MANAGEMENT DISCUSSION & ANALYSIS REPORT
Industry Structure and developments
The Indian automobile industry has been through a rollercoaster ride since the first
lockdown due to Covid-19. The pandemic brought the industry to a standstill, with
factories shutting down and sales plummeting. However, the industry has shown remarkable
resilience and has bounced back stronger than ever. In this blog, we will take a closer
look at the performance of different segments including passenger vehicles, commercial
vehicles, three-wheelers, two-wheelers, tractors and construction equipment.
The sales data of passenger vehicles, commercial vehicles, three-wheelers,
two-wheelers, tractors and construction equipment are published by different industry
bodies like SIAM (Society of Indian Automobile Manufacturers), FADA (Federation of
Automobile Dealers Associations), Tractor and Mechanization Association (TMA) and Indian
Construction Equipment Manufacturers Association (iCEMA). SIAM publishes wholesale data of
vehicles which are dispatched from the factories whereas FADA publishes retail numbers
which is basically the actual number of deliveries done by the dealers.
According to SIAM, the automobile industry experienced a significant 21% increase in
domestic sales in FY 2022-23. Notably, the passenger vehicle sector achieved its highest
sales figures, showcasing an impressive annual growth rate of 27%. Commercial vehicles and
three wheelers also witnessed substantial growth, with respective increases of
34% and 87% primarily attributed to the higher demand for passenger carriers. The
two-wheeler segment showed a moderate growth of 18% after experiencing a decline for three
consecutive years. However, it is important to note that these segments have not yet
reached the sales levels observed before the pandemic.
The FADA report also highlights that, in the past year, retail sales experienced a
significant double-digit growth of 21%. With the exception of tractors, all categories
showed double digit growth rates. Commercial Vehicles, Passenger Vehicles, Three-wheelers
and Two-wheelers witnessed growth rates of 33%, 27%, 84%, and 23% respectively. Tractors,
on the other hand, had single digit growth rate of 8% due to strong base of previous year.
According to SIAM, Indian automobile industry recorded peak sales of 2.62 crore units
in all the segments covering cars, two-wheelers, three-wheelers and commercial vehicles in
FY 2018-19. This number fell to 2.15 crore in FY 2019-20 and further dipped to 1.86 crore
in FY 202021 due to negative effects of Covid pandemic. The Covid pandemic worsened in the
FY 2021-22 causing the automobile industry sales to decline to its decade-low level of
1.75 crore units since FY 2012-13. After the Covid, Indian automobile market has seen a
robust growth of 21% Y-o-Y to 2.12 crore units in the financial year 2022-23 indicating a
robust economic sentiment. Despite a continuous fall for 3 consecutive years, the growth
was unable to recover to pre- Covid level in FY 2018-19.
Automobile Domestic Sales Trends
|
|
|
|
|
|
(In Numbers) |
| Category |
2017-18 |
2018-19 |
2019-20 |
2020-21 |
2021-22 |
2022-23 |
| Passenger Vehicles |
32,88,581 |
33,77,389 |
27,73,519 |
27,11,457 |
30,69,523 |
38,90,114 |
| Commercial Vehicles |
8,56,916 |
10,07,311 |
7,17,593 |
5,68,559 |
7,16,566 |
9,62,468 |
| Three Wheelers |
6,35,698 |
7,01,005 |
6,37,065 |
2,19,446 |
2,61,385 |
4,88,768 |
| Two Wheelers |
2,02,00,117 |
2,11,79,847 |
1,74,16,432 |
1,51,20,783 |
1,35,70,008 |
1,58,62,087 |
| Quadricycles |
0 |
627 |
942 |
-12 |
124 |
725 |
| Grand Total |
2,49,81,312 |
2,62,66,179 |
2,15,45,551 |
1,86,20,233 |
1,76,17,606 |
2,12,04,162 |
Government Initiatives
1. The Union Budget 2023 eliminates customs duties on capital goods and machinery used
to produce lithium- ion batteries for use in electrically powered vehicle batteries (EVs).
According to reports, the action will lower the price of EVs in the nation.
2. Green Hydrogen Mission-According to the finance minister, The National Green
Hydrogen Mission will ease transition of economy to low carbon intensity, reduce
dependence on fossil fuel imports, and make the country assume technology and market
leadership in this new industry, with an outlay of Rs.19,700 crores.
3. Basic custom duty changes - The finance minister suggested lowering the basic
customs duty rates on goods other than textiles and agricultural products from 21% to 13%
in the Union Budget 2023. Due to this, various commodities, notably vehicles, have minimal
modifications to the basic custom duties, cesses, and surcharges.
