Saint-Gobain Sekurit India Ltd Management Discussions

GENERAL REVIEW

Saint-Gobain Sekurit India Limited ("SGSIL") is a subsidiary of Compagnie de Saint-Gobain ("Saint-Gobain"), a transnational group with its headquarters in Paris and with sales of Euros 47.94 billion in 2023. Saint-Gobains businesses fall into two broad areas: regional construction or building related businesses and global businesses providing High Performance Solutions. SGSILs business is part of Mobility within the High Performance Solutions. SGSIL is in the business of processing of glasses to manufacture windshields for the automobile industry.

The following operating and financial review is intended to convey the Managements perspective on the financial and operating performance of the Company at the end of financial year 2023-24. This Report should be read in conjunction with the Companys financial statements, the schedules and notes thereto and other information included elsewhere in the Annual Report. The Companys financial statements have been prepared in accordance with Indian Accounting Standards ("Ind AS") complying with the requirements of the Companies Act, 2013 and guidelines issued by the Securities and Exchange Board of India ("SEBI").

BUSINESS ENVIRONMENT AND OUTLOOK

The business environment for the auto industry in India is poised for significant developments and challenges, influenced by a variety of factors. The Indian auto industry is witnessing a gradual shift towards electric vehicles ("EVs") and sustainable mobility solutions. The 3-wheeler goods carrier segment is rapidly embracing electric vehicles for last-mile delivery. The regulatory landscape is evolving, with stricter emission norms and safety regulations being implemented. Advancements in technology, such as connected vehicles, autonomous driving, and digitalization, are reshaping the industry.

Few distinct trends visible in Automotive industry are SUVs are more in demand than traditional hatchback and small cars. Within heavy commercial vehicle segment the growth is more inclined towards higher tonnage vehicles in recent years, Last mile delivery and e-commerce growth is driving growth of goods carriers in electric 3-wheelers and small commercial vehicles of less than 3.5 Ton load.

The Indian economy has shown resilience and positive growth, supported by various factors such as government policies, market trends, and technological advancements. The business environment for the auto industry has also been favorable, with several key developments.

AUTOMOTIVE SEGMENT

The automotive glasses are broadly classified as laminated and tempered.

Products and Plants

Automotive Glasses are glasses fitted on the body of automobiles. Generally, these glasses are either laminated or tempered. As mandated by law and safety requirements, all windshields are laminated and the other glasses (backlites and sidelites) are tempered. The Companys factory at Chakan, Pune, which manufactures laminated glasses, is certified under ISO 14001:2015, ISO 45001:2018 and IATF 16949 First edition 2016-10-01.

Industry

Broadly, there are two major market segments - Automobile Manufacturers ("OEMs") and the Replacement Market. Within OEMs, there are three sub-segments: passenger vehicles, commercial vehicles and 3-wheelers. There is one major player and two other small players mainly for 3-wheelers, other than SGSIL, supplying to the OEMs. There are, however, a number of smaller players and imports in the Replacement Market.

Broad Characteristics of the business:

• Significant entry barrier in the form of high capital investment

• Complete dependency on the auto industry

• Key success factors are quality, cost, capability to supply windshield to the OEMs and to the replacement market

• Stringent contractual obligations with the OEMs

Your Company is focused on growing in OEM market mainly in 3-wheeler, Trucks, LCV Buses and After-market business. Targeting evolving opportunities in Electric 3-wheeler segment, growth in Truck market, focused approach on LCV Bus segments in both organized OEMs and Bus body makers.

The emphasis of your Company is also on developing value-added products that improve the safety and comfort of passengers while traveling in vehicles and meeting regulatory needs like proposed AC cabin regulations in Trucks.

After-Market Glass replacement business is likely to continue growing steadily where focus is on improving product references and services and increasing reach to market through customer network.

