Two / Three wheelers. The Company operates in a single reportable business segment, viz. components for the internal combustion engine applicable for stationary and transportation engine applications.

2. Economic Review 2.1. Global Economy

The global economy is estimated to have grown by 3.4% in 2022 on the back of slowdown in the US and European economy and lockdowns in China due to zero Covid policy adopted by the government. Global manufacturing and trade activity weakened amidst slowing demand due to aggressive global rate hiking cycle adopted by central banks to curb inflation. U.S. manufacturing activity grew at a slow pace as new orders contracted amid increase in interest rate by the Federal Reserve to tame inflation. Europe grappled with high energy prices resulting in slowdown in economic activity and led to decline in business and consumer confidence. Covid-19 outbreaks and subsequent lockdowns hurt consumer spending in China and disrupted global supply chains.

The global economic activity is witnessing downturn amidst high inflation and resulting tighter monetary policy, geopolitical tensions which have disrupted supply chain and led to unprecedented rise in prices. The global growth is estimated to slow to 2.8% in 2023. The growth in the US economy is expected to decelerate to 1.6% in 2023 on the back of declining real disposable income and subdued demand amid tighter policy environment. Growth in China is expected to revive to 5.2% in 2023 due to the easing of stringent pandemic related restrictions, favourable policy support from the government and benefit of a low base in 2022. While the historic global tightening could rein in inflation it could also restrict economic growth in the US and Europe.

2.2. Indian Economy

Indian economy continued to be one of the fastest-growing major economies despite growing at an estimated 7.2% in FY23 and has shown higher resilience to global shocks on the back of strong government capital spending and private demand. The growth momentum was supported by recovery in the labour market and increasing credit to the private sector. However, the growth was slightly impacted due to ongoing policy tightening to curb high inflation.

Weakening of the rupee and high oil prices continued to exert upward pressures on inflation and along with geopolitical uncertainty, dampened growth momentum in the manufacturing and mining sectors. However, agriculture, electricity, construction, and services sector witnessed robust growth amid persistent global headwinds and business sentiment and consumer demand remained relatively strong.

According to International Monetary Fund (IMF), Indias GDP growth is expected to moderate to 5.9% in FY24 on the back of weaker external demand and tighter financial conditions. The RBI is likely to shift its stance from policy tightening to growth considerations once inflation cools off. The growth dynamics remain strong and economic growth momentum is likely to be boosted by growth in services activity, uptick in government capital expenditure and pick up in manufacturing activity. India continues to remain a bright spot amidst global uncertainties and the domestic demand-led economy is less likely to be impacted by the global slowdown. Moreover, increased infrastructure spending along with various supportive measures by the government is likely to support private investment and increase the manufacturing activities. However sharp slowdown of global growth along with supply chain disruptions due to intensifying war in Ukraine could disrupt global food and energy prices and weigh on export and investment growth thereby impacting Indian economy.

3. Industry Review

3.1. Global Automobile Industry

The U.S. auto industry posted its worst sales in more than a decade with new-light vehicle sales declining by 8.2% YoY to 13.7 million units due to semiconductor shortage and other supply chain related issues which impacted production volumes. Electric-vehicle sales accounted for nearly 6% of the retail market in the U.S. in 2022, up from about 3% in the prior year. The National Automobile Dealers Association (NADA) expects the U.S. new-vehicle sales to increase by 6.6% to 14.6 million units in 2023 despite higher borrowing costs on the back of resolution of supply chain constraints and considerable pent-up demand in the market.

According to European Automobile Manufacturers Association (ACEA), the European Union passenger car market contracted by 4.6% to 9.3 million units in 2022 on the back of ongoing supply chain pressures amidst geopolitical conflicts between Russia and Ukraine. Production constraint due to semiconductor shortage impacted supply side during the first half of the year while slowdown in the economy and rising interest rates impacted consumer confidence thereby slowing down demand. The auto volume is expected to pick up in 2023 on the back of easing of supply bottlenecks. However, the demand side could face headwinds in the form of slowdown in economic activity, high interest rate and fuel cost leading to decline in consumer confidence.