4. Change in personal income tax - The personal income tax rebate cap is raised from
Rs.5 lakh to Rs.7 lakh in the Union Budget 2023. It is expected that the salaried
population will presumably have more disposable income to spend on items like cars as a
result.
5. Scrapping of old vehicles - In line with the Budget 2021-22 policy on car scrapping,
the minister announced that she would set aside money for the Central Governments
20-year-old vehicles to be scrapped. She said that states would receive assistance in
upgrading outdated cars and ambulances.
Market Size
The Indian automobile industry has historically been a good indicator of how well the
economy is doing, as the automobile sector plays a key role in both macroeconomic
expansion and technological advancement. The two- wheelers segment dominates the market in
terms of volume, owing to a growing middle class and a huge percentage of Indias
population being young. Moreover, the growing interest of companies in exploring the rural
markets further aided the growth of the sector. The rising logistics and passenger
transportation industries are driving up demand for commercial vehicles. Future market
growth is anticipated to be fuelled by new trends including the electrification of
vehicles, particularly three-wheelers and small passenger automobiles.
India enjoys a strong position in the global heavy vehicles market as it is the largest
tractor producer, second- largest bus manufacturer, and third-largest heavy truck
manufacturer in the world. Indias annual production of automobiles in FY22 was 22.93
million vehicles. India has a strong market in terms of domestic demand and exports. In
FY23, total passenger vehicle sales reached 3.89 million. In FY23, total automobile
exports from India stood at 47,61,487. This sectors share of the national GDP increased
from 2.77% in 1992-1993 to around 7.1% presently. It employs about 19 million people
directly and indirectly.
India is also a prominent auto exporter and has strong export growth expectations for
the near future. In addition, several initiatives by the Government of India such as the
Automotive Mission Plan 2026, scrappage policy, and production-linked incentive scheme in
the Indian market are expected to make India one of the global leaders in the two-wheeler
and four-wheeler market by 2022.
Segment wise Domestic Sales
The industry produced a total of 2,59,31,867 vehicles including Passenger Vehicles,
Commercial Vehicles, Three Wheelers, Two Wheelers, and Quadricycles in April 2022 to March
2023, as against 2,30,40,066 units in April 2021 to March 2022.
Total Passenger Vehicle Sales increased from 30,69,523 to 38,90,114 units. Sales of
Passenger Cars also increased from 14,67,039 to 17,47,376, Utility Vehicles from 14,89,219
to 20,03,718 and Vans 1,13,265 to 1,39,020 units, in FY-202223, compared to the previous
year.
The overall Commercial Vehicles sales increased from 7,16,566 to 9,62,468 units. Sales
of Medium and Heavy Commercial Vehicles increased from 2,40,577 to 3,59,003 units and
Light Commercial Vehicles increased from 4,75,989 to 6,03,465 units, in FY-2022-23,
compared to the previous year.
Sales of Three Wheelers increased from 2,61,385 to 4,88,768 units, in FY-2022-23,
compared to the previous year.
Two Wheelers sales increased from 1,35,70,008 to 1,58,62,087 units, in FY-2022-23,
compared to the previous year.
Exports
In April 2022 to March 2023, Passenger Vehicle Exports increased from 5,77,875 to
6,62,891 units while Commercial Vehicle Exports decreased from 92,297 to 78,645,
ThreeWheeler Exports decreased from 4,99,730 to 3,65,549 and Two Wheelers Exports
decreased from 44,43,131 to 36,52,122 units over the same period last year.
Opportunities & Threats
Environmental Concerns and the Need for sustainable practices
The automotive industry in India faces the challenge of addressing environmental
concerns and adopting sustainable practices. As the industry grows, it is essential to
mitigate the environmental impact by reducing carbon emissions and promoting cleaner
technologies. This includes the widespread adoption of electric vehicles, the development
of charging infrastructure, and the promotion of sustainable manufacturing processes.
Automotive manufacturers are investing in research and development to develop more
efficient and environmentally friendly vehicles, and the government is providing
incentives and support to encourage the transition towards greener mobility solutions.
Addressing the demand for affordable and efficient mobility solutions
India is a diverse market with various consumer preferences and income levels. Meeting
the demand for affordable and efficient mobility solutions is a crucial challenge for the
automotive industry. Manufacturers must develop cost- effective vehicles with fuel
efficiency, low maintenance costs, and value for money. This requires continuous design,
engineering, and manufacturing innovation to optimize costs without compromising quality
and performance. Additionally, developing shared mobility solutions and integrating
digital technologies can help provide consumers with more affordable and convenient
transportation options.
