subros ltd share price Management discussions

1. Industry Outlook

1.1 Historically, the Indian Automobile Industry has been a good indicator of economic performance. The automobile sector plays a key role in both macroeconomic expansion and technological advancement. The domestic automotive industry has seen a robust revival in FY 2022-23, aided by remarkable recovery in economic activities and increased mobility. The demand sentiments for the majority of the automotive segments viz. Passenger Vehicles, Commercial Vehicles and Tractors have remained robust.

1.2 Despite all odds, the industry has grown by 20%1 during the year. Still, supply chain disruptions, commodity prices escalations, logistic disruptions, crude oil price volatility, and availability of ships and containers remain key challenges.

1.3 The mobility landscape will fundamentally transform over the next 10 to 15 years with ACES trends, autonomous driving, connected cars, electrified vehicles and shared mobility amplifying their impact. The evolving landscape presents a perfect opportunity for Indian automakers to lead the disruptive changes occurring across segments and gain a significant competitive advantage.

1.4 Given the emphasis and efforts made by the Government to make India a self-reliant economy, the Indian automobile and manufacturing sector is expected to boost Indias FDI for the current year on the back of Production-Linked Incentive (PLI) schemes, which are designed to incentivise domestic manufacturing and thereby, aimed at increasing exports.

1.5 Having witnessed a strong comeback from the COVID-led downturn, the Indian Automobile Industry is set to expand its horizons with the hopes of a sustained growth momentum in FY 2023-24 with a more widespread adoption of clean technology amid the lurking speed breakers of rising interest rates and cost increase due to new emission and safety norms. The semiconductor shortage continues to be dynamic, and rising input costs are some other challenges that the industry is managing. The domestic automotive industry is expected to grow at high single-digit levels in FY 2023-24.

1.6 Indias Auto Components Industry is also an important sector driving macroeconomic growth and employment. The industry comprises of players of all sizes; from large corporations to micro entities, spread across clusters throughout the country. The Auto Components industry accounted for 2.3%2 of Indias GDP and provided direct employment to more than 1.5 million people. By 2026, this sector is expected to reach US$ 200 billion and will contribute 5-7%2 of Indias GDP

Automobile Domestic Sales Trends1


2019-20 2020-21 2021-22 2022-23


27,73,519 27,11,457 30,69,523 38,90,114


7,17,593 5,68,559 7,16,566 9,62,468
Three Wheelers 6,37,065 2,19,446 2,61,385 4,88,768
Two Wheelers 1,74,16,432 1,51,20,783 1,35,70,008 1,58,62,087
Quadricycles 942 -12 124 725
Grand Total 2,15,45,551 1,86,20,233 1,76,17,606 2,12,04,162

2 Financial and Operational Performance

2.1 The FY 2022-23 has ended with very mixed realizations for the Company. FY 2022-23 capped a landmark, as the Company clocked sales of INR 2806 Crores equivalent to 25% growth over last year.

2.2 Each segment has contributed positive growth in revenue. The thermal components used in the Passenger Vehicles segment have contributed a growth of 26%, whereas Commercial Vehicles segment has contributed a 36% growth including Truck AC product (33%) and Bus AC products (21%).

2.3 Growth in the Home-Aircon product market is muted due to high volatility in commodity prices.

2.4 However, the challenge is in improving profitability. Though it has grown in comparison to the previous financial year by approximately 25%, the Company faced key challenge of raw material prices going up because of high commodity cost pressure and appreciation in foreign exchange rates. Metal prices have seen a substantial increase this year. Foreign exchange rates of USD/INR and JPY/INR also witnessed a new high, further impacting input cost. To mitigate the risk, the Company has taken various cost saving measures, which resulted in some comfort by offsetting input cost.

2.5 Further, each OEM is aiming for growth in the next 3-4 years and planning additional capacity expansions. The Company is aligning such capacity expansions plans to meet customer demand. We have allocated sufficient funds for required capacity expansions in our plants.

