steel strips wheels ltd share price Management discussions

Indias Gross Domestic Product (GDP) grew by 7.2% in financial year 2022-23 against 9.1% expansion in previous financial year. Despite the growth rate slowdown, India remains fastest growing large economy in the world.

Key segments of GDP performed better than the rest of the world. Agriculture rose by 4%, Mining was up by 4.6% and Manufacturing increased by 1.3% in financial year 2022-23. At the same time, Electricity generation was up by 9%, Construction segment was up by 10%, Trade, Hotels and Transportation were up by 14%. Similarly, Financial services and public administration increased by 7.1%. Persistent global high inflation and global growth headwinds have played a key role in slowing down the growth rate for the country. In Financial year 2023-24 we expect the GDP growth to further slowdown to around 6% and we will still maintain worlds fastest growing large economy. The manufacturing resurgence is key to take the growth to widespread depth in Indian population. The China plus one and Europe plus one can be key features for India to look out in coming years to maintain sustained growth.

India Leaping Ahead post recovering from Covid

India overtakes Japan in automotive vehicle production in financial year 2022-23. In terms of production, Two-Wheeler production accounted for 75% bringing India at number 1 position in the world for the segment. Passenger Four-Wheelers added 18% to the production number. Commercial vehicles and Three-wheeler constituted 4% and 3% respectively of the total production numbers. Coming to the value, the story is very different. Passenger Four-Wheelers add over half of the value at 58%. Two-Wheelers accounted for 21%, while Commercial Vehicles and Three-Wheelers added up to 19% and 2%, respectively. This brings the total production value to Rs 8.71 Lakh Crores.

Several factors have fueled the remarkable growth. Firstly, the countrys burgeoning middle class, rising disposable incomes and increasing aspiration for personal mobility have propelled demand for vehicles. Additionally, favorable government policies, such as the ?ake in India" initiative and the introduction of Goods and Services Tax (GST), have played a pivotal role in attracting investments and bolstering domestic manufacturing.

SSWL KEY GROWTH DRIVERS POST COVID

Recovery post Covid is continuing strong and diversified product portfolio is helping Company to grow amid segment wise challenges of the automotive industry. The financial year 2022-23 being tough for export markets due to ongoing recessionary fears in ELI & US, Domestic market helped SSWL overcome the pressure. The improving domestic market matrix ensured a double digit revenue growth for the company.

SSWL is expecting to maintain double digit revenue growth with expectation in the exports market revenue. Domestic markets are now balanced with stable growth outlook. The sharp focus will be on Return on Capital (ROC) and improving of other financial ratios. Alloy wheel segment will remain capex heavy to meet the domestic as well as export opportunities. This vertical remains high growth opportunity area and will have huge revenue accretion potential for your company.

Industry Outlook

The automotive industry makes a significant contribution to the global economy. As per SIAM figures, the industry produced a total of 2,59,31,867 vehicles in financial year 2022- 23 as against 2,30,40,066 vehicles in previous year, registering a growth of 12.55%. The production of Passenger Vehicles increased by 25.42% (45,78,639 vehicles).

Automobile Production Trends

(In numbers)

Category	2017-18	2018-19	2019-20	2020-21	2021-22	2022-23
Passenger Vehicles	40,20,267	40,28,471	34,24,564	30,62,280	36,50,698	45,78,639
Commercial Vehicles	8,95,448	11,12,405	7,56,725	6,24,939	8,05,527	10,35,626
Three Wheelers	10,22,181	12,68,833	11,32,982	6,14,613	7,58,669	8,55,696
Two Wheelers	2,31,54,838	2,44,99,777	2,10,32,927	1,83,49,941	1,78,21,111	1,94,59,009
Quadricycles	1,713	5,388	6,095	3,836	4,061	2 897
Grand Total	2,90,94,447	3,09,14,874	2,63,53,293	2,26,55,609	2,30,40,066	25,93,1867

Passenger vehicles sales in the financial year 2022-23 has recorded a growth of nearly 27%. Total of 38.9 lakhs passenger vehicles were sold during the financial year 2022-23 as against 30.7 lakhs in the previous financial year 2021-22. The Commercial Vehicle (CV) market is very near to its all-time highs achieved in financial year 2018-19 and we expect the CV industry to surpass the old benchmark in FY 2023-24.