Regulatory compliance, safety standards, and quality control:
The automotive industry in India operates under a strict regulatory framework that
includes safety standards, emission norms, and quality control measures. Manufacturers
must ensure compliance with these regulations and invest
in research and development to develop vehicles that meet the required standards.
Additionally, there is a growing focus on enhancing safety features and implementing
advanced technologies to reduce accidents and improve occupant protection. Continuous
improvement in quality control processes is crucial to maintain customer satisfaction and
meet international standards.
While these challenges exist, they also present opportunities for the automotive
industry in India:
The push for sustainable practices and the demand for electric vehicles provide
opportunities for manufacturers to invest in research and development and establish
themselves as leaders in the electric vehicle segment.
The growing demand for affordable and efficient mobility solutions opens doors for
innovative business models such as shared mobility, subscription-based services, and
leasing options.
The focus on safety and quality control creates opportunities for manufacturers to
differentiate themselves by offering advanced safety features, improved vehicle quality,
and enhanced customer experiences.
The increasing digitalization of the automotive industry creates opportunities for
technology companies, start-ups, and manufacturers to collaborate and develop innovative
solutions in connected cars, autonomous driving, and digital customer experiences.
In conclusion, the Indian automotive industry faces sustainability, affordability, and
regulatory compliance challenges. However, these challenges also present innovation,
growth, and market leadership opportunities. By addressing environmental concerns, meeting
consumer demands, and ensuring regulatory compliance, the industry can navigate these
challenges and thrive in the dynamic Indian market.
Electric Mobility Revolution
Overview of the electric vehicle market in India
The electric vehicle (EV) market in India is experiencing rapid growth and is poised to
play a significant role in the future of the automotive industry. To reduce carbon
emissions and dependence on fossil fuels, the Indian government has implemented various
initiatives to promote electric mobility. This includes providing financial incentives,
tax benefits, and subsidies for EV buyers and establishing a robust charging
infrastructure nationwide. Major automotive manufacturers are also introducing electric
vehicle models tailored to the Indian market, ranging from two-wheelers and three-wheelers
to passenger cars and commercial vehicles.
Road Ahead
The rapidly globalising world is opening newer opportunities for the transportation
industry, especially while it makes a shift towards electric, electronic and hybrid cars,
which are deemed more efficient, safe, and reliable mode of transportation. Over the next
decade, this will lead to newer verticals and opportunities for auto-component
manufacturers, who would need to adapt change via systematic R&D.
Safety first
Our commitment to Environment, Health and Safety (EHS) is integral to our operations.
We are focused on creating a safe and enabling working environment at all our
manufacturing plants.
BSVI transition - Challenges and solutions
Vertical ramp up and ramp down between BS-IV and BS- VI was crucial considering the
numbers to be managed across the entire plant setup. However, considering that the
manufacturing set-ups are developed as part of a longterm strategy, the challenge could be
addressed with well thought comprehensive planning and cohesive team work. We are now
geared up to ramp up production rapidly.
Product Wise Performance
All products of the Company come under single primary business segment. Therefore,
requirement for analysing segment wise or product wise performance does not arise.
Outlook
Currently, the energy crisis, gas shortages, rising inflation and Federal Reserve
rates, labor shortages, high consumer demand, and unpredictability in the supply chain are
some of the handicaps being faced by the automotive industry. However, the rising demand
for electric vehicles (EVs) is something to look out for.
According to a study, the market share for electric vehicles is on its way to rise to
54% by 2035. Moreover, sales of automobiles on digital platforms, integration of wireless
technology in cars, and entry of connected and autopilot- enabled vehicles in the market
are some of the factors that are going to fuel the growth of the automotive industry.
Now, to take advantage of such an opportunity, companies need to make major changes in
their business models. They need to devote a part of their operations to EVs, partner with
other organizations for electric vehicle technologies, strategic acquisitions, etc.
In the case of firms that supply parts or create technologies for fossil fuel-powered
cars and/or EVs, the best plan of action is to efficiently invest in automation and
re-evaluate their supply chain.
Furthermore, businesses can also plan to expand their operations in countries where
there is the significant growth potential for the EV segment of the automotive industry.
Risk and Concerns from the point of view of the organisation
The Company has in place a robust risk management framework that identifies and
evaluates business risks and opportunities. The Company recognises that these risks need
to be handled effectively and mitigated to protect the interest of the shareholders and
stakeholders, 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 implemented and monitored periodically to ensure
that the risks are being addressed accordingly.
