Shriram Pistons & Rings Ltd Management Discussions

1. INDUSTRY STRUCTURE AND DEVELOPMENT

The growth of the domestic automobile market is dependent on the growth of the economy and consequent increase in income levels.

Production of the following vehicle segments registered growth during 2023-24 as under: -

Vehicle Segment	Production Growth (in %)
Passenger Vehicles	7%
Medium & Heavy Commercial Vehicles	1%
Light Commercial Vehicles	48%
Two wheelers	10%

However, in the case of tractors and small commercial vehicles, there was a contraction in demand.

The Companys exports increased from Rs. 4,841 Million to Rs. 5,182 Million. The trend of increasing exports is expected to continue in this year as well. However, the ongoing geopolitical issues including Russia-Ukraine and Israel-Hamas, high interest rates, issues in the Red Sea & Suez Canal and foreign exchange issues may further impact the export.

2. OPPORTUNITIES

The automobile sector in India is poised for continued growth in the FY 2024-25 with forecasts suggesting that all the vehicle segments will experience growth. The Governments focus on enhancing infrastructure, fortifying port facilities, revitalizing the agricultural sector and steadfastly advancing manufacturing prowess will act as a catalyst for growth soon.

Despite facing challenges such as elevated fuel prices, rising interest rates and the ongoing geopolitical conflict, the Indian automotive sector remains resilient. Looking ahead, the medium to long-term growth prospects stand optimistic, with the automotive component industry expected to mirror the growth in automobile production and the aftermarket segment.

The demand for personal mobility and public transport is persistently strong. Factors like normal monsoon patterns and improved access to finance, particularly in rural areas, are expected to bolster demand.

Passenger Vehicle and two/three wheelers segments are expected to register good growth. However, the commercial vehicle and tractor segment is expected to register marginal growth.

The Company is closely working with key OEMs to improve its market share by providing technology solutions. It is also focusing on improving its distribution network in the after-market and has a presence in all segments of the market including Commercial Vehicles, Cars/SUVs, Two & Three wheelers, Tractors, Off-highway vehicles and Industrial Engines for both OEMs and After Market.

The Company is also actively pursuing opportunities in the non-automotive segment like compressors, marine engines, snowmobile applications, etc. to de-risk its operations.

The Company is taking significant steps to enhance sales of its recently acquired companies i.e. SPR EMF Innovations Private Limited and SPRTakahata Precision India Private Limited. The Company is also actively working on identifying further suitable opportunities for diversification in the areas that are agnostic to the Internal Combustion Engine(ICE).

Exports are likely to increase this year as well, as India has emerged as a prominent auto exporter and based on China plus one strategy, the growth momentum is expected to continue in the near future. The Company is supplying its products to leading global OEMs with the active assistance of its Technology Partners and also established an effective distribution channel for sales in the Aftermarket in various countries. However, other global headwinds and geopolitical challenges leading to uncertainties will be critical factors for sales in the export market.

3. THREATS

The economic landscape of India showed signs of resilience in the fiscal year 2023-24. However, the year brought challenges with rising interest rates and high inflation levels, which cast a shadow over market sentiments. As the company looks ahead to FY 2024-25, these factors remain key concerns. The Company recognizes the potential impact of volatile exchange rates, driven by global economic uncertainties and intense competition, on the Companys profitability in the upcoming year. To mitigate this risk, the company is implementing comprehensive strategies to minimize the impact of forex fluctuations on the Companys operations.

In response to the evolving customer expectations, the Company is proactively undertaking various initiatives and time-bound actions. These include a relentless focus on zero-defect quality, enhanced traceability, aggressive digitization, streamlined automation, and rigorous cost-reduction measures across all facets of the Company.

While the Governments push for EVs through various incentives is encouraging, several challenges persist. These include inadequate charging infrastructure,limited facilities for battery & motor manufacturing, high-cost structures for EVs and safety concerns. These factors could collectively slow down the adoption of e-mobility, especially in the Passenger and Commercial Vehicle segments.

The Company is closely monitoring e-mobility trends and collaborating with global partners to stay ahead in this evolving landscape from a technology and supply standpoint.

In anticipation of the shift towards e-mobility, the Company has strategically invested in this sector and continues to seek out suitable products and technology partners for diversification into adjacent markets. These investments are made judiciously, with a focus on long-term sustainability and growth.

