The Hi-Tech Gears Ltd Management Discussions.


The COVID-19 took the world by storm in FY 2020-21 forcing the Governments to respond to the pandemic first with Global travel advisories, suspension of visas and international flights, cancellation of events and enforcing lockdowns in their respective nations causing huge economic disruptions besides impacting the normal life. Most industries and sectors were impacted by the pandemic and consequent lockdowns which led to a steep decline in the GDP of most countries. The restrictions were gradually lifted within a regulated environment. However, just as the impact of the disease appeared to decline, the ‘second wave of COVID-19 hit many parts of the world including India where the impact of the ‘second wave was severe in the first quarter of FY 2021-22 and caused huge loss of human lives though the economic impact was much smaller than during the period complete lockdown. The industries had to re-invent their operating models and several others had to look inwardly at their supply chains and take preventive measures to arrest the impact of the pandemic. Though another variant of the coronavirus ‘Omicron" surfaced in the last quarter of FY 2021-22 but had little impact due to the intensive vaccination drives undertaken by the Governments across the world, in particular India where around 160 crore doses of COVID-19 vaccines were administered in the biggest vaccination exercise in the world.

As the world economies were in the process of recovery from the brunt of COVID-19 pandemic, the Ukraine war apart from causing an unimaginable humanitarian rises has impacted the world economies in various sectors. While the economic impact on India has been projected to be minimal by many agencies, apart from the concerns on inflation in general and rising fuel prices in particular in India, Indian auto sector is facing supply chain challenges. The early end to this conflict will be in the interest of the world order and peace.


An all out effort by the Government to administer vaccination to the entire population ensured that the impact of COVID-19 on the economy could be minimized. Indias real term GDP in 2021-22 was 9.2% with Indias merchandise exports and imports rebounding strongly and surpassing PRE-COVID levels during the year. The Net Capital flows were higher at US$ 65.6 billion in the first half of 2021-22 on account of continued inflow of foreign investment, revival in net external commercial borrowing, higher banking capital and additional special drawing rights allocation. Sustained revenue collection and a targeted expenditure policy have contained the fiscal deficit. The wholesale inflation based on Wholesale Price Index rose to 12.5% during 2021-22 (April- December) which was attributed among others to pick up in economic activity, high freight costs and sharp increase in international prices of crude oil and other imported inputs. Notwithstanding, the introduction of Production Linked Incentive (PLI) Scheme, major boost provided to infrastructure along with measures to reduce transaction costs and improve ease of doing business would support he pace of recovery of the economy.


The Indian auto industry is expected to record strong growth in 2022-23 post recovering from the effects of COVID-19 pandemic and including component manufacturing is expected to each C 16.16 - 18.18 trillion by 2026 (Source IBEF) though this will have to be discounted depending upon the challenges being faced by the industry due to the ongoing Ukraine war, which has already impacted the steel prices and freight costs. The contribution of the automobile sector to the overall GDP of India stands at 7.1% and 49% of the manufacturing GDP. The government aims to raise contribution of automobile sector to Indias GDP to 12% from the present 7.1% and grow employment generation to 50 million from the current 37 million. The industry is however facing the supply chain issues due to the effects of COVID-19 pandemic which have further been compounded by the ongoing geopolitical tensions amid Russia-Ukraine situation which could limit the growth of the industry. The Government on its part has been taking initiatives to encourage automobile sector which include, among others, allowing 100% FDI, in automobile sector under the automatic route; launching the Vehicle Scrappage Policy, which aims to phase out old polluting vehicles in an environmentally safe manner; supporting electric vehicles through incentives and launching PLI Scheme for automobile and auto components worth C 25,938 crores which would entail investments of over C 42,500 crores by 2026 and create 7.5 lakh jobs.

According to the data released by SIAM, in F.Y. 2021-22, the industry manufactured a total 22,933,230 vehicles including passenger vehicles, commercial vehicles, three wheelers, two wheelers and quadricycles, recording a growth of 1.23% over the previous year (2,26,55,609 vehicles). The production trends reveal that there is positive growth in all categories from passenger vehicles, commercial vehicles, three wheelers except decline in two wheelers segment.

In terms of total sales including both domestic and export, the industry sold a total 2,31,30,842 vehicles in F.Y. 2021-22; out of this passenger vehicles growth was 17.06% (36,47,374 vehicles). Also, in commercial vehicle, there is a growth of 30.70% (808863 vehicles). Scooters/ Scooterettee sales declined by 7.53% (43,59,406) while all time favorite, Motorcycles registered a marginal growth of 0.02% (1,30,66,628 vehicles) and moped registered degrowth of 22.73% (4,83,396 vehicles) , taking the total two wheeler sales decline to 2.69% (1,79,09,430 vehicles) for the year. Also in Quadricycle vehicle category, there was growth of 26.53% from 3517 vehicles to 4450 vehicles in this financial year.