2.6 Key Financial Ratios


FY 2023 FY 2022 Change (%) Remark
Debtors Turnover Ratio (Times) 12.92 10.40 24.23
Inventory Turnover Ratio (Times) 6.55 5.55 18.02
Interest Coverage Ratio 27.75 14.54 90.85 (i)
Debt Equity Ratio 0.09 0.08 12.50
Current Ratio 1.10 1.10 0.00
Operating Profit Margin 6.70 7.09 -5.50
Net Profit Margin 2.53 2.03 24.63 (ii)
Return on Net Worth 8.20 6.31 29.95 (ii)
Networth (Rs. in crores) 867.12 823.46 5.30

(i) Increased due to lower interest cost and effective working capital management.

(ii) Increased due to higher profits as compared to previous year on account of higher sales and cost management.

3 Research and Development

3.1 Electrification is clearly emerging as the biggest trend in the automobile industry. Driven by stringent emission and fuel economy (CAFE) regulations across the globe, pure ICE vehicles will no longer be a viable propulsion choice for passenger vehicles. The EV Market is expected to grow at CAGR of 49% between FY 2022-2030.

3.2 As India moves towards increasing "green" standards, roadmaps for future technologies are focused towards energy-efficient and environment friendly products. Our dedicated teams are working proactively to meet these anticipated requirements by harnessing advanced technologies.

3.3 Our in-house R&D capabilities have helped us to locally design and develop HVAC, battery and traction motor cooling systems, controller systems, and its integrations for the electric bus segment.

3.4 As per the diversification requirement, our research team has developed energy efficient and environment friendly refrigerant-based residential AC products (R32 refrigerant based Inverter AC range).

3.5 In view of the ‘Make in India movement, the Company is focusing on ‘Design in India and ‘Manufacturing in India. Under these programs, we are leveraging strong support from DENSO Subros Thermal Engineering Centre India Private Limited (DSEC) to localise design activities and enhance local skills to design Indian and global products.

3.6 Regulatory changes for fuel economy and safety are key drivers for our product development strategy. The Company has developed local design and development capabilities, which are key strategic initiatives for the continued development of products suitable for Indian environment.

4. Information Technology

4.1 Information Technology is a very important backbone of our industry. Business process mapping through IT tools is a key support system. In view of the world moving towards digitisation, the need for strengthening information technology has increased. Virtual reality is the new normal and the threat to information security has also increased.

4.2 Information technology addresses the engineering and design needs of manufacturers through services for all stages of the product development and manufacturing process.

4.3 Product Lifecycle Management [PLM]: PLM addresses the product development technology solution requirements of manufacturers, including end-to-end implementation of PLM technology.

4.4 The Company is also moving towards digitisation and Industry 4.0. Process automation is our key focus.

4.5 New and emergent technologies bring unprecedented threats to internet connected devices and data security becomes a growing concern. In present times, cyber security is a key risk. The Company has taken cognizance of vital aspects such as locations of information storage, how can it be moved, access controls, and systems of data processing. In addition, stringent measures have been taken to safeguard crucial databases.

4.6 A large number of initiatives have been undertaken to address the risk identified under each element. Substantial investments have been made in advanced IT tools to enhance the Information Security capabilities. The Company also has a clear roadmap for each of the aspects mentioned. Disaster Recovery has been given significant attention considering the growing dependence on IT systems within the organisation.

4.7 The Company has envisaged a robust, long-term IT strategy roadmap based on the latest developments in information technology. Infrastructure, application support, data management, security management, and skill competency are major pillars of our IT strategy roadmap.

5. Internal Controls and their Adequacy

5.1 The Company has a strong Internal Audit Department that reports to the Audit Committee comprising of Independent Directors.

5.2 The Company has successfully integrated the Committee of Sponsoring Organizations (COSO) framework with its audit process to enhance the quality of its financial reporting compatible with business ethics, effective controls, and governance.