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	21,44„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	24,981,312	2,62,66,179	2,15,45,551	1,86,20,233	1,76,17,606	2,12,04,162

The domestic automotive industry is expected to grow at high single-digit levels in 2023-24. The demand for the Passenger Vehicles segment is expected to grow at 6-9%, Commercial Vehicles by 7-10%, Two-Wheelers by 6-9% and Tractors by 4-6% in financial year 2023-24. The domestic demand scenario is improving with 2/3 wheeler segment drag-down coming to an end. The bottoming out of 2/3 wheeler, Commercial vehicles will help stabilize the production levels of the country. The infrastructure spends led improvement will spread widely and further improvement in these segments will be visible in FY 2023-24.

Export Outlook

Passenger vehicle exports from India rose 15% in Financial 2023 with Maruti Suzuki India leading the segment with dispatches of over 2.5 lakh units. The total passenger vehicle (PV) exports stood at 6,62,891 units in the financial year 2022-23 as compared to 5,77,875 units in 2021 -22. The bright spot of exports is the PV segment of automotive industry. The industry is facing headwinds of global slowdown for other sectors and we expect the industry to see stability coming to 2/3 wheel exports in Financial year 2023-24. Your company expects a sharp pull back of export demand with alloy exports being the key factor for Financial year 2023-24. The key indicators from our global customers indicate the lowering of inventory and demand stabilization coming to the market. Exports of alloy wheel presents a long term trend for the company and has the potential to reach Rs. 1000 Crores of exports by financial year 2025-26.

Category	2017-18	2018-19	2019-20	2020-21	2021-22	2022-23
Passenger Vehicles	7,48,366	6,76,192	6,62,118	4,04,397	5,77,875	6,62,891
Commercial Vehicles	96,865	99,933	60,379	50,334	92,297	78,645
Three Wheelers	3,81,002	5,67,683	5,01,651	3,93,001	4,99,730	3,65,549
Two Wheelers	28,15,003	32,80,841	35,19,405	32,82,786	44,43,131	36,52,122
Quadricycles	1,605	4,400	5,185	3,529	4,326	2,280
Grand Total	40,42,841	46,29,049	47,48,739	41,34,047	56,17,359	47,61,487

Opportunities

SSWL is looking forward to increase its global presence with major focus on alloy wheels. We are expanding our capacity to cater this global opportunity and take up global market share of 1% in next 3 years. The global automobile market growth will remain a focus area and presents huge opportunity for SSWL to grow. The alloy wheel segment of the company has the potential to grow at more than 15% volume growth each year with export opportunity.

Threats

The global economic growth remains a big risk for the industry. The rising interest rates globally will surely slow down the economic activity around the world. The sentimental impact of higher rates remains a big risk for consumption growth of the world.

An economic downturn or slowdown in the key markets (India and Europe) may lead to decrease in volumes and capacity utilisation. Volatile exchange rates, Price Competition, disruption in supply chain and fears of aggravation in Russia-Ukraine war are some of the threats. It may increase the operating cost of running the business. Increase in cost of key inputs can impact the profitability of the Company.

Financial Performance with respect to Operational Performance

Company achieved the highest ever Revenue in Financial Year 2022-23. Revenues from operations on standalone basis and consolidated basis stood at Rs.4040.54 Crore in FY 2022-23 as compared to Rs. 3559.95 Crore in previous Financial Year 2021- 22. The growth was led by increase in domestic market volume across the segment of Companys portfolio. During the financial year 2022-23, the company remained focused in reducing its leverage with good cash accruals. The company recorded EBIDTA and Profit after Tax at Rs. 455.21 Crore and Rs. 193.80 Crore respectively on Standalone basis. The performance came with huge setback in export markets due to slowdown in demand. The demand recovery is expected in Financial Year 2023-24 to make up the lost ground to further improve the matrix. The company is working towards maintaining 20% plus Return on Equity (ROE) and Return of Capital (ROC). Further, during the financial year 2022-23, the Company had pre-paid Rs.107.51 Crore of its long term debt.