While the automobile industry was facing a host of problems like environmental issues due to emissions and changing consumer requirements, COVID-19 compounded the industrys problems with slumping besides various constraints which threatened the very existence of the smaller players in the industry.

With the intense social distancing protocols and lockdowns during different waves of the pandemic, the onslaught of the pandemic manifested in the form of massive production halts posing one of most significant challenges to the automotive market. The disrupted supply chain coupled with the reduced car sales added to the problems of the auto industry. As if this was not enough, the geopolitical tensions between Russia and Ukraine resulting the ongoing Ukraine war has further deeply impacted the supply chain and increase in steel prices. The shortage of semiconductor is the live example of the pressure put on the automotive supply chains. As the impact of the COVID 19 is wearing off and the industry is struggling with the issues arising out of Ukraine war, the auto component industry has been battling with its industry specific issues/ challenges such as:

• Disrupted supply chain

• Increasing input costs

• High freight costs

• Higher cost due to employment and other issues during and post lockdowns

• Availability of skilled manpower

• Less vehicles sales impacting the auto component industry

• Change in customer behaviour

• Payment of heavy royalty fee to foreign partners on designs and IPRs

• Building RandD competence and Ecosystem

• Fast technological changes

• Heavy capex cost due to fast technological changes for Electric Vehicles.

The auto industry has been facing such issues over a period of time but the scale of problems caused by the COVID 19 pandemic and Ukraine war is unprecedented,


Despite the de-growth in the automobile sector in the last couple of years and the industry facing the challenges posed by COVID-19 followed by geopolitical situation in Ukraine, the rapidly globalising world is opening new avenues for the industry with the focus shifting to hybrid and electric vehicles which are deemed more efficient, safe and environment friendly modes of transportation. As India targets 30% electric vehicles by 2030, India could be a leader in share mobility by 2030 providing opportunities for electric vehicles which in turn would provide new verticals and opportunities for auto-component manufacturers, who would need to adapt to the changes via systematic research and development.

The Government of Indias Automotive Mission Plan has come a long way in ensuring growth for the sector. The PLI Scheme launched by the Government for automobile and auto components worth C 25,938 crore. In February 2022 the Government received investment proposals worth C 45,016 crore from 2 automotive companies under the PLI Auto scheme. This scheme is expected to create an incremental output of C 2,32,500 crores. In India the two wheeler segment dominates the market in terms of volume owning to a rowing middle class, and a huge percentage of Indias population being young. Further the growing interest of the companies in exploring the rural markets shall further aids to the growth of the sector. In the same breath the Indian auto component industry shall experience healthy growth over the next few years and is set to become the third largest in the world by 2025. The Indian auto component makers are well positioned to benefit from the globalisation of the sector. The increasing rural demand, growing urbanization, swelling replacement demand etc. may further accelerate the growth of the automobile industry and in turn the auto component industry.


The business of the Company inherently faces several transactional risks at the operational level which are addressed through internal processes and controls. However, there are certain other macro and micro risks which have and are still impacting the Companys business strategy. Some of those risks are as follows:-Impact of Russia-Ukraine conflict: Just as COVID-19 was on the brink of abating, the Russia-Ukraine which has prolonged for three months and is still on has disrupted the supply chain for our industry and has resulted in increased steel prices and freight costs besides overall inflation which ultimate will have its own impact on demand. The uncertain geopolitical situation arising out of the Russia Ukraine war is both a challenge and an opportunity.

The Company has been keeping a close watch on the developments in Eastern Europe to prepare itself for the challenges. The Company has engaged with its international customers seeking their cooperation in extending the time lines of delivery and revision in rates to cover the increase in input costs. The Company has already started developing the alternate sources of supply of raw material and transportation of material and finished goods.

Impact of COVID 19: The FY 2021-22 saw the deadly second wave of COVID-19 which peaked in the first quarter of the year causing the unprecedented and huge loss of human lives which forced another shutdown and stringent safety measures. Besides shaking the very confidence of the people in general and the workforce in particular, this phase also impacted the production and supply. However the Company was able to meet the challenges and the business commitments with the grit and determination of the employees ensuring that minimal impact is caused on the operations of the Company. Our preparedness also helped the Company in facing the third wave of COVID-19 in the form of OMICRON variant.

Steps taken to ensure smooth functioning of operations

• Thermal Screening of all employees and visitors

• Sanitizing the premises and vehicles on regular basis Maintenance of social distancing at all workplaces.