The global automotive industry faced headwinds in the form of weakening macroeconomic environment, supply chain disruptions, tighter monetary policy and diminishing consumer demand. Pressures due to elevated energy prices, high cost of production and slowing demand impacted the industry. Amidst these challenges, adoption of electric vehicles accelerated during the year on the back of various stimulus measures by policymakers globally to meet decarbonisation targets. The industry is at a crossroad and is witnessing disruptions across technology, vehicle connectivity and consumer preferences. Aggressive EU policy to cut emissions from cars and vans is likely to lead to quick transition to electric vehicles. Shift towards greener transportation medium and increasing adoption of technology such as integration of autonomous features across safety, driving and parking will play an increasingly important role in paving the way to the future for the industry.

3.2. Indian Automobile Industry

The Indian automobile industry witnessed robust growth during the financial year after having faced slight hiccups in the previous year due to pandemic induced supply chain disruption and higher commodity cost. The Passenger Vehicles (PV) segment achieved a new peak volume due to the launch of new models, continuous supply improvement, and robust demand for UVs, resulting in healthy bookings. The PV segment registered a volume increase of 25%. Utility vehicles (UV) segment continued to witness strong demand led by new launches and better technologies resulting in volume growth of 33% whereas the Passenger Cars (PC) segment volume increased by 18%. Rising cost of ownership for entry segment cars has been a major deterrent for pick-up in demand despite higher discount levels.

Pick-up in economic activities and infra push by the government led to improved demand in the infrastructure and construction sectors resulting in improved freight availability, better fleet utilization, pick up in replacement demand and increasing demand for e-commerce and last-mile delivery. As a result, Commercial Vehicle (CV) segment witnessed volume growth of 28%. In addition, opening of school and offices also supported the demand in the bus segment. The Medium and Heavy Commercial Vehicles (M&HCV) segment continued to experience positive momentum and registered an increase of 37% due to improving fleet operators profitability and better fleet utilization levels on account of pick up in infrastructure activities.

Demand for M&HCVs also benefitted from the rise in construction activity, especially in the residential housing segment. The Light Commercial Vehicles (LCV) segment reported volume growth of 29% on the back of surge in e-commerce and better last mile connectivity. The Small Commercial Vehicles (SCV) segment reported volume growth of 11%.

Despite price hikes taken by OEMs and increase in interest rates, Tractors experienced 11% growth owing to better crop realization and reached all-time high volumes. Although weak exports along with elevated cost of ownership impacted off-take in volumes, the two-wheelers segment witnessed 10% growth on the low base supported by a good festive season and increasing consumer interest in EVs.

Industry Segment

Growth in %

(Production figures)

(YoY change)


FY23 FY22
Passenger Cars (PC) 18 4
Utility Vehicles (UV) 33 43
Multi-Purpose Vans (MPV) 23 7
Passenger Vehicles (PV) 25 19
Small Commercial Vehicles (SCV) 11 24
Light Commercial Vehicles (LCV) 29 18
Medium & Heavy Commercial
37 50
Vehicles (M&HCV)
Commercial Vehicles (CV) 28 29
Farm Tractors (FT) 11 (3)
Two Wheelers (2W) 10 (0)

Source: Society of Indian Automobile Manufacturers (SIAM)

4. Business Review

4.1. Domestic Market

The Company registered a 26% increase in the domestic market. The domestic market witnessed buoyancy across all segments in the Original Equipment Manufacturer (OEM) sales, registering a growth of 29% over the previous year. The aftermarket business of the Company registered a growth of 7%. The break-up of the domestic sales by market segment is given below: (Rs. in Crores)


FY23 FY22 Growth in %
OEM 277.16 214.21 29%
Aftermarket 34.12 31.76 7%
Railways 0.06 0.04 35%
Defence 4.12 4.60 (10)%


315.46 250.61 26%

4.2. Exports

Export sales to OEM customers increased by 38% due to increase in off take by the customers. The Business development efforts of the Company in last couple of years and better performance of the plants helped achieve this. The aftermarket exports grew by 42% with the continuing demand from major customers in Europe & USA.