During the year under review, your Company had acquired 26% equity shares in Clean Max Astria Private Limited (CMAPL). Consequently, CMAPL became its Associate Company. Accordingly, after taking into effect of share of profit/loss from associates, during the financial year under review the profit before tax and profit after tax on consolidated basis stood at Rs. 291.21 Crores and 193.79 Crores, respectively.

Risk & Outlook

Steel & Aluminum is the primary raw material for the products of the company and is a very significant part of the final product cost of Steel & aluminum wheel. Rising steel & aluminum prices continue to be a reality and pose a challenge to inventory and financial management for the company in this competitive auto component sector.

Concerns of global economic slowdown, the Impact of war in Ukraine and the Risks of stagflation envisaging numerous market scenarios are pressing the need for Auto- industry players to be more vigilant and forward-looking. COVID-19 has changed the dynamics of supply chain which is further influenced by the burgeoning drive for a cleaner and sustainable environment. Factor of global growth has become a key linkage between economies and the consumer sentiment. Global growth is still limping on weak wicket and manufacturing output is still shrinking for a large part of the globe. The world economies are making a base after financial crisis and will keep the growth parameters for company in check as the cross border trade is suffering due to low consumption. We are constantly de-risking ourselves by broadening our product reach and extending our reach across the globe to avoid geographical slowdown risk.

Top customer concentration is a risk as more than 90% of revenues come from domestic market customers and company is increasing its foot print in Export markets by catering to wide ranges of segment and customers. Company has ventured into alloy wheel segment to improve the product category to de-risk itself from being only in steel wheel segment. Company is also moving ahead on Alloy wheel market development to further de-risk the steel wheel dependency from Domestic and export customers.

Foreign currency movement also poses the risk towards the corporate performance as global currencies swings are extreme due to various macro issues persisting in current environment. This may act as a headwind for some time to come till situation becomes normal and volatility among global currency recedes to normalized levels.

To mitigate the risk, the Company continues to strive to improve its operational performance and develop new components, which are technologically superior and have an edge over the competitors. While your Companys demand outlook is strong, our approach is to remain vigilant to ensure that we are agile and evolve dynamically.

Return on Net Worth (PAT/Net Worth)

FY 2023	FY 2022	Detailed Explanation
17.08%	21.59%	The Profit after Tax for financial year 2022-23 decreased due to decrease in overall Exports and impact of raw material prices.

Key Financial Ratios

Key Financial Ratio	FY2023	FY2022	% Change	Calculation formula	Detailed Explanation in case change is more than 25%
Debtors Turnover	26.51 days	27.42 days	-3.32%	Average trade Receivables/Gross Revenue from operations	Variation in Interest Coverage and Debt Equity ratios is primarily due to pre- payment of long term debt during the year ended 31st March 2023.
Inventory Turnover	62.37 Days	58.62 days	6.40%	Average Inventory/ Sale of Products in days
Interest Coverage Ratio	1.55	1.15	35.52%	Net profit after taxes + Non-cash operating expenses+ finance cost / Debt service = Finance cost+ Schedule Repayment (excluding prepayment)
Current Ratio	1.02	1.09	-6.29%	Current Assets/Current Liabilities (excluding Current Maturities of Long term Debt)
Debt Equity Ratio	0.15	0.31	-52.08%	Long Term Debt (excluding Current Maturities of Long term Debt)/Shareholders Equity (excluding Revaluation reserve)
Operating Profit Margin (%)	9.28%	10.93%	-15.10%	Profit before tax before interest/Net Sales=Total sales-sales return
Net Profit Margin (%)	4.80%	5.77%	-16.90%	Net Profit/Net Sales= Total sales - sales return

SEGMENT REPORTING

The Company is primarily engaged in the business of manufacturing Steel Wheel Rims and Alloy Wheel Rims catering to different segment of automobile industry. The inherent nature of activities is governed by the same set of risk and returns; hence these have been grouped as a single segment. The said treatment is in accordance with the principle enunciated in the Accounting Standard on Segment Reporting (AS 17).