• Enforcing wearing of masks and regular cleaning of hands

• Strictly following the social distancing at workplaces, factories, canteen etc.

• Regular health updates of all the employees and their families

• Ensuring that all the employees are fully vaccinated

• Promoting awareness through do and dons posters for all its employees

• Ensuring use of AROGYA SETU app,

• Effective communications with the customers and vendors on t the measures taken by the Company

• Supply Chain is being monitored to ensure availability of material.

• Staggered time schedules and encouraging work from home for the employees, wherever possible.

Foreign Exchange Fluctuation: The fluctuating and decreasing value of the Indian Rupee vis-a-vis US Dollar is major concern for the Company for the repayments of the ECB loans. However, the Company hopes to set off the increase in the rate of the dollar to a great extent by the export earning of the Company which account for 28.73% revenue from exports. In addition, the management has taken another source of mitigation i.e. fixing LIBOR component in total interest rate agreed for the External Commercial Borrowings to avoid the risk of fluctuation. Further, there was no instance where Company had to engage in commodity hedging activities.

Input material: The issue of rising steel prices, the primary raw material for the products of the Company, was compounded by the ongoing Russia Ukraine conflict and continues to be a challenge posing a threat to the margins of the Company in the competitive auto component sector. 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 its competitors. Further, the Company is not dependent upon a single source/ supplier. A core team is constituted which has expertise in vendor management and keeps a track on the price of steel. This team negotiates the price in the best interest of the Company to ensure that the impact of rising input costs is minimised.

Decreasing Vehicles Sales: Reducing vehicles sales including two wheelers which form the major base of revenue for the Company is another critical challenge facing the automotive industry amid COVID-19. The onset of pandemic brought forth a spate of financial losses due lockdowns and strict COVID protocols and put purchasing a vehicle the least priority for consumers. Lack of sale has led to excess inventory, high levels of debt and demand uncertainty which directly impacted the Companys line of business of auto components. However, the Company has a strong customer base both in India and abroad which enabled the Company to face this challenge and sail through the difficult times. To overcome the risk of dependency on its two wheeler business, the Company has been developing clients for engine and transmission components in India and abroad.

Change in Customer Behavior: The slowdown of the economies, rise in prices and the all-around public health care and financial brought about a considerable change in the buyer pattern of the consumers. Though the Financial year 2021-22 saw the resurgence of a percentage of the consumer base overall the customer foot fall is still low. In order to keep pace with the alteration in business models of auto manufacturers, in the new era for electric mobility, connected cars and automation, the Company also engaged in intense research and development to switch gears to keep pace with the changing technology. Adoption of the latest technologies is likely to open up new avenues of business for the Company and the Company is focusing on widening its customer base, entering new user segments and spreading operations across geographies to mitigate the market risks.

Technology Risk: OEMs have been consistently working on updation of technologies to stay relevant in the market driven by the consumers. One of the major challenges for the industry is to build R&D competence and an ecosystem. OEMs therefore expect Tier-1 suppliers for technology updation and material changes. To mitigate the risks, the Company has always invested in upgrading its technology to meet the changing customer demand. The shift to EVs is seen by the Company as an opportunity instead of threat. The Company is engaged extensively in R&D to keep pace with the consume expectations.

Disrupted Supply Chain: The disruption in supply chain first by COVID-19 and now by the Russia Ukraine war has posed a recurring challenge to the Company and has put pressure on the Company not only to source the alternate supply sources but also to manage costs as commitments made to existing customers has to be met and new orders also have to be obtained. In order to mitigate this risk, the Company is continuously engaged in sourcing the new suppliers to ensure cost effective supplies as also is engaged in developing alternate carriers and routes to keep the freight costs under control .besides taking all possible measures to reduce the impact of increased cost, such as bulk booking orders, requesting customers to share the cost as pass through.

Brief of Financial Results

On standalone basis, the total turnover stood at C 6517.49 million during 2021-2022 compared to C 5326.38 million during the previous year. The total turnover from operations stood at C 6446.01 million as compared to C 5223.79 million in FY 2020-21, registering a growth of 22.36%. The profit before tax stood at C 536.63 million as compared to C 496.40 million in the previous year, recording and increase of 8.11%. EPS stood at C 20.52. Similarly, the net profit after tax stood at C 385.19 million as compared to C 372.88 million in previous year, registering a growth of 3.30 %.

The Company recorded an export turnover of C 1872.67 million compared to C 1245.65 million during the previous year, registering a significant growth of 50.34% The total exports are now 28.73% of the total turnover.

On the consolidated side, the turnover was recorded till the close of the financial year at C 9785.09 million compared to C 7560.33 million during the previous year. The profit after tax stood at C (-) 11.02 million as compared to C 287.87 million in previous year. The consolidated financials of the Company with its subsidiaries are attached at the relevant part of this Report.