(Rs. in Crores)


FY23 FY22 Growth in %
OEM 108.83 76.91 33%
Aftermarket 61.62 46.35 42%


170.45 123.26 38%

The break-up of sales and growth by product applications for the Company is given below: (Rs. in Crores)


FY23 FY22 Growth in %
344.07 280.53 23%
Other Engines 141.84 93.34 52%


485.91 373.87 30%

The new order book of the Company remains at Rs. 13.5 Crores from domestic and export customers. This will be commercialized in the coming years commencing from FY24.

4.3. Operational and Financial Performance

4.3.1. Financial Review

• Revenue from Operations increased by 30% to Rs. 497.57 Crores in FY23 from Rs. 382.06 Crores in FY22.

• EBITDA increased to Rs. 36.22 Crores in FY23 from Rs. 16.43 Crores in FY22.

• Loss after Tax stood at Rs. 0.06 Crores for FY23 as compared to Loss after Tax of Rs. 11.86 Crores for FY22.

The renewed operational efficiency improvement programs including the ones implemented in the last financial year resulted in the Company achieving operational profits after more than a decade. Overall, the Company grew by 30% and the operating margins continued to improve significantly.

Sl. No.

Key Ratios

March 31, 2023 March 31, 2022 Reason for change in FY 23


Interest Coverage Ratio (turns)

1.68 (0.45) Operational profits driven topline growth during the year resulted in better performance


Operating Profit Margin (%)

3.40% (0.93)%


Net Profit Margin (%)

(0.01)% (3.10)%


Return on Net worth (%)

(0.06)% (11.72)% .


Return on Capital Employed (%)

4.26% (3.17%)

4.3.2. Operations and Manufacturing Review

India has emerged as the top R&D hub for the world owing to its large scale engineering capabilities and availability of skilled manpower. The customers of the Company are leveraging the experience and capability of the Companys R&D in engine designs related to valves. In addition, the Company is undertaking several experiments on Hydrogen as a fuel for IC engines. The Company is working with major OEMs on this new initiative to address their requirements through development of customer specific technology road maps and to develop an alternate to the fossil fuels thereby extending the life of the IC engines.

To expand business in non-EV and non-auto segments, R&D proactively engages with customers to focus on EV-insulated segment. While the total number of projects engaged are 70 across 39 customers, the projects with EV insulated customers out of this 70 stands at 49 which is 70%.

Increased focus on productivity and quality improvements during the year yielded desired results. The capacity utilization in all the plants improved significantly in order to meet the increased demand across client segments. New product approvals from prestigious customers were received by the Company for series production in 2023-24. The efforts on infrastructure upgradation, capacity enhancement and industrialization of sodium filled hollow valves continued even during 2022-23. The Company possesses the following quality and environment management system accreditations:

• All plants are ISO 9001:2015, IATF 16949:2016 and ISO 14001:2015 certified.

• All plants are certified for OHS standard ISO 45001:2018.

• The Company has also been certified under ISO 27001:2013 for ISMS.

4.4. Pursuit of Business Excellence

The ‘Business Excellence Model through enhanced practice of Total Quality Management (TQM) enabled the Company to win customer accolades. The Company has won awards from the following customers during the year: • Volvo Eicher Power Train • Hyundai Motor India Limited • Honda Motorcycle and Scooter India

4.5. Opportunities and Threats

The Indian automotive industry remains well positioned to ride strong growth momentum as the industry focuses on reducing reliance on imported products and working towards developing a strong domestic supplier ecosystem. In order to remain relevant and stay ahead of the curve and establish the country as a global auto component manufacturing hub, it is equally important to make investments in technology and work towards fully digitalising manufacturing and non-manufacturing operations.

