sundram fasteners ltd share price Management discussions

- FINANCIAL YEAR: 2022-2023

Industry structure and developments

The year 2022 was special for India as it marked the 75th year of Independence, a momentous milestone in its journey and became the fifth largest economy in the world. The economy has recovered from the pandemic induced contraction and staged a broad-based recovery across sectors, positioning itself to ascend to the pre-pandemic growth path in FY 2023. The Gross Tax Revenue registered a year-on-year growth driven by robust growth in the direct taxes and GST collections.

Indias GDP is estimated to grow at 7% in FY 2023 and at 6% in FY 2024. Despite the global slowdown, Indias economic growth rate is stronger than in many peer economies and reflects relatively strong domestic consumption and lesser dependence on global demand. The Government of Indias strong infrastructure push under the Gati Shakti (National Master Plan for Multimodal Connectivity) initiative, logistics development, and industrial corridor development will contribute significantly to raising industrial competitiveness and boosting future growth.

In the automotive sector, the Indian Commercial Vehicle (CV) Industry is poised for a healthy growth and there will be adoption of alternate fuel usages also. The Medium & Heavy Commercial Vehicles (M&HCV) Industry is the backbone of Indian Economy and is undergoing technological upgradation through the implementation of Real-Time Driving Emission (RDE) Norms from April 2023. With strong push for road infrastructure, the demand for trailers / multi-axle vehicles will increase. The strong e-commerce industry moving to Tier 1 and Tier 2 cities will increase the demand for Light Commercial Vehicles (LCVs). The demand for buses also improved as schools and offices have started in full swing after Covid shutdowns.

The tractor sales in India crossed the 1 million mark in FY 2023. The main growth drivers were the increased minimum support price (MSP) that boosted the farm income and another year of above average monsoon. The Companys presence with almost all the players in the segment gave us a significant uptick and helped outperform the industry. The tractor market is price sensitive, especially in the lower Horsepower (HP) segment and hence implementation of Bharat Stage 5 (BS5) will be dependent on the response of the market. However, higher HP tractors will see its implementation. The emphasis on infrastructure development by Government will spur the demand for Off Highway Vehicles (OHV).

The Passenger Vehicles (PVs) market has revived but the shortages of electronic components including chips are still expected to continue this year as well. The sale of PVs clocked an all-time high sale in FY 2023. The growth was mainly led by the Sports Utility Vehicles (SUV) segment, which clocked over 2 million vehicles, and grew by over 33% over FY 2022. The SUV segment commands a market share of over 50% in the PV segment. Many of the OEMs have indicated that industry growth in FY 2024 will be around 6-8%, as the base is higher. The dealer stocks of entry level PVs have reached higher levels of 38 days and the market demand for these models is cooling off. All OEMs are hiking production of SUVs. As the Companys presence in SUVs segment is increasing with more new parts developed over the last two years for major OEMs, the Company stands to benefit from this change.

The switch over to Electric Vehicles (EVs) are happening in a slow and steady phase. The cost of entry level cars is increasing due to stringent emission and safety norms. This is triggering new launches in Utility Vehicles (UV) which will increase the demand for fasteners.

The two wheeler (2W) segment clocked 19.5 million vehicles in FY 2023. This is however lower than the 21 million vehicles clocked in FY 2019. The 2W segment has been hit badly over the past three years, and it is only in the current year it has made a moderate comeback. The 2W EV segment has grown significantly at 0.7 million vehicles in FY 2023, a growth of over 188% as compared to FY 2022. As many as 85,000 electric 2Ws were sold in March 2023, and the projection for FY 2024, is over 100% growth. The Government is incentivizing EV adoption to achieve 30% by 2030. The charging infrastructure is seeing lots of investments to support with private and public sector companies participation. After the announcement of vehicle scrappage policy, the Government has taken the lead to scrap all its vehicles beyond 15 years.

As exports are concerned, container availability has improved but with headwinds of inflation and Ukraine war, it is expected to be a challenge. The fall in exports to a few countries has been mainly due to unfavourable forex situation. A dip witnessed in exports is a concern, but an improvement is expected in the coming months. The Governments push to use rupee for trade will also aid recovery.

Indian Rupee ended above 75 levels against USD on March 31, 2022. The currency weakened significantly to end the year on March 31,2023 above 82 levels due to continued impact of Russia-Ukraine conflict, macroeconomic uncertainties and increase in interest rates by US Federal Reserve from time to time in order to combat higher inflation rates resulting in dollar outflows from the equity and bond markets. Indian rupee is expected to remain under pressure in the first half of FY 2023-24 against the US dollar owing to the continued impact of inflation and high interest rates. The rupee is expected

to stabilise in the second half of FY 2023-24 once US and other economies pause the interest rate hikes and the foreign investors start looking at emerging economies for their investment options.