5.3 The Company extensively practices delegation of authority across its team, which creates effective checks and balances within the system to identify and correct all possible gaps. The Internal Audit team has access to all information in the organisation facilitated by the implementation of ERP across the organisation.

5.4 The Internal Audit Department prepares risk-based audit plans whereby the frequency of audit is decided based on the risk ratings of the respective areas or functions. The audit plan is approved by the Audit Committee and executed by the Internal Audit team.

5.5 It is reviewed periodically to include areas that have assumed significance in line with emerging industry trends and the growth of the Company. In addition, the Audit Committee also places reliance on internal customer feedback and other external events for the inclusion of additional areas into the audit plan besides regularly reviewing significant Internal Audit findings.

5.6 In keeping with the size and nature of our business and complexity of our operations, we have designed a strong system of internal control, which includes significant features like:

• Well documented authorisation matrix, policies, procedures and guidelines covering all important operations of the Company.

• Deployment of compliance tool to ensure compliance with laws, regulations and standards.

• Ensuring reliability of financial information by testing of internal financial controls over reporting by internal auditors and statutory auditors.

• Adequate insurance of Companys assets / resources to protect against any loss.

• A comprehensive Information Security Policy and continuous updating of IT systems.

6. Risk, Concerns, Opportunities, and Threats

6.1 The Company follows an Enterprise Risk Management (ERM) framework to assess all risks. ERM brings together the understanding of the potential upsides and downsides of all those factors which can affect the organisation with an objective to add maximum sustainable value to all our activities and stakeholders.

6.2 We have a committee of Directors, the Risk Management Committee, to oversee Enterprise Risk Management framework to ensure:

• Execution of decided strategies with focus on action.

• Monitoring of risks arising out of unintended consequences of decisions or actions related to performance, operations, compliance, incidents, processes and systems, and ensuring that the same are managed appropriately.

6.3 The Risk management process and structure is as below:

• Department Heads at Plants: Identification,

assessment, response and tracking of risks is done by the Risk Owners (Department Heads) at respective locations.

• Plant Heads: Risks identified by the Risk Owners at the plant level is reviewed by the respective Plant Head. Plant-level integration across the plants is done to ensure consistency in risk identification and benchmarking.

7. Human Resources

7.1 Human capital is one of the key pillars of strategic business growth furthering Companys organizational objectives of growth, agility and increased productivity. During the year, while HR initiatives from previous years continued to motivate the employees, we undertook several new HR initiatives to drive business efficiency.

7.2 We consider our human capital a critical factor to our success. The Company has drawn up a comprehensive human resource strategy, which addresses key aspects of human resource development such as:

• The code of conduct and fair business practices;

• A fair and objective performance management system linked to the performance of the businesses which identifies and differentiates employees by performance level;

• Creation of a common pool of talented managers across the Company with a view to increasing their mobility through job rotation among the functions and plants;

• Development and delivery of comprehensive training programs to impact and improve industry- and/or function-specific skills as well as managerial competence.

8. Marketing

8.1 New business development is another key focus of the organisation in view of our long-term growth strategy. New business in all segments of expansion and customer expansion are key drivers. Our overall strategy entails increase in commercial vehicle and non-car segment as part of the business expansion, and de-risking agenda. As these segments also have tremendous potential, the Company has augmented resources to acquire market share in these segments.

8.2 The Company has also developed another business segment - Tools and Dies. Using the capability of STEC (Subros Technical Engineering Centre), the Company has bagged orders from OEMs and few others. This is an emerging market where all OEM and Tier 1 suppliers are focussed on localisation of Tools and Dies.

8.3 Business Development in alternate fuel is an important initiative for the marketing functions. The Company is observing OEM plan for alternate fuel-based vehicle development. Thermal products for alternate fuels e.g. Hybrid, CNG & Electric are a key business driver for the organisation. So far 15% of the new business acquisition is from such technology products.