Although, there are positive factors driving the demand environment, supply chain constraints leading to shortage of chips, high cost of raw material, increase in logistics cost and rising fuel prices could impact growth of the industry. Moreover, implementation of new regulations to meet the stringent second phase of BS VI emission norms has resulted in increase in the cost of the vehicles, and this coupled with global recessionary trend and elevated geopolitical tensions could impact growth of the industry.


The Indian automotive industry is likely to witness sustained growth momentum going forward despite minor headwinds in the form of rising interest rates and cost increases due to new emission and safety norms. Introduction of vehicle scrapping policy for scrapping and replacing old vehicle is likely to aid growth of the industry. Adoption of Electric Vehicles (EVs) is expected to accelerate in the coming years as EV becomes more cost competitive backed by supportive government policies, enhanced charging infrastructure and consumer willingness to move towards clean and sustainable mobility solution. In addition, during 2023-24, Company would be strategically focusing on non-ICE products, which has similar manufacturing process.

5. Risk Management

The Company has laid down well-structured procedures for monitoring the risk management plan and implementing risk mitigation measures. The risks are broadly classified into strategic risks, operational risks, financial risks and statutory compliance risks. These risks are rated based on factors such as past year experience, probability of occurrence, probability of non-detection and their impact on the business. The top management reviews the strategic risks, and the risks with high probability and high impact every quarter and presents its report along with a risk mitigation plan to the Board of Directors on a half-yearly basis. The strategic risks are taken into consideration in the annual planning process with their mitigation plan. Other risks are covered as part of the internal audit process and presented to the Audit Committee every quarter. The business process risks, and the related controls are subjected to internal audit and reviewed on a quarterly basis. The risk ratings are revalidated with the top management as part of the internal audit process every quarter. The overall reassessment of risks at the Company level is carried out and presented to the Board of Directors once in two years for their review.


Nature of Risk

Risk Mitigation Strategies

Industry /Market Risk

65% of revenue is derived from the Indian automotive sector. Hence, any drop in vehicle production will have a Significant impact on the Companys business.

The Company constantly strives to: a)Increase revenue from international markets (outside of India).

b)Add new products to increase organic revenue and diversify customers across vehicle segments.

c)Look for opportunities in the non-automotive segments such as Defence, Railways, etc.


Technology Obsolescence Risk

In short-term Indian auto industry is moving towards multi fuel technology to reduce cost of ownership and emission. In mid to long term OEMs pursuing electrification of their products beginning with two wheelers.

The Company has consistently delivered cutting-edge technology products with enhanced R&D capabilities, localisation of testing and validation capabilities. This is enabling the Company to work closely with customers for multi fuel compatible products. , The Company has laid out strategy to expand its portfolio of EV insulated business

Competition Maintaining market share in the competitive market and availability of unorganized to players further pose challenges The Companys long-standing relationship with OEMs, state-of-the- art facilities and best-in-class processes help deliver superior value the customers. The Company periodically conducts customer surveys to understand customer feedback and works in furthering its . relationship with the customers
Quality/ Processes/ Quality and delivery are sacrosanct for safety-critical products supplied by the Group Skilled workforce, imparting job skill enhancement training, enhancing supplier capabilities and robust manufacturing processes help the Company mitigate quality and delivery risk.
People Risk Attrition of key personnel could impact business operations and growth. The Companys HR processes are constantly upgraded to attract, retain and develop talent. The policies are people-centric and industry accolades on HR practices help attract talent. The dedicatedtraining centre supports to build functional capabilities and develop a strong leadership pipeline. The performance management system and other employee engagement initiatives help develop and retain talent.