Segment-wise or Product Wise Performance

The following table depicts the production trend of various segments in the automotive industry:

Category Production
Segment/Sub-segment April-March
2022-23 2021-22 % Change
I. Passenger Vehicles ( PVs )
Passenger Cars 21,84,844 18,44,985 18.42
Sports Utility Vehicles (SUVs) 22,53,272 16,91,081 33.24
Vans 1,40,523 1,14,632 22.59
Total Passenger Vehicles (PVs ) 45,78,639 36,50,698 25.42
II. Commercial Vehicles (CVs)
Passenger Carrier 43,807 15,510 182.44
Goods Carrier 3,35,452 2,56,657 30.70
Total M & HCVs 3,79,259 2,72,167 39.35
Passenger Carrier 45,011 21,984 104.74
Goods Carrier 6,11,356 5,11,376 19.55
Total LCVs 6,56,367 5,33,360 23.06
Total Commercial Vehicles (CVs) 10,35,626 8,05,527 28.57
III. Three Wheelers
Passenger Carrier 7,23,524 6,60,487 9.54
Goods Carrier 1,00,221 86,278 16.74
E-Rickshaw 28,185 10,622 165.34
E-Cart 3,766 1,282 193.76
Total Three Wheelers 8,55,696 7,58,669 12.79
IV. Two Wheelers
Scooter 56,01,501 44,57,790 25.66
Motor Cycles 1,34,21,208 1,28,90,149 4.12
Mopeds 4,36,300 4,73,172 (7.79)
Total Two Wheelers 1,94,59,009 1,78,21,111 9.19
Grand Total of All Categories 2,59,28,970 2,30,36,005 12.56

Source: Society of Indian Automobile Manufacturers


Domestic Sales:

Domestic sales of the Company increased by 22.95% from Rs 2,631.22 Crores to Rs 3,235.04 Crores. The increase in domestic sales is attributable to strong demand from domestic OEMs during the financial year 2023.

The frequent raw material price increases over the past few years affected the material flow both for the vehicle manufacturers and the component makers. In the aftermarket (Retail), the Company witnessed good surge in the order inflow for the industrial and the auto segment for most part of the year. The steel price has reduced globally while in India, it is stable. However, alloy elements cost are increasing and hence alloy steel prices are increasing but at a lower pace than previous year (FY 2022).

Export Sales:

Despite the headwinds in global markets, Export sales has increased by 7.59% from Rs 1,421.09 Crores to Rs 1,528.95 Crores.

Operating Revenues:

The operating revenue of the Company was at Rs 4,919.43 Crores (PY: Rs 4,172.57 Crores).

Financial Performance:

Steel is one of the principal raw materials used by the company. The Company mitigates its major raw material price risks, namely steel, through price increase realised from customers and improvement in operational efficiency. The Companys contracts with major OEMs have pass through arrangement for passing on the increase in raw material costs.

The Company, through procuring from cost-effective alternative sources, has managed to keep the cost of power under control. The Company has been continuing its efforts to increase the share of renewable sources of power to support its manufacturing processes. The manpower cost has been kept under control by optimising the deployment of manpower.

During the financial year 2022-2023, PBIDT (Profit before interest, foreign exchange fluctuation, depreciation, exceptional income and tax) was at Rs 797.58 Crores as against Rs 752.18 Crores in the previous year, an increase of 6.04%.

Financing costs amounted to Rs 24.63 Crores (Rs 13.39 Crores). The constant increase in repo rate by the Reserve Bank of India during the year coupled with depreciating rupee has led to higher borrowing costs. The Company continues to exercise prudence in its borrowings and management of working capital requirements.

Profit before tax was higher at Rs 615.93 Crores (Rs 555.96 Crores). After providing for taxes, the Profit after Tax amounted to Rs 464.40 Crores (Rs 407.46 Crores).

Summary of Operating Results:

Rs in Crores

Particulars 2022-23 2021-22
Net Revenue From Operations 4,919.43 4,172.57
Other Income 29.98 25.61
Total Income 4,949.41 4,198.18
Total Expenditure 4,151.83 3,446.00
Profit Before Interest, Depreciation And Tax (PBIDT) 797.58 752.18
Finance Cost 24.63 13.39
Depreciation/Amortization 157.02 152.83
Provision for impairment of investments in subsidiaries - 30.00
Profit Before Tax (PBT) 615.93 555.96
Provision for Tax 151.53 148.50
Profit After Tax (PAT) 464.40 407.46

Details of significant changes in key financial ratios:

Sr. No. Key Ratios Unit of measurement Current year 2022-23 Previous year 2021-22 Significant change compared with previous year i.e. 25% or more Detailed explanation for significant change
1 Debtors Turnover Days 63 66 N.A. N.A.
2 Inventory Turnover Days 60 62 N.A. N.A.
3 Interest Coverage Ratio Times 33.63 90.38 * *
4 Current Ratio Times 1.90 1.69 N.A. N.A.
5 Debt Equity Ratio Times 0.15 0.18 N.A. N.A.
6 Operating Profit Margin (%) (PBT before exceptional item / Revenue from operations) % 12.47% 14.04% N.A. N.A.
7 Operating Profit Margin (%) (EBITDA / Revenue from operations) % 16.06% 18.0% N.A. N.A.
8 Net Profit Margin (%) % 9.44% 9.77% N.A. N.A.

