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 51.20 billion in 2022. Saint-Gobains businesses fall into two broad areas: Construction or Building related businesses focussed on serving the reginal market, and High Performance Solutions (HPS) catering to the global market. SGSILs business is part of High Performance Solutions. SGSIL is in the business of processing of glasses to manufacture windshields for the automobile section.

BUSINESS ENVIRONMENT

The Automotive Industry experienced a year of recovery as there was remarkable growth across all categories. This was mainly due to stable demand that was well supported by a robust supply chain and a noticeably reduced impact of the pandemic. The industry is likely to benefit from the gradual recovery of the global economy, which is expected to boost demand for vehicles. Additionally, advancements in technology, such as electric and autonomous vehicles, will present new opportunities for innovation and growth. This could necessitate greater investment in electric and other environmentally-friendly vehicles. Overall, the business environment for Automotive Industry remains complex. The Companies that can effectively navigate this environment, innovate and adapt to changing circumstances, are likely to emerge stronger and more competitive.

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 section

• 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 the growing After-market Glass Replacement business, targeting the growing Electric Vehicle (EV) segment and exploring opportunities in the Bus & Coach segment. The emphasis of your Company is also on developing value-added products that improve the safety and comfort of passengers while traveling in vehicles. Overall, the After-Market Glass replacement business is likely to continue growing steadily, while the EV segment is expected to experience rapid growth in the coming years.

In todays dynamic and rapidly changing world, sustainability-related risks have emerged as significant concerns that can potentially impact the Company. 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.

Risks and Concerns - Others

1. Financial

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.

2. Legal & Statutory

(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.

HUMAN RESOURCES AND CUSTOMER CENTRICITY

The Company provides a congenial and productive work environment with an aim to retain those who are capable of translating challenges into opportunities and weaknesses into strengths. The Management continually empowers employees with opportunities to give their suggestions on various business and operational matters. The twin objectives of improving the quality of human capital available within the Company and harnessing its potential for the benefit of the Company continue to form the cornerstone of the HR policy of your Company. SGSIL 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

Your Companys growth during the year 2022-23 was fuelled by recovery in commercial vehicles, 3 Wheelers and growth in replacement market. The demand will persist, however, there can be potential impact due to global recession and higher interest rates. Margins were eroded due to the high inflationary impact from raw glass costs, rupee depreciation against dollar, high-cost imports, cost increased by almost all raw material suppliers. Simultaneously, plant operated at its saturation level. Consequent to this, the Companys sales increased by 23% and profit before tax excluding the exceptional gains has increased by 18% as compared to the previous financial year 2021-22. Your Company also positively progressed on the supply of Industrial Vehicle windshields to Europe.

SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS ALONG WITH DETAILED EXPLANATION

The 26% increase in the Debtor Turnover ratio can be attributed to a rise in turnover resulting from an increase in credit sales during the current financial year compared to the previous financial year.

The 43% increase in the interest coverage ratio was primarily a result of reduced bank charges and higher sales during the financial year ended on March 31, 2023.

The exceptional gains, which was realized in the previous financial year, the Net Profit Margin witnessed a 48% decrease for the financial year ended on March 31, 2023.

The return on net worth has experienced a 45% increase, which can be attributed to higher sales during the financial year ended on March 31, 2023.

. INTERNAL CONTROL SYSTEMS

SGSIL has an effective internal control environment which ensures business and operations are managed efficiently and effectively, assets are safeguarded, regulatory requirements are complied with and all transactions are recorded after appropriate authorisations. The Companys strong and independent internal audit function performs regular audits. All internal controls are constantly upgraded based on internal audit recommendations.

Every quarter the reports of the internal audits, significant audit findings, and corrective steps recommended and their implementation status is presented to the Audit Committee.

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.