RISKS & CONCERNS AND MITIGATION

The Business of the Company is exposed to several internal and external risks. It has to also deal with certain micro and macro risks that affect the Companys strategy implementation. The Company have in place robust framework, internal processes, systems and controls to monitor, manage, govern, mitigate risks and turning them into opportunities for strengthening the position of the Company. Some of the key existing and emerging risks affecting the Company are as follows:

Risks Type	Key Risks	Impact on SSWL	Mitigation
Strategic Risk	Global Economic Scenario	Vehicle purchase across different segment has strong correlations with GDP growth. The decision to purchase a passenger vehicle comes under customers discretionary spending (Passenger Vehicle) which is linked to their perception of business outlook. Depressed economic outlook can impact this spending and thereby constrain the Companys growth potential.	Diversified product mix, segment mix and customer mix. Target newer market segments which might provide counter-cyclical support
	Long term growth dependent on of capacity expansion	Capacities utilization across all the plants are inching up gradually and with business environment turning favorable growth in long term will be dependent on Capacity addition.	Debottlenecking exercise across all the facilities are being carried every quarter. Optimum scheduling of production across different products thereby improving yield. Possibility of setting up new lines wherein Company has project Management expertise.
Operation Risk	Supply chain disruption.	The raw material (Steel &Aluminium) accounts for 60-65% of the cost, poses a key risk as it may be subject to supply disruption and market price volatility.	The Company maintainssignificantintegration of raw materials for its Operations. To achieve greater raw material security, company enters into long term MOU with suppliers. Development of alternate sources for uninterrupted supply of key raw material.
	Employee Productivity and retention	Employee involvement and productivity is one of the key factors to be competitive in industry. Being a labour intensive sector employee welfare assumes significance.	Company has strong commitment towards creating and providing safe working environmentforitsemployee and stakeholders. Focused approach to retain key talent through multiple initiatives including providing cross functional access and experience. Focus on employee engagement. Increased focus on offering learning opportunities with allocation of funds for training requirements.
	Competition	The Company faces competition in the business field it operates in. As a result, the Company is exposed to dual risk of either being displaced by existing or new competitors or its products being replaced by product innovations and new technological features. Customer dissatisfaction on price, quality, delivery performance, and design could lead to loss of market share.	The Company ensures close cooperation with its key customers on product development. It has implemented strict product quality controls in order to reduce the likelihood of substitution. The company remains ahead on technology front on light weighting the products to offer best in class products to its customer.
Financial Risk	Currency Volatility	Volatility in currency exchange movements resulting in transaction and translation exposure.	Board approved Currency hedging policies and practices are in place. Close monitoring of hedging strategy by risk management committee. Quarterly assessment of foreign exchange exposure by Board.
	Debt Burden	The Companys outstanding indebtedness in an adverse environment can have significant impact on financial flexibility and business as a whole	Close monitoring of debt profile and continuous effort to bring the cost in line with industry. Continuous effort to maintain the impeccable credit history. Quarterly review of financial leverage and efforts are on to move towards industry benchmark.
Risks Type	Key Risks	Impact on SSWL	Mitigation
	Credit Rating	Failure to maintain credit ratings could adversely affect cost of funds.	Regular exchange of information and updates with agency. Focused approach to work on areas of improvement and to build upon areas of strength. Close monitoring of triggers highlighted in rating rationale.
	Social costs	SSWLs assumptions while estimating social cost like gratuity funding are subject to capital market and actuarial risks and any shortfall could put pressure on financial performance.	A framework to manage social cost risks has been deployed to ensure that obligations remain affordable and sustainable, whilst protecting the asset market exposure.
	Credit Risk	Customer default can pose a significant challenge and impact the bottom line of the Company.	Systems are in place to assess the credit worthiness of new as well as existing customers.
	Financial Fraud	Financial fraud can challenge the reputation as well existence of the Company besides denting the confidence on the systems in place.	Adequate Internal financial control system in place. Adequate accounting records are in place to safeguard the assets of Company and for preventing and detecting frauds. Vigil Mechanism in place that provides a formal mechanism for all Directors, employees and vendors of the Company to approach the Ethics Counselor/Chairman of the Audit Committee of the Board and make protective disclosures about the unethical behavior, actual or suspected fraud.
Legal Risk	Regulatory environment & compliance	The Company is subject to numerous laws, regulations and contractual commitments. Any failure to comply with same may impact the Company adversely.	The Company has policies, systems and procedures in place with a strong commitment from the Board and the Executive Committee towards compliance.
Ethics and Compliance	Risk	The Company expects all its employees to adhere to the Code of Conduct Policy of SSWL and practice Ethical behaviour. The Company follows zero tolerance for any non-compliance as this will have adverse impact on the Company. Due to the dynamic nature of laws, rules and regulation, it becomes imperative for the company to ensure their compliance. Any failure to comply with same may impact the reputation of the Company adversely.	SSWLs Code of Conduct Policy, Whistle Blower Policy, Prevention of Insider Trading, Related Party Transactions and Grievance Redressal across stakeholders ensures ethical behavior and compliance with applicable laws and regulations. The said policies provide for framework for employees and other stakeholders to ensure that business is governed only by ethical practices. Further, any amendments on the laws, rules and regulations are checked on regular basis. The said policies and code of conducts and any changes thereon are duly communicated to the stakeholder groups.
Health and Safety	Risk	Managing safety and health is on top priority at SSWL. Risk Assessment is a continuous process followed by measures to effectively control them in order to ensure safety and good health of our employees at work. Safe place and good health of employees at work contributes to better productivity.	To mitigate the risk, we strictly follow the rules and procedures laid down by our stringent health and safety management systems. We regularly conduct trainings to create awareness on safe working conditions and building confidence of the employees. Further, the Company conducts routine health checkups and maintains internal health centers to monitor the wellbeing of our employees.
Risks Type	Key Risks	Impact on SSWL	Mitigation
Information/ Cyber security	Risk	The fast pace at which auto sector is growing at present, it is bound to face concerns relating to IP, data privacy and risk-shifting for warranty issues that would need to be addressed to settle uncertainties amongst stakeholders. Further, threats to external cyber-attacks/ hacking and internal leakage/ modification of information/ failure to protect information are other concern issues.	Continuous protection of confidential information across the IT landscape to prevent loss of confidential data through installation of various antivirus and malware protection softwares, etc. Periodic audits are conducted to ensure adherence to the processes. Additionally, the company has obtained ISO- 27001 certification to comply best in class IT norms.