* During the year, there was an increase in interest cost due to constant hike in repo rates by the Reserve Bank of India and depreciating Indian Rupee against United States Dollar.

Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof:

Particulars 2022-23 2021-22
Return on Net worth 17.0% 16.7%

The Company was able to sustain its return on networth despite the increase in raw material prices and other headwinds facing global economies.

Consolidated Performance

The total revenue of the Company and its subsidiaries on a consolidated basis during the year under review was at Rs 5,707.60 Crores as against Rs 4,941.40 Crores.

Capacities and Capital Expenditure:

During the year, the Company incurred Rs 212.94 Crores towards capital expenditure on existing and new projects. The capital investments were incurred in tandem with the production plans of key customers.


During the year under review, the Company received Awards for its various units as given hereunder:-

i. The Companys Metal Forms Division located in Hosur, Tamil Nadu received the "Best Supplier" Award for the year 2022 from Avtec, "Quality, Delivery and NPD Quality" Award for the year 2022 from India Nippon Electricals Limited (INEL) and the "Zero PPM" Award for the year 2022 from Mahle Electric Drives.

ii. The Companys Krishnapuram Unit located in Virudhunagar, Madurai received the "Supplier Award" for Best Performance from Bosch for the year 2022.

iii. The Companys Powertrain Components Division located in SEZ has won the "Supplier of the Year" Award for the 10th time from General Motors for the year 2022 and the "Certificate of Appreciation" Award for quality performance from Ford for the year 2022.

iv. The Companys Radiator Caps Division located in Chennai, Tamil Nadu received the "Quality Zero PPM" Award for the year 2021 and 2022 from Denso Kirloskar Industries.

Total Quality Management, Human Resources, Industrial Relations, Learning and Development:

The Company continues its focus on the principles of Total Quality Management (TQM). During the Financial Year 2022-2023, the Company has focused intensive training on QC Story way of problem solving & Design of Experiments to strengthen the manufacturing processes to supply zero-defect products to the customers. The Company further initiated a zero-defect process at the in-house & sub-contract suppliers to improve their internal quality besides sustaining its existing Total Quality Management (TQM) activities. This has helped the organization to ensure the elimination of customer complaints and also a reduction in internal rejections.

The Company believes that Human Resources are its key assets and is committed to attracting, developing and retaining and creating a positive workplace culture.

The Company runs several initiatives to promote overall employee wellness including mental and financial well-being. Every employee of the Company contributes back to the society by way of both monetary and volunteering activities. These activities also bring in good engagement among employees.

Industrial relations continued to remain cordial at all the manufacturing units.

The Company gives significant impetus to Learning and Education. Learning and development initiatives focus on upskilling our employees for their roles. The Company continues to leverage the strength of our internal trainers who are subject matter experts to share their expertise and experience with other employees. The business-related priority areas are selected, necessary competencies are developed in order to improve organisational capability. We have started individual development plans for high-potential employees in order to create a talent pipeline and have nominated them for leadership development programs in order to prepare them for future leadership roles.

Health, Safety and Environment:

The Company gives top priority for the safety of its employees and has various measures to ensure the same. All our business processes are built with complete respect for the environment, health and safety protocols. All employees are trained on safety. All units have medical facilities which are operational 24/7. All employees are provided with medical insurance support for the benefit of employees and their families.

Safety across units was ensured, resulting in no fatal accident. Training on safety has been imparted to all temporary employees also. Safety is made an integral part of the system through notifications being displayed to the operators and promoting safety awareness.

To make sure that the mental health of our employees is not affected, we also provided support through an Employee Assistance Program. Dedicated counsellors were offered to employees to ensure their wellbeing. Mental Wellness programs were conducted across SFL.

All the Companys manufacturing facilities comply with occupational health and management safety systems.

Internal Control Systems:

Policies and Standard Operating Procedures covering all the major process relevant to the business are in place and adequate to handle the business related transactions. In-built checks and controls in the SAP system provide the users facility to seamlessly handle all transactions relating to sourcing & procurement, manufacturing, finance, costing, despatch and sales. Internal controls and the methodology of monitoring are benchmarked with the industry standards and reviewed from time to time. Continuous improvements are done in the SAP system to improve the quality of controls and also enhance effectiveness. On an on-going basis, the Audit Committee reviews the internal controls relating to key areas i.e. operations, financial records, inventory, fixed assets, compliance to requirements under various statutes. The present internal checks and controls are holistic and provide adequate assurance to the management.

