Industry Structure and Development
Your Company operates in the anti-friction bearings industry and the major industrial
users of antifriction bearings are automobiles, general engineering, railways, electrical
equipment manufactures etc. Your Company manufactures mostly needle bearing products and
operates in the following market segments:
1. Automotive OEM 2. After Market 3. Exports
For your Company, the demand is approximately 90% from Original Equipment Manufacturers
(OEM) and the balance is for supplies to the replacement market / exports.
Market growth in the Indian mobility industry has a very large potential given the
geographical spread, size of population and the current low penetration. Growth in the
goods mobility segment is being driven by the need to establish strong supply chains
between producers and markets. Improvements in road infrastructure also assist this area
of business. India also has strong potential to become export hub for all segments.
The Company is well-positioned to leverage opportunities post Covid crisis. Firmly
driven by its strategic focus on upgrading manufacturing facility and skilled workforce
equipped to face the future with its strong resolute. This enables the Company to offer a
comprehensive product portfolio to its customers, emphasizing high-quality standards and
service aids, delivering value and sustainable growth.
The overall growth of the bearing industry is correlated with the automotive and
industrial sectors. The demand for the bearings is derived from two key user segments -
the automotive and industrial sectors. A major portion of bearings market in India is
unorganized that caters to the low-end replacement market. Several main industrial sectors
and user segments are expected to push the production of industrial equipment and
automotive, leading to an increase in demand for automotive component, equipment and
vehicles in the developing countries.
The automotive industry is the largest consumer of bearing products and your Company
supplies to all the segments viz; 2/3 wheeler, passenger cars, commercial vehicles and
farm equipment segments. Tractors performed much better than other segments as rise in
government spending on new infrastructure and construction buildings increases the demand
for tractors for transportation applications as well as increase demand of tractors for
agricultural activities which in turn, drive the growth of the Indian tractor market.
Your Companys installed manufacturing capacity will enable it to continue offering a
wide range of products to its customers once demand revives. Customer relationships and
personal contact are the focus areas to re-assure them that quality products delivered in
a timely and cost efficient manner which will be our priority.
Economic Environment/Outlook
International Monetary Fund (IMF) in its report on the global economic outlook states,
"The global fight against inflation, Russias war in Ukraine, and a resurgence of
COVID-19 in China weighed on global economic activity in 2022, and the first two factors
will continue to do so in 2023." The latter part of last year saw some of these risks
moderate and IMF has raised its growth forecasts in January of this year compared to what
they had made in October last year. Global growth is projected to fall from an estimated
3.4% in 2022 to 2.9% in 2023, then rise to 3.1% in 2024. The forecast for 2023 is 0.2%
higher than predicted in the October 2022. Inflation, the main culprit slowing down the
global economy, is also expected to moderate. Global inflation is expected to fall from
8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024, still above pre-pandemic (2017-19) levels
of about 3.5%.
Europe was greatly affected by the war in Ukraine. Demand dropped while sanctions on
Russia led to unprecedented increase in gas & power prices, fueling inflation. Central
banks raised interest rates, and this further eroded demand. Power prices have moderated
more than expected as Europe moved to replace Russian gas with other sources while
optimizing electricity consumption, which was helped by a warmer-than usual winter. But
inflation remains a concern. Growth in the euro area is projected by IMF to bottom out at
0.7% in 2023 before rising to 1.6% in 2024. There is an increase of 0.2% in 2023 forecast
compared to October 2022.
IMF also estimated that growth in India is set to decline from 6.8% in 2022 to 6.1% in
2023 before picking up to 6.8% in 2024. The Indian economy has shown resilience amidst
external headwinds and a weakening global economic scenario. This years budget
highlighted comfortable fiscal deficit figures and excellent tax collections. Budget
forecasts for the coming financial year have been based on conservative assumptions,
showing that the economy is on a strong footing. For the last few years, the government
has focused on infrastructure development and its capital expenditure plan reflects this.
Capex spending by the government has steadily increased in the last few years and is
expected to be the highest in FY24. The private sector has also seen a capex revival with
credit growth being at a four year high, even as the balance sheets of both banks and
corporates remain healthy. Some of the optimism needs to be tempered. Many commentators
expect the new income tax regime to put more money in the hands of people and increase
consumption, but confusion between the old and new regimes persist and the jury is still
out on the new regime. Domestic consumption could also moderate in FY24 due to the
combination of - slower global growth, lagged effect of interest rate hikes and
dissipation of revenge consumption, that followed the lifting up of restrictions during
the covid pandemic. Inflation continues to be higher than comfortable and rural incomes
have only recovered moderately. The prospect of a K shaped economy with consumption growth
in the lower income categories lagging others, is real.
Opportunities and Threats
The long term prospects for the Indian economy remain bright owing to the growth of
internal consumption. Demand for personal vehicles will be driven by the aspirations of
the rising middle class with improving purchasing power and disposable incomes. Rapid
urbanization will drive the need for public transportation. As India addresses the twin
challenges of inclusive growth and sustainability, even a normal monsoon, with improved
availability of rural finance, will positively influence demand for motor cycles as well
as agricultural tractors. The overall mobility sector is expected to benefit from
continued growth in the longer term.