4. SEGMENT-WISE/ PRODUCT-WISE PERFORMANCE

The Company deals principally in only one segment i.e. automotive components. Therefore, segment-wise performance is not applicable.

5. OUTLOOK

The FY 2024-25 outlook for the automobile sector is intricately tied to various factors, including the geopolitical landscape and persistent inflation. Despite these challenges, the long-term forecast for automobile production is promising, driven by rising demand for personal mobility, rapid urbanization, improved road infrastructure, favourable monsoon, ongoing infrastructure upgrades and a focus on rural development.

The Companys strategy revolves around the core pillars:

Market Expansion: The Company aims to further strengthen its position in the domestic market by expanding the Companys product portfolio by winning new business in non-automotive segments and enhancing its distribution network. Additionally, the Company is exploring opportunities for geographic expansion, particularly in emerging markets where demand for automotive components is on the rise. The Company continues to work in the Aftermarket to grow its product profile and ensure deeper penetration.

Innovation and Technology: The Company remains committed to innovation and technology advancement, with a focus on developing products that are aligned with the industrys shift towards electric as well as greener fuel solutions like CNG, LNG, H-CNG, other flex fuels and H₂ as a fuel. By staying at the forefront of technological advancements, the Company aims to meet the evolving needs of customers and maintain its competitive edge. The Company will continue to invest in advanced manufacturing technologies and processes, allowing the Company to offer cutting-edge solutions that meet the evolving needs of customers.

Solidifying relationships: The Companys strong relationships with global OEMs have been a cornerstone of its success. These partnerships have bolstered the Companys position in the domestic market and also opened up avenues for growth in the international arena. The Companys reputation for quality, reliability and innovation has been instrumental in maintaining and nurturing these relationships, positioning us as a preferred supplier for global OEMs.

Operational Excellence: The Company is continuously striving for operational excellence by optimizing the manufacturing processes, reducing costs and improving efficiency. By streamlining the operations, the Company aims to enhance its competitiveness and drive profitability.

The Companys strengths, coupled with a strategic focus on market expansion, innovation and operational excellence, position it well for sustained growth and success in the dynamic automotive components industry.

Sustainable Development: The Company is committed to being a responsible corporate citizen and has embedded sustainability in every realm of its value chain. The Company has achieved several milestones in its ESG journey, like three of the plants having the status of zero liquid discharge and state-of-the-art ETP & STP. Further, the Company has achieved a 20% reduction in Scope II emissions, a 20% increase in the mix of renewable energy, solar power and wind power, and a 30% increase in the use of recycled material.

6. RISK & CONCERNS

Risk is an intrinsic component of any business endeavour. The Company operates within a fiercely competitive landscape characterized by constant innovation and varying resource availability among players. The cost of raw materials and inflationary pressures further compound the challenges, yet adept management of raw material procurement has helped mitigate manufacturing costs.

The automotive sector faces escalating raw material prices, particularly for steel, aluminium, copper and precious metals, stringency in regulation, technology up-gradation, discerning customer demand and disintegration of global barriers which could impede growth and pose a threat to Companys margins.

Moreover, external factors such as elevated automobile & fuel prices, rising interest rates and global economic headwinds are dampening demand. Nevertheless, favourable government policies aimed at promoting semiconductor manufacturing are expected to bolster the industry.

Addressing these challenges, the management has implemented proactive measures to enhance liquidity and boost profitability. These include productivity enhancements, rejection reductions, digitization of business processes and other cost-saving initiatives.

Despite these challenges, the medium to long-term outlook for the automotive sector remains positive, driven by the increasing preference for personal mobility. The Company has developed a robust risk mitigation plan, diversifying the Companys presence across all market segments - OEMs and Aftermarket - in both domestic and export markets, across all segments.

Supported by the Companys technology partners, the Company is well-equipped to meet customer demands for cutting- edge products and expand its model/variant offerings. The Companys continued investments in world-class technology and manufacturing systems are expected to yield significant benefits in the future.

While acknowledging that risk factors may impact the Companys profitability, the Company is confident that they do not pose an existential threat to the Company.

7 INTERNAL CONTROL SYSTEMS & THEIR ADEQUACY

The Company has implemented a robust internal control system to authorize, record and report transactions, safeguard assets and prevent unauthorized use or disposal in a timely manner. These controls ensure data & financial information reliability and maintaining asset accountability.