Risks and Concerns Financial Risks

Fluctuation in foreign exchange rates due to volatility in financial markets may impact the Company. Changes in assumptions underlying the carrying value of certain assets may result in the impairment of such assets. The key mitigation strategies are maximizing operation cashflows and integration of business planning and cashflow projections with liquidity management. SGSILs financial management has always been governed by prudent policies, based on conservative principles. SGSILs foreign currency exposure on account of imports and exports are appropriately hedged. SGSIL has a well-defined and structured treasury operation, with the emphasis being on security.

Regulatory Risks

Non-compliance to increasing stringent regulatory environmental norms may result in liabilities and damage to reputation. The key mitigation strategies are focus on compliances.

(i) Contingent Liabilities: Details of Contingent Liabilities are in the Notes forming part of the financial statements.

(ii) Statutory Compliance: SGSIL ensures statutory compliance with all applicable laws and is committed to the timely payment of all statutory dues.

Operational Risks

The volatility in prices of raw materials and energy. Any constraints or interruptions in the supply chain of raw materials could have adverse effects. Similarly, the failure of critical information systems or servers managing the Companys manufacturing facilities may adversely impact business operations.

The key mitigation strategy is enhancing in-house capability and leveraging from past learnings and expertise. Establish sources of supplies from alternate geographies.

Market Related Risks

Competition from substitute materials, or changes in manufacturing process, may lead to a decline in product demand, resulting in loss of market share. Product liability claims could have an adverse impact on the Companys finances.

The key mitigation strategies are Development of value-added products and enhanced services and solutions and strengthening contractual agreements.

People Risks

Any labour dispute or social unrest in the region where the Company operates may adversely affect its operations and financial condition. Loss of one or more members of the senior management, or inability to attract and retain employees, may also affect the Companys business and prospects.

The key mitigation strategies are to build relations with key stakeholders to address labour or social unrest. Succession planning for Senior Management to ensure continuity in business and people related policies for attracting and retaining talent.

Besides normal business risks, in a rapidly changing world environment, risks associated with the use of hazardous materials, pollution and security of electronic data have also become significant concerns in todays dynamic global landscape, as any of these factors can potentially subject the Company to potential legal and social liabilities. The Company is vigilant in monitoring these risks and implementing appropriate measures to mitigate them wherever warranted or necessary. The Company will continue to prioritize sustainability initiatives, including projects to reduce energy consumption, promote green energy, conserve water, and eliminate non-recovered waste etc.

OPPORTUNITIES

The Indian market offers numerous opportunities for the auto industry due to its large population, rising disposable incomes, and increasing urbanization. The country boasts a sizable and expanding consumer base for automobiles, fueled by urbanization and a desire for personal mobility.

There are opportunities in various segments where Company operates.

1. OEM Segments - Growth in industry, new opportunities in 3-wheelers and Trucks manufacturers.

2. Added Value products - Encashing opportunities through value offerings and regulatory changes in Trucks market like heat cut Windshields for AC cabins.

3. LCV Buses - Increasing shift in Bus market industry towards Organized Bus body makers and standardization offers new opportunities for company.

4. After-Market - Higher vehicle registration increasing After-Market potential and the company is well placed to get benefitted with improved product range, service and better customer reach.

The digitalization of the auto industry, including the rise of connected vehicles and digital sales channels, offers opportunities for automakers to improve customer experience and introduce innovative products and services.

The competitive business environment, the Company operates in, makes innovation imperative for success of the business. Recognizing the need to improve, expand and innovate, the Company is concentrating efforts on research and development to offer innovative solutions to its customers. Keeping pace with the global trends of digitalisation, the digital team of the Company has been working in tandem with the business to identify business opportunities and drive digitalisation initiatives across the value chain to add value to the business by being a key enabler for the Companys strategies.

HUMAN RESOURCES AND CUSTOMER CENTRICITY

The Companys primary focus is to provide a fair and inclusive work environment that fosters innovation for building a more sustainable world, inspires high performance, and empowers employees to develop and grow. The Company strives to sustain its leadership position in the market and places a strong emphasis on developing careers through shared trust. The well-founded hiring and onboarding practices enables the Company to attract, grow and retain talent and enable them to unlock their infinite potential through exposure to diverse assignments and opportunities. An objective and transparent performance management process serves to encourage superior performance. To improve organizational efficiency, employee engagement, and skill development, the Company encourages participation in various training programs, e-learning courses, external events participation, benchmarking and best practices visits.