Raw Material (Input) Price Risk Material cost is a significant part of the cost and volatility in the price of raw material costs will erode margin The Company constantly strives to mitigate the input cost increases by
. a)Implementing a procurement function that will work on cost reduction initiatives through alternate sourcing, localisation, etc.
b)Negotiating and passing through input cost, which increases suitably, to the customers.
c)Working on process improvements, yield improvements, etc.
Currency Risk The Company is exposed to foreign currency exchange risk as it exports its products to various countries and imports raw materials The Company uses a multi-pronged approach as suitable to the scenarios It includes
a) Optimally balancing the import and export to create natural hedge..:
. b) Working with customer-to-index prices to mitigate currency fluctuations
. c) Taking simple forwards on a rolling basis to protect its export realization


Interest Rate Risk Use of borrowings to fund expansion exposes the Company to interest rate risk . The Company manages interest rate risk on the following basis:
a) Maintaining optimal debt-equity levels.
b) Using internal accruals to fund expansion.
c) Constantly optimizing working capital to reduce interest costs.

6. Human Resource Development and Industrial Relations

6.1. Talent Development Initiatives

In FY 2022-23, the Company focused on the following talent development initiatives:

Leadership Development

6.1.1. Young Leadership Development (YLD)

The objective of YLD is to facilitate the development of leadership competencies of first time managers and to provide young leaders relevant exposures and high quality learning experiences thereby strengthening the leadership bandwidth at middle management. The fifth and sixth batch with 7 participants underwent 5 days of classroom sessions across 3 modules facilitated by Shri Dharmasthala Manjunatheshwara Institute for Management Development (SDMIMD).

6.1.2. High Potential Leadership Development (HPLD)

The objective of HPLD is to build leadership competencies of high potential talent and strengthen the leadership pipeline. Overall 9 employees were engaged in HPLD intervention. Employees from the seventh batch completed their one-year development journey and worked on Action Learning Projects (ALP) in teams to address critical organizational challenges. Participants worked on the projects under the guidance of Prof. Suresh Srinivasan from Great Lakes Institute of Management and made project presentations to business leaders for their inputs. HiPos from the eighth and ninth batch began their leadership development journey through a Development Center. The developmental inputs focussed on Rane leadership competencies to facilitate career transitions to leadership roles.

6.1.3. Leader as Coach

The objective of "Leader as Coach" is to cultivate appreciation of behavioural change and encourage the culture of development. The leaders were provided with insights on the elements of individual development through the concept of breakdown, skill, practices & reflection and four different dimensions of individual development as part of facilitator led sessions. Participants have periodic one-on-one conversations with coach on using these coaching techniques for team and self-development. 3 leaders underwent the third batch of "Leader as Coach" intervention.

6.1.4. Rane Manufacturing Systems Professionals (RMSP) RMSP was introduced as a Professional Course in 2017 with the objective of ‘Building Manufacturing Capability". The Gemba based intervention is for junior and middle management employees in Manufacturing, Manufacturing Engineering, Quality Assurance and Plant Engineering functions. Having seen five years of implementation a need was felt to link the initiative to plant level performance and focus on depth of coverage in addition to breadth of coverage. In August 2022, it was decided to conduct an in-depth study on repurposing RMSP to analyze the impact and make improvements as necessary by taking inputs of all stakeholders. The repurposed version RMSP 4.0 was designed with the objective to "Enhance Manufacturing Capability through Technical proficiency for Significant improvement in Plant Performance". RMSP 4.0 will be rolled out in April 2023 and region wise awareness sessions were organised for highlighting the importance and impact of RMSP 4.0 across the group.