INTERNAL CONTROLS AND THEIR ADEQUACY

The Company has a robust internal control and audit system to provide adequate assurance regarding the effectiveness and efficiency of its systems and operations. The controls are commensurate to the needs of the organization given its size and complexity of operations. The standard operating procedures ensure compliance to local regulation and statutes as applicable to the Company. The Company strictly ensures adherence to all internal control policies and procedures as well as compliance with all regulatory guidelines. Further, the Audit Committee monitors the adequacy and effectiveness of your Companys internal control framework

DEVELOPMENT IN HUMAN RESOURCES

Managing human resources effectively and efficiently plays a critical role in ensuring that a satisfied, motivated work force delivers quality services. It also plays an important role in increasing staff performance and productivity, enhancing an Companys competitive advantage, and contributing directly to Companys goals. Your company believes that growth without human capital development will be incomplete growth. It is attempting to match the human capital growth improvement amid intense competition. Talent retention has become an increasingly vital tool for matching customer expectations and will drive future growth of the company.

SSWL is sensitive towards the EHS factor of human capital and is working extensively towards workers safety and happy mind.

Several health and safety initiatives have been introduced as part of a structured program to enhance the safety and health of its workmen and other associates. Performance measurement and skill up gradation programs are widely deployed within the Company. All the plants of SSWL are aggressively working towards improving well-being of employees and improving their health score.

The company firmly believes the culture of meritocracy and working extensively towards employees trainings for enhancement and development of job skills. On Job training along with class room trainings are being taken up by each unit to ensure improvement in the learning curve of the employees. Various internal job rotations are also deployed for enhancing the work culture and promoting the meritocracy. The Company continues to maintain its track record of peaceful Industrial Relations. Detail of number of employees and other material information is provided in Boards Report.

DISCLAIMER

This report contains certain statements that the Company believes and may be considered as forward looking statements. These forward looking statements may be identified by their use of words like ‘plan, ‘hope, ‘will, ‘expect, ‘aim or such similar words or phrases. All such statements are subject to risks and uncertainties which could cause actual results to vary materially from those contemplated by the relevant forward looking statements.

For and on behalf of the Board

Date: 12.07.2023 Place: Chandigarh

(Rajinder Kumar Garg) Chairman DIN:00034827