The Company is dedicated to establishing and maintaining a positive work environment that is free from any kind of discrimination or harassment. The Company firmly believes that all employees have the right to be treated with dignity and respect, and it maintains a zero-tolerance policy towards any violations of its Code of Conduct, particularly with regards to sexual harassment. To address any such issues, the Company has a strong Internal Complaints Committee ("ICC") in accordance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013. The Company did not receive any complaint related to sexual harassment during the year. Employees are provided periodic awareness sessions on POSH and biases at the workplace. The companys philosophy focuses on building a fairer, more inclusive work environment.

The Company will continue to invest in training people in Environment, Health and Safety and World Class Manufacturing and to provide an opportunity for employees to give their best and realize their full potential.

The Company firmly believes in enhancing the culture of creating values by taking initiatives in proactively designing and presenting innovative solutions that generate value for customers and end-users. The top priority is to maintain a smooth execution process, while emphasizing on high standards of quality and efficiency, as well as prioritizing environment, health and safety. This approach is rooted in the companys ethos of promoting togetherness, leveraging diversity, and nurturing personal and professional development.

OVERALL PERFORMANCE

Another strong year 2023-24 for automotive industry with the passenger vehicles growing by 6%. The light commercial vehicles also witnessed robust growth of 20%. The medium and heavy commercial segment also continued its growth with a robust 6%. Post pandemic, the domestic 3-wheeler segment demonstrated remarkable growth of 24%. Many sustainability projects were completed, and various digital applications were introduced, AI cameras were implemented for safety, and Data Analytics was initiated for decision making. The high inflationary impact from raw glass costs, the rupee depreciation against dollar, high-cost imports, cost increases by almost all raw material suppliers were partly offset with price increase. As a result, the Company experienced a 7.7% increase in sales and achieved a 9.9% profit before tax compared to the previous financial year 2022-23.

SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS ALONG WITH DETAILED EXPLANATION

The Debt Equity ratio decreased by 85% mainly due to termination of agreement for Bill discounting thereby reduction in the total debt (borrowings) and this also resultant an increase in the Debt Service Coverage Ratio by 296%, for the financial year ended March 31, 2024.

The increase in Debtor turnover ratio by 32%, primarily results from a decrease in average trade receivables, reflecting improved efficiency in the collection of trade receivables and which helped in improving the working capital for the financial year ended March 31, 2024.

INTERNAL CONTROL SYSTEMS

The Company has established an effective system of internal controls, with documented policies and procedures that encompass all financial and operational aspects. These controls are designed to reasonably ensure the reliability of financial reporting, monitor operations, and protect assets from unauthorized use or losses while ensuring compliance with regulations. The Company has continued its efforts to align all its processes and controls with Saint-Gobain Groups best practices.

The internal control systems feature:

a) An audit committee comprised mostly of independent directors that regularly reviews audit plans, significant audit findings, adequacy of internal controls, compliance with accounting standards, and reasons for changes in accounting policies and practices, if any.

b) A well-established, independent, multi-disciplinary Internal Audit team that operates in accordance with governance best practices. It reviews and reports to the Audit Committee on compliance with internal controls, the efficiency and effectiveness of operations, and key process risks.

The Board assumes responsibility for the overall risk management process across the organization. The Risk Management Committee reviews business risk areas, encompassing operational, financial, strategic, regulatory, and other risks.

SEGMENTAL FINANCIALS

Your Company recognises Automotive Glass as a single segment.

CAUTIONARY STATEMENT

The Management Discussion and Analysis contains some forward looking statements based upon the information and data available with the Company, assumptions with regard to global economic conditions, relevant government policies etc. The Company cannot guarantee the accuracy of such assumptions and impact on the performance of the Company in the future. Hence it is cautioned that the actual results may differ from those expressed or implied in this report.