9. Corporate Social Responsibility

9.1 The Companys endeavors to work for the society and contribute to the welfare of the people and children around the factory sites. Actions for gender equality, inclusivity and for employment opportunity for people with special needs remains a key priority.

9.2 To empower more women to develop entrepreneurship skills and become financially independent, the Company is running a skill development centre at a village in Manesar. The Company has provided infrastructure and imparted training to several village women in the vicinity.

9.3 The Company has also adopted schools around the vicinity of plants to provide improved education opportunities. The local communities in these areas truly welcome this initiative. Our focus at this stage is to improve the infrastructure of schools and quality of education.

9.4 The Company has partnered with local NGOs under the umbrella programme of CSR for community development and upskilling of human resources by supporting education and socio-psychological well-being of children of incarcerated parents.

10. Roadmap for Future

10.1 The Company has partnered with technological incubators, which are approved by Central Government for future technology development.

10.2 Rise of shared mobility is paving way to a new customer segment. The significant rise in leasing of vehicles and the ease of commuting it offers for customers has helped this business model. This has created a new revenue pool for automobile makers and components suppliers.

10.3 The Company anticipates a tremendous transformation stemming from consumer preferences and environmental concerns shifting towards cleaner and more economical modes of transportation. The business model, product portfolio and day-to-day operations have to be transferred from conventional energy to a greener source of energy.

10.4 Proactiveness in the business space and receptivity to change remain our key approach. Agility, innovation in technology, futuristic product portfolio, product quality, and manufacturing excellence will remain focus areas of the Company. An Operational Executive Committee (OEC) that comprises of the functional and division leaders is focussed on operation excellence and execution of set goals.

10.5 The Company has set a new long-term strategic intent FY 2021-26, concentrating on growth, diversification, profitability, and people development. Aggressive plans in existing segments and expansion in new products are key to this strategy.

11. Mid-term and Long-term Plan

11.1 Today, only a small percentage of new vehicles sold globally are electric. The opportunities in this sector are tremendous. Indian players can become hubs for innovation. We have witnessed significant success in securing new businesses from our customers for alternate fuel which are related to Hybrid technology, CNG fuel or Electric vehicle.

11.2 The Company is focusing on leveraging new business opportunities in such sustainable technologies. Our short-term target is to ensure that 15% of the revenue of thermal products are realised from such vehicle applications.

11.3 India is expected to be the worlds third-largest automotive market in terms of volume by 20262. In FY 22-23, Indias annual production of automobiles was 22.93 million vehicles. In the same financial year, total passenger vehicle sales reached 3.07 million and commercial vehicles domestic sales stood at 716,566 units.

11.4 The Government of India has introduced a vehicle scrappage policy, under which recycling clusters may be established near ports. As part of the scrappage policy, recycled material will be useful for the automobile industry as it will reduce cost of manufacturing cars, buses, and trucks, increasing Indias competitiveness in international markets.

11.5 The Government has reaffirmed its commitment towards EVs and its mission for 30% electric mobility by year 2030. This years Budget announced customs duty exemption on the import of capital goods and machinery required for the manufacture of lithium-ion batteries that typically power EVs.

11.6 The Government of Indias Automotive Mission Plan (AMP) 20 1 6-262 has been instrumental in ensuring growth for the sector. The Indian automobile industry is expected to achieve a turnover of US$ 300 billion by 2026 by expanding at a CAGR of 15% from its current revenue of US$ 74 billion.

Cautionary Statement

Statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be "forward looking statements" within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Important factors that could affect the Companys operations include a downtrend in the automobile sector, significant changes in the political and economic environment, exchange rate fluctuations, tax laws, litigation, labour relations, interest cost, changes in Government regulations and other incidental factors.


1. SIAM cumulative production, domestic sales & exports

2. Indian Brand Equity Foundation