Internal Control System and its Adequacy
Your Company has exhaustive internal control systems that are aligned to its business
requirements. The Company regularly monitors the risks and has in place focused risk
mitigation strategies. Internal and external audit teams continuously monitor the adequacy
and effectiveness of the internal control environment across the Company and the status of
compliance with operating systems, internal policies and regulatory requirements.
The Internal Auditor reports directly to the Board through Audit Committee. The
Internal Auditor has been assigned with the tasks for setting up of Inventory norms,
Inventory optimization, scrap reconciliation, common spare management, BOM correction and
verification. The Internal
Auditor presents to the Audit Committee, the detailed analysis of the tasks assigned to
them in every meeting of the Committee. The Audit Committee meets periodically to review
the adequacy and efficacy of the internal control systems.
Discussion on Financial Performance with respect to Operational Performance
The Companys Board of Directors is responsible for the matters stated in Section
134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of
these Ind AS financial statements that give a true and fair view of the financial
position, financial performance including other comprehensive income, cash flows and
changes in equity of the Company in accordance with the Indian Accounting Standards (Ind
AS) prescribed under Section 133 of the Act read with the Companies (Indian Accounting
Standards) Rules, 2015, as amended, and other accounting principles generally accepted in
India. The financials have been prepared considering the above requirements of applicable
laws.
During the financial year 2022-23, revenue from operations was Rs. 47,322.62/- lacs as
compared to Rs. 47,338.14/- lacs in 2021-22, registering a decrease in 0.03%.
Key Financial Ratios
In accordance with the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015 the Company is required to give details of significant changes (i.e.
change of 25% or more as compared to the immediately previous financial year) in key
financial ratios.
| S. No. |
Ratio |
FY 2022-23 |
FY 2021-22 |
% Change |
| (i) |
Debtor Turnover Ratio |
5.33 |
6.24 |
-14.58 |
| (ii) |
Inventory Turnover Ratio |
5.58 |
5.27 |
5.92 |
| (iii) |
Interest Coverage Ratio |
1.05 |
1.49 |
-29.69 |
| (iv) |
Debt Service Coverage Ratio |
0.44 |
0.70 |
-37.14 |
| (v) |
Current Ratio |
0.74 |
0.60 |
24.29 |
| (vi) |
Debt to Equity Ratio |
4.03 |
3.11 |
29.30 |
| (vii) |
Operating Profit Margin (%) |
48.94 |
52.78 |
0.07 |
| (viii) |
Net Profit Margin (%) |
-7.38 |
-0.3 |
21,463.30 |
| (ix) |
Return on Net Worth*(%) |
-0.33 |
-0.12 |
179.83 |
| (x) |
Return on Capital Employed |
-0.10 |
-0.04 |
151.77 |
| (xi) |
Trade Payable Turnover Ratio |
2.43 |
2.18 |
11.31 |
| (xii) |
Net Capital Turnover Ratio |
3.87 |
3.78 |
2.42 |
*Return on Net Worth is computed as Net Profit by Average Net Worth. Decline in Return
on Net Worth is primarily due to decline in Net Profit.
During the year under review, Debt Equity ratio increases from 3.11 (FY 2021-22) to
4.03 (FY 2022-23) as the Company is in recovery after pandemic.
Human Resources & Industrial Relations
Human Resources continued to play a pivotal role in managing, guiding and motivating
the Companys workforce. Your company has skilled and unskilled workforce to give a
competitive edge in an ever-changing industry landscape. With well-developed, well-founded
strategies and establish policies, standards and systems, such as recruitment, on-
boarding, training, performance management, mediation, legal compliance, and compensation
administration, your company keeps a focus on its Human Resource and continues to invest
in a wide variety of HR activities for its sustainable growth and social objectives.
Cautionary Statement
Certain Statements in the Management Discussion and Analysis describing the companys
objectives, projections, estimates and expectations or predictions may be forward looking
statements within the meaning of applicable laws and regulations. It cannot be guaranteed
that these assumptions and expectations are accurate or will be realized. Actual results
could differ materially from those expressed or implied. Important factors that could make
a difference to the Companys operations include economic conditions affecting
demand/supply and price conditions in the domestic and overseas markets in which the
Company operates, changes in the Government regulations, tax laws and other statues and
incidental factors.
| Place: Gurugram |
For and on behalf of the Board |
For and on behalf of the Board |
| Date: August 14, 2023 |
Neeraj Munjal |
Charu Munjal |
|
Managing Director |
Whole Time Director |
|
DIN:00037792 |
DIN:03094545 |
+91-9892691696