The domestic bearing industry is facing the following threats:
a. The menace of spurious bearings continues to adversely affect the industry. As per
estimates roughly one in every four bearings sold in the replacement market is fake/of
inferior quality presenting a threat to unsuspecting users. The problem continues owing to
the slow legal process, in spite of industry wide efforts to thwart the unscrupulous
suppliers.
b. With global demand weakening resulting in idle/low utilization of installed
capacities, the industry has to work on enhancing operational efficiencies and flexing
costs further with supply chain readiness to help counter these additional costs.
c. Regulatory demands on emission levels, improved safety norms, higher expectations
for improved reliability of the vehicles and the need for readiness to meet requirements
for the new fuel efficient and environmental friendly vehicles may result in need for
investments in newer technology, research and development. This could cause a higher
burden of fixed costs.
Of course, the industry and your Company have to continuously explore ways and take all
measures to produce consistently high quality products cost effectively to counter the
threat of cheap imports.
Financials
Your Companys revenue (net) was at Rs. 4,787 lakhs in FY 2022-23 (Previous Year: Rs.
4,351 lakhs) representing a growth of 10%. Profit after tax was at Rs. 818 lakhs (Previous
Year: Rs. 883 lakhs), a decrease of 7%. There has been a renewed focus on broad basing the
customers served so as to optimally utilize the companys installed capacities and also
develop new products to be ready to service the new hybrid and electric vehicle models
being introduced. This will help the Company to achieve its long term strategic objectives
to grow rapidly.
With overall leveraging of operational efficiencies and under the given market
conditions, the financial results during the year are considered satisfactory.
Risks and risk mitigation
To sustain long term competitive advantage for the Company, the Company has
comprehensive risk management processes for identification, assessment and mitigation of
all potential business risks which include operational, financial, legal and strategic
risks. Depending on probability of occurrence and extent of potential damage, these risks
are categorized as material risks and non-critical risks. These are periodically presented
to the Board. Risk mitigation measures and their implementation are regularly reviewed and
discussed, and after evaluation, improved and updated.
The macro concerns which could significantly impact industry performance during the
year are inflation, fiscal deficit and currency risks, governments inability to build and
expand critical infrastructure and the adverse impact of the FTAs which have resulted in
higher imports of auto components and could therefore negatively impact the industrys
plans to achieve the targeted size of US$ 200 billion (12% of GDP) by 2026 under the
Automotive Mission Plan. On the positive front, we have the generous package announced by
the Government to boost demand, the key measures being cut in corporate tax rates, reforms
in banking and financial services, liberalized lending norms at substantially reduced
rates, higher crop prices for farmers for their agricultural produce. The silver lining is
the good monsoon forecast which should lead to rise in rural incomes and result in higher
consumer demand, and the possible shift in manufacturing from China with India being one
of the major beneficiaries.
Companys internal auditors review the internal controls, risk assessment and
mitigation procedures, independently as part of their internal audit process and their
observations and findings are presented, reviewed and discussed in the audit committee
meeting.
The Plant head and his team with continuing interactions with the functional heads of
the holding Company, is charged with driving operational efficiencies and optimizing
efficient allocation of financial resources - prudent and judicious capex, better
inventory management and minimizing overdues.
Internal control systems and adequacy
The Company has in place adequate internal control systems which ensures reliable
financial reporting, safeguarding of assets, adherence to management policies, the
detection and prevention of frauds and errors, adequacy and completeness of accounting
records and timely preparation of reliable financial information. The efficacy of the
internal checks and control systems are validated by internal as well as statutory
auditors. The upgrade of the ERP system to NAV 16 has helped the Company to implement
latest world class processes and make it more analytical.
The management assesses the appropriateness and effectiveness of the Controls in place
on yearly basis.
Some of the significant features of the internal control systems are:
a. Internal auditors who in addition to transaction audit cover operational audit and
review business processes and performance.
b. Standard operating procedures and guidelines have been reviewed in the light of the
ERP upgrade to ensure tighter controls. Improvements / modifications are being effected to
meet with changes in business conditions, statutory and accounting requirements.
The Audit Committee closely interacts with and guides management and along with
statutory auditors and internal auditors reviews significant findings and follows up
thereon.
Segment wise Performance
During the current year, ball and roller bearings have been the primary business
segment for the Company.
Industrial Relations and Human Resource management
The Companys industrial relations with employees at its Ranchi plant continued to be
cordial and peaceful. The settlement with the workmen has been renewed on March 24, 2022
for 3 years with effect from January 1, 2022 to December 31, 2024, wherein the
managements proposal for an overall production rise of 15% has been accepted and also
provides for deductions for bad quality products produced. These provisions will help in
keeping employee costs under check.
As an organization, your Company is evolving with its HR practices and policies to
improve on employee engagement and experience. We strive to provide a good working
environment to our employees such that they have ample opportunities to further their
skills. A key focus is to maintain harmonious relations with employees at all plants in
all geographies. The organization has put in place a Diversity, Equity and Inclusion
conceptual model and has adopted appropriate targets in line with the practices of CIE
Automotive globally. Our Employee Value Proposition (EVP) is centred on four pillars of
Care & Wellness, Advancement opportunities for Career Growth, Respect & Dignity
and Structured Reward and Recognition.
Permanent employees directly employed by the Company currently are total 154 in number.
Cautionary Statement
Statements in this Management Discussion and Analysis describing the Companys
objectives, projections, estimates and expectations may constitute "forward looking
statements" within the meaning of applicable laws and regulations. Actual results may
differ materially from those either expressed or implied.
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