The Audit Committee of the Board reviews significant audit findings, corrective actions and monitors the status of management actions from internal audit reviews. The Companys Internal Audit function in addition to external auditors has continuously strengthened processes for enhanced effectiveness and productivity, including deploying best-in-class tools for analytics in the audit domain, enhancing audit depth, coverage and sharpness.

The Company has an adequate internal financial control system over financial reporting that is operating effectively and provides reasonable assurance regarding all financial and operating functions and compliance with statutory provisions. Detailed business plans, investment strategies, year-on-year reviews, annual financial & operating plans and monthly monitoring are standard practices for all operating and service functions.

Enterprise resource planning, supplier relations management and customer relations management connect various locations, dealers and vendors for efficient information exchange. The Company uses data analytics and IT tools to enhance the scope and effectiveness of the internal audit function.

The Company has in place adequate systems to periodically assess various risks, their likelihood & impact and an action plan to pro-actively mitigate the impact of various risks.

8. FINANCIAL/ OPERATIONAL PERFORMANCE

The Companys revenue from operations during the year ended March 31, 2024 was Rs. 29,537 Million.

Net profit after tax (before OCI) of the Company during the year ended March 31, 2024 was Rs. 4,468 Million.

Earnings per share was Rs. 101.42 in FY 2023-24.

9. HUMAN RESOURCES/ INDUSTRIAL RELATIONS

Human Resources are the cornerstone of the companys success, the Companys value-driven culture, progressive HR policies and investment 8i empowerment of the people been integral in creating a culture of belonging. The management recognizes the paramount importance of its workforce and is dedicated to providing developmental opportunities through a variety of training and welfare programs. The Companys commitment is to create an environment that fosters continuous innovation and improvement by recognizing and rewarding employees for their dedicated efforts toward achieving the Companys objectives. Consistent steps are taken to fortify the Management structure, ensuring stability and growth within the organization.

The Company believes that the achievements are the result of the teams collective efforts and therefore, strives to provide a sustainable learning environment from recruitment to retention. The Companys core values include dignity, respect, fairness, transparency and the provision of growth opportunities for all employees. The company strongly encourages internal movements, enabling employees to explore diverse career opportunities and contribute to the development of a robust talent pipeline.

The Company is an equal opportunity employer and has an equal opportunity policy embracing all diversity parameters which include gender, marital status, religion, race/cast, colour, age, ancestry, language socio-economic status, physical appearance, disability and any other category protected by applicable laws.

The Company acknowledges the capabilities, contributions, potential and value of its human capital. The Company upholds the dignity, fundamental freedoms & human rights of its employees, contractors and the communities in which they operate. As a responsible corporate citizen, the Company complies with all applicable laws while respecting human rights.

As of March 31, 2024, the Company had 3887 permanent employees.

10. CHANGES IN KEY FINANCIAL RATIOS ARE AS UNDER:

S. No. Ratios	Unit	2022-23	2023-24	%age change
1 Debtors Turnover	Times	6.82	6.94	2%
ii Inventory Turnover	Times	5.67	6.04	6%
iii Interest Coverage Ratio	Times	22.09	25.15	14%
iv Current Ratio	Times	2.50	2.32	-7%
v Debt Equity Ratio	Times	0.19	0.17	-8%
vi Operating Profit Margin	%	14.87	18.66	25%
vii Net Profit Margin	%	11.55	15.36	33%

Return on Net worth of the Company during Financial Year 2023-24 was 23.25% as compared to 19.96% last year. CAUTIONARY STATEMENT

The statements made in this Management Discussion and Analysis Report, including projections, expectations, estimates, descriptions of global conditions and government policies are "forward-looking statements" within the meaning of applicable securities laws and regulations, based on data available to the Company. Forward-looking statements inherently involve risks and uncertainties, as they require the Company to make assumptions. Readers are cautioned not to place undue reliance on forward- looking statements, as several factors could cause assumptions, actual future results and events to differ materially from those expressed in the forward-looking statements.

Important factors that could affect the Companys operations include, economic conditions affecting demand/supply & price conditions in domestic & overseas markets, changes in government regulations, tax laws, other statutes and incidental factors.

Accordingly, this document is subject to the disclaimer and qualified in its entirety by the assumptions, qualifications and risk factors referred to in the report on Managements Discussion and Analysis forming part of the Boards Report for FY 2023-24.