Prospects, Risks and Concerns:

Even as nations across the world battle difficulties and struggle to recover from the disruptions caused by the Covid-19 pandemic, India has emerged as the best performer among the large economies. India will be a USD 30 trillion economy by 2047 by the time it completes 100 years of independence.

This is the decade of technology and in the field of Information Technology, India has become a force to reckon with globally.

Over the years, the Indian Government has introduced many initiatives to strengthen the nations economy. Many of the Governments flagship programmes, including Make in India, Start-up India, Digital India, the Smart City Mission and the Atal Mission for Rejuvenation and Urban Transformation, are aimed at creating immense opportunities in India. In July 2022, the Reserve Bank of India (RBI) approved international trade settlements in Indian rupees (INR) in order to promote the growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community. The Union Budget of 2023-24 has seven priorities: Infrastructure and investment, Inclusive development, reaching the last mile, green growth, youth power, unleashing the potential and financial sector. The capital investment outlay in the current Budget is three times the outlay in 2019-2020.

All the above measures augur well for India and the opportunities for developments galore in the wake of such initiatives.

Based on the current market conditions, the domestic equity markets could experience some volatility in the short term. However, in the long run, the Indian equity markets are likely to remain attractive for investors due to the countrys strong economic fundamentals and growth prospects. The rate of inflation will have a significant impact on the market as it affects interest rates, corporate earnings, and investor sentiments. Political instability and tensions between nations can cause market volatility and may affect investor confidence. The outcome of upcoming state elections and the general election in 2024 may have an impact on the market sentiment and the Governments economic and investment policies. Further, any decision by the US Federal Reserve to hike interest rates can impact the global economy. However, India has the strongest growth prospects among emerging market economies and the fiscal 2024 budget is expected to support productivity and higher growth which will be the bulwark for the economy amid the global downturn.

Indias import of crude oil from Russia have helped to manage the prices of Petrol and Diesel whose demand has touched peaks similar to pre-covid times. However the food inflation is hitting all sections of population. The rising power costs remain a cause for concern. Even though a normal monsoon is predicted, the El Nino factor is looming and it can affect monsoons.

The auto components industry is estimated to register growth in the range of 10-15 percent in FY 2024, with the key pillar of this marked uptick is the sustained momentum in Indias domestic vehicle market.

The domestic market continues to register growth, be it the passenger vehicle, tractor, or commercial vehicle segments, with the latter particularly witnessing good growth in the M&HCV category owing to the government push on infrastructure development. Despite being a cyclical industry, the tractor segment is also holding up well for the last three years.

The rising content of electronics chips in every vehicle will lead to the unfolding of different scenarios, with the collective need for the industry to adapt to the new dynamic. The auto component industry body is also bullish about rising investments in the electrification space with suppliers intensifying capex towards localisation of EV-related products, as well as developing the entire EV ecosystem. The governments push in the form of automotive Production Linked Incentive (PLI) schemes to drive Indian manufacturers towards increased localisation of advanced automotive technologies is going to boost exports of the advanced components from India.

With push for infrastructure, the Governments plan for modernization of Railways will give opportunities for growth. As far as wind energy is concerned, India currently has 13.4 GW of prospective projects, which are expected to drive installations until 2024 in the market. After 2024, fresh projects are likely to be wind-solar hybrid projects. The linking of utility-scale wind and solar technology will be a crucial lever for volumes in 2024-25.

With world wanting to reduce its dependence on certain select economies, India is poised to offer a stable Government with its sizeable talent pool to be the manufacturing hub of the world.

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 developments that could affect the Companys operations include the continuing impact of COVID-19 pandemic, global or domestic or both, significant changes in the political and economic environment in India or key markets abroad, tax laws, litigation, labour relations, foreign currency fluctuations and interest costs.


A. Related Party Disclosures

The necessary disclosures as stipulated under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI Listing Regulations, 2015) and the Indian Accounting Standards are provided in the financial statement.

Details of transactions with entities belonging to the promoter / promoter group which hold(s) 10% or more shareholding in the Company:

Rs in Crores

Nature of transaction TVS Sundram Fasteners Private Limited
Services received -
Sale of Goods 123.50
Dividend paid 56.60
Due to the Company 18.73
Due by the Company -

B. Management Discussion And Analysis

Management Discussion and Analysis is provided in the Annual Report in Page Nos. 36 to 41.

Necessary disclosures relating to accounting treatment as prescribed in the Accounting Standards (Ind AS) are provided in the financial statements.