6.2. Performance Assessment & Development System (PADS) Refresh As a process the Company looks at revamping its performance management system, PADS every 5 years understanding the value the present system brings to the organization. With an intention to discover on how it enables the employees to perform, the Company had multiple rounds of focus group discussions across various locations and assimilated points for its process enhancement. Along with points that came out of focus group discussions the Company also did a benchmark study of various practices across industry to design a refreshed process, PADS 7.0 with effect from April 2023, for FY 24. PADS 7.0 is a transformation from an event based performance management to a continuous performance management. The intervals between the manager/ employee conversations is shortened by adding 5 conversations consisting of 2 performance based conversations and 3 development based conversations between manager and employee in a year which was earlier limited to only one conversation. This will enable frequent conversation on performance and development between manager/employees. Thus, the Company is transforming from managing performance to enabling performance of employees. This also gave the Company an opportunity to look at how it can simplify the system which enables the performance management process. The Company redesigned the forms and competencies such that it becomes easy and simple for employees to access it and enter details. The system is also designed to track and measure completion of development milestones.

6.3. Great Place to Work (GPTW)

The Rane Group believes in continuous improvement in all aspects of its operations. Employee satisfaction and engagement are as key to the Companys growth as business performance. Therefore, to give the employees a platform to express their views in a free and open manner, Rane has been conducting an Employee Opinion Survey for almost a decade. An external consultant would administer the survey, share the findings, and help in identifying the strengths and areas of opportunity. As the organisation grew, there was a need to find other models that accurately and efficiently captured employee views and helped to benchmark against the best in keeping the employees happy. Great Place to Work is a globally recognized body that helps businesses create a sustainable, high trust, high-performance culture. Since 2008-2009, Rane Group has been participating in the survey and using the findings to fine-tune the employee engagement and development programs. Subsequently, individual Rane companies have been participating in the survey. REVL was certified with GPTW 2 times in 3 years.

6.4. Wellness at Rane

Rane Group is committed to promoting a healthy and positive work environment for its employees. The Company has partnered with The Wellness Corner which provides holistic wellness solutions to prioritize the health and well-being of the employees. With the launch of its wellness initiative, the company is taking a proactive approach in improving the employee well-being and creating a supportive work environment. The employees are encouraged to participate in challenge circles to reinforce adoption of healthy habits such as regular exercise, mindful eating etc.

Rane Premier League is one such event to celebrate togetherness and also craft a workplace wellness. Rane Premier League (RPL), a first of its kind cricket tournament was held among the group entities of Rane. They nominated their best cricketers who were enthusiastic to bring home the trophy. The Company had a total of 9 teams who fought for winner and runner up awards.

Chennai Marathon is yet another event which saw good participation from Rane Group as part of wellness initiative. The Chennai Marathon is the largest sporting event in Chennai. This year, 146 employees from the Rane Group participated in the Chennai Marathon.

6.5. Industrial Relations

During the financial year, long-term wage settlements with the employee union at Aziz Nagar, Medchal and

Trichy plants were concluded smoothly. The industrial relations were generally cordial in all the plants. The group level industrial relations council works towards the objective of creating a healthy working environment by promoting peace and harmony amongst all segments of employees. The focus areas for the council includes interpretation and implementation of legislations, workforce mix planning for optimal deployment and sharing of best practices.

7. Internal Control Systems

The Company has put in place a robust internal control system to prevent operational risks through a framework of internal control and processes. These controls ensure that the business transactions are recorded in a timely and complete manner in the financial records, resources are utilized effectively and the assets are safeguarded.

Theinternalauditfunctionisoutsourcedtoaprofessional firm of independent assurance service providers. The Audit Committee and the Board in consultation with the internal auditor, statutory auditor and operating management approve the annual internal audit plan. The scope also covers the internal financial controls and internal controls over financial reporting. The internal audit findings are placed before the Audit Committee at each of its quarterly meetings for review. The managements responses and counter measures are discussed in the Audit Committee meetings. This process ensures robustness of the internal control system and compliance with laws and regulations including resource utilization and system efficacy.

8. Cautionary Statement

The information and opinions expressed in this report may contain certain forward-looking statements, which the management believes are true to the best of its knowledge at the time of its preparation. Actual results may differ materially from those either expressed or implied in this report.