Despite the stressed economy and industry, your Company did well in all its segments. This is because in the second half the demand picked up and the Company took the benefit of its Operational Excellency. The improvement in revenue was mainly in its domestic business, though the exports also showed improvement in later part of the year.

In the current year, we will focus on quality delivery at optimum costs to achieve the lost place at the earliest. New initiatives are taken in North America to integrate into the Global Value Chain, with our footprints in both Canada and the USA. The objective of these initiatives is to further strengthen our processes, build better relationships with our customers and consolidate our position as a manufacturer of quality products for the auto sector.

Further, the Company will leverage its positioning, in view of the technological changes; it is already BS-VI compliant due to superiority on technical aspects. It is also relying on building its relationships and product development plans to grow further. The Company believes that FY 2021, while being challenging, will be a year when not only the take back its lost glory but will continue its growth momentum.

Key Ratios

Key financial ratios are given below:

Particulars Unit 2021- 22 2020- 21 Change over previous year Reason for material change
Debtors Turnover Times 6.21 7.39 -15.94% Trade receivable have increased much more in proportion with increase in revenue, resulting in negative change of debtor turnover ratio.
Inventory Turnover Times 4.81 4.78 .72% Not a material change
Current Ratio Times 1.2 1.24 -3.88% Minor change due to increase in borrowings and trade payables.
Debt Equity Ratio Times 0.60 0.66 -9.81% Debt Equity ratio is slightly down due to increase in current year profit.
Interest Coverage Ratio Times 1.34 1.18 13.47% Due to increase in Profit after tax before interest and depreciation.
Operating Profit (EBIDTA) Margin % 13.47 15.05 -1.58% Minor change due to increase in employee benefit exp, store consumption and export freight expenses.
Net Profit Margin % 5.98 7.14 -1.16% Minor change due to increase in employee benefit exp, store consumption and export freight expenses.
Return on Net worth % 13.64 12.97 .67% Minor change due to increase in net profit.

Operational Excellence, Awards and Recognitions

We follow world class manufacturing systems, as manifested in its vision statement. In this drive, our efforts have been recognized by our esteemed customers, who have continuously appreciated our quality and efforts and supported us from time to time. Customer recognitions are the strongest testimony to a Companys excellence. The ECOFAC Plants at Bhiwadi and Manesar are unique and one of its kind. These Plants have been conferred the Platinum category by the Green Building Council.

ECOFAC means a sustainable green manufacturing plant. The Companys Plants have all features of safety, energy and water conservation, and waste management etc.

The Company has successfully installed two roof top Solar Power Plants of 400 KW and 250 KW in Manesar and Bhiwadi manufacturing units respectively as part of its commitment to conserve the environment and reduce the energy cost. The Company has put up a solar plant under captive consumption scheme, which is not only green certification but also reducing the cost considerably.

All modern concepts of Lean, TPM and TEI for best utility are being implemented in these Plants from the initial stage. Our efforts have not only been appreciated by the concerned authorities but also by customers and will become a model for future sustainable manufacturing growth. CRISIL Limited has rated The Hi-Tech Gears Ltd. (HGL) as "BBB+/ Stable".The outlook continues to be stable. It continues to reflect the promoters established presence in the auto component manufacturing industry and healthy relations with reputed original equipment manufacturers (OEMs). The rating also factors in the Companys comfortable financial risk profile.


The Companys main line of business is gears and transmission components which are governed by the same set of risks and returns. Therefore these have been grouped as a single segment in the above disclosures. However, for the purpose of geographical segment, it is divided into three segments and provided in the Financials. The financial treatment is in accordance with the principle provided in the relevant Accounting Standard on Segment Reporting.


The Company has a properly designed and consistently enforced an adequate system of internal controls with documented procedures to safeguard the Companys properties, interests and resources. Further, to have better and sustainable control, a new ERP system has been implemented which is showing the desired results. Internal controls provide reasonable assurance regarding the effectiveness and efficiency of operations, the adequacy of safeguards for assets, the reliability of financial controls and compliance with applicable laws and regulations.

The same are supplemented by an extensive programme of internal audits, review by management and documented policies, guidelines and procedures. Internal Auditors conduct the Audits and report directly to the Audit Committee and the Board. M/s. Grant Thornton India, LLP a renowned and one of the largest assurance, tax, and advisory firms in India has been working as Internal Auditor of the Company.


The Company continues to maintain its track record of peaceful industrial relations ever since its inception. It sustains and fosters its unique paternal culture across all operating locations. 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. During the period under review cordial relation were maintained at all levels. Detail of number of employees and other material information is provided in